“Good things can happen.”
- Bob Iger
That’s how Iger introduces Chapter 6 of a good leadership and strategy book I reviewed at the end of last year: The Ride of A Lifetime. In life, great things are always happening. And in Global Macro, there’s always good things happening somewhere.
In the US, if you are long of #Quad3 Asset Allocations and Sector Styles (REITS and Utilities) great things were happening for you yesterday. If you were long of Energy Stocks (XLE), you had another good buying opportunity.
This isn’t about being an optimist instead of a pessimist. I’m a realist. If you’re a US Consumer, who is in slowing shape, not good things can happen – especially if the company you work for has #Quad3 margin compression. That’s when you can lose your job.
Back to the Global Macro Grind…
Long Industrials (XLI) yesterday? That was not good. Neither are Industrials earnings:
A) Industrials (XLI) were down -1.1% yesterday vs. SPY -0.3% and REITS (VNQ) up another +1.0%
B) Industrial Earnings (7 of 90 S&P Companies) are down -4.5% year-over-year so far in Earnings Season
If you have friends who want to blame Boeing (BA) or viruses (or Trump), let them do as they please. We’re going to do our best to mute the Old Wall’s narratives this year and focus your mind and money on being long the good data-driven things instead.
A really good thing to have in your portfolio is asymmetry. What does that mean?
A) Being long things that go up when other things aren’t …
B) So that you can prune gains in things that are working and plant investments into things that are correcting
Pruning and planting. All good things for American gardeners and Canadian hockey players, alike, eh!
At the Sector level, you get the drill. You can take a day like yesterday and apply it to your stock picks too:
A) Canadian Natural Resources (CNQ) tapped the low-end of the @Hedgeye Risk Range = Buy more
B) Booking Holdings (BKNG) sold off to the low-end of the @Hedgeye Risk Range = Buy some
Both were selling off on “Chinese Virus” fears. Those things don’t compute in our predictive tracking algos as reasons to freak out. In fact, there is no freak out feature in our nowcasting models. If the bubonic plague breaks out, The Machine will let us know.
Back to our “picks”, CNQ is Al Richards favorite big cap Energy Long. We’ve had that on since October (when we went bullish on Energy stocks), so that’s a “buy more” because we said “sell-some” when Oil ramped to $64 on Iranian headline news.
Booking (BKNG) was down, hard, on virus fears and signaling immediate-term TRADE #oversold within Todd Jordan’s Bullish @Hedgeye TREND view. So I walked over to his office and asked for the all-good signal, and he gave me the thumbs up.
That’s the thing about buying opportunities, you need to be prepared with a list of things you’d buy, if you could.
Another good thing to have been buying yesterday were Emerging Markets exposures:
A) MSCI Emerging Markets ETF (EEM) signaled immediate-term TRADE #oversold within its Bullish @Hedgeye TREND
B) South African Stocks (EZA) signaled immediate-term TRADE #Oversold within their Bullish @Hedgeye TREND
Quadzilla (Darius) is giving me the double-thumbs up on buying more South Korean and Taiwanese Equity exposures this morning (2 of the 3 heaviest weights in the EEM ETF):
A) South Korea’s 4Q19 GDP data confirmed our Quad 2 nowcast for the quarter (+20bps to 2.2% YoY vs. final Hedgeye nowcast of 2.12%). Korean GROWTH has been on a steady uptrend since bottoming in 1Q19 and our comparative base effects model is calling for an acceleration in the rate of change here in 1Q20E
B) Taiwan is another Asian economy our GIP Model has been positive on since its bottom in 1Q19 and the DEC Industrial Production data out of Taipei (+420bps to 5.99% YoY – the fastest RoC since OCT ’18) provides a positive handoff in support of our view that Taiwanese GROWTH should continue to accelerate here in 1Q20E
Instead of helping you lose lots of “fully allocated” pie-chart money being Long Emerging Markets from the late 2017 cycle highs to the mid 2019 lows, most good macro things come to those who have patience embedded in their process too.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.75-1.85% (bearish)
SPX 3 (bullish)
Utilities (XLU) 64.58-67.81 (bullish)
REITS (VNQ) 92.56-96.31 (bullish)
Energy (XLE) 58.01-60.66 (bullish)
Tech (XLK) 93.18-97.88 (bullish)
Shanghai Comp 3045-3125 (bullish)
DAX 137 (bullish)
VIX 11.76-13.97 (bearish)
USD 96.55-97.52 (bearish)
Oil (WTI) 57.05-60.84 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
