"We've got a great new deal that takes back control…”
-Boris Johnson
That’s what the Prime Minister of the United Kingdom proclaimed to The People just an hour ago. US FOMO Futures #loved it, popping higher (again) in pre-market trading.
Of course that was everyone’s catalyst in the USA all along. No worries on the rest of what Johnson said (“now we can get back to priorities like the cost of living”) or that the UK economy remains in #Quad4 either.
All “deals” are all good and super great for everything, until they aren’t. The Cycle remains the biggest deal we’re working on in order to get the next 3-6-12 months of Asset Allocations, Sector Styles, and Factor Exposures right.
Back to the Global Macro Grind…
For those of you who aren’t consensus deal chasers, here’s the deal with 3 alpha generating portfolio ideas we’re still working on here at Hedgeye HQ this morning:
- CHINA: the no buying into the Asian Equities deal
- Long HOUSING vs. Short SOFTWARE: such a tasty deal
- The US #EarningsSlowing deal
First, on the China deal:
A) China’s latest inflation reading of +3.0% y/y CPI was a 6-year high
B) China’s latest producer price (PPI) deflation of -1.2% y/y reminds you why margins keep getting squeezed
C) China’s stock market (Shanghai) was down for the 3rd session in a row, post the greatest #BeanDeal, ever
Yeah, there are some other minor observations to consider this morning like the Australian stock market dropping -0.8% and Singapore’s falling another -0.3% alongside South Korea’s KOSPI doing the same…
But what would people who invest in those parts of the world know about trade deal “progress” or The Cycle? Lower-highs vs. the SEP lower-highs for all 3 of those markets alongside China’s? Haha, silly people doing your own deal due dilly.
The tastiest deal in Long/Short US Equity space we’re still capitalizing on is:
A) Long US Housing (ITB) since this time last year and
B) Short US Software (IGV) since our #Quad4 in Q3 call this year
You’re not hearing about this deal in the Goldman Hedgie Hotel (GVIP) index? Good. It’s Hedgeye originated deal flow where we charge no banking or deal fees! Seriously our fully loaded (with no fees) returns are here since July 26, 2019:
A) Long Housing (ITB) = up +14.9%
B) Short Software (IGV) = down -7.4%
That’s +2300 basis points of #Quad4 alpha, in 3 months. Man I bet some people must be killing it with that setup. No wonder why they aren’t distracted by Boris and beans.
How about Q3 Earnings Season? Here’s the now-casted deal on that so far:
- 10% or 49 of the SP00’s companies have reported an aggregate year-over-year EPS decline of -3.9%
- Bank (or Financials) earnings (13 of 67 have reported) are currently down -2.3% year-over-year
- Tech earnings (6 of 68 have reported) are currently down -34.1% year-over-year
So, you’re saying there’s a chance? Yeah, there’s actually a good chance earnings get worse as we roll through earnings season (because that’s what happened last EPS season before people were puking up their HIGH BETA exposure in early AUG).
Puke? Yep. Blah! Nasty. That can be the deal when you consume too many deals, all at the same time. So just be careful out there today while everyone’s chugging back the FOMO at the latest post deal party.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.45-1.81% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
REITS (VNQ) 92.07-93.57 (bullish)
Shanghai Comp 2 (bearish)
VIX 12.24-20.99 (neutral)
GBP/USD 1.21-1.30 (bullish)
Oil (WTI) 51.61-54.79 (bearish)
Gold 1 (bullish)
Copper 2.51-2.64 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
