“How many a dispute could have been deflated into a single paragraph if the disputants had dared to define their terms?”
Are you a central planning disputant? I am, big time. So, please, allow me to define my terms:
- The Fed’s QE was a Policy To Inflate asset prices
- After that inflation, you get the #deflation
That is all.
Back to the Global Macro Grind…
I know. So easy a Mucker can explain it.
If you’d like to have a dispute with me on these terms (or change the M in my nickname to an F like the 1997 Princeton Hockey Team did), I’m happy to have it as long as you define yours. Mr. Market has been pricing them in all year long.
When our #process signals #Quad4 deflation (growth and inflation slowing, at the same time) here’s our asset allocation:
- Long Term Treasuries (TLT, EDV, etc.)
- Municipal Bonds (MUB)
- Healthcare Stocks (XLV)
- Consumer Staple Stocks (XLP)
We #timestamped that in our Q4 Macro Themes deck on October 1st (pre-Oct 14th fetal position for the levered long beta portfolios) and we’ll reiterate that again, now that the Fed has done precisely what they said they’d do (ending the Policy To Inflate).
Now that that’s over, what I think happens next is where I’ll have many disputes. Here’s what I’m thinking:
- As both US and Global growth slows, the Fed will be under pressure to say that they can provide moarrr #cowbell
- Mean Reversions: classic late-cycle indicators (like employment and “confidence”) should roll over; Fed will freak out on that
- Long-term rates will continue to make a series of lower-highs and lower-lows, tracking lower growth and inflation expectations
Again, think like a Fed head. Define their terms – then front-run their proactively predictable behavior.
The main problem my disputants have with me is that I don’t think like they do. I am a dynamic counter-cyclical strategist and they are pro-cyclical linear economists. The economy is non-linear. It’s also one massive cyclical. You don’t buy a cyclical at the top of a cycle – you sell it.
The #1 question you should be asking Ed & Nancy (linear economists) has two parts:
A) After 65 straight months of US economic expansion, isn’t this an early-cycle slowdown, and
B) Now that everyone has cut to zero, where are we in the worldwide easing-cycle?
We know how they think about this. They’re making the same calls that they made at the top of prior cycles (that the cycle wasn’t slowing in 2H of 2007). They have defined their surveys and their terms. Those are pro-cyclical too.
What does being pro-cyclical mean?
- That you think late-cycle indicators being good is good
- That you don’t think in 2nd derivative terms (going from great to good is bad)
- And that once things are actually bad, you’re both late and getting bearish a lot lower
No, I’m not calling anyone names. I am not being “mean” either. Rather than drifting from bullish to bullish thesis on the economy (at the beginning of the year they said inflation and capex would drive the economy; now they are saying global slowing and deflation will), I am being a consistent disputant.
This morning I’ll list the Top 12 Big Macro Risk Ranges (and our TREND views in brackets) – they are in our Daily Trading Ranges product too:
UST 10yr yield 2.16-2.35% (bearish)
SPX 1 (neutral)
RUT 1071-1157 (bearish)
DAX 8 (bearish)
VIX 12.89-22.25 (bullish)
USD 85.34-86.24 (bullish)
EUR/USD 1.25-1.27 (bearish)
Yen 107.11-109.77 (bearish)
WTI Oil 79.98-83.05 (bearish)
Natural Gas 3.57-3.82 (bearish)
Gold 1194-1231 (neutral)
Copper 2.96-3.09 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – October 30, 2014
As we look at today's setup for the S&P 500, the range is 136 points or 5.61% downside to 1871 and 1.25% upside to 2007.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 1.82 from 1.84
- VIX closed at 15.15 1 day percent change of 5.28%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: Init Jobless Claims, Oct. 25, est. 285k (prior 283k)
- Continuing claims, Oct. 18, est. 2.352m (prior 2.351m)
- 8:30am: GDP, 3Q, est. 3% (prior 4.6%)
- 9am: Fed’s Yellen speaks in Washington
- 9:45am: Bloomberg Consumer Comfort, Oct. 26 (prior 37.7)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- 1pm: U.S. to sell $29b 7Y notes
- 3pm: Puerto Rico Govt. Devel. Bank webcast for bondholders
- Senate, House out of session
- Ideas Forum speakers include Sec. of State John Kerry, Anthony Fauci, director of Natl Inst. for Allergy and Infectious Disease; Senate Ag. Cmte Chairwoman Debbie Stabenow; U.S. Trade Rep. Mike Froman
- U.S. ELECTION WRAP: GOP Path to Victory Not So Easy; Ad Money
WHAT TO WATCH:
- ValueAct’s Ubben Sees Agrium’s Retail Unit as ‘Stable Jewel’
- Container Store Targeted by Apex Capital’s Colen Urging Growth
- American Realty Says Accounting Error Was Intentionally Hidden
- Standard Chartered, Mitsubishi UFJ Said to Face Fresh Inquiries
- Citigroup Said to Seek Initial Offers for OneMain by Nov. 20
- Barclays Profit Jumps, Sets Aside $799 Million FX Provision
- Visa Profit Surpasses Estimates as Consumer Card Spending Rises
- Suncor 3Q Operating EPS Tops Est., Total Production Below Est.
