“It was conceived as Bambi in Africa with lions.”
-Adam Grant
That’s a quote is from an awesome chapter in Originals – How Non-Conformists Move The World, by Adam Grant (must read for all of you who are part of building growth companies) that he called “Goldilocks And The Trojan Horse.”
He was alluding to the script that eventually became The Lion King, “which was the highest grossing film of 1994, winning 2 Oscars and 1 Golden Globe. Katzenberg had said he would get down on his knees in appreciation if it brought in $50 million. By 2014, it had earned over $1 billion.”
When Director Rob Minkoff first pitched it to Disney’s CEO, Michael Eisner, “he wasn’t getting it … grasping for a hook, he asked ‘could you make it into King Lear?’… and Minkoff said no, ‘this is Hamlet’… suddenly everyone got it… of course it was Hamlet – the uncle kills the father and the son has to avenge the father’s death.” (pg 135)
Back to the Global Macro Grind…
From an Institutional Investor perspective, 2016 is turning into a rendition of Hamlet too. The central bankers kill the banks… and everyone who used to work at the banks (money managers) have to avenge the #BeliefSystem.
Here’s what I believe:
- Bambi is make believe
- Lions are real
- Economic gravity determines who eats and who gets eaten
Sure, there have been plenty of opportunities for you to just “believe” that central banks turning their swords inward on the bankers that empowered them (with negative rates) was going to end well…
All the while there have been plenty of narratives that neither Global nor US growth was going to slow, as obviously as it has. But this idea of #TheCycle slowing wasn’t conceived in Fantasia. It was in the data – and suddenly, everyone is starting to get it.
Earnings Season has been refreshingly relevant in this regard. While the non-GAAP-anti-cycle-loan-loss provisioning story from US banks hasn’t surprised me, I think its surprised the Financials (XLF) Bulls that all it did was render their YTD return flat, so far.
On the other hand, Industrials (XLI), which were supposed to have “bottomed” have looked like this:
- EARNINGS: so far 10 of 67 Industrials in the SP500 have reported an aggregate y/y non-GAAP EPS decline of -15.4%
- STOCKS: after registering a lower-high on no-volume on AUG 29, XLI is down -3.1% (and -2.0% for OCT to-date)
- LEVELS: intermediate-term TREND resistance (was support) for Industrials (XLI) = $58.13
Then, of course, there’s the company commentary (vs. the hope, in Honeywell’s (HON) case, that it wasn’t true!) that has been downright depressing relative to the “bottoming” narrative that the 50-day moving monkeys were tweeting about in August.
Two of yesterday’s dogs were Ford (F) and Grainger (GWW) – i.e. two “charts” that macro tourists sent us in Q2 as “breaking out”:
- Ford (F) is now cutting production on “slowing demand”
- Grainger’s (GWW) CEO says no “bottom” in demand terms either
Am I cherry picking? Please, tell me another story then. “Believe me”, I hear them from a “Presidential” candidate all of the time. Was a -15.4% non-GAAP earnings decline “rigged”? Or is it closer to the down -14% y/y US Corporate Tax Revenue reality?
Unless you’re a company who is willing to lie on your tax returns (to be fair, plenty of people are), the #EarningsRecession in America is much broader based than the “Ex-Energy” narrative would have led you to believe. Beware the Lyin’ Kings.
Unless you’re running a growth company with revenue growth accelerating y/y (fortunately, I am), you’re part of the majority of companies that are seeing both revenues and earnings slow and/or decline vs. the 2015 US GDP cycle peak.
As you can see in today’s Chart of The Day:
- Small Business Loan Volumes have gone decisively NEGATIVE on a y/y (year-over-year) basis
- The most recent print is down over -1.5% year-over-year and has been negative y/y in each of the last 3 months
- The last time this index looked like this was DEC 2007
You can tell me what your returns looked like if you got levered up long in OCT-NOV 2007. Some of us don’t have to live with the baggage of missing #TheCycle call back then inasmuch as we haven’t missed it this time either.
With Long-term Treasuries (TLT), Utilities (XLU), and Gold (GLD) back up to +10.9%, +11.9%, and +19.7% YTD, respectively… I’m feeling like a raw meat alpha eating lion this morning. Sure, I have my “rate hike” battle scars. But that sure beats being Bambi.
Our immediate-term Global Macro Risk Ranges with intermediate-term Research TREND views in brackets are as follows:
UST 10yr Yield 1.59-1.80% (bearish)
SPX 2118-2150 (bearish)
RUT 1 (bearish)
NASDAQ 5162-5280 (neutral)
XOP 36.44-38.29 (bullish)
RMZ 1125-1173 (bearish)
Nikkei 165 (bearish)
DAX 107 (bearish)
VIX 14.03-17.81 (bullish)
USD 96.22-98.50 (bullish)
EUR/USD 1.09-1.12 (bearish)
YEN 102.05-104.87 (bullish)
Oil (WTI) 46.59-51.47 (bearish)
Nat Gas 2.99-3.39 (bullish)
Gold 1 (bullish)
Copper 2.06-2.16 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
