"We have never, never paid attention to seasonality. The reason why is process."

- Keith McCullough, The Macro Show, 11/8/23

Market Edges: The Recession (And Fourth Turning) Are Here - 11.22.2022 Thanksgiving inflation cartoon

Like a retail store skipping Thanksgiving altogether to put out holiday decor, some investors are already pinning their hopes on a "Santa Claus rally" to pull the economy out of an increasingly obvious slide.

You'll find no shortage of recessionary evidence below, but one subscriber last week wondered if “seasonal tailwinds” might make our forecast for a recession “less likely."

That’s not the line of thinking Hedgeye CEO Keith McCullough uses to risk manage or make decisions. For good reason. 

“We use conditional factoring," McCullough explains. "Go to every monkey who tells you about seasonality and say, ‘If you bought stocks ahead of September and October for seasonality, what happened to you?’ You got killed. We’re not going to do that. We don’t want you to get killed.” 

Hedgeye is not turning its attention to year-end. The recession is here now. And for that reason, we're providing more investing and educational resources than ever to help our subscribers weather the turbulent weeks and months ahead.

Tomorrow, our world renowned Demography analyst and bestselling author Neil Howe will join McCullough to discuss how his new book, The Fourth Turning Is Here, applies to our current situation nationally and globally (see more below in What The Media Missed).

Click here to watch this free webcast at 11am ET Tuesday.

On Wednesday, McCullough will host his Macro Themes Mid-Quarter Update for Macro Pro subscribers. This flagship presentation features more than 180 slides of recessionary data. (Email support@hedgeye.com for upgrade options.)

What comes next for the U.S. economy (and markets) will not be pretty. We believe it's better to acknowledge that truth and prepare for it than to hope for a Christmas miracle.

“If you can’t handle it, it’s not for you,” McCullough adds. “It’s a lot easier to just believe a five-day move in the Russell, stay with seasonality and just get long. That’s easy. Really easy. But it’s also really dumb.” 

There are many more free webcasts to come this month. Click here to check out the full schedule.

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In the meantime, keep reading below for more Market Edges.

Here's what's inside this edition:

  • Client Talking Points: Look anywhere besides the Magnificently Manipulated 7, and it's easy to see inflation's re-acceleration.
  • Chart of the Week: Macro analyst Christian Drake breaks down some dire 3Q23 Household debt/credit data from the NY Fed.
  • Sector Spotlight: The retail sector looks bleak, but analyst Jeremy McLean says the fall from here could be steep.
  • What the Media Missed: McCullough points to currencies and commodities as further evidence of a global recession.
  • Around the World: Director of Research Daryl Jones notes disinflation in China's CPI and PPI reports.

Good luck out there!


Below is our 'GIP Model Risk Management Overlay' to better guide your asset allocation decisions. Watch a brief video about our GIP model.

Click to enlarge

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If you ask the FX market about INFLATION re-accelerating (CPI tomorrow), it’s nailed it … US Dollar Index was up another +0.8% last week for its ninth up week in the past 11 (SPX up for the fourth week in 10 FYI, with the Russell down -3.2%) and UUP remains a Core Asset Allocation with Japanese Yen still our best Signal Strength Short.


If you ask the short end of the curve about INFLATION re-accelerating (Consumer 1-year expectations re-accelerated to +4.4% in Friday’s CONFIDENCE report BTW), it’s nailed it … UST 2-year yield was up a big +18bps last week and is up again this morning to 5.06%. They may be begging for Down Bond Yields, but they aren’t getting their cowbell (rate cut).


Russell 2000 down another -3.2% last week vs. #BubbleCap Tech (XLK) +4.2% (not a typo) after Apple’s tremendous quarter, guiding to ZERO Growth! This is getting fun in Perma-Bull narrative spaces with the broad basket of U.S. Stocks (RUT) down -14.6% since July and crashing -30.2% from its November 2021 Cycle peak.



Below is an excerpt from Real-Time Macro by analyst Christian Drake:

I generally refrain from trafficking in hyperbole, but last week’s 3Q23 Household debt/credit data out of the NY FED is objectively dire.

In short, the credit cycle remains in crescendo and consumers are approaching or have already breached the event horizon on capitulation.

The progression and prevailing trajectory does not somehow benignly arrest and reverse from here, particularly given the tighter policy bias and the reflexive interconnectedness of tightening credit and decelerating macro conditions.

The chart set below requires little editorialization, but we’ll add some contextualization just to emphasize the cyclical evolution that’s paying out.  

  • Revolving Credit (credit cards): Total revolving credit rose to $1.079T, rising +16.65% Y/Y.  That is the second fastest pace of growth ever and an acceleration vs the +16.23% Y/Y pace in 2Q.  Notably, 2Y growth continues to accelerate and the acceleration here in 3Q came against a significantly harder comp.
  • Credit Card Interest Rate: Credit Card interest rates are currently at 22.8% and the highest in at least 3 decades according to the latest August data from the Fed. 
  • Credit Card Delinquencies: Early (30-Day) and Serious (90-Day) Delinquencies Rates both made new cycle highs in 3Q with the breadth of that deterioration wide across demographics.
  • Consumer Bankruptcies & Foreclosures: Consumer Bankruptcies and foreclosures were up +19% Y/Y – an acceleration from 17.4% Y/Y in 2Q. Notably, 2Y avg growth (helps normalize for the comp distortion associated with pandemic support/stimulus) accelerated to +18.1% … easily the fast pace of growth/acceleration since the GFC. 

