“Excellence is a habit.”
- Aristotle
This may not shock you, but most of what I believe about macro markets and generating absolute returns across the Full Investing Cycle was built on the shoulders of mathematical and scientific giants. The Fed and Old Wall narratives about bailouts and “stocks”, not so much.
The aforementioned quote prefaces chapter 3 in an awesome book I read this past weekend called The Talent Code – Greatness Isn’t Born, It’s Grown. It’s not a new book (written in 2009), but it’s one that has principles that are far more grounding than the next market bailout plan.
“The Brontes, The Z-Boys, and The Renaissance”… did the Bronte Girls come out of nowhere? How about the performance of those of you who are UP during the Global Equity & Credit Crash of 2020? Nope – that wasn’t luck either. It was all about a world class, risk managed, #process.
Back to the Global Macro Grind…
If you’re one of the many subscribers who’s UP for the “year-to-date”, that probably means that your retirement accounts have large Asset Allocations to the following 3 Excellent Bull Markets:
- US Treasuries
- US Dollars
- Gold
Moreover, instead of having recurring panic-attacks about bear market bounces in things you clearly should not have been long at A) the literal 129-month peak of a US employment cycle and/or B) into a US profit #recession (yes, all pre-virus economic realities)…
On those very same days (that US stocks are up), you generally have buying opportunities in these 3 raging bull markets. While Gold was signaling immediate-term TRADE #overbought within its Bullish @Hedgeye TREND yesterday, both US Dollars and US Treasuries were on sale.
No, they weren’t on sale like developing bear markets become on down days… but they were indeed, on sale, yesterday.
So, I bought myself some more:
- US Dollars via UUP yesterday
- Long-term Treasuries via TLT yesterday
- Extended Durations Bonds via EDV yesterday
Don’t stress, it’s all timestamped in Real-Time Alerts.
Stress is what the 10 or so US Airline companies have as their pro-cyclically levered balance sheets move to distressed. Southwest (LUV) is going to get $3.2 BILLION in bailout love from the Mon-ooch this morning.
Why don’t we just let companies that levered-up to buy back stock (to pay themselves bonuses) fail?
There are plenty of Distressed Asset Managers who would love to buy themselves some legit cheap debt and/or equity, at a time and price. Instead, is Mnuchin going to try to talk “long-term” Equity investors that today is the day to buy themselves some LUV?
Ok, maybe the growth investors aren’t going to buy Airline stocks. But no worries. Now, instead of paying a Peak Cycle US stock market bubble multiple for something like Air BnB, now ye Olde Wall bankers are going to sell them some @airbnb DEBT this morning ($1B raise, baby)!
I know. I know. “No one” could see buying profitless companies at the peak of a US Cycle becoming a problem…
But, but, look at “how well” JP Morgan (JPM) was trading on the open post their #EarningSlowing report. Then look at how unwell it was by the time the US stock market closed. And if you just close your eyes and click your heels, its all gotta be bullish “on the other side”, no?
By my scorecard (i.e. my risk multi-duration risk management signal), the US Bank stocks (XLF and KRE):
A) Look like death and
B) Imply we’re still right on The Cycle
Did you know that neither the Fed nor The Fiscal (Mon-ooch) are buying Bank and Oil “stocks”, yet? That makes the remaining of you free market capitalists in the free-and-clear to keep shorting those.
Do Earnings matter? It’s early, but here’s the EPS Season update:
- 26 of the SP500’s companies have reported an aggregate year-over-year #EarningsCrash of -33.7%
- 3 of 65 Financials companies have reported an aggregate year-over-year #EarningsCrash of -78.2%
- 5 of 71 Tech companies have reported an aggregate year-over-year Earnings decline of -13.7%
You see, some people (chasing their bench) had to buy Tech at a big lower-high yesterday because, clearly, Tech Earnings are off to a “great start” relative to “best in breed” bank earnings like Jamie Dimon’s.
The thing about Jamie’s numbers is that he didn’t take nearly enough loan loss reserves relative to the economic reality we face. He knows that. He also knows he needs a new narrative. And that’s that “we need to bailout” his levered clients, or he’ll have to report that reality in Q2.
While The Cycle was #slowing (from Q4 of 2018 until the virus shocked it to slow at a faster pace in Q1 of 2020) I heard a lot about the US economy being in “great shape.” Reality is that it was in pro-cyclically levered shape. That’s not American excellence – neither is bailing it out.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.56-0.81% (bearish)
UST 2yr Yield 0.17-0.29% (bearish)
SPX 2 (bearish)
RUT 1131-1272 (bearish)
Utilities (XLU) 49.85-62.90 (neutral)
REITS (VNQ) 60.61-81.04 (bearish)
Consumer Staples (XLP) 53.34-60.85 (bullish)
VIX 34.75-58.46 (bullish)
USD 98.60-101.19 (bullish)
GBP/USD 1.22-1.26 (bearish)
Oil (WTI) 18.08-23.98 (bearish)
Gold 1648--1807 (bullish)
Copper 2.13-2.33 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
