“They self-censor their own doubts and do not challenge each other.”
-Tim Harford
That’s what group-thinkers do. They don’t question. They don’t lead. On both the Old Wall and in Washington, they follow – because that’s how they get paid.
This, of course, isn’t new. “The very word group-think was popularized by a psychologist, Irving Janis, to describe a process whereby like-minded people make bad decisions without seriously examining them.” (Messy, pg 47)
And, instead of whining about it, I actually did something about it… building a creative and collaborative think-tank of experts who wake up every morning not only questioning the elitist-types of Davos, but questioning themselves. Truth-seeking is youge!
Back to the Global Macro Grind…
While it doesn’t surprise me, sadly I see a bunch of group-thinkers (some of them calling themselves “economic advisers” to Trump) parading around the Swiss Alps in faux fur talking about the merits of a “weaker Dollar.”
Are these people seriously kidding me?
Man up, Larry Kudlow. You coined it “King Dollar”, for good reason. And wake up to reality, Donald Trump. America has never been “great” (economically speaking) under a Weak Dollar Policy. Never isn’t #FakeNews – it’s a very long time.
Moving along…
It’s Earnings Season! And guess what, finally we have a real Sales and Earnings #Acceleration to go along with the big, top-down macro-economic, and behavioral data accelerations.
Admittedly, some of these are non-GAAP “Earnings”, but it’s still apples to apples made-up earnings (sales, unless you are the Chinese, tend to be less creative), but here’s how Earnings Season looks so far:
- Focusing on the SP500, as of last night 34 of 500 companies had reported Q4 numbers
- Aggregate SALES are up +4.6% year-over-year
- Aggregate EARNINGS are up +10.3% year-over-year
- Financials SALES and EPS have gained +3.5% and +14.1% year-over-year, respectively
- Consumer Staples SALES of -1.2% year-over-year are the laggards, so far
Yep, that damn #StrongDollar (that many of us get paid in) eviscerated “corporate profits” again, eh? C’mon. With the US Dollar +7.1% in Q4 (+2.2% year-over-year), both the US economy and SP500 Sales/Earnings #accelerated!
We all get the FX translation on some slow-moving-multi-national selling you gluten laden product… but seriously, this isn’t the 16th century “export” economy anymore. Plenty of US based banks crush it during #StrongDollar, Rates Rising regimes.
There are, don’t forget, 63 “Financial” companies in the SP500 that saw sales and earnings hammered by the brilliant Bush/Obama “demand based” QE model of Down Dollar, Down Rates…
Those companies have super easy year-over-year comparisons, that get even easier in Q2.
Then there’s the “Energy Companies.” Don’t “ex-them-out.” None of them had reported as of last night, but 35 of 500 SP500 Energy companies could show anywhere between +250-350% year-over-year earnings growth by the time Q4 is all said and done.
That’s not a typo. As you can see in the Chart of The Day, Q1 2017 consensus on Energy Earnings = +727% y/y growth.
Yes, that’s what happens when you grow against negative earnings growth. Look at Monsanto (MON), for example, who just went from losing -$0.11/share in Q4 to +$0.21/share. That took the “Materials” earnings to +286% y/y growth!
Negative earnings growth?
Yes. That’s what many cyclical companies are comparing against because… drumroll… at this time last year, they were putting in the lows of their respective sales and earnings recessions.
So people can whine about “too strong of a Dollar” and/or that the US stock market is “too expensive” (i.e. they’ve missed the last +7-10% of the move), but the non #FakeNews is that when sales and earnings accelerate, “expensive” gets more expensive.
And those begging for “cheap” Dollars aren’t making America 1980s or 1990s great again.
Our immediate-term Global Macro Risk Ranges with our intermediate-term TREND Views (in brackets) are now:
UST 10yr Yield 2.31-2.50% (bullish)
SPX 2 (bullish)
NASDAQ 5 (bullish)
Nikkei 180 (bullish)
DAX 111 (bullish)
VIX 10.91-13.16 (bearish)
USD 100.01-103.10 (bullish)
EUR/USD 1.04-1.07 (bearish)
YEN 112.25-117.50 (bearish)
Gold 1159-1221 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