Again, there are a couple interpretations, and neither is particularly inspiring. 

Either consumers continued to borrow more as interest rates rose further in an attempt to smooth consumption (or in a crescendo of frivolity for items households couldn’t otherwise afford) or the increase is due to accrued interest, in which case those balances will continue to compound and further strain the capacity for discretionary/pseudo-discretionary consumption.  

Indeed, with the percentage of credit card customers rolling over debt month-to-month higher than the percentage paying it off in full every month for the first time ever, the data would suggest, at the least, some combination of both dynamics.

We’ll have a more comprehensive review in our 4Q Macro Themes Update call on Wednesday.

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Hedgeye Retail analyst Jeremy McLean delivered a stark analysis of the Retail sector's immediate future on The Macro Show.

"We're far from a bottom," he explains, suggesting a potential six- to nine-month period of challenging data ahead.

"The savings rate is going down, consumers are seeing incremental pressure and we’re still at high levels of consumption in retail sales growth."

McLean expects significant downward adjustments in retail stocks, driven by unrealistic earnings growth and a shifting rate environment. For investors looking to stay ahead in the retail game, this is a must-watch. 

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Below is an excerpt of The Early Look written by Keith McCullough.

“Every wave has a wavelength. And every social cycle has a periodicity.”  Neil Howe

If you study long-term cycles and pay attention to my partner Neil's longer-term research, you’ll get smarter, faster. If you didn’t know that being perma-bull long “what you know” is a Social Cycle thing, now you know.

You didn’t know you didn’t need to dog-pile your hard-earned capital into Apple after they guided to zero growth? What? Are you out of your mind? It only has $2.9 TRILLION in market cap this morning after signaling Bullish TREND on Friday!

As Neil  our Demography analyst and a bestselling author  goes on to explain about a Social Cycle“we can simply measure it across multiple cycle peaks. But to understand why the cycle has any given length… we need to know about what determines it.”

Neil will join me for a free webcast at 11am ET tomorrow (Tuesday) to discuss his latest book, The Fourth Turning Is Here, and his outlook for the months ahead. Click here to watch free live or on demand.

As for the rest of the economy (i.e., everything outside of Apple and the Magnificently Manipulated 7 #MM7), the Global Currency Market (which, like AAPL, has ZERO Growth on a TRENDING basis) REMAINS in RECESSIONS.

  1. EUR/USD was down another -0.6% last week and remains Bearish on both our TRADE and TREND durations
  2. Japanese Yen was down another -1.4% last week to -4.7% in the past 3 months and remains Bearish TREND
  3. GBP/USD was down another -1.4% last week to -4.2% in the past 3 months and remains Bearish TREND
  4. Canadian Dollar was down -1.2% vs. USD last week to -3.1% in the last 3-months and remains Bearish TREND
  5. Chilean Peso was down -4.2% vs. USD last week to -7.3% in the last 3-months and remains Bearish TREND

WHEN the USA joins the Global RECESSION, it disinflates the prices of COMMODITIES as demand slows. Look no further than Oil prices as the USA entered a RECESSION here in Q4:

  1. CRB Commodities Index disinflated -3.0% last week to -2.3% in the last month = Bearish TRADE and TREND
  2. Oil (WTI) disinflated another -4.2% last week to -8.2% in the last month = Bearish TRADE and TREND too
  3. Dr. Copper was down another -2.6% last week to -4.7% in the last 3-months = Bearish TREND
  4. Corn was down another -2.8% last week to -6.5% in the last 3-months = Bearish TREND
  5. Palladium disinflated -13.3% last week, taking its crash in the last 3-months to -25.0%

So … it’s a good thing AAPL iPhones aren’t commodities, eh?

All I know is that I’m going to stay with my Full Investing Cycle Shorts that keep working (i.e. signaling Bearish @Hedgeye TREND) for me:

A) US Real Estate (XLRE) was DOWN another -2.6% last week to -9.1% in the past 3 months
B) China (Hang Seng, EWH) was DOWN another -2.6% last week too to -10.6% in the past 3 months

Never has a Go Anywhere Global Macro Strategy been more valuable as The People have been forced to Go Only into #MM7 (Magnificently Manipulated 7) as we enter a U.S. recession.

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Below is an excerpt from a Macro Pro research note written by Director of Research Daryl Jones.

  • Disinflation is taking hold in China based on October’s PPI and CPI reports (as the chart below shows, the stock market in China doesn’t like this):
    • CPI slowed to -0.2% Y/Y, versus +0.0% in September
    • PPI slowed to -2.6%, versus -2.5% in September
  • We’ve continued to get slowing economic data from Europe over the last couple of days:
    • Eurozone Retail Sales slowed to -2.9% Y/Y, versus -1.8%
    • Italy Retail Sales slowed to -1.3% Y/Y, versus +2.4%
  • Meanwhile, U.K. Home Prices continues to decline at a rate comparable to the GFC (chart below)
  • Mixed bag of ECB commentary out today, but the gist is that interest rates will remain restrictive for the foreseeable future 

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