i-GuideLower vs. #CyclicalPeaks

01/03/19 07:59AM EST

“The most important thing is being attentive to cycles.”
-Howard Marks 

That’s a quote from another book I started reviewing over the holidays – Howard Marks’ latest 2018 investment book, Mastering The Market Cycle which is a follow up to his prior book, The Most Important Thing

As Marks quickly reminds whoever is looking for a short-cut to get cycles right, there are no short-cuts. “There is no single most important thing in investing” (pg1). There are many interconnected and non-linear factors to constantly follow. 

That last sentence is mine, not his. He actually doesn’t focus on The Machine, Factor Exposures, Fractal Math, etc. With all due respect to one of the great investors of his generation, I think there’s a massive learning opportunity in that for my generation and the next. 

Back to the Global Macro Grind… 

Whether it was Fedex (FDX) or Apple (AAPL) or any of the many companies that will guide lower on both revenues and earnings in the coming months, what will all of these international companies have in common? 

A) US Growth and #InflationSlowing from Q318’s Cycle Peaks
B) #ChinaSlowing
C) #EuropeSlowing
D) #StrongDollar
E) US Corporate #ProfitsSlowing from Q318’s Cycle Peak 

A: all of the above. 

While the summary of A, B, C, D, and E = Quad 4, and many of you have been kind in complimenting us on making that call on The Cycle when it mattered back in September, that was only Theme #1 in Q4 of 2018 @Hedgeye. 

Theme #2 was called #CyclicalPeaks and here’s how Jedi Cycle Master Dale explained that in the SEP @HedgeyeTV presentation invite:

  • #CyclicalPeak: Two of the most underappreciated risks heading into Q4 of 2018 among investor consensus are the cyclical peaks in corporate profit growth and corporate profit margins – both of which have important sector and style factor implications. We’ll detail why investors would do well to adopt a defensive posture with respect to their respective portfolios as the associated rotation out of the domestic Momentum, High Beta, and Growth style factors could be quite violent given current positioning.

Cool. Tim Cook should have paid for a Hedgeye Macro subscription like a growing number of corporate clients we have did.

Those executives are not only proactively prepared for probable mean reversion risks in big macro factors like GROWTH, INFLATION, and PROFITS, but they have more credibility than those who guide lower using scare crow excuses like “Trade War.”

i-GuideLower vs. #CyclicalPeaks - z 09.04.2018 cycle tank cartoon

By the way, I didn’t see Cook or the Fedex Execs doing i-Phone demand dances in Q2 and Q3 of 2018 blaming “Tax Reform” for part of the upside! As you can see in our Chart of The Day (slide 62 of our Q4 Macro Themes deck):

  1. Q2 of 2018 is when The ROC (rate of change) in year-over-year US Technology Earnings Growth peaked at +32.0% y/y
  2. Q3 of 2018 is when The ROC (rate of change) in year-over-year US SP500 Earnings Growth peaked at +26.1% y/y

For those of you who have Ole Wall school friends who still believe that you can’t use modern machine learning, technology, math, etc. to proactively predict #accelerations and #decelerations in big cycles like this, please send them our way.

AFTER a record 9 straight quarters of US #GrowthAccelerating:

A) Corporate Earnings Growth peaked
B) Corporate Margins peaked

THEN, stocks blew up… AND Credit Spread blew out.

Oh yeah, now I’m going all CAPS on their complacent Ole Wall you know whats this morning. It’s only Day 2 of the New Year and I seriously can’t handle seeing another year of people voluntarily losing money because they’re unaware of these Cyclical Peak compares.

I know US Equity Futures are down a lot again this morning. I know you have bosses and higher-ups who keep buying what aren’t damn-dips. I know you’re struggling to remind some people that if they don’t do macro, it will do them.

I know. I know. But even if they don’t do macro like we do, they probably look at “charts.” Here are some real-time @Hedgeye TREND signals and Risk Ranges to consider this morning:

  1. NASDAQ = Bearish TREND @Hedgeye with an immediate-term @Hedgeye Risk Range of 6190-6835
  2. Tech (XLK) = Bearish TREND @Hedgeye with an immediate-term @Hedgeye Risk Range of $57.04-63.69
  3. AAPL = Bearish TREND @Hedgeye with an immediate-term @Hedgeye Risk Range of $142.20-163.58 

It’s not like these are new Bearish @Hedgeye TREND signals as of this morning. In the case of some kind of “secular grower” that had never seen a cycle like Facebook (FB), it’s been Bearish TREND in our daily Risk Range product going back to July of 2018.

Semiconductors (SMH), which I shorted (again) in Real-time Alerts yesterday, broke to Bearish @Hedgeye TREND back in June! 

If you want to try to “Master Market Cycles”, start with both modern day market signals and fundamental ROC (rate of change) research that front-runs CEOs, CFOs, and whoever is still out there that thinks that you can’t use these tools to help you time them. 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:

UST 10yr Yield 2.62-2.84% (bearish)
SPX 2 (bearish)
NASDAQ 6190-6835 (bearish)
Shanghai Comp 2 (bearish)
VIX 21.07-36.65 (bullish)
USD 95.50-97.10 (bullish)
YEN 107.18-111.88 (bullish)
GBP/USD 1.25-1.27 (bearish)
Oil (WTI) 42.02-48.55 (bearish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

i-GuideLower vs. #CyclicalPeaks - Chart of the Day

© 2020 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.