“General Grant, why didn’t you tell me who you were?”
-The Clerk
I spent the last 4 days traveling from meeting to meeting in California with a retired 3-star General from the United States Marine Corps. If that’s not how you roll, you should try it. “Believe me”, you’ll like it.
Lieutenant General Emerson “Emo” Gardner, USMC (ret.) is both an officer and a gentleman. He doesn’t start every conversation with who he is, what his rank was, and what his resume says. He’s more of a guy’s guy - one who served his country that way, for 37 years.
The aforementioned quote comes from American Ulysses.
It epitomizes the kind of guy Ulysses S. Grant was. Who would have thought that, on the day before Lincoln commissioned him as Commander of all the Union Armies (1864), he didn’t “tell people who he was” or pull rank to get a hotel room in Washington.
Back to The Global Macro Grind…
If you’d like to learn more about Defense Spending (it’s going up, a lot), the 26th United States Secretary of Defense (Mattis, who Emo rose in rank with), Geopolitical Game Theory, etc., just let me know and we’ll try to get you some time with General Gardner too.
If you’d like the latest update on Earnings Season, Fund Flows, etc., you’re still stuck with me. So let’s knock those macro pins down this morning, one by one:
EARNINGS SEASON
- As of last night 30% (148 of 500) S&P 500 companies reported Q4 sales/earnings
- Aggregate year-over-year SALES growth = +2.4%
- Aggregate year-over-year EPS growth = +5.0%
- Financials (33 of 63 have reported y/y SALES and EPS growth of +4.0% and +8.7%, respectively)
- Tech (26 of 66 have reported y/y SALES and EPS growth of +6.6% and +13.2%, respectively)
- Basic Materials (8 of 29 have reported y/y SALES and EPS growth of +6.4% and +20.9%, respectively)
In other words, in Hedgeye-speak (rate of change terms), both US Sales and Earnings are clearly #accelerating from their US profit recession lows of 2016. That’s one of the many reasons why stocks have been crushing Gold and Bonds for the last 3 months.
In the last 3 months, the SP500 is up +6.8% vs. Gold down -6.1%.
While it signaled immediate-term oversold yesterday, I have nothing personal against Gold. I’d simply rather be short of it when US growth and profits are accelerating (and both USD and Rates are rising).
What about FLOWS?
- Domestic Equity Mutual Fund Flows realized -$1.2B in redemptions last week = #outflows
- That puts the record-setting streak of #outflows at 99 weeks (#Gretzky, not)
- Investors have yanked an avg of -$4.3B per week, bringing the cumulative #outflow to -$428B
Yep. $428 BILLION in outflow is a lot of outflow! I have no idea how one could characterize that as “bubbly” or “overly bullish” from a US stock market sentiment perspective.
But there are plenty of our “active manager” clients who are crushing it right now, and I’m really interested to see who takes share when the fund flows go the other way.
From the former US growth cycle high (Q1 of 2015 when year-over-year US GDP growth peaked at +3.3%) to now, the March 2015 to-present period continues to maintain the longest, largest, and fastest streak of US domestic equity manager outflows since 2008.
Forget Trump for a second…
Bernanke and Yellen’s “QE creates Demand” (signed, sealed, and delivered by both Bush and Obama Administrations) monetary policy was super-very-yougely-huge for US Equity manager outflows. History will give them a lot of credit for that.
And I’ll credit #StrongDollar for not being as pompous and arrogant as central market planners have been.
Sometimes just going about your business and doing your job makes you a General that doesn’t need to bark to have real men and women (who are paid in Dollars) follow.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.37-2.58%
SPX 2
NASDAQ 5
VIX 10.11-12.85
USD 99.70-102.50
YEN 112.60-116.20
Oil (WTI) 51.86-53.98
Gold 1179-1220
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
