This note was originally published at 8am on June 19, 2014 for Hedgeye subscribers.
“And John bare record, saying, I saw the Spirit descending from heaven like a dove…”
God called Janet Yellen and told her to cut her US growth forecast and devalue the Dollar again yesterday. Thank goodness for that. What would we do without her?
Back to the Global Macro Grind…
As ridiculous as doing the same thing over and over and over again (and expecting a different economic outcome) sounds, the un-elected-economic-central-planning-authority did just that (again), targeting rates lower (and inflation higher), yesterday.
Not that anyone should hold them accountable to why, but here’s what the Fed did yesterday:
- Cut its 2014 US GDP Growth forecast from 3% to 2.1%-2.3%
- But kept its 2015 GDP Growth forecast at 3.0-3.2%
Ah, so doing more of what is slowing real-inflation-adjusted growth is the answer, eh? Cool. Maybe if you’re long slow-growth #YieldChasing assets like bonds (or anything that looks like a bond – Utilities (XLU) led the rally yesterday, closing at fresh new highs of +15.2% YTD).
If you’re the poor bastard living on $60,000 US or less (i.e. the median consumer in America)… Well, you can eat the all-time highs in cost of living, and like it. Because these doves are going to kill your real-wages.
As you can see in the Chart of The Day, before the Oil spike in June (this is a May number), American real-wages (what you get paid in terms of wage growth minus made-up government inflation) just went negative for the 1st time in 2 years. That’s gotta be good.
BREAKING: “Fed Fueled Stocks Fly, Dollar Sags, Oil 9 Month Highs” –Reuters
That’s a pretty cool headline too, right? Notwithstanding that US Consumer Discretionary (XLY) stocks are still DOWN year-to-date and Energy (XLE) +12.6% and Utilities are leading the rally, who cares about the details.
In other news, divine intervention took the VIX back to 10 yesterday. As a friendly reminder:
- The VIX (US stock market fear index) has never (ever) held below 10 in US history
- Never, ever, is a very long time
“So”, with bond yields falling fast (again) and Gold rising (again), what do I think you should do now?
- Keep doing the same thing we have been saying all year (buy #InflationAccelerating and slow-growth #YieldChasing assets)
- And add more frequent prayer to your daily process on days that the VIX has a 10 handle
Even if you’re not religious, I think you should think outside the box here and just do it. Because this is not going to end well.
As opposed to making a backward looking call that the US is going to repeat the prior credit crisis, I think the next economic crisis is going to be perpetuated by Fed policy. These ideological doves are going to kill 70% of US GDP (consumption) with a Policy To Inflate.
Our immediate-term Global Macro Risk Ranges are now (with intermediate-term @Hedgeye TREND signal in brackets):
UST 10yr Yield 2.46-2.64% (bearish)
SPX 1928-1960 (bullish)
RUT 1155-1185 (neutral)
VIX 10.14-12.15 (bearish)
USD 80.07-80.63 (bearish)
EUR/USD 1.35-1.36 (bullish)
Pound 1.68-1.70 (bullish)
WTI Oil 105.14-108.28 (bullish)
Gold 1260-1286 (bullish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer