“There can be no innovation if you operate out of the fear of the new.”
- Bob Iger
That was a profound quote from a leadership book (Iger’s Ride of A Lifetime) I was citing at the end of 2019. Today isn’t 2019 or 2008. It’s February 7th of 2020 and I have no fear in changing my positioning on a dime if and when I learn something new.
Back to the Global Macro Grind…
What’s new this morning?
For those of you who are new to subscribing to our data-driven and apolitical asset allocation and risk management process, waking up to the ROC (rate of change) data embedded in our Quad Nowcasts + @Hedgeye Signals is brand spanking new.
It separates you from Macro Tourists who are endemically infected by the Old Wall.
Bearish? C’mon. No 100% transparent and accountable (published daily) #process had you go from short Treasuries, Gold, Utes, etc. to long of them going on 16 months ago. The total return of that portfolio absolutely crushed any other, especially when you adjust it for volatility.
In Old Wall vernacular, the boys and girls in Stamford, CT were raging bulls!
Little known facts on Utilities (XLU) vs. “stocks” (especially those Small Cap dogs in the Russell 2000, which is -4% from its Q318 cycle peak):
A) Pre-dividends, Utilities (XLU) are +34% since our process made the Full Investing Cycle pivot in Q3 of 2018
B) Q419 Earning Season to-date, Utilities have an aggregate year-over- year EPS #acceleration of +15.1%
Those returns and bottom-up Earnings Accelerations compare with a Sector Style of “stocks” that my process hasn’t had us long of:
A) Pre-dividends (lower than Utes), Industrials (XLI) are +5.4% since we made the Full Investing Cycle pivot in Q3 of 2018
B) Q419 Earnings Season to-date, Industrials have an aggregate year-over-year EPS #deceleration of -5.6%
We all know what people in our profession are talking about when they say “buy stocks” because we know that they have no idea what the innovation of a new Full Cycle Investing #process entails.
I thank my God, every day, for their inability to innovate and/or evolve. #Disrupt #TakeShare #CantHurtMe
Oh yeah, David Goggins (author of Can’t Hurt Me) inspired me this morning. I was up at the usual 430AM and had Quadzilla’s stochastic equations for breakfast. What did our competition do?
When you create something that doesn’t exist, don’t waste time apologizing to your competitors for it. If people have the open mind to consider your creativity, take the time to teach it to them.
Not once since we tilted outright bullish on #Quad2 (real Growth + Inflation #accelerating at the same time) in the back half of 2016 and/or pivoted to #Quad4 in Q3 of 2018 have I started explaining my process with a word the establishment loves like their born-child, “valuation.”
If Utilities and Gold weren’t getting more expensive right now, my market signals wouldn’t be agreeing with our Quad Nowcasts.
In other news about “stocks” this morning, new data suggests we made another timely pivot out of EM (Emerging Markets) when we sold Oil/Energy and went long US Dollars (core #Quad4 Asset Allocation pivot from Short USD In #Quad3).
Everyone who hasn’t evolved gets you into asset management products. Who gets you out?
Here’s Quadzilla’s fresh new economic data:
- EM ASIA - with respect to #coronavirus, this morning we saw what might be the first material sign of its regional – and potentially global – impact in the form Taiwanese trade data for the month of JAN. Export growth slowed -1160bps to 7.6% YoY, which represents the sharpest annual contraction since FEB ’19. Import growth collapsed -3160bps to -17.7% YoY, which also represents the sharpest annual contraction since FEB ’19. The first thing I think of when I see Taiwanese imports collapse like that is the AAPL supply chain…
- RUSSIA - The Bank of Russia cut its benchmark policy rate -25bps to a 6yr-low of 6.25% this morning, following yesterday’s hyper-dovish INFLATION report. Headline CPI slowed 60bps to 2.4% YoY in JAN – the slowest RoC since JUN ’18. Core CPI slowed -40bps to 2.7% YoY in JAN – the slowest RoC since AUG ’18. Anchoring on the RSX as a proxy, Russian assets have enjoyed a good run over the past three moths leading into Quad 1 in 1Q20E, but we might be nearing the end of that ride heading into Quad 4 in 2Q20E and back-to-back quarters of Quad 3 in 2H20E
Too many ROC numbers? Nah. Embrace the specificity. Generalizing about how macro “feels” or “looks” is dying on ye Olde Wall vine.
Alongside selling all of my Commodities and Energy Exposures (which btw had phenomenal point to point returns from our #InflationAccelerating call at the beginning of OCT 2019 to the Iranian #Overbought top in JAN 2020):
A) I sold my Russian Equity (RSX) position and am now looking to short it
B) I sold my EEM (Emerging Markets Equity), South Korea (EWY) and Taiwan Stocks (EWT) positions
And, as long as the US Dollar continues to signal that the Fed is NOT Dovish Enough and I see incoming news that’s actually not fake like virus and political narratives are, I’ll look to re-short China, Taiwan, etc. too. I fear my God. I do not fear the data and what’s new.
My immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.48-1.71% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
Utilities (XLU) 66.89-69.54 (bullish)
REITS (VNQ) 93.85-96.10 (bullish)
Consumer Staples (XLP) 62.85-64.51 (bullish)
Tech (XLK) 95.75-101.31 (bullish)
Shanghai Comp 2 (bearish)
VIX 13.80-19.56 (bullish)
USD 97.26-98.63 (bullish)
Oil (WTI) 48.77-54.18 (bearish)
Nat Gas 1.80-1.98 (bearish)
Gold 1 (bullish)
Copper 2.47-2.62 (bearish)
FB 198-215 (bearish)
Bitcoin 8 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
