After an abysmal fourth quarter to close out 2018, most investors have been hoping someone will bail them out. Hope is not a risk management process. We're hearing a lot of excuses about why investors should buy stocks now:
- There's massive Chinese stimulus coming
- The Fed is going dovish; and
- President Trump is close to a resolution of Chinese/U.S. trade tensions
In perfectly reflexive fashion, these hopes have been rewarded by rising asset prices. While still down 7% from the September highs, the S&P 500 is up 15% from the December lows. Amidst the ebullience, the VIX has fallen 39% year-to-date.
Here's the most important question right now for investors: What happens if #TheCycle continues to slow? What happens if:
- China can't comp the massive growth comps after pumping an historic amount of stimulus into the economy in 2015-2016
- Recessionary data currently coming out of Europe pushes the continent into a protracted downturn
- U.S. economic data continues to slow after GDP data printed an unprecedented 9 straight quarters of #GrowthAccelerating
We would not bet on the U.S., China and Europe comping the "globally synchronized recovery" comps. Simply put, if our forecasts are correct, the unwinding of this frenzied "buy stocks now" excitement could be nasty.
Reflexivity works both ways.
Here are four short videos outlining our current market call and serving as reminders to investors that #TheCycle still matters...
1. McCullough: This Market Shows Who the Real Investing Pros Are
While many “Macro Tourists” may still be waiting for a story like a trade war resolution to turn the market around, the cold hard data continues to show that the U.S. economy – and others globally, like China and Europe – are slowing.
2. Why Short Europe (Still) Makes Lots of Sense
Hedgeye’s macro team has been bearish (and correct) on European equities throughout 2018, and the Euro versus the dollar since April. Both market calls were made well ahead of consensus. On a recent edition of The Macro Show, a viewer asked: Is it too late to start shorting both Europe and its major currency now that consensus seems to be catching up to our call?
3. McCullough: 'Biggest Bubble In Corporate Credit History'
Hedgeye CEO Keith McCullough recently posed this question in regard to bubbles: “Why do you have the biggest bubble in corporate credit history?” “You have the all-time lows in credit spreads, pretty much the lowest level of interest rates and access to capital, and you have the all-time high in year-over-year earnings growth fully loaded with tax reform,” McCullough explains. “That’s why people felt safe putting leverage upon leverage upon leverage. It’s a bubble.”
4. McCullough: You Don't Need Recession To Lose 'Half Your Money'
The U.S. economy does not need to be in recession to be on the wrong side of stocks. As Hedgeye CEO Keith McCullough explains in the clip above, while every market is different, there are some remarkable similarities in the market right now to 2000 and 2001. While the economy eventually went into a technical recession in late 2001, many investors experienced enormous drawdowns as the economy slowed over the previous year. “[In 2000-2001] when GDP stopped accelerating, you could have lost almost half your money,” McCullough explains.