- Fifth Street Raises $102 Million in Reduced Initial Offering
- German Unemployment Unexpectedly Falls as Economy Weathers Woes
- Samsung Has Smallest Profit Since 2011 as Smartphones Stall
- Obama Says Attempts to Seal U.S. Futile in Battle Against Ebola
- Air Products (APD) 6am, $1.61
- Alpha Natural Resources (ANR) 7am, ($0.71) - Preview
- AltaGas (ALA CN) 7:45am, $0.19
- Altria (MO) 6:58am, $0.68 - Preview
- American Tower (AMT) 7am, $0.56 - Preview
- AmerisourceBergen (ABC) 7am, $1.05 - Preview
- Avon Products (AVP) 7:01am, $0.16 - Preview
- Ball (BLL) 6am, $1.06
- Baytex Energy (BTE CN) 7:30am, C$0.74
- BGC Partners (BGCP) 8am, $0.16
- Bombardier (BBD/B CN) 6am, $0.10 - Preview
- BorgWarner (BWA) 8am, $0.79
- Bunge (BG) 6:30am, $1.90
- Cardinal Health (CAH) 7am, $0.96
- Catamaran (CCT CN) 6am, C$0.56 - Preview
- Cigna (CI) 6am, $1.83
- CME (CME) 7am, $0.82
- CNH Industrial (CNHI) 9:30am, $0.13
- ConocoPhillips (COP) 7am, $1.21 - Preview
- CVR Energy (CVI) 8:30am, $0.62 - Preview
- Diebold (DBD) 8:16am, $0.50
- Elizabeth Arden (RDEN) 7:15am, ($0.53)
- Enterprise Products (EPD) 6am, $0.37
- Fidelity National Information (FIS) 7am, $0.79
- Fortress Investment (FIG) 7:09am, $0.16
- GNC (GNC) 8am, $0.74
- Goldcorp (G CN) 8am, $0.18 - Preview
- GrafTech Intl (GTI) 8:56am, ($0.04)
- Greenbrier (GBX) 6am, $1.03
- Harman Intl (HAR) 8am, $1.11
- Host Hotels & Resorts (HST) 6am, $0.09
- Incyte (INCY) 7am, $0.07 - Preview
- Invesco (IVZ) 7:30am, $0.62
- Iron Mountain (IRM) 6am, $0.40
- ITC (ITC) 8:30am, $0.47
- Johnson Controls (JCI) 7am, $1.01
- Kellogg (K) 8am, $0.92 - Preview
- L-3 Communications (LLL) 7am, $1.84
- Lincoln Electric (LECO) 7am, $0.90
- LKQ (LKQ) 7am, $0.32
- Maple Leaf Foods (MFI CN) 7:30am, (C$0.03)
- Marathon Petroleum (MPC) 7am, $2.29 - Preview
- MasterCard (MA) 8am, $0.78 - Preview
- MGM Resorts Intl (MGM) 8am, $0.06
- Mosaic (MOS) 7am, $0.58 - Preview
- MSCI (MSCI) 7:30am, $0.49
- National Oilwell Varco (NOV) 7am, $1.54
- New Gold (NGD CN) 7:30am, $0.02 - Preview
- New York Times (NYT) 8:30am, $0.00
- NiSource (NI) 6:30am, $0.16
- Ocwen Financial (OCN) 7:30am, $0.60 - Preview
- Old Dominion Freight Line (ODFL) 7am, $0.87
- PBF Energy (PBF) 6:30am, $1.04
- Pitney Bowes (PBI) 7am, $0.46
- Public Service Enterprise (PEG) 7:30am, $0.74
- Radian (RDN) 7am, $0.32
- Scana (SCG) 7:30am, $0.96
- Starz (STRZA) 7:30am, $0.51
- Taser Intl (TASR) 7:30am, $0.11
- Teva Pharmaceutical (TEVA) 7am, $1.24 - Preview
- Thomson Reuters (TRI CN) 7am, $0.45
- Time Warner Cable (TWC) 6am, $1.90
- TransAlta (TA CN) 7:30am, C$0.07
- Ultra Petroleum (UPL) 8am, $0.51
- Vantiv (VNTV) 7am, $0.49
- Xcel Energy (XEL) 6am, $0.76
- Aegerion Pharmaceuticals (AEGR) 4:15pm, ($0.15)
- AlonA Energy (ALJ) 5:03pm, $0.59
