“Visual polish frequently doesn’t matter if you are getting the story right.”
-Ed Catmull (President of Pixar)
While it’s month-end-no-volume-markup time here in the US equity market, no matter where you go – and no matter how you have been positioned for the last 5 months, here we are. The score doesn’t lie; consensus expectations for #RatesRising in 2014 does.
Sure, there’s a polish to the reports and a gravitas to once great names in finance that still remain on their doors. But, to be clear, there is no responsibility in recommendation from the Old Wall anymore. Instead, every time they are wrong, “it’s different this time.”
The right story in 2014 has been to be long slow-growth bonds and/or anything that looks like a bond (Utilities +11.5% YTD). The 10yr US Treasury yield has crashed to a fresh YTD low of 2.42% this morning. US Growth (Russell 2000) and US Consumer (XLY) stocks are down over -2% YTD. And, depending on what piece of inflation you are long (food and/or energy) you’re up +8-22% YTD.
Back to the Global Macro Grind…
Yes, I hate losing. But I really hate it when people who are losing (including any of my teammates) try to say they really aren’t. This is a confirmation bias embedded in a society where no one is actually allowed to fail. Every lazy player in the league gets a trophy.
Instead of acknowledging what no Old Wall firm called (for US GDP Growth to be NEGATIVE) in Q114, all I hear are excuses instead of the most obvious call they don’t want to make – bond yields fall (and the yield curve compresses) when growth is slowing.
Sure, I have my own biases on leadership in action, transparency in process, and accountability in recommendation. And I am fully aware that on mornings like this that I can sound like the prickly coach. That’s who I am.
But who you or I are as flawed human beings doesn’t change the score. As the great Bobby Orr once said:
“Forget about style; worry about results.”
Having worn a black silk dress shirt and a mauve screaming eagle tie to work on my first day on Wall Street, I’d be hard pressed to convince you that my style has been consensus over the years. What I really care about is #process.
Our #process has now signaled the biggest “surprises” to both the upside (2013) and downside (2014) in US Yields, and I’m not going to apologize for it. Unlike most macro research I used to pay for when I was in your seat, our #process goes both ways.
*Note: our process takes a full team effort – here’s what our Senior US macroeconomic analyst, Christian Drake, had to say about the 10yr bond yield crashing (-20% YTD) to 2.42% this morning:
“The pro-growth panglossian contingent can take solace in the fact that after today’s negative GDP print, it can only really get better sequentially. Q114 GDP probably wasn’t as bad as the headline and Q214 won’t be as good.”
“Taking the average of the two quarters is the easiest smoothing adjustment and it will show we’re a high 1% economy – which is about right. #Hedgeye – we came here to drink the milk, not count the cows.”
It’s a 1-2% (at best), not a 3-4% US economy. And that’s why the 10yr is going closer to 2%, not 3%. Roger that, Dr. Drake.
Yes, I have fostered a culture of confidence. I don’t know one successful athlete who wakes up every morning not wanting to crush his or her competition. I’m not going to apologize for being that way either.
This is America – a country that I came to in the early 1990s when being a winner mattered more than being the whiner who wanted my winnings. We stand alongside you every day, committed to excellence. We refuse to accept mediocrity in big macro forecasting.
There is no I in Hedgeye and we reiterate our top non-groupthink Global Macro Themes for 2014 to-date:
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now:
UST 10yr Yield 2.42-2.52% (bearish)
SPX 1 (bullish)
RUT 1089-1146 (bearish)
Nikkei 136 (bearish)
VIX 11.03-13.76 (bearish)
USD 79.89-80.61 (bearish)
EUR-USD 1.35-1.37 (bullish)
Pound 1.67-1.69 (bullish)
Brent Oil 109.06-110.97 (bullish)
Natural Gas 4.47-4.66 (bullish)
Gold 1 (bullish)
Copper 3.10-3.20 (bullish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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TODAY’S S&P 500 SET-UP – May 29, 2014
As we look at today's setup for the S&P 500, the range is 29 points or 1.14% downside to 1888 and 0.38% upside to 1917.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
This is a brief excerpt from a wide-ranging discussion Hedgeye CEO Keith McCullough had with Euro Pacific Capital CEO Peter Schiff as part of HedgeyeTV's "Real Conversations" series. While Schiff advocates policy that would actually be bad for gold, he has no faith that the government will do the right thing. The full interview runs Thursday.
Takeaway: 83% expect it to be BELOW 3%; 17% said ABOVE 3%.
We’ve been making the #GrowthSlowing call here at Hedgeye for months, so when the government reported first quarter GDP growth of 0.1% last month, it didn’t surprise us. It also won’t surprise us if the government revises its Q1 GDP estimate to a negative number tomorrow.
That said, #OldWall sees GDP accelerating in Q2. According to a Wall Street Journal survey of 48 economists, the consensus forecast is for the economy to expand 3.3% next quarter.
But we wanted to know what you thought.
Today’s poll question was: Do you expect GDP to be above or below 3% at the end of Q2?
At the time of this post, 83% of voters expect it to be BELOW 3%; 17% said ABOVE 3%.
Of those who voted BELOW 3%, one person explained, “Corporate America is not going to invest capital needed to grow when you have an anti-capitalist President who believes in higher taxes, more government regulations and redistribution of wealth. This is a ‘no-confidence’ economy.”
Additionally, this voter agreed the GDP would be BELOW 3% because it has “been declining since Q32013, 10 yr yields continue dropping since Dec2013…now @ 2.44% and housing has gotten bleaker; certainly makes a GDP > 3% truly improbable, if not impossible.”
Another voter said that though they expected it to BELOW 3%, “when you are able to change the rules and how they are calculated like in Italy recently adding prostitution and illegal drugs...anything is possible!”
On the opposite end, one ABOVE 3% voter noted: “Q1 will probably be revised to negative. But the YoY rate of change is likely to be flat-to-down. And down even more so as we progress throughout 2H14.”
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