Caleb Silver


Hedgeye’s Keith McCullough on the greatest global risks and opportunities

As global economies try to lift themselves off the mat in the wake of the coronavirus pandemic and ensuing recession, many market observers may be fooled by the rapid rise in equity prices around the world. Keith McCullough, CEO of Hedgeye Risk Management, is not. Having experienced a few other financial crises, McCullough and his team are more than skeptical about the strength of the recovery, the spending deployed to help it, and the staggering amount of debt being run up by governments and companies in the wake of the crisis.

[Keith and I discussed Hedgeye’s methodology and where the team sees the biggest risks and opportunities in the world in a one-hour webinar this week. If you are interested in their process, please check it out here.]

Keith and his team have developed a proprietary model that frames the global economy in four unique ‘Quads” that quantify the macroeconomic patterns shaping the recovery. Each Quad also includes the assets and financial securities that tend to perform better or worse in that time frame. Hedgeye runs these models across countries, industries, and sectors every day to adjust its recommendations to clients who pay for its research, including institutional investors, high-net-worth individuals, and family offices.

As Hedgeye sees it, we are in ‘Quad 4″ of the current recovery, which is characterized by slowing growth, a deceleration of inflation, dovish monetary policy, and a deflationary market outlook. As such, the stock sectors that are poised to outperform include:

  • Consumer Staples
  • Healthcare
  • REITs
  • Utilities

Here’s how a sampling of ETFs across those sectors have performed, year-to-date. (These are not recommendations from Hedgeye—we’ve included them here only for informational purposes.)


Those sectors expected to weaken, include:

  • Tech
  • Energy
  • Industrials
  • Financials

It’s worth noting that Tech has been the strongest performer of any sector of the market throughout the chaos of 2020, and most of 2019, as well. Here’s how a sampling of ETFs across those sectors have performed, year-to-date. (These are not recommendations from Hedgeye—we’ve included them here only for informational purposes.)


Hedgeye’s guidance is not limited to equities, by any means. The team scans the globe for opportunities across fixed income, commodities, currencies and other assets, in search of opportunities to deploy, or remove, capital.

McCullough is particularly concerned about the staggering rise of corporate debt, especially debt that is lower than investment grade, that companies have been loading themselves with even before the current recession.

Corporate Debt to GDP.

That debt, coupled with a historic earnings recession, is one of the key risks to the recent rally, as McCullough sees it. While central banks have helped add fuel to the fire with low or negative interest rates around the world, that debt load will become very heavy, and unsustainable for most.

To hear more of McCullough’s perspective, and where he and the Hedgeye team see opportunity, listen to our webinar from this past week. I learned a lot from it, and I know you will, too.

Author: Caleb Silver

Source: Investopedia: Where in the World to Invest Now

2008 is still affecting how some investors trade the market today.


Older, wealthier investors are more bearish, but more measured than they were in 2008
Those buying stocks are flocking to Amazon and blue chips
Money market funds and high-yield savings remain safety plays

Our recent survey of readers shows that more than half of older affluent investors are more worried now than they were in 2008, but have been making more measured portfolio moves to protect themselves.

“I’m taking a a very long-term approach, and holding onto stocks and funds already in my portfolio, and investing free cash while prices are low,” one reader told us. “I’m looking for stocks with solid balance sheets,” wrote another. “In 2008, I rode it out, but this time, I am transitioning to ‘safer’ investments during rallies,” said another reader in response to our survey questions.

“In 2008, I rode it out, but this time, I am transitioning to ‘safer’ investments during rallies.” Investopedia Reader

Market Rebound Stirs Anxiety

Older, wealthier investors say they’re leaning on the lessons they learned during the Great Financial Crisis of 2008-09, and not panicking during the recent market sell off and subsequent return. But the recent rebound for equities has them feeling a little more bearish as the U.S. economy comes to grips with a sudden recession punctuated with the highest unemployment in nearly a century.

The recovery in the stock market may look similar to 2009, but the economy is in a much different and precarious state than it was then. Investor anxiety over personal finance issues is at a record high, casting more doubts about the sustainability of the stock market’s recent streak.

IAI Constituent Subindicies

Of the nearly 1,200 respondents, over half were invested during the 2008-09 recession, and 74% of those were baby boomers or older, while a quarter were Gen X or younger. Older investors tend to have more invested, with more than 60% of our respondents owning portfolios of $500,000 or more.

These investors have more to lose than younger generations, and less time to recover from losses. Indeed, they were more cautious than those who weren’t invested in 2008-09, with more than 60% indicating they are bearish or neutral, and less than 40% claiming to be bullish.

2008 Investors Lean Bearish Today

How are They Responding to the Market?

More than half of respondents say recent events have them more worried than 2008-09, leading many to say they’re making fewer portfolio moves than their counterparts who were not invested during the financial crisis.

Recent Market Events Worry Investors With 2008 Experience

Have recent market events changed the way you approach your investments?

Many are favoring high yield savings accounts and money markets, following a herd of institutional investors who have stampeded that way. Mutual funds continue to see outflows, while this group has been favoring index funds and ETFs.

2008 Investors Are Split on Stocks

Older Investors Split on Stocks

Older investors who are making changes to their investment strategy are split when it comes to stocks, with 33% investing less, and 44% investing more.

When it comes to individual stocks, these investors have generally been playing it safe, with a few exceptions. Amazon (AMZN) has been the fan favorite for this group and just about every other investor of late. The stock hits all-time highs on a regular basis, and has been a clear beneficiary of the stay-at-home economy. Amazon is also among the most widely held stocks in index funds and technology ETFs, and its oversized market cap of nearly $1.2 trillion gives it a heavy influence in the cap-weighted S&P 500.

