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This note was originally published at 8am on April 16, 2015 for Hedgeye subscribers.

“We have a lot of rookies in the lineup.  More than anybody, I would say.  It’s going to be something new for them. They have to understand that it’s totally different hockey in the playoffs.  Starting with the fans, the intensity of the game, every mistake counts.”

-Jaromir Jagr

Last night the pursuit of Lord Stanley’s Cup began in earnest with the first series of games in the NHL Playoffs.  Certainly, the team at Hedgeye is over indexed to the love of the great game of hockey.  But whatever your athletic passion, it’s hard to deny that playoffs are an exciting time of year.

For those of you who don’t follow hockey closely, the quote at the outset is from one of the true iron men of the NHL.   At 43 years of age, Jagr was the oldest player to play in the NHL last season.  His first season was 1990 and with the exception of a few seasons in Russia, Jagr has been playing in the NHL ever since.  In fact, he is the only player in the history of the NHL to play in the playoffs as both a teenager and a 40-year old.

Being the wily vet that he is, Jagr’s aforementioned quote is spot on.  Whether in sport or business, you need to let the rookies play, but as their GM or boss you also need to realize that their experience is limited and when the intensity picks up during crunch time they need to know that every mistake does matter.   And if they don’t, the experience will teach them that very quickly.

Before we get into the macro grind today, I’ll give you my pick to win the holy grail of hockey.   Since the team Keith and I own with some friends, the Arizona Coyotes, is out of the running, I’m going with the New York Rangers over the Chicago Blackhawks with New York winning at home in game 5.

Who is your pick to win the Cup?

The Holy Grail - a. Jagr

Back to the Global Macro Grind

It seems that our friends at the IMF weren’t settled into their chairs watching playoffs last night.  The Financial Times is reporting this morning that the IMF is warning that the Fed’s first rate hike could lead to a so-called “Taper Tantrum”.  In effect, the IMF is concerned that volatility in U.S. rates will spike dramatically in conjunction with the first rate hike.

In the Chart of the Day we look at the U.S.  10-year yield versus U.S. unemployment going back as far as the data was available.   In stating the obvious, as the chart shows, we are certainly in an unprecedented period of monetary policy.   Will we get a massive spike in interest rate “vol” when the first hike happens?  It’s tough to say without a crystal ball.  But what IS already happening is a spike in opinions on when and how to raise rates.

On that front, the esteemed Bernank (aka former Fed Chair Ben Bernanke) weighed in this morning on when and how to guide rates higher.   Not surprisingly part of the Bernank’s plan is to keep the balance sheet larger for longer and also focus on the repo rate and other short-term money market rates.   Some of his views probably have credibility, but whatever happened to central bankers focusing on the data?!

Speaking of extremes, the Energy Information Administration (EIA) yesterday reported that crude inventories rose less than expected by a mere 1.3 million barrels on the week to 483 million barrels in total.  According to EIA records dating back to 1920, this is the most inventory the U.S. has had on hand since the 1930s (that was back when the NHL only had six teams for crying out loud!).

In conjunction with that, a Federal Reserve index showed that crude production rose 1.3% in March.  This increase took it to the highest level since 1973, which was before I was born and I’m no spring chicken.   If that isn’t enough, Iraq crude exports hit a record of 3.0 million barrels in March and the Saudi’s did exactly what they said they would do and took production up to 10.3 million barrels per day.

Earlier in the week we used a quote from Templeton about waiting to buy when there is blood in the street.  Certainly there is truth to that if we look at investing history.  When it comes to getting long of oil, due to the lack of storage, we may literally get a chance to buy it when it is in the streets!

In Europe, Greek’s clock is running down.  Yesterday, it was leaked that the Greeks approached the IMF about a rescheduling of repayments and were told categorically that no rescheduling of debt is possible.    As a result, yields on 2-year Greek notes spiked by