“Who was the first guy that looked at a cow and said, I think that I’ll drink whatever comes out of those things?”
-Calvin & Hobbes
Well, if you want to believe that this 3-week squeeze off of the mid-February 2016 Global Equity #crash low is sustainable, drink up! High Leverage and Low Liquidity (Small Cap) is back, baby.
Of all the bad weeks I’ve had since the US profit cycle peaked (when US and Japanese stocks peaked in July of 2015), last week ranked right at the top of them.
And, to be clear, since I was telling you to buy the Long Bond at 2.53% on the 10yr (in July), I’ve had some really bad weeks. But you’ve had to be able to endure those to have been right for the last 8 months.
Back to the Global Macro Grind…
Actually, there was one move that was more impressive than this most recent 3-week squeeze: October 2015. Imagine you got sucked into owning those highs (and kept averaging down from November to February)?
No one said getting this big macro phase transition right (as the economic, profit, and credit cycles are moving from bullish to bearish) was going to be easy. But if you’re just chasing moving monkey charts, it’s going to be super hard.
Notwithstanding the newfound bull market narrative that rising gas prices are going to stimulate the consumer, here’s what you had to be long last week (in US Equity Style Factor terms) to have crushed my bearish view:
- High Beta Stocks were +8.4% on the week to -3.5% YTD
- High Debt (to Enterprise Value) Stocks were +7.2% on the week to +1.6% YTD
- Slow-Growth (EPS) Stocks were +6.7% on the week to +2.4% YTD
- High Short Interest Stocks were +6.7% on the week to +2.7% YTD
- Small Cap Stocks were +6.2% on the week to -0.9% YTD
*Mean performance of Top Quintile vs. Bottom Quintile (SP500 Companies)
Yep. Non-pasteurized. Straight from the cow’s nipple. Since most American farmers are in #Recession right now, you should be able to get some cows “cheap” and squeeze yourself as much “value” out of these exposures as you need.
Since the SP500 and Nasdaq were only +2.7% and +2.8%, respectively, last week (to -2.2% and -5.8% YTD), you’d have underpeformed the weekly chart chasers if you bought those exposures or, God forbid, Healthcare stocks.
Here’s how the US Equity Sector Styles did last week:
- Healthcare Stocks (XLV) only +0.2% on the week to -6.4% YTD
- Financials (XLF) +4.5% on the week to -6.5% YTD
- Energy Stocks (XLE) +6.5% on the week to +1.1% YTD
I know. Isn’t it odd that the “economy feels like it improved” while Consumer Confidence, Pending Home Sales, and ISM Services all slowed to multi-month lows? Healthcare: no bid in a “recovering” economy too? Totally weird.
Reality is that unless you have a bullish view on Oil and its related (and crashing) equity and fixed income exposures, you probably sucked wind like I did last week.
The real “reflation” bulls (who have lost 20-60% of their capital chasing headfake rallies for the last 18 months) had an awesome week last week – check this out:
- Brazilian Stocks (Bovespa Index) +18.0% on the week! to +13.2% YTD
- Russia (RTSI Index) +8.0% on the week to +8.1% YTD
- Emerging Markets (MSCI Equity Index) +6.9% on the week to -0.4% YTD
Yeah, I know. Lula (Brazil) went to jail (sort of). So you would have had to know that was coming (and see a +9.6% weekly ramp in crude oil coming too) to have nailed all of that – but everything is doable. Mooo!
While we’re ignoring anything that actually went down last week (Natural Gas prices dropped another -7% on the week, crashing to -30.2% YTD) we should definitely give some rant time to European Equities.
On some of the worst European Economic data we’ve seen all year:
- EuroStoxx600 closed +3.1% on the week to -6.6% YTD
- Spanish Stocks (IBEX Index) rallied +5.5% on the week to -7.7% YTD
- Greek Stocks (Athex Index) “reflated” +9.0% on the week to -12.4% YTD
*Note: negative YTD returns
But you don’t have a complicit US-style Establishment Financial Media that cheerleads European market moves with cherry picked economic data, so we’ll just have to call Greece and Spain rallying something that feels bullish.
It’s all about how the economy “feels”…
And while I did not enjoy the squeeze part, I’m not feeling too good about sucking on whatever came out of those things last week.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.67-1.90%
Oil (WTI) 29.86-36.98
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer