“We are almost entirely incapable of predicting the future.”
That’s the closing sentence to the opening paragraph to “The Need For A New Economics”, which is Chapter 1 of George Gilder’s latest book, Knowledge And Power.
The opening sentence is better: “Most human beings understand that their economic life is full of surprises.” And it’s better because it’s more in line with reality than an all-or-nothing statement about forecasting.
For me, risk management isn’t about predicting the future. It’s about probability weighting our decisions within a repeatable, but flexible, process. If you establish a multi-factor, multi-duration process, you’ll find yourself forecasting when you are about to be right and wrong, faster. Changing your mind is more important than anchoring on predictions.
Back to the Global Macro Grind…
As I was flying back from Los Angeles last night, I was thinking about everything I always think about when I have time to think – my family, my firm, and the Fed.
What on God’s good earth is the Fed going to do to my family and firm next?
It’s sad, but this is what our said free-market life has become. I was on the road all week seeing clients in California and I couldn’t go through 20 minutes of long-cycle (40-60 years) macro research without having to debate how the Fed can interrupt our analysis of things like economic gravity.
Never mind predicting the future, some of these un-elected central planners think they can “smooth” it! That’s just dumb. And I can only thank progressive information innovations like Google and Twitter for expediting the world’s education on that.
Bernanke’s Fed thought they’d be able to smooth the long-end of the yield curve – nope. Bond Yields continue to rip a series of higher-lows and higher-highs on accelerating US employment growth data. I know, after seeing the Nasdaq and SP500 correct -1.5-3% from their YTD highs, that must be the new bear case for US Equities. The data is now too good.
Got good data? Here’s how the most important leading economic indicator for US bond yields did this week:
- Initial Jobless Claims rose 16,000 this week to 336,000
- The 4-week rolling avg of claims dropped 2,250 this week to 330,500
- The 4-week NSA rolling avg of claims was -10.3% y/y versus last week’s -7.8% y/y
In other words, the bond market has it right. The Fed and bond bulls are still fighting both the data and the market. NSA (non-seasonal adjusted claims) remain our preferred leading indicator, primarily because it fits the 10yr Yield like a glove.
BREAKING: the Fed’s new “forward guidance” model is called the market front-running them.
From our latest Hedgeye Jedi hire, Jonathan Casteleyn, check out this week’s fund flows (i.e. outflow data) in Fixed Income:
- Fixed Income outflows accelerated to -$3.9B this week versus -$2.0B last week
- Tax-free (municipal bonds) continued their sharp outflow trend, losing another -$2.0B last week
- The 2013 weekly avg of Fixed Income inflow has now declined to $469M (vs +$5.8B in weekly inflows in 2012)
That’s not a typo.
Since President Obama is, allegedly, saying “no more bubbles” now, let me write that one more time – this past week’s #RatesRising Fixed Income OUTFLOWS were -$3.9B versus the 2012 Bernanke Bond Bubble weekly avg INFLOW of +$5.8B in 2012.
Nah. This ain’t cool bro. This is what we call another disaster for Americans who got jammed into everything yield chasing from Gold, to MLPs, to anything that looked and/or acted like a low-beta bond used to.
But don’t worry, Bernanke didn’t have anything to do with that or growth oriented investments pulverizing the slow-growth Yield Chasers (like Utilities) since bonds went over The Hedgeye Waterfall in June.
We use the thermodynamic model of the volume and velocity of water approaching its point of entropy (The Waterfall) as an alternative to the broken economic and market forecasting models of the Federal Reserve.
Rather than a crystal ball model, it’s a real-time probability weighted model that embraces uncertainty. And it works. What doesn’t work is attempting to ban and/or smooth things like free-market gravity.
As a result, the only long-term future prediction I will hang my hat on is that American monetary policy will evolve. If I’m wrong on that, as their old boy Keynes would say, in the long-run we’ll all be dead anyway.
UST 10yr 2.78-2.97%
Best of luck out there today and enjoy your weekend,
Keith R. McCullough
Chief Executive Officer
THE MACAU METRO MONITOR, AUGUST 23, 2013
MACAU VISITOR ARRIVALS FOR JULY 2013 DSEC
Visitor arrivals increased by 4.9% YoY to 2,565,170 in July 2013. Visitors from Mainland China increased by 14.0% YoY to 660,096, coming primarily from Guangdong Province (738,106) and Fujian Province (74,292). Mainland visitors traveling under the Individual Visit Scheme was 730,405. Moreover, visitors from the Republic of Korea (38,416) and the Philippines (18,859) increased by 6.6% and 0.9% respectively, while those from Hong Kong (598,200); Taiwan (91,226); and Japan (20,593) decreased by 6.5%, 18.7% and 41.4%.
