“Let us rise up and be thankful, for if we didn’t learn a lot today, at least we learned a little, and if we didn’t learn a little, at least we didn’t get sick, and if we got sick, at least we didn’t die; so, let us all be thankful.”
-Buddha
In the English language, “thank you” derives from the word think. The original meaning was something to the extent of “I remember what you did for me”. In our business, we are probably guilty of not saying it enough.
As the year winds down, we’d like to take this opportunity to thank all of you for supporting our firm. We started almost 10 years ago with a white board and an idea. Now we have a team 80+ people strong covering policy, demographics, macro and the majority of the SP500. None of it would’ve been possible without your support and constructive criticism.
According to the Chinese calendar, 2018 is the year of the dog. With the advent of MIFID 2, the Year of the Dog stands to be an interesting one for the research industry. Fortunately, Hedgeye has no trading desk and has, by and large, been MIFID 2 compliant since inception. We are looking at this structural change in the industry as an opportunity to continue to take share and to further improve our product to help you in your decision making.
To that end, and given the shake up in the industry, to the extent you know of any curious, hard working and passionate research analysts that may be displaced or looking to join the revolution, please send them our way. They can reach me via email at .
Because while there may be headwinds facing our industry: we are hiring.
Back to the Global Macro Grind...
The stock market year of 2017 was an interesting one, like they all are, but in the U.S., and largely globally, if you got economic growth right you probably got a lot of other things right. The SP500 is up more than 20% on the year and the growth laden Nasdaq is up more than 30%. The low volatility environment and hockey sticking equity markets no doubt made a lot of people feel smart. The beautiful thing about the stock market game is that come January 2nd the score is again zero - zero.
Despite the steady rise of equities throughout the year, it was another year, also like most years, where sector picking (and thus stock picking) mattered. On the high end the Technology sector was up more than 32% and in second place was materials up more than 22%. The laggards were energy down approximately -3% and utilities up a measly 8% (normally not a bad year of course!).
The search for Alpha starts with fishing in the right ponds. Or in money management speak, allocating to the right sectors. When we started a decade ago, not everyone saw the importance of macro but now, increasingly, most savvy stock market operators have it as part of the process. This is also likely why Macro is our largest business (that and the insane amount of time my colleagues Keith McCullough and Darius Dale spend on the road).
To further supplement our Macro product, we introduced Hedgeye’s Top 10 Ideas. These are ideas that Keith selects from a portfolio manager's perspective, based on rigorous factor screening, from our substantial bench of bottom-up ideas that our research team is generating. In the chart of the day, we’ve highlighted the current Top 10 ideas. News flash : we have more shorts than longs at the moment.
In the cartoon above, from our talented Bob Rich, we’ve highlighted one of the big stories of 2017 — the meteoric rise of crypto currencies. We have astute clients on both sides of the crypto currencies. Those that have been long have obviously crushed it. Those that have been short ... well, they may not be totally solvent at the moment.
In all seriousness, though, we intend to up our coverage of the crypto sector in 2018 and beyond. Perhaps Massachusetts Secretary of the Commonwealth William Galvin is correct when he recently stated:
“It doesn’t pass the smell test. It's also subject to manipulation, because no one can explain it, no one can control it."
When companies like Long Island Ice Tea (LTEA) change their name to Long Blockchain and see their market capitalization go up 2 - 3x it certainly supports the idea that their is some bubbly froth.
On the other side though, there is certainly something alluring about financial transactions and stores of wealth that attempt to disintermediate the government and big bank cabal. One thing is for certain: with 100 funds launched in 2017 focused on crypto currencies and institutions just beginning to allocate to the sector, this debate is likely still in early innings. Stay tuned for much from us in 2018 on crypto currencies!
I’m off to Las Vegas for New Year’s to visit Hedgeye President Michael Blum and to see a trifecta of “shows” - the Las Vegas Golden Knights versus the Maple Leafs, Duran Duran and the Chainsmokers. Whatever you and your loved ones have planned, please enjoy, stay safe and, once again, thanks for all the support in 2017.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.35-2.53% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
Nikkei 227 (bullish)
VIX 9.14-10.68 (bearish)
USD 92.15-93.60 (neutral)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