2008 Investors Moving Towards Stocks Pick Safe Bets

Outside of Amazon, these investors have favored blue chip stocks like Coca-Cola, McDonald’s, PepsiCo, Facebook and Intel. Some of the wildcards appearing in these affluent investors portfolios include Tesla, which has been an entertaining stock to hold, and a profitable one for long-term investors, and Gilead Sciences, which is likely a bet on a vaccine or treatment for COVID-19.

While opportunistic at times, our more experienced investors, especially not yet in retirement, are caught in a classic risk/reward dilemma. While they don’t want to give up gains they amassed over the last 11 years, the momentum behind the recent surge in stocks is hard to ignore.

Author: Caleb Silver

Source: Investopedia: How Investors are Behaving in 2020 Versus 2008

The biggest online broker offers fractional shares of equities and ETFs

Fidelity, the largest online brokerage firm, announced today that it is offering fractional shares trading for stocks and ETFs to its 23 million customers. Fractional trading, or what Fidelity calls “dollar based investing,” allows customers to buy and sell as little as 0.001 of a share using Fidelity’s mobile app for iOS and Android. Fidelity is among the first of the major online brokers to offer fractional shares, which comes on the heels of a move by Fidelity and its competitors to offer zero trading commissions on stocks and ETFs.

According to a press release, Fidelity will make it possible to offer all fractional trades in real-time during market hours, which will provide its customers the ability to know the share price of the security they are trading, rather than having to wait until the end of the day for multiple orders to add up to full shares. Fractional share trades must be market or limit order types and are only good for the day they are traded.

Though all transactions of fractional shares must be placed on mobile devices, the fractional shares will be displayed on a client’s Positions page on the website and in its downloadable platform, Active Trader Pro.

Scott Ignall, Fidelity’s head of the retail brokerage business, said in a statement, “… customers can now own a piece of their favorite companies and ETFs based on how much they want to invest, independent of the share price.” Fidelity is offering fractional share trading in customer accounts including brokerage, HSAs, IRAs, and self-directed brokerage accounts via a workplace retirement plan like a 401(k).

Offering fractional shares allows Fidelity to bring account minimums down for customers who either can’t or don’t want to buy entire shares of high-priced stocks like Amazon or Google, but want exposure to those securities in their portfolio.

Fidelity’s move into offering fractional shares lines up with investor interest in high market cap stocks. According to Investopedia’s analysis of search trends on, investors have shown a high level of interest in searching for the share price of the most popular and highest market cap stocks in the S&P500, including Amazon, Apple, Google and TSLA.

Other brokers, like Schwab, are planning to offer fractional share trading in 2020, according to Shana Weber, head of strategy and asset management. Interactive Brokers has been offering fractional shares since November of 2019 and Robinhood started rolling out fractional share trading in December 2019. E*TRADE and TD Ameritrade offer fractional shares on their robo-advisor platforms.

Author: Caleb Silver

Source: Investopedia: Fidelity Announces Fractional Shares Trading

It was only a matter of time and the time appears to have come in the online brokerage industry as Charles Schwab, the original discount broker, is said to be in talks to buy rival TD Ameritrade in a deal valued at $26 billion. Schwab laid down the gauntlet in early October by eliminating trading fees for stocks and ETFs. TDA, E*TRADE, Interactive Brokers, and Fidelity all followed. But judging by investor reaction, TDA, which lost nearly 30% of its market value the day Schwab announced it would eliminate commissions, appeared to be vulnerable.

In an interview with Investopedia, Charles ‘Chuck’ Schwab, told us that his eponymous firm has wanted to eliminate commission for years as they are, ‘…an encumbrance to bringing people into investing.” Schwab told us that his firm has other ways of making money, and indeed it does. The company pulled in more than $10 billion in revenue in 2018, and over $3.3 billion in net income. Eliminating trading fees would cost the firm $80-100 million a year, but since Schwab is really a bank with over $3.7 trillion in assets and 18 million customers, it could take the hit.

TDA, on the other hand, with 11 million customers, makes most of its revenue through trading activities, order flow, and cash management. Even though it is tied into a bank by virtue of its acquisition of TD Waterhouse USA, the lion’s share of its revenue comes from its online brokerage, formerly known as Ameritrade.

Regulatory Hurdles

A buyout of one behemoth in the online brokerage industry by another will inevitably bring on an anti-trust investigation. According to a note to clients sent by analyst Kyle Voigt of Keefe, Bruyette & Woods, Schwab has approximately 50% of registered investment advisor (RIA) custody assets and TD Ameritrade has between 15% – 20%. Creating an entity that could comprise nearly three quarters of a market could be problematic.

Spokespeople for TDA and Schwab have yet to respond to our request for comment on the deal, but if it does go through, the combined companies would boast nearly 30 million customers around the world. Speculation is already swirling as to the fates of smaller competitors like E*TRADE, Interactive Brokers, and TradeStation, as well as upstarts like Robinhood. With fees now history, online brokers need to generate revenue through other products like traditional banking, loans, and advisory services. Schwab has all of that, and while TDA was trying to build itself into a full services financial firm, the path has been arduous.

Fidelity, which is privately held, is still the giant in the space with 27 million customers and $6.8 trillion in assets under management. It is a full service financial institution that was born out of the democratization of investing in the 1940’s. It has the money and the brand to buy up or take out its competitors without the scrutiny of shareholders. Vanguard, the original index fund giant, is also privately held. It is less acquisitive than its competitors, but if we see a Schwab TDA marriage, anything can happen.

While we are just in the early days of the online broker battle under the cloud of zero commissions, things just got very real, very quickly.

Stay tuned.

Author: Caleb Silver

Source: Investopedia: Schwab Rumored to Buy Rival TDA in $26 Billion Deal

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