This note was originally published at 8am on March 20, 2014 for Hedgeye subscribers.
“If you have to forecast, forecast often.”
You probably don’t know who Fiedler was. Like many Keynesian “economists” of the Nixon/Carter and Bush/Obama eras, his growth and inflation forecasts were useless.
But I like his quote.
And I really like the opportunity the market gave us yesterday to add to things we’ve liked from lower prices all year. That list of big macro stuff includes Commodities (Gold, Food, etc.), Foreign Currencies (vs. the USD), and Bonds (long-term Treasuries in particular).
Back to the Global Macro Grind…
But, but, she said that the economy wasn’t slowing and that rates could rise, eventually…
“I do want to emphasize this is a forecast”
-Janet Yellen (March 19, 2014)
I hear you on what the market did in reaction to her forecast (Dollar up, Rates up, Gold down). Nice day-trade. But do you hear Mr. Macro Market’s trending forecast? He updates his forecast often.
So, now there are 2 big conflicting forecasts to concern yourself with:
- Janet Yellen’s forecast (which is based on what happened in the US in Q3/Q4 of 2013 – inflation fell, growth accelerated)
- Mr. Macro Market’s updated forecast of #InflationAccelerating and real #GrowthSlowing in kind
And, since you have to pick one of the two, which one will it be?
- A Fed forecast that is wrong at least 2/3rds of the time and is based on lagging economic data
- A market based forecast that is right more than 2/3rds of the time based on real-time market data
To recap the Fed’s forecast:
- Most of the Q114 slow-down was due to the weather
- As growth recovers in the 2nd and 3rd quarter, you should expect the Fed to continue to taper
- There is no inflation (its below the “committee’s objective”), so don’t worry about it
And to update you on what Mr. Macro Market has to say about that this morning:
- US DOLLAR is showing no follow-through to yesterday’s bid and remains bearish TREND @Hedgeye
- US 10YR TREASURY yield is showing no follow-through to yesterday’s ramp and remains bearish TREND @Hedgeye
- GOLD sold off to immediate-term TRADE support of $1321, and remains a bullish intermediate-term TREND too
So, on the “what Janet meant to say” part, you might need Hilsenrath to spell it out for you circa 3PM on a market Friday. I get that. You should too. Most people don’t have a macro process, and they have to take the Fed’s word for it, literally.
From a risk management perspective, if the following three things happen:
- US Dollar Index breaks out > $81.14 TREND resistance
- US 10yr Yield breaks out > 2.81% TREND resistance
- Gold snaps $1278 TREND support
Well, then I forecast that I will change my forecast. In the meantime, I say you fade the Fed’s forecast because I forecast that Janet Yellen will get less bullish on US Growth after growth slows.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.61-2.81%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer