This note was originally published at 8am on September 30, 2013 for Hedgeye subscribers.
“The sword is victorious over money.”
If you want to get yourself right depressed this morning, just pick up a copy of Oswald Spengler’s The Decline of the West.
Otherwise, you can just think about what both Ben Bernanke and the US Congress have done to US growth expectations in the last few weeks, and go back to bed. Isn’t having Big Government Intervention in every aspect of our said “free-market” lives fantastic?
Karl Marx had one thing ½ right. There’s a class warfare amongst us in America this morning. It’s the well compensated (and non-Obamacare medicated) Political Class vs. The Rest of Us.
Back to the Global Macro Grind…
While it may be convenient for the US Federal Reserve to attempt to blame all of this on Congress (again), the non-willfully-blind who are marked-to-market every day understand there’s a lot more to this story.
The US stock market will be down for the 7th out of the last 8 days since Bernanke arbitrarily decided to take both #StrongDollar and #RatesRising out of immediate-term market expectations.
This is the first “dip” (in US Equities) that I haven’t bought in 2013, and I probably won’t be buying this morning’s either. After seeing US GDP #GrowthAccelerate from +0.14% in Q412 to +2.48% in Q213, the government’s sword remains the greatest threat to growth’s slope.
To recap last week’s US #GrowthSlowing signals, they are precisely the same ones you will see this morning:
- Down Dollar
- Down Interest Rates
- Down US Stocks
Nope. Not that complicated folks. Why would I be bullish if Bernanke and Congress are reversing everything I liked?
The Fed doesn’t do the real-time market leading indicator thing, but here they are:
- US 10yr Treasury Yield = -11 basis points to 2.62% last week = -13% off its early September 2013 high
- US Treasury Yield Spread (10yr minus 2yr yield) = -11bps last wk to 228 bps wide = -9% off its September 2013 high
- US Financial Stocks (XLF) = -1.9% last wk = -2.8% from its September 2013 high
Now if you ask Obama or Boehner what they think of the Yield Curve, you might get some interesting answers (or blank stares). But the reality of modern market life is that we don’t get paid to be partisan when it comes to explicit growth signals.
If you’re more of an equity and/or commodity signals person, last week’s #GrowthSlowing signals were the same:
- Utilities (XLU), or the slowest growth but highest “yield chasing” sub-sector of the SP500, was last week’s top performer
- Natural Gas, which is one of the few domestically driven commodities (demand), was down -4.6% on the week
- US Equity Volatility (VIX) was +17.8% on the week to 15.46
That last point fits my bottom line on government intervention like a glove. Big government Intervention in our economies, markets, and lives do a few obvious things:
A) They amplify market volatility
B) They shorten economic cycles
Nothing slows the pace of confidence and decision making in markets faster than government sponsored volatility.
Friday’s US Consumer Confidence (University of Michigan survey) was a stiff reminder of that. As the US stocks market (and interest rates) stopped going up a few weeks ago, the September confidence reading dropped to 77.5 versus 82.1 in August.
As a small business owner in this country, throughout 2013 my confidence in the macro environment was as progressive as anyone who writes to you every morning. That’s changing now - and to have to call that like it is this morning is just plain sad.
Even though I’m opening our new office in Stamford, CT as the government is about to shut down theirs, I have to admit that their conflicted and compromised sword has once again left its mark on my mind.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.57-2.71%
Natural Gas 3.45-3.63
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer