“People are owners of either a ‘growth’ or a ‘fixed’ mindset.”
-Dr. Carol Dweck
If there ever was a doctor’s quote describing the minds of Wall Street analysts, traders, and portfolio managers in “either/or” terms, that might be it. If you haven’t read Dr. Carol Dweck’s Mindset: The New Pyschology of Success, you should.
In a chapter of Win At Losing that Sam Weinman titled “Pride And Perspective, he (like many studying behavioral performance factors these days) cites Dweck’s research, reminding us that there’s a “distinction between those who see their abilities as something that can be developed and those who feel that talent and intelligence are innate.”
“On the humility-pride spectrum, you might say it’s the difference between people who see the merits of learning from their mistakes and those who don’t see the point” (pages 54-55). Where do you see yourself on this spectrum? Would your teammates agree? I think that having a Real Growth Mindset is a culture. You either inspire it in all that you do, or you do not.
Back to the Global Macro Grind…
Since Consensus Macro is as long of #GrowthSlowing as it has been in 2017 (there’s a non-commercial net LONG position in the 10yr Treasury Bond of +365,011 contracts as of last week which registers +2.06x on a 1-year z-score), when will that consensus capitulate into being long real #GrowthAccelerating?
I don’t know. But I’m sure glad it hasn’t yet.
Consensus Macro thought that “reflation” was the best way to be positioned for all of 2017. Without consensus coming into Q217 long Energy, Commodities, etc., returns on the short side in May wouldn’t have become great again!
At the US Sector Style return level, to review what the month of May looked like where it matters most (on the scoreboard):
- Reflation (via Energy, XLE) was -3.54%
- Real Growth (via Tech, XLK) was +3.95%
That’s one very basic way to explain why “active manager” returns are back again too, baby! When sector and asset class returns start to diverge like this, the variance of the return outcomes in the marketplace ramps, big time.
This intermediate-term macro TREND @Hedgeye of being Long Real Growth vs. Short Reflation didn’t start in May. It started 3 months ago. Looking at yesterday’s “reflation” score within the context of the last 3 months, here’s what you’ll see:
- Commodities (CRB) Index down -0.9% on the day = down -5.7% in the last 3 months
- Oil (WTI) down -2.7% on the day = down -13.0% in the last 3 months
- Energy Stocks (XLE) down -0.4% on the day = down -8.4% in the last 3 months
- Coffee (JO) down -2.2% on the day = down -12.1% in the last 3 months
And I get it. The smart people might suggest I am cherry picking to make my point. And I’ll agree with that, but I’m using really youge cherries! If you’re more like me – a Mucker - and you weren’t born into this game with an innate ability to tell the market’s growth and inflation factors what they should be doing, you’re totally into this.
A super simple example of how you (as in the consumer and/or the ones making the stuff for consumers) get paid when reflation rolls over is the Coffee price vs. SBUX example (over the same 3 month period, SBUX, as in the stock is +11.6%).
If you haven’t been long SBUX “because it’s expensive”, too bad. I love buying their expensive caffeine inasmuch as I love buying expensive real growth expectations as real growth accelerates in rate of change terms.
How did Real Growth Exposures score yesterday within the context of the last 3 months?
- Consumer Discretionary Stocks (XLY) up another +0.3% = up +5.4% in the last 3 months
- Tech Stocks (XLK) down a small -0.16% (after making an all-time high) = up +8.0% in the last 3 months
- Nasdaq down a small -0.10% (after making an all-time high) = up +8.6% in the last 3 months
- Exact Sciences (EXAS) up +11.3% (on the day) = up +70% in the last 3 months
Oh yeah. Now I’m really cherry picking with a real growth stock (EXAS) that my Healthcare Research Team has been exuberantly bullish on. The innately intelligent people at Citron Research (storytelling short sellers of the stock) have not enjoyed the ramp.
This is obviously a very competitive game with a lot of very smart people. But, from my experience as an avid short-seller, I’ve learned that if I get the macro wrong when real growth is accelerating, I can be very wrong on high-short-interest growth stocks.
That’s not to say that my analysts won’t tell you to short something that’s expensive with high-short-interest. That’s simply to remind you of what I remind them in almost every research meeting – ‘you better have a stock specific growth slowing catalyst.’
“Valuation” isn’t a catalyst and having a real growth slowing and/or accelerating mindset isn’t easy. Being mentally flexible and respectful of Mr. Market rarely is.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.19-2.33% (bullish)
SPX 2 (bullish)
NASDAQ 6088-6268 (bullish)
VIX 8.54-11.87 (bearish)
Copper 2.50-2.60 (bearish)
AAPL 150.93-155.88 (bullish)
AMZN (bullish)
WMT 76.11-80.00 (bullish)
TWX 97.75-99.91 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
