“It’s about a culture that increasingly encourages social decay.”
-J.D. Vance
My son, Jack, lost his second front tooth yesterday. Thankfully, it wasn’t due to decay. It’s all about the evolution, maturation, and growth of a young boy. #GrowthAccelerating, baby!
If you know my son’s age, you’ll know Hedgeye’s age. Jack was born into a culture on Wall Street that was encouraging moral decay (late 2007). Today, he’s moved onto observing the analytical decay of both our government and mainstream media.
How many people are getting “rich” driving click-bait-ad-models that perpetuate political and bearish biases? Lots.
While Vance was talking about poor white guys in the Rust Belt when he wrote that “too many young men are immune to hard work” (Hillbilly Elegy, pg 7)…
I’m talking about Millennial and GenX “financial and market” journos who have never modeled a company and/or economy in their life. There’s no analytical competence in their “news.” It’s all about biased headlines and sound-bites.
Back to the Global Macro Grind…
While that may sounds like a negative opening volley this morning, it’s meant to remind you of the glaringly obvious growth opportunities in our profession. Never have so many been getting so much inaccurate and irresponsible “news” from so few.
You can capitalize on that in many ways. One is to build your own company that competes with fake and/or incompetent news. Another is to simply do what you do with the promise of bettering yourself and your process each and every day.
The rates of change in economic data don’t lie; politically biased people do.
The way newbie Wall Street journos do this can be subtle. They’ll try something like this “soft vs. hard” data meme and run with it, not having a clue on how to contextualize the rates of change in the data itself, never mind where it fits in a cycle.
Sometimes they’ll bite on something that all of the bears in the hedge fund community are pushing (ever notice they all push the same things?). Currently, some of those things are one liners like:
A) Well “credit growth” is slowing
B) But “the curve is flattening”
C) And “this market is way too expensive”
That last one is code for ‘I don’t own it and refuse to acknowledge that I’m not as smart as I think I am and I missed it’… the other two (A and B) will be debunked on our Q2 Macro Themes call tomorrow at 11AM EST.
“The Curve” meme cracks me up.
While it’s true that the curve has “flattened” from its highs of this growth accelerating cycle, that’s like saying the Nasdaq is “flattening” because it just corrected, barely, from its all-time closing high.
Next time someone whines to you about the curve “flattening”, try this line of questioning on them:
- Oh, that’s fascinating, but didn’t the 10s/2s Spread (the curve) just register its highest quarterly average in 5 quarters?
- Doesn’t it make sense that the curve has steepened, every quarter, since US growth bottomed in Q2 of 2016?
- If Q3’s (of 2016) low of 84 basis points (quarterly 10s/2s Spread avg) was the low, what’s wrong with +110-130 wide?
That’s right, the 10s/2s (UST 10yr Yield minus the 2yr Yield) Spread is at +110 basis points wide this morning and:
A) The Q2 of 2016 compare was a quarterly average of 98 basis points
B) The Q3 of 2016 compare was a quarterly average of 84 basis points
So not only is this going to perpetuate 3 more quarters of accelerating earnings growth for the Financials (banks whose profits accelerate when their net interest margins go up, year-over-year), but it’s going to blow the bears minds if we’re right on GDP.
You see, if we’re right and Q3 US GDP accelerated another +60 basis points to +2.90% year-over-year and +4.67% on a quarter-over-quarter annualized basis, what do you think the 10yr Yield is going to do on that?
Yep, if we’re right, the 10yr will rise (as real growth accelerates)… And, if the Fed doesn’t figure it out fast enough, they’ll stay too dovish and the 2yr won’t rise as quickly… and the curve will steepen (again) as it has since Q316, pre Trump’s election.
If we’re wrong on growth, this scenario analysis will not play out. If we’re right, we’ll be right for the right reasons.
And everyone who is complaining about “credit growth and a flattening curve” will have to move onto whining about whatever they read next from a community that is encouraging analytical decay in a deteriorating profession.
Our immediate-term Global Macro Risk Ranges (intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.33-2.47% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5 (bullish)
VIX 10.88-13.28 (bearish)
USD 99.25-100.95 (bullish)
EUR/USD 1.06-1.09 (bearish)
Oil (WTI) 49.29-51.90 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