- Bally Technologies (BYI) 4:01pm, $1.17
- Bell Aliant (BA CN) Post-Mkt, C$0.42
- Boyd Gaming (BYD) 4:05pm, $0.01
- Canadian Oil Sands (COS CN) 4:51pm, C$0.42
- Constellation Software (CSU CN) 5pm, $3.16
- Crown Castle (CCI) 4:02pm, $0.27
- Eastman Chemical (EMN) 5:15pm, $1.80
- Eldorado Gold (ELD CN) 5:41pm, $0.06 - Preview
- Energen (EGN) 4:30pm, $0.46
- Expedia (EXPE) 4:09pm, $1.74 - Preview
- Fairfax Financial (FFH CN) 5pm, $14.04
- First Quantum Minerals (FM CN) 5pm, $0.25 - Preview
- FleetCor Technologies (FLT) 4:01pm, $1.33
- Fluor (FLR) 4:05pm, $1.10
- GoPro (GPRO) 4:05pm, $0.08
- Groupon (GRPN) 4:05pm, $0.01
- Investors Bancorp (ISBC) 5pm, $0.10
- LinkedIn (LNKD) 4:05pm, $0.47
- Live Nation (LYV) 4:09pm, $0.36
- MasTec (MTZ) 4:30pm, $0.55
- MB Financial (MBFI) Post-Mkt, $0.44
- MercadoLibre (MELI) 4:04pm, $0.66
- Microchip Technology (MCHP) 4:15pm, $0.67
- Mohawk Industries (MHK) 4:01pm, $2.42
- Mylan (MYL) 4pm, $1.14
- Newmont Mining (NEM) Post-Mkt, $0.16 - Preview
- ON Semiconductor (ONNN) 4:05pm, $0.22
- PerkinElmer (PKI) 4:05pm, $0.57
- Republic Services (RSG) 4:05pm, $0.53
- Scientific Games (SGMS) 4:08pm, ($0.39)
- Seattle Genetics (SGEN) 4:05pm, ($0.24)
- Sirius XM Canada (XSR CN) 4:05pm, C$0.05
- Spansion (CODE) 4:04pm, $0.27
- Standard Pacific (SPF) 4:02pm, $0.15
- Starbucks (SBUX) 4:05pm, $0.74 - Preview
- Tempur Sealy Intl (TPX) 4:05pm, $0.89
- Tesoro (TSO) 5pm, $2.16 - Preview
- Theravance (THRX) 4:08pm, ($0.13)
- Trimble Navigation (TRMB) 4:05pm, $0.38
- Western Union (WU) 4:01pm, $0.38
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- China Said to Probe September Surge in Precious Metals Exports
- Metals Investors Seeing Slowdown Head for ETP Exit: Commodities
- WTI Falls From One-Week High on Fed Stimulus Halt, U.S. Supply
- Gold Equals 15 Barrels of Oil in Sign Inflation Wagers Too High
- Oil Stocks Lure Most Bearish Bets Since ’07 After Slump: Options
- Diamond Dealers Using Web Bring Light to $18 Billion Gem Trade
- U.S. Light-Crude Production Spurs Export Debate, Official Says
- Raw Sugar Drops as Oversupply Caps Prices; Arabica Coffee Gains
- Gold Slides to Three-Week Low as Dollar Strengthens After Fed
- Trafigura Seeks to Handle More Copper Ore Amid Arsenic Hurdles
- Bauxite Supplies From Africa Seen Showing Resilience Amid Ebola
- Copper Drops From Five-Week High as Fed Decision Boosts Dollar
- China State Reserves May Buy Copper in Bonded Zones: Citigroup
- How Oil’s 29% Drop Took Investors by Surprise on OPEC Price War
The Hedgeye Macro Team
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Takeaway: The Greatness Agenda is neither investable nor believable. 35% EPS downside. Stock downside/upside is 3 to 1. We’d press this one here.
