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What Tesla Buying SolarCity Tells Us About The Economic Cycle

Takeaway: This is what always happens at the end of the economic cycle. Profits peak => M&A peaks

What Tesla Buying SolarCity Tells Us About The Economic Cycle - Peak cycle cartoon 04.15.2016

 

On The Macro Show today, Hedgeye CEO Keith McCullough was asked by a subscriber about how to interpret Tesla's (TSLA) purchase of SolarCity (SCTY) within the context of the economic cycle.

 

Below is McCullough's response:

 

"This is always what happens at the end of the cycle. First, the rate of change in corporate profits peaks. Those are the profits by which a company would fund or underwrite an M&A transaction, or issue dividends or buy back stock for that matter.

 

Then, when the rate of change in profits peaks, you get the final blast of M&A transactions because companies are trying to sell to the next greatest fool who is willing to pay the highest price. That’s how private equity and M&A works.

 

What Tesla Buying SolarCity Tells Us About The Economic Cycle - m a

 

Now that we’re past the peak, you’re seeing some of the most outlandish things. Microsoft buying LinkedIn, for instance. Why? Because Microsoft's business is slowing so they have to buy something with that high a multiple? Why is Elon buying SolarCity? Because SolarCity could go away?

 

These are the days of our lives. The M&A announcements that you see at the end of the cyle start sounding more and more ridiculous. Tesla and SolarCity should sound ridiculous. And that’s why Tesla shares are down on the news."


Quick Take: A Good Spot To Buy Gold | $GLD

Takeaway: Gold is up 19% year-to-date. Buy gold between $1250-$1265.

Quick Take: A Good Spot To Buy Gold | $GLD - gold bar

 

What do you do with yesterday's pullback in Gold prices?

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:

 

"GOLD – especially if you haven’t been long it yet, good spot to buy some down here in the $1250-1265 range with immediate-term upside to $1305-1310; short Copper on the other side of it around $2.10-2.15 with downside to the YTD lows; great way to stay with the reality that global growth hasn’t 'bottomed.'"

 


Daily Market Data Dump: Wednesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Wednesday - equity markets 6 22

 

Daily Market Data Dump: Wednesday - sector performance 6 22

 

Daily Market Data Dump: Wednesday - volume 6 22

 

Daily Market Data Dump: Wednesday - rates and spreads 6 22

 

Daily Market Data Dump: Wednesday - currencies 6 22


the macro show

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European Equities Still Stumbling, Brexit Or No Brexit

Takeaway: Italian equities are down -28% from last year's high despite the ECB's best efforts to arrest economic gravity.

European Equities Still Stumbling, Brexit Or No Brexit - Europe Japan cartoon 04.04.2016

 

"Unfortunately, post the Brexit vote, the world is going to have to keep reporting economic and profit cycle data," Hedgeye CEO Keith McCullough writes in a note sent to subscribers this morning. And unfortunately for Bulls that data has been continually poor.

 

Here's additional analysis from McCullough:

 

"EUROPE – seeing the weakest countries in European Equity markets get a jumpstart on selling this am with Italy leading losers -0.8%, taking its stock market crash to -28% from last year’s cycle high (Portugal -0.6%, Spain -0.4% both remain in crash mode too w/ European #GrowthSlowing no matter what the vote)"

 

Take a look at Italian stocks...

 

Italian equity markets continue to price-in reality, namely that the ECB's best efforts can't stanch the bleeding in Europe.

 


Brexit Vote

Client Talking Points

Europe

Seeing the weakest countries in European Equity markets get a jumpstart on selling this am with Italy leading losers -0.8%, taking its stock market crash to -28% from last year’s cycle high (Portugal -0.6%, Spain -0.4% both remain in crash mode too with European #GrowthSlowing no matter what the vote).

GOLD

Especially if you haven’t been long it yet, good spot to buy some down here in the $1250-1265 range with immediate-term upside to $1305-1310; short Copper on the other side of it around $2.10-2.15 with downside to the YTD lows; great way to stay with the reality that global growth hasn’t “bottomed”.

10 YR

Day 2 for Yellen where she’ll talk about “considerable uncertainty” in her forecasting process – wow did she look wobbly yesterday; Brexit vote providing us yet another buying opportunity in what’s +15.1% from this day last year (TLT) vs. SPY -1.6%; immediate-term downside in UST 10yr to 1.54%

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/21/16 62% 4% 0% 10% 20% 4%
6/22/16 61% 3% 0% 12% 21% 3%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/21/16 62% 12% 0% 30% 61% 12%
6/22/16 61% 9% 0% 36% 64% 9%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 

GLD

To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.

MCD

There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road

QUOTE OF THE DAY

"We cannot change the cards we are dealt, just how we play the hand."

-Randy Pausch

STAT OF THE DAY

The Florida Gators became the 3rd team in the College World Series history to fail to win a game in Omaha.


CHART OF THE DAY: What Unelected Fed Bureaucrats Continually Miss

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... When it comes to establishment economists, they don’t think in rate of change terms – they think about levels.

 

And that, for those of us who have evolved in this profession, is a damn shame. It’s not like 2nd derivatives (high-school math) are new. It’s not that people winning Nobel Prizes in Behavioral Economics should be epiphanies to these central-market planners either. What’s super sad about all of this is that no leader in either our established government or media holds these unelected people to account."

 

CHART OF THE DAY: What Unelected Fed Bureaucrats Continually Miss - 06.22.16 Chart


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%
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