“You see, I grew up poor, in the Rust Belt.”
-J.D. Vance
I spent the day meeting with Institutional Investors in Boston, MA yesterday. The morning meetings were more bearish than the afternoon ones. The Nasdaq was back to up on the day by that time.
I didn’t grow up poor in the Rust Belt. I didn’t grow up “rich” or part of some political ideologue’s “class” either. I’m neither a Republican nor a Democrat. I’m a Canadian who was blessed with four American children and a Made in the USA firm.
Not unlike J.D. Vance (author of Hillbilly Elegy), “the coolest thing I’ve done, at least on paper is graduate from Yale” but I never introduce myself to people that way. If they find out, I’m quick to tell them I had the lowest SAT score in my class.
Back to the Global Macro Grind…
What is a “class”?
Why do so many people pigeon hole other people into buckets like that? I’m pretty sure that’s why Karl Marx started the Communist Manifesto with class warfare. It’s an effective, but sad, way to pit human beings against one another.
Does subscribing to a MSM political ideology and/or class warfare help people understand, measure, and map the economy more effectively? Or does it have the potential to blind them by their biases?
In one meeting yesterday, one of the most thoughtful investors I know challenged another Senior Managing Director, asking him “are you telling me there wouldn’t be career risk here if you openly supported Trump in the morning meeting?”
Wow. It’s getting fiery out there!
It’s also getting sustainably bullish. If you’re long the US stock market, that is. After a literal barrage of MSM (mainstream media) bearishness in the early a.m., the Nasdaq closed +0.2% yesterday, only -1.1% away from its all-time high.
The first thing I signaled “buy” on in yesterday’s sea of red (on the market open) was Tech (XLK). Realizing that exposures like Tech haven’t “corrected” as much as the Russell 2000 (IWM) has, it felt kind of cool to just buy what’s most expensive.
I know that sounds intellectually inferior (remember my SAT – it’s a good thing I didn’t take the GMAT!), but also know the rules of brutish Canadian Hillbilly Bulls like me:
A) When growth is accelerating, “expensive” gets more expensive
B) When growth is slowing, “cheap” gets cheaper
So, instead of trying to boil the political oceans and part the “valuation” seas, all I really need to get right is growth. If I get the TRENDING rate of change in US growth right, I think I’ll get my asset allocation and sub-sector exposures right.
Not to be confused with the super-smart-one-off-data-point stuff like “credit growth slowing”, remember that even tying 2 dots together does not a TREND make. At Hedgeye, we define intermediate-term TRENDs as 3 months or more in duration.
For the 3 months ending Q1 of 2017, our predictive tracking algorithm says the following about US growth:
- Year-over-year rate of change accelerated from +1.9% in Q416 to +2.33% in Q117
- That year-over-year forecast equates to +2.51% q/q annualized GDP for Q117
- The Atlanta Fed forecast (bears love that one) is currently -150bps lower at 1.0%
Moreover (and arguably, more importantly), looking out 2-3 quarters:
- We have Q217 GDP #accelerating to +2.63%
- We have Q317 GDP #accelerating to +2.94%
- We have Q417 GDP #accelerating to +3.14%
If we’re right, the modern day “long-term” investor (i.e. someone who isn’t forced to chase 25-30 day price momentum, selling low and chasing high), should have plenty of buying opportunities en route to Q3/Q4.
The number on the page that most Beantown investors were focusing on in my meetings yesterday was our forecast for the Q317 year-over-year GDP acceleration to equate to a +4.67% q/q annualized GDP forecast.
Not to be confused with the Panglossian GDP forecasts of Old Wall’s yester-year (i.e. before they all moved to “Lower-for Longer”, AFTER the 2015-2016 GDP slow-down)…
Long-time subscribers will recall that no one was in the area code of our #GrowthSlowing forecasts either.
I’m not saying that I’m 100% certain we’re going to be right. I’m just saying that I have a far higher level of conviction that consensus is as wrong as the market has suggested it’s been since Trump was elected.
I’m not saying I love or hate Trump either. There is nothing in our 30 data point per month (90 data point per quarter) macro model that has anything to do with political catalysts and/or some pundit’s views on class warfare.
You see, I grew up good at math, but ignorant of American political ideologies, in Thunder Bay, Ontario.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.36-2.60% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5 (bullish)
Nikkei 184 (bullish)
DAX 119 (bullish)
VIX 10.58-13.21 (bearish)
USD 98.70-101.50 (bullish)
EUR/USD 1.06-1.08 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