Conclusion: We went into this meeting expecting to hear at least a few points that would go toe-to-toe with our Short call. But management spent the better part of seven hours articulating (despite its intentions) why it has Zero competitive advantage. We still don't think there's a viable financial plan, and if there is one, we have less confidence today in the company's ability to execute on it. What we do know is that this management team comes across as being extremely comfortable being very mediocre. Guidance implies 2017 EPS of $5.30, which our analysis suggests is a pipe dream. Our math gets us to $3.50. This should be a $35 stock -- a level that does not provide meaningful cash flow yield support relative to where other names in this space have traded. With at least 3 to 1 downside upside, this remains our top short in retail.
Well...if you were wondering why KSS does not regularly host analyst meetings, now you know. While Hedgeye was not physically present at the event (having a short call and 60 page slide deck doesn’t get you a seat in the room with KSS) it was still easy to hear the oxygen get sucked out of the room on a number of occasions via webcast. Yes, it was that bad.
We went into this one looking for areas that could challenge our bear case, but could not find a single one. Though we found a few of the presenters to be high quality (Logistics, Digital, Marketing) the collective message was extremely unconvincing and unimpressive. In fact, we are not really clear as to what the message was. What we do know is that this management team comes across as being extremely comfortable being very mediocre.
We think the company’s financial targets are entirely unbelievable. The company basically guided to about $5.30 in EPS in 2017 ($21bn revs and 9% margins). So you need to believe that KSS can comp nearly 3% for three years. The last time it did this was 13 years ago when it had a base of only 350 stores, had nearly a fifth of its square footage base entering the peak part of the maturation curve, and as a kicker, was bouncing back after a recession. But the company’s targets today assume that the industry goes nine years without a major correction/reset in sales/margins. That’s never happened. Not even close. We’ve never seen a cycle go more than six years (and we’re still in it). We think that’s extremely poor risk management on the part of the team steering this ship. We think earnings will be $3.50 in 2017 – that’s 35% below guidance. And if we had to pick an over/under on our estimate, we’d say closer to $3.
Let’s say – just for a minute – that the company is right. You’re playing for a ‘goal’ of sub-3% growth and $5.30 in earnings in 3.5 years. At best that’s worth a 12x p/e, or $64 – in 3-years. Discount that back by 10% annually, and you get to $48 today – for a best-case scenario. If we’re right, then we’re looking at about 10x $3.50 in EPS. The bulls would point to the company’s cash flow as support, and that’s fair. But as the P&L gets hit, cash flow comes down as well. A $35 stock suggests about a 12% free cash flow yield on our model. That’s high, but far from egregious. Dillard’s, for example, has traded in recent years at a free cash flow yield as high as 25%.
The bottom line is that we think this name is still very shortable today with at least 3 to 1 downside/upside. It remains our top short in retail.
Here are a few things that stood out for us at the meeting (in no particular order).
- Is This Really A Goal. The overreaching goal was “To Become the Most Engaging Retailer in America”. Didn’t Ron Johnson have some iteration of that mantra when he killed JC Penney and replaced it with jcp? We like setting goals that are quantifiably achievable. Nike couldn't even achieve this goal if it tried (which it's not).
- Greatness Redux. Initially we gave Kevin Mansell (CEO) credit as he started off by talking about the challenges they have faced (share too high in categories that consumers are shifting away from, and share too low in categories consumers are embracing, and relevancy of real estate). Then he flashed a slide that said “Time to Evolve” That was pretty exciting, as KSS does not evolve very well. We held our breath and thought we’d get some cool new insightful strategy. But no. We got the good ‘ol “Greatness Agenda”. It’s the same thing we hear about every conference call.
