Hairy Little Forecasters

“A foolish consistency is the hobgoblin of little minds.”

-Ralph Waldo Emerson


I think we all know what little minds are. If you don’t know what their foolish consistencies look like, come watch 5-7yr olds play Mite Hockey. They’ll go offside again, and again, and again – until they finally learn that the referee’s whistle stops them from scoring.


Do you know what a hobgoblin is? Per Wikipedia: “Hobgoblins seem to be small, hairy little men who—like their close relative, brownies - are often found within human dwellings, doing odd jobs around the house while the family is lost in sleep.”


That, to me, seems like a reasonable definition of what people do at the Fed. While the rest of the world is dealing with the realities of economic gravity, these little-known people continue to rummage through data, forecasting both inflation and GDP growth inaccurately.

Hairy Little Forecasters - GDP cartoon 01.30.2015


Back to the Global Macro Grind


Did you know what 2014 US GDP growth was? Per Q4 #GrowthSlowing data that was reported on Friday, US GDP growth slowed to +2.4% year-over-year in 2014, well off what seems like a perpetual consensus growth expectation of +3-4%.


As you know, long-term bond yields have been tracking the rate of change in year-over-year US growth. When US growth finally surprised to the upside (Q413) at +3.1% year-over-year, the 10yr UST Yield climbed over 3%.


With US GDP falling closer to 2%, the 10yr Yield fell that way too. If you know people who still foolishly look at the q/q SAAR GDP number (instead of y/y), send me their contact info and I’ll send them a pair of tickets to  Shakespeare’s A Midsummer Night’s Dream.


The best known hobgoblin has a hockey name (Puck, from Shakespeare’s aforementioned classic). I kind of like that inasmuch as I enjoyed last week’s macro moves (I was in dire need of a good week!):


  1. #StrongDollar – US Dollar Index ramped +1.1% back to its JAN highs at +5.6% YTD
  2. Burning Euros – EUR/USD down another -1.5% on the wk to YTD lows of -7.1%
  3. Commodity #Deflation – CRB Index -0.4% wk-over-wk to -2.6% YTD
  4. Oil #Deflation – WTI down another -2.1% last wk to -8.3% YTD
  5. Lower Rates – UST 10yr Yield -12bps on the wk to 1.99% (-18 bps YTD)


Not to be confused with anything other than a Global #Deflation signal (consumers like it; debtors and their banks do not), the flow-through to the US stock market last week looked a lot like it did in January:


  1. Energy stocks (XLE) led losers -1.9% on wk-over-wk at -0.2% YTD
  2. Financials stocks (XLF) were down -0.4% on the wk to -1.5% YTD
  3. Consumer Discretionary stocks (XLY) led gainers, +0.7% on the wk to +5.3% YTD


Follow the proverbial performance chasing puck (not to be confused with a furry little forecaster by the name of John Williams) and if you’ve picked your Sector Styles in the US stock market right, you’re beating your competition on both an absolute and relative basis.




Beating beta isn’t easy, but it is achievable. Full loaded with the February v-bottom US stocks put in after a terrible January, neither the Dow nor the SP500 (+1.7% and +2.2% YTD, respectively) are beating the Long Bond (TLT total return +3.3% YTD).


But that’s not new either. As you can see in the Chart of The Day, the Long Bond (TLT) has been beating CNBC’s core advertising quote (SP500) handily ever since both growth and inflation started slowing at the beginning of 2014.


In addition to picking the right sectors of the SP500 (Housing, Consumer, Healthcare = +5.3-6.8% YTD) and having an overweight position in the Long Bond, the biggest asset allocation we continue to think you should avoid is Commodities:


  1. Oil (WTI) is down another -1.4% this morning to $49.09 = down -7.8% YTD
  2. Natural Gas (after a -8% drop last week) is down another -1.3% today at $2.70 = down -6.3% YTD
  3. Coffee Prices #deflated another -8.1% last week and are down over -17% for 2015 YTD


Yep, stay with the big cap Consumer Discretionary (XLY) long that is the recipient of that last one, Starbucks (SBUX) – which, incidentally, also has over a 3% weight in the XLY consumption ETF (SBUX +13.9% YTD).


Nah, we’re not perma bullish or bearish on anything really. Every sector and asset allocation has a growth and inflation environment that loves them. Our job is to find the nice little furry ones that make me look more like a teddy bear than your thrashing hobgoblin type.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.88-2.08%

SPX 2093-2115
USD 94.08-95.67
EUR/USD 1.11-1.13
Oil (WTI) 47.66-53.08
Nat Gas 2.65-2.85


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Hairy Little Forecasters - 03.02.15 chart

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This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

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7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

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Cartoon of the Day: Crash Test Bear

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

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Inside the Atlanta Fed's Flawed GDP Tracker

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Cartoon of the Day: Acrophobia

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PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

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Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

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Todd Jordan on Las Vegas Sands Earnings

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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