“I’m getting sick and tired of doing anything half-way.”
Forget about these unaccountable bureaucrats that bombard your #OldMedia channels every day and take some real advice from one of America’s real legends. Got growth and progress? Rockne gave American football the forward pass. God bless his soul.
I’m not sure what I am going to write about this morning. So I guess I’ll just keep writing and see what happens. As you know, I’m sick and tired of these half-baked econ PhDs trying to centrally plan our lives.
The ECB cutting rates and devaluing The People’s currency as European growth is accelerating (not a typo) took my level of disgust up another notch yesterday. I didn’t think that was possible. I guess I thought wrong.
Back to the Global Macro Grind…
Like the Fed, the European central planners thought that cutting rates was going to “stimulate growth”, or something like that. Meanwhile, the market’s reaction to yesterday’s European rate cut “news” was global #GrowthSlowing.
Yes. Much like the “growth” style factor being for sale in US Equities ever since the Fed’s unaccountable decision not to taper (Financials down, Staples/Telcos straight up), that’s precisely how Mr. Market voted, worldwide, after the ECB rate cut:
Actually, since the Fed’s slow-growth-no-taper decision and ECB rate cut, from their recent highs:
But don’t tell any of these academic wonks of the Keynesian empire that. They fundamentally believe that Deflating The Inflation (from the world record inflation they perpetuated via currency devaluation in 2011-2012) is now the world’s greatest threat.
No. To be clear, their most recent policy moves are the new threat. Deflating The Inflation is not “DEFLATION!” The 2-stroke engine of 1. #StrongCurrency and 2. #RatesRising stimulates consumption growth via a consumption TAX CUT.
How else do you want to explain the recent Q313 rip in US #GrowthAccelerating from 0.14% in Q412 to +2.84%? Up until Bernanke decided to interrupt the 2-stroke engine (also known as economic gravity) with a no-taper, Down Dollar, Down Rates move, the US economy had its best sequential (3 quarter, 9 month) move in half a decade!
And now guess what the market thinks might happen next?
Do you need another exclamation mark? Are you sick and tired of reading this yet? Or are you Fed Up with waking up in the morning to these politicians trying to fear-monger you about “default risk” and “deflation”?
Now I know what I am writing about.
I’m writing about what real people in the real world are talking about – not this Keynesian/Marxist central-planning-anti-dog-eat-dog-gravity-smoothing crap.
As Ben Stiller recently said, “there’s always an element of fear that you need to work until people get sick and tired of you … or that you finally figure out that you are a fraud after all.”
Are these un-elected people at the Fed and ECB frauds? Or are they just completely bought and paid for by the Bond Bull Lobby and currency debauchery camps?
I don’t know. But I do know that Draghi worked at Goldman. And I also noticed that Goldman just had the worst FICC (Fixed Income, Currency, Commodity) quarter in the Federal League…
Was Goldman’s prop and/or FICC team choking on too much illiquid bond and currency bubble paper that they finally had to start taking some marks?
Why is Goldman’s Hatzius such a raging dove? Why is he trying to scare the hell out of the Fed on #RatesRising when his own desk is saying the opposite? Why is he all of a sudden lobbying for the Fed to change the goal posts on a lower “unemployment” target?
Who can really get out of any of these bubbles (MBS, REITS, etc.) that Bernanke backstopped? How will it end? Or are they trying to convince you, like they did in late 2007, that nothing could possibly go wrong?
I’ll stop writing and end with a message sponsored by both Republicans and Democrats who have empowered the Fed (and encouraged the BOJ and ECB) to devalue your hard earned currency:
“If you’re sick and tired of the politics of cynicism… come and join this campaign.”
-George W. Bush
Our immediate-term Macro Risk Ranges are now as follows (12 Big Macro Ranges are in our Daily Trading Range product):
UST 10yr Yield 2.49-2.70%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
TODAY’S S&P 500 SET-UP – November 8, 2013
As we look at today's setup for the S&P 500, the range is 26 points or 0.58% downside to 1737 and 0.91% upside to 1763.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
This note was originally published at 8am on October 25, 2013 for Hedgeye subscribers.
"Whoever fights monsters should see to that in the process he does not become a monster. And if you gaze long enough into the abyss, the abyss will gaze back at you."
Yesterday I was flying out to San Francisco and the United Flight I was on lacked two key things: access to the Internet and/or a choice in movies. As a result, I was stuck watching Monsters, Inc.