- Numbers are Not Believable. We said this above, but it's worth repeating. In fact, Mansell openly said that he did not want to give financial targets – he wanted to qualitatively show that KSS “has the right team in place to take the company into the new era of retailing”. Wes McDonald (CFO) did the right thing and put his foot down by handing out at least a few numbers, even though there’s no evidence that these targets fully address the substantial risks that KSS will increasingly face.
- Who Were They Talking To? Our sense is that the numbers that KSS targeted -- $21bn in sales in 2017 and flattish margins – represent a statement to employees more than to the financial community. They can’t get up there on stage and tell the rank and file (who are all listening in) that sales and profits will be flat to down over the next few years.
- JCP Won The Battle of the Analyst Meetings. For what it’s worth, last month JCP gave the Street 10x as much information in just three hours (whether you choose to believe it or not), while it took Kohl’s seven hours to say almost nothing.
- Nothing Unique. We can't recall hearing about a single initiative all day – whether it be product, marketing, or customer engagement -- that other retailers are not already doing.
- Stores Too Big? Kevin Mansell actually said something to the tune of “Yeah, many of our stores are probably too big. I wish they were smaller.” We think we got those words right – but if we’re off (transcript not out yet), they’re at least in the ballpark. His somewhat cavalier attitude toward the whole issue was quite offputting.
- Unlikely to Close Stores. The worst performing stores are ‘only losing a few hundred thousand dollars each.’ That’s pretty bearish as it suggests that there’s not exactly a few hundred stores they can close to meaningfully boost profitability.
- Acquisitions. They actually started talking about acquisitions. That’s just baffling. What they’re basically saying is that (and these are our words, not theirs) “we don’t have opportunities to reinvest in our own business, and are less interested in buying our own company (stock repo), so we’ll try buying other business for the first time in our history." People hanging their hat on the free cash flow yield should consider how fast the cash could go away when it’s spent on an off-price apparel chain or luxury flash-sale site.
- Frozen Love. We wish we could make our own word cloud from this analyst day, but unfortunately the transcript isn't out yet. We think the words "Love", and "Frozen" would take center stage (let’s say 24 size font) and the key words like margins, earnings, and cash flow maybe about a 6 font. Seriously, Michelle Gass, the Chief Customer Officer, literally said “Love will drive our business”. We understand that a) it's her job to talk like this, and b) she meant it in the context of caring for customers. But this was over the top.
- JCP/Share. The fact that JC Penney was not uttered all day is bothersome. That’s a consistent miss we see in Kohl’s strategy to deal with a competitor that lost $90/foot in sales over three years, and is clearly on the rebound. All of our research (including several consumer surveys) shows that KSS won (fair and square) about $1bn in revenue from KSS – half of which was online. JCP will take it back. Our surveys suggest that consumers want to go back to JCP with the right product/promotions. JCP will get the sales back, whether it earns it, or buys it. Either way it's bad for KSS.
- E-commerce is not margin accretive on the Gross or EBIT level. Management wouldn't quantify, but did characterize it as worse than in store. Plus it cannibalizes sales from it's brick and mortar business. The company validated our survey research. 96% of shoppers who don't visit the store will not shop online. With a fully extended store base how do they attract new customers? We don’t think the answer is personalization. We did a lot of work on this one in our recent report. Click here for the link.
- Loyalty Math. Initial loyalty sign up numbers are impressive with 5mm added in new markets over the past 21 days. 58% of the now 15.5 million members are non-credit users. But, take into consideration that there are 30mm active credit card members. That implies that 21.7% of active credit card users are now card carrying members of the Y2Y. Credit accounts for 57% of purchases and offset SG&A by $407mm in 2013. Any shift by the customer away from the Credit program to loyalty (they get basically the same deals without a 24% APR) would be a significant margin headwind.
- Two Conflicting Initiatives. ‘Buy-online and pick-up in-store’ and ‘store vs. same day ship’. Our research on buy-online, pick-up in-store (See our Department Store deck from last week) indicates that the #1 reason for choosing this option is free shipping. #2 and #3 on that list, faster fulfillment and convenience, are solved by same day delivery. Shipping costs are already below the rest of the industry average at $75 and we think that goes lower before it goes higher. Which offsets the incentive to pick up items in store.
Takeaway: We remain the “low on the Street” w/ respect to Q3 and Q4 GDP and continue to expect a negative re-rating of consensus growth expectations.
