McCullough: Full Cycle Investing = Frontrunning #TheCycle

Keith McCullough: Point #3 in my notebook this morning is earnings. Earnings are as follows. These are the comparisons. Communications, which is a massive part of the U.S. stock market bubbliness and a large part of our growth call last year, is now comparing against back-to-back quarters of 37.6% and 27.5% earnings growth year-over-year. So far for the quarter, and it’s early, Communications is down -14.2%.

But don’t worry. This is what the Old Wall Strategists say, ‘-14% isn’t really -14% if you back out Netflix.’

Just back out what everybody owns and it’s not down.

The caveat is that the rest of the Communications sector still has to report. The other caveats are that Energy and Basic Materials are in an earnings recession. Those sectors are also down year-over-year on this day versus last year. Full cycle investors, you are! It’s not about the year-to-date. It’s about not losing money when the cycle turns and everybody else loses.

You know how much money you would have lost being long Energy from the spot we told you to sell it three months ago, never-mind where we are today?

So that’s Full Cycle Investing. And the point of today’s Early Look note is that getting the rate of change of Growth and Inflation right – both of those things impact Profit growth – allows you to be six to twelve months ahead of the big changes in Macro.

McCullough: So while we’re here on The Macro Show helping you risk manage the day-to-day it’s these fulcrum points you want to get right. Or the turns in the cycle.

Looking at market performance, that’s why we have things like Utilities up +14.2% year-over-year from today. And Financial are only up +1.5%.

That’s the other thing is that the Financials are overstating earnings right now because they’re not taking loan loss provisions because the Fed and the rest of the world hasn’t forced them to.

There’s a lot to watch on the earnings front since we’re not even 20% in but we’ll keep you updated there.