For those of you that have progeny perhaps you've seen it already? I'm still in the bachelor camp, so don't regularly watch Pixar cartoons. I also have to sadly report, it wasn't all that scary, though it was cute and funny.
The movie did, however, make me think about a few things that currently scare me about the U.S. economy. In no particular order, my biggest fears are:
1) The Federal Reserve - We certainly harp on the Federal Reserve and rightfully so as an un-elected and largely unaccountable body with the power to influence the global economy is very scary. Our biggest concern is the excesses that are being built into the system because of elongated, extreme monetary policy.
The economy is growing and the unemployment rate is in decline, but we remain at the zero bound in interest rates. Admittedly the policy has helped to inflate some asset classes, such as housing, that were a major anchor on the banking system. Unfortunately, this extreme monetary policy has created an economy and set of markets that are highly sensitive to central bank actions.
In the chart of the day, we highlight this point by looking at the volatility that is occurring in the interest rate market. As an example, rates on the 10Y spiked ~37% in 3Q13. This is as substantial a move we've seen on a percentage basis in fifty years. Further, in the wake of Bernanke’s confused policy communication on Sept 18th, we’ve seen a marked reversal in 10Y treasury yields with rates declining -17% off peak levels.
2) Macro Data - Admittedly it's odd for a macro analyst to be scared of macro data, but I am and here's why - it is often grossly inaccurate.
An example from our research earlier this week was a note I wrote on gold (somewhat of a meaningful asset class). The note took a deeper look at a letter gold bug Eric Sprott wrote to the World Gold Council on supply and demand in the global gold market.
Sprott's thesis is that the global supply and demand numbers for gold grossly overstate the excess supply of gold in the world. In fact, Sprott thinks that in the year-to-date we are running at a supply deficit of some 503 tonnes.
Meanwhile the World Gold Council's projections for the year-to-date suggest the world is over supplied by a tune of 217 tonnes. If we annualize both sets of projections, the difference between them is a notational value of some $50 billion dollars. Not exactly chump change !
If you are one of those people that like to invest based on concrete date, like me, you must be scared of some macro data at times as well. If you believe Sprott, then you should be buying gold hand over fist, and if you believe the World Gold Council, you should be selling.
While we do like it when we get concrete data that informs us, as it relates to gold we'll stick with our sneaky correlation models, which show a very tight correlation to the Federal Reserve balance sheet and prevailing, forward policy expectations. Interestingly, for the first time in a year, gold is actually looking like a buy in our quant model. Scary indeed!
3) U.S. Economy - Coming out of the Great Recession, the U.S. outperformed many of its western peers in both labor market and broader economic improvement. From here, though, there a few reasons to be scared.
The equity markets domestically have been on a tear and are literally registering new all-time highs – but, of course, with highs in equities and expanding multiples come high expectations for forward fundamentals. A few things that might not be so rosy on the U.S. over the next few months include:
1) Debt and debt ceiling - The uncertainty on the recent debt ceiling debacle led to a meaningful decline in consumer confidence and a slowing in economic activity. There is now a series of dates from December to February, that investors will be watching to see if there will be another debt ceiling scare or government shutdown. In markets, confusion breeds contempt.
- December 13th – the date when a House-Senate committee will report back on negotiations on a longer term budget deal;
- January 15th – the date on which the government is now open until subject to another budget agreement being reached; and
- February 7th – the next debt ceiling.
2) Corporate earnings – The results from U.S. corporate this quarter haven’t been terrible, but they certainly haven’t been gangbusters either. As of yesterday, 52% of companies are seeing sales accelerate, 51% are seeing earnings accelerate, and 47% are seeing operating margins expand. That sounds good, but the translation is that over half of corporate America is seeing earnings, revenue and margins decelerate.
3) Financials – We’ve already become more cautious on the financial sector over the last couple of days as we’ve taken Franklin Templeton off our Best Ideas as we see the outflow from bond funds slowing. More broadly, as the yield curve narrows, this is negative for banks generally. Borrowing short and lending long doesn’t pay in a narrow yield curve environment. In the year-to-date, financials has been a market leader up 26%, the second best sector after consumer discretionary. If this reverses, it will be hard for the SP500 to march higher.
Halloween is only six days away, so I don’t want to scare you too much . . . Boo! Or do I?
Our immediate-term Global Macro Risk Ranges are now as follows:
Enjoy the weekend.
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance
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