Today at 8:30am EDT, the BEA will release its advance estimate for Q3 GDP. There is a distinct possibility that this pre-midterm election print has the potential to appear optically strong; there is also a distinct possibility that any strength is likely to be conveniently revised down on November 25th (second estimate) and/or on December 23rd (third estimate)...
Ignoring all of that, we remain content to side with our models and the data, which continue to suggest domestic economic growth slowed in the third quarter and is likely to continue slowing here in the fourth quarter.
Our GDP estimates for Q3 and Q4 both have 1-handles; only one of the 84 Bloomberg contributor estimates for Q3 has a 1-handle and only four of the 84 Bloomberg contributor estimates for Q4 have a 1-handle. On a median basis, the Street is expecting +3% QoQ SAAR for both quarters – the same figure consensus is expecting for each of the next six quarters!
The sell-side is forecasting one helluva recovery; hopefully these GDP estimates aren't underpinning bottom-up modelling expectations for metrics such as Facebook's ad revenue growth across the buy-side...
Our GIP Model: Bearish
Like growth, we anticipate that reported inflation will also continue to slow and the confluence of this double-negative from a 2nd derivative perspective puts the U.S. economy squarely in #Quad4 on our GIP Model – which is an expectation we’ve gotten increasingly loud about at every opportunity since early August:
The Data: Bearish
Moving along – if for no other reason than the fact that it’s late on the east coast and I’d like to get some rest – let’s quickly go through a series of the most relevant high-frequency growth indicators as it pertains to our expectations for Q3 GDP and our outlook for the current quarter (and beyond).
Manufacturing PMI (we like to use the Markit data series because it’s both seasonally adjusted and usually released over a full week ahead of its widely-followed ISM counterpart): Decelerating on both a sequential and trending basis.
Services PMI (we like to use the Markit data series because it’s both seasonally adjusted and usually released over a full week ahead of its widely-followed ISM counterpart): Decelerating on both a sequential and trending basis.
Economy-Weighted Composite PMI (we like to use the Markit data series because it’s both seasonally adjusted and usually released over a full week ahead of its lesser-known ISM counterpart): Decelerating on both a sequential and trending basis.
Industrial Production: Accelerating on a sequential basis; decelerating on a trending basis.
Real Wages: Accelerating on both a sequential and trending basis.
Retail Sales: Decelerating on both a sequential and trending basis. So much for the Consensus Macro “gasoline tax cut” narrative…
Consumer Confidence: Accelerating on both a sequential and trending basis. In the context of secular trends, however, this strength is a total head fake and indicative of where we are in the economic cycle (i.e. late).
Business Confidence: Decelerating on both a sequential and trending basis.
Exports: Decelerating on a sequential basis; accelerating on a trending basis. Recent weakness is unlikely to subside with #StrongDollar, #EuropeSlowing, #JapanSlowing and #ChinaSlowing all occurring simultaneously.
Imports: Decelerating on both a sequential and trending basis. With import price growth running at -0.9% YoY, this weakness is not indicative of the “credit-driven resurgence in consumer demand” or the “strong holiday shopping season” Consensus Macro keeps telling bedtime stories about.
Durable Goods: Decelerating on both a sequential and trending basis.
Nonfarm Payrolls: Accelerating on a sequential basis; decelerating on a trending basis.
Jobless Claims (NSA YoY): Decelerating on both a sequential and trending basis. This strength should be tempered by the fact that claims are fast approaching frictional resistance of ~300k on a trending basis, which implies a recession is likely just 2-4 quarters away.
Investment Conclusion: Bearish
After this highly objective look at the data (please email us if you disagree with the methodology and have a better way to analyze it), it’s clear to see that U.S. growth is slowing and the broad-based decline in sequential momentum across a variety of indicators implies further slowing – especially in the context of a more-stringent base effect here in Q4.
Unfortunately for consensus bulls, the Fed just took away its QE drugs, and, in the context of the FOMC’s newfound emphasis on “data dependency”, our analysis suggests it could be at least 2-3 months before they sign off on more easing.
On that note, it’s worth reminding investors that: A) #Bubbles in small-to-mid-cap illiquidity tend to misbehave #Quad4; and B) short-IWM/long-TLT remains our highest conviction macro call of the year – after having made the exact opposite call throughout 2013.
Good morning to our subscribers across Europe. Good night to those still grinding away on the West Coast; we are looking forward to visiting you next week.
Associate: Macro Team