“No bubble is so iridescent or floats longer than that blown by the successful teacher.”
I’m starting to get a ton of traction on this Bad = Good #GrowthSlowing theme. That has to be because this is the easiest stock and bond market bubble story to tell, using the actual economic data.
Watch out Ed and Nancy, I’m getting some of your votes with this!
Long only’s love it. Levered long hedgies adore it. Long Bond and Gold bulls flat out want to get married to it. For now, forget what happens when bad = bad. Seriously. This is a bubble we can all risk manage, with a bullish bias, until it pops.
Back to the Global Macro Grind…
I had my first “new prospective client” rejection of September yesterday. He’s a well-known perma bull (on “US Stocks” – blew up in 2008) and he said “nice call on Bonds and Gold this year, but you were really wrong in August.”
Rejection. Yes, I have dealt with it my entire life. Some people just don’t like me. I don’t blame them. I have as many faults as many humans. Sometimes I suck. And since I live in the fishbowl of my research and tweets, I get told that pretty much daily, even when I don’t suck.
If you keep score on when I’ve really sucked for the last year:
A) It’s usually when rates are rising
B) But every single one of those rate “hikes” have been head-fakes
For 14 months, my highest conviction macro “call” has always been to fade rate hike fears, buy bonds (and stocks that look like bonds) and to stop being concerned about rates rising until the US growth data starts to undergo a phase transition into #GrowthAccelerating.
That’s why some people really don’t like me. They’re the guys who are short bonds on “valuation” and long the Financials on the same. With the 10yr US Treasury Yield having crashed -32% to 1.53% YTD (Utes and TLT +16% YTD vs. Financials up less than 3%) I don’t suck in 2016.
Oh, but I’m not long Facebook (FB) or Amazon (AMZN)… or the all-time high in the Nasdaq (which is up a whopping +5% YTD vs. Gold +27%). That is true. It would help if I had analysts who covered those stocks. But I sincerely congratulate whoever owns those bubble multiples too.
What is the difference between paying:
A) All-time high multiples for #GrowthSlowing exposures like Bonds and Utility Stocks and
B) All-time high market caps, revenue, TAM, EBITDA, EPS, etc. multiples for companies that grow like those 2 have?
If you ask a real “Growth Manager” and they’re honest about it, the top-down GDP #GrowthSlowing call has insulated the premiums paid for the organic growth stories. Being long US GDP growth sucks, big time, compared to what Bezos and Zuck have delivered.
That’s commonly called stock picking or alpha.
But there’s alpha in macro asset allocation “picking” too, isn’t there? I don’t have to go all volatility-adjusted YTD return of Long Bond (TLT) vs. US Equity Beta (SPY) on you this morning to remind you that you’d have had to take on a ton of economic risk to pick SPY over TLT.
And wasn’t there alpha in understanding the #GrowthSlowing call so well that you got to your most invested position of 2016 on that late-August stretch where the SP500 was down (in sync with bonds) for 8 of 10 trading days? Or did you sell at the August lows?
That’s right. That’s why I have a 20:1 ratio on new accounts signing up (68% y/y revenue growth in Q2) vs. those who can’t quite comprehend modern day macro. Unless they are fantastic fictional storytellers, alpha in this business generally wins the race.
In the USA, we buy/cover (stocks, commodities, bonds) on “rate hike” fears. Then we sell/short at the top-end of the #GrowthSlowing Bubble risk ranges (i.e. now in the SP500 at 2190). And we haven’t been long European or Japanese stocks all year long (bad = bad there).
That strategy has not sucked. Completely missing the causal factor behind 2016 cross-asset class returns does.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.50-1.60%
Oil (WTI) 42.91-48.50
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer