"The future bears down upon each one of us with all the hazards of the unknown. The only way out is through."
-Plutarch
A challenge we've been working on at Hedgeye recently is how to maintain our growth and also retain our culture. A major component of this is thinking really hard about who to bring into our firm and also how to maximize the productivity of our current team.
Between Keith and myself, we've interviewed every single person that either currently works at Hedgeye, a number that is around 80 strong, or has worked at Hedgeye. That of course means that we've interviewed probably 10 people for every one we have hired. That's a lot of interviews, especially for an introvert like me!
Looking back at almost 10 years and more than 1,000 interviews if I could boil it down to one factor that has lead to success at our firm, and that is important for us to discern in the interview, it is grit. But what exactly do we mean by grit?
I actually think our friends at Wikipedia define grit appropriately:
"Grit in psychology is a positive, non-cognitive trait based on an individual's passion for a particular long-term goal or end state, coupled with a powerful motivation to achieve their respective objective. This perseverance of effort promotes the overcoming of obstacles or challenges that lie within a gritty individual's path to accomplishment, and serves as a driving force in achievement realization."
Intuitively, of course, finding teammates with this characteristic makes sense. In practice, finding them is much more difficult. But by ignoring our biases of fancy degrees, "impressive" jobs and those candidates that were born on third and thought they hit a triple, and focusing on people that have the ability to focus on and achieve long term goals against great odds, we've been able to do it more times than not.
In the same light, if you think about it, success in the stock market game over the long run is all about grit. You need to develop the skills, you need a long term focus and you need to get up every morning and grind it out. Day after day.
Back to the Global Macro Grind…
Inasmuch as we've been saying it's important to focus on the facts and to some extent ignore the politics of the moment, we'd be remiss if we didn't highlight this morning the special congressional elections in Georgia and South Carolina. Much to the chagrin of partisan Democrats, the Republicans won both. The big loss of course was in Georgia where the Democrats dramatically outspent Republicans.
Now of course, you might ask why does one Congressional race really matter? Given that Democrats spent $31 million on the race and Republicans spent $23 million, we'd argue quite a lot in terms of momentum. As an aside, that is $54 million spent on just over 250,000 voters!
On the margin, and that is where things happen, the Republican congressional agenda just received a boost. This doesn't of course resolve the albatross in the room, which is President Trump's approval rating. We've highlighted this today in the Chart of the Day via a poll aggregate from fivethirtyeight.com. Currently Trump's approval rating remains mired at his lows of 38.6%. But the fact that Trump actively campaigned in these races and that big candidates won will help his standing with the Republican congress.
Switching over to the work of our gritty team of analysts, it's worth highlighting a couple of our upcoming stock calls.
- Nike - Today at 11am, founding Hedgeye partner and resident retail guru Brian McGough will be presenting a Black Book on the future of athletic footwear with a heavy focus on a contrarian positive call on NKE. To Brian it is all (or almost all) about understanding the long term cycles of NKE and he believes that they are on the verge of another major super cycle. Meanwhile the rest of the "street" is focused on near term earnings guides, which we believe are largely baked into the stock price.
- Air Products - Our Industrials Sector Head Jay Van Sciver is updating his thesis on APD Thursday at 11am. The thesis is basically threefold: 1) we see a number of potential high return capital deployment opportunities for ADP, 2) the overhang from recent Yingle transaction and activists changing positions is in the rear view mirror, and 3) the economic environment is highly favorable for industrial gas. Then of course, and maybe most important of all, we see the company handily beating consensus earnings estimates due to its ability to buy back stock or participate in accretive deals.
- Red Rocks Resorts - The Hedgeye Gaming, Lodging and Leisure team led by Todd Jordan will be outlining their long call on RRR this coming Monday at 1pm. Despite a bit of slowish recovery for the Las Vegas locals market, we are now seeing a renaissance of sorts in the market. RRR is an ideal way to play this theme for a number of reasons: the local economy is accelerating and RRR is heavily levered to it, southern Nevada will see its elderly population rise in coming years which is positive for slots, the pent up 12 billion in Vegas construction should bring in over 19,000 construction workers (many of whom will "roll the bones" at RRR's casinos), and RRR is doing a great job executing as evidence of its recently systems conversions at Palms.
Please email to learn how to get access to these calls.
We are a little light in the macro grinding today, but what's a great macro call without your portfolio populated with appropriate alpha generating ideas.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.12-2.23%
SPX 2
RUT 1
NASDAQ 6112-6321
Nikkei 195
DAX 125
VIX 9.82-11.43
EUR/USD 1.10-1.13
YEN 109.11-111.92
GBP/USD 1.26-1.29
Oil (WTI) 43.14-45.92
Nat Gas 2.84-3.07
Gold 1
Copper 2.51-2.63
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