The average length of stay of visitors held stable from a year earlier, at 1.0 day in July 2013.
TODAY’S S&P 500 SET-UP – August 23, 2013
As we look at today's setup for the S&P 500, the range is 29 points or 0.90% downside to 1642 and 0.85% upside to 1671.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.50 from 2.50
- VIX closed at 14.76 1 day percent change of -7.40%
MACRO DATA POINTS (Bloomberg Estimates):
- Kansas City Fed Jackson Hole Economic Summit continues
- 10am: New Home Sales, July, est. 487k (prior 497k)
- 11am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
- 1pm: Baker Hughes rig count
- President Obama speaks on improving value of higher education at Binghamton University in Vestal, N.Y., and with Vice President Joe Biden at Lackawanna College in Scranton, Penn.
- 11am: U.S. Chamber of Commerce briefing on TPP negotiations taking place in Brunei this week
- Pentagon weighs firing thousands of civilians under 2014 cuts
WHAT TO WATCH:
- Nasdaq says cause of connectivity issue has been addressed
- Nasdaq shuts trading for 3 hours after computer errors
- SEC’s White vows tech safeguards after Nasdaq failure
- JPMorgan said to face London Whale fines as soon as next mo.
- CFTC said near releasing high-speed trading regulation plans
- Amgen said to push for lower Onyx price amid drug-data dispute
- Koch Industries backs away from bid for Tribune’s newspapers
- Moody’s mulls downgrade of big banks as U.S. support wanes
- Mitsubishi aircraft gets U.S. airlines’ backing amid delays
- AMR, US Airways want trial for U.S. antitrust suit in Nov.
- Southwest blind spot eroding U.S. bid to bar AMR-US Airways
- Alibaba said to ask HKEx to allow partners to nominate board
- Wells Fargo eyes 20% ann. growth in Asia fund-services clients
- ADM says Graincorp offer extended to Nov. 16 from Aug. 31
- Richmond says bondholders’ suit over eminent domain too early
- Baidu buys 59% stake in Renren website for $160m
- Amazon said to have tested wireless network in California
- U.K. economy grows a more-than-estimated 0.7% as exports rise
- U.S. GDP, King Speech Anniv., Carney: Wk Ahead Aug. 24-31
- Ann Inc (ANN) 7:30am, $0.65
- Foot Locker (FL) 7am, $0.47
- Hibbett Sports (HIBB) 6:30am, $0.38
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- WTI Crude Futures Head for Biggest Weekly Decline in a Month
- Gold Bears Take Over as Fed Members Back Taper Plan: Commodities
- Sugar Exports From India Get Boost From Record Rupee Plunge
- Gold’s Rout Spurs Surge in Indonesian Demand: Southeast Asia
- Corn and Soybeans Rise as Midwest Seen Set for Heat and Dryness
- Copper Climbs on Rebound Indications and Shrinking Inventories
- Robusta Coffee Falls to 7-Week Low on Technicals; Sugar Advances
- Rebar Rises as Data Signals Better Prospects for Global Recovery
- Strike Threat May Cripple Money-Losing South Africa Gold Miners
- Soybean Traders Most Bullish Since 2012 as Freeze Threat Looms
- Coal Gets No Relief as Aussie Slide Deepens Glut: Energy Markets
- Petrobras Outspends Exxon Researching Next Oil Frontiers: Energy
- China’s Yunnan Tin Will Halt Lead Smelting After Price Declines
- Soy, Corn Yields Seen Less Than USDA Estimates on Midwest Tour
The Hedgeye Macro Team
Takeaway: The number of people filing initial jobless claims continues to drop at an accelerating rate year-over-year.
The Lowest Running Monthly Jobless Claims Level in 5 Years
In the most recent initial jobless claims series released this morning from the U.S. Department of Labor, weekly jobless claims thus far for the month of August is running at the lowest monthly level since November 2007.
With employers holding on to more workers to meet an improving economy, this U.S. labor series may continue to improve as the effects of Federal budget cuts and higher payroll taxes burn off in the second half of 2013. In addition, the incremental impact of Obamacare is likely driving a portion of the underlying improvement, with nearly 75% of the 1 million jobs created this year being attributed to small and medium sized businesses hiring part time workers.
Prior to revision, initial jobless claims rose 16k to 336k from 320k week-over-week (WoW), as the prior week's number was revised up by 3k to 323k.
The headline (unrevised) number shows claims were higher by 13k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -2.25k WoW to 330.5k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was
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