Keith McCullough: The Tech Rally Is Not Over!

|
Includes: BXUB, BXUC, CRF, DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PPLC, PPSC, PSQ, QID-OLD, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL, RWM, RYARX, RYRSX, SBUS, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TALL, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USA, USSD, USWD, UWM, VFINX, VOO, VTWO, VV, ZLRG
by: MacroVoices

Summary

In macro, clearly cheap gets cheaper and expensive gets more expensive.

I think real growth expectations, tech and consumer discretionary they are our two favorite sectors.

We currently have a clean acceleration in the economy in the first part of 2017 that will see actually the fastest growth rate that we're going to see.

Keith McCullough is the CEO and founder of Hedgeye. Prior to founding Hedgeye Risk Management, Keith built a successful track record as a hedge fund manager at the Carlyle-Blue Wave Partners hedge fund, Magnetar Capital, Falconhenge Partners, and Dawson-Herman Capital Management.

Erik Townsend welcomes Keith McCullough to MacroVoices as the featured interview guest. Erik and Keith discuss his outlook on the US Dollar, his views on the reflation trade rolling over and his bullish outlook on the US markets and the Nasdaq. They further discuss bond yields, the Euro and his outlook on the emerging markets.

Here is an excerpt of the podcast:

Erik: We should let our listeners know too that we recorded this interview on Wednesday morning (June 14, 2017) so we don't yet have the FOMC result which our listeners will have heard but I think it's pretty clear that the dovish hike is what's in the cards.

Let's come back to your reflation rolling over theme, the slide deck that you sent us, we've got several slides on that, our registered users can find the download link in the research roundup email. If you're not registered yet we told you earlier in the program how to get the slide deck.

Walk us through this, what you see in the reflection trick as well, I find particularly interesting is most of the people now that are all telling the same story because it's popular about the reflation trade rolling over, they're also turning into big equity bears and you've got the reflation trade rolling over theme but you're actually equity bullish. So, how does this all tie together?

Keith: Well I think if you just separate this down to two columns and you have your longs and your shorts, I mean if you want to be short reflation, the other side of that ledger is being long what we call real growth.

So, real growth accelerates, I'm pretty sure that most people that do macro should understand this, if they don't, it's a very simple calculus. When inflation slows at the rate of change basis the deflator I.E. how you calculate GDP falls.

So, the deflator falls and real GDP rises I mean it's not that complicated and I do agree that a lot of people-- I think a lot of people-- to be clear a lot of people have been bearish on the stock market for the last three, four, five, six, seven months and they just kind of wander out there like a macro tourists to the next thing that is bearish.

Now there's always going to be something that's bearish, my goal is to find it, I mean there's a bear market always somewhere in global macro, but it doesn't always have to be where you're hoping it is which most people start with, "wow that market is expensive it must be a short."

In macro, clearly cheap gets cheaper and expensive gets more expensive so I want to be uniquely long expensive because I think real growth expectations, tech and consumer discretionary they are our two favorite sectors. In the market, our least favorite currently is energy so we're on the right side of the barbell and if it looks cheap on energy great I think it's going to get cheaper especially levered cheap on a bad balance sheet because again we're bearish on oil prices, we're bear on commodity prices, we're bearish on anything that is reflation.

I think that that's the most basic way to summarize it and I think that if you go beyond just the U.S. centric view which has largely base effects QE where reflation came from and where the deflation came before that and where the commodity inflation bubble from Ben Bernanke came before that before that then I think that you look forward and globally actually I'm not bullish on China, I'm not bullish European growth, I'm not bullish on a lot of things.

You don't have to be either bullish or bearish on everything I think that there are certain websites that you could read to get that view but that's more of an advertising model than it is an accuracy one.

Erik: Since you brought that up again let's go back to your long view on tech stocks. You know I was fascinated that so many people outright panicked on Friday, oh my God we had a crash an outright crash where everything went down by 2.5% and it's amazing to me that that's a crash. Now oil you know down from a hundred bucks a couple of years ago, everybody is used to that one now it's not newsworthy anymore.

So, do you worry at all I mean some people would say that what happened on Friday was maybe the first sign of weakness, the first - what's the analogy - the finger in the dike or something and it's all about to fall apart from here and another Nasdaq crash like we had in 2000 is just around the corner just you wait. How would you respond to that kind of viewpoint?

Keith: I think again that the manic media, the mainstream media like a lot of people in this country are very well aware that the mainstream media, the general popular media like to whatever be CNBC versus Fox etc. I think a lot of people kind of get that they're being lied to, I mean not lied to outright but they're just being painted a partisan version of the story.

If you go to our world, financial media has not only more mediocre minds but far less accurate and competent I guess reporting of what is actually going on in the macro market. At least in the popular media where you're talking about some popular things that are undebatable like maybe even the weather they probably still have a partisan view of that but when it comes to our world it is laughable you know what people describe as these market risks and these market moves, I mean that morning to your point the mainstream media whether it be Bloomberg or CNBC or whatever like you called it Freddy Flintstone, I mean they're talking about a route, a rout is what was happening in Pakistan, Russia and to your point in oil, the oil down 19% I mean that's a rout and of course when you get those you get tremendous buying opportunities-- I'm a huge fan of sand pile theory, complexity theory however you want to define it there's always grains of sand that will knock that sand pile down. When everybody and their brother on kind of mainstream financial or as I call it old wall media T.V. is telling you that that's it, it's probably not it. That's the point.

What I'm really looking for is data to support that the thing that drove what is becoming just a parabolic move in a fantastic return for being long low growth, tech stocks and big cap in size and balance sheets these are all style factors that are working of course you have to tell me how growth is going to stop accelerating for me to get out of that way.

If you can't show me that and we run a predictive tracking algorithm with 30 data points for a month, 90 data points for a quarter I think it's as accurate as anything you can find buy side or sell side, and I don't want it to come across the wrong way, but I have worked on it for years and we have a lot of pride in that process I'm going to buy every dip and we have and thank God I have because that's what's really made for the year.

So, you have the big names, you have the valuation experts they're overvalued but history has told us that overvalued gets more overvalued until you can tell me how growth slows in 2000 coming out of the 1999 bubble it was a clean cut deep deceleration in the economy in the first half of 2000 we currently have a clean acceleration in the economy in the first part of 2017 that will see actually the fastest growth rate that we're going to see we think it will be in Q3.

That's what I think the best economist in the market has right and I'm aligned with him his name is Mr. Market.

Conclusion: Through the full interview, Keith further shares his views on interest rates, emerging markets, cryptocurrencies and more. He clearly believes that the markets will remain bullish over the short to intermediate term and remains bullish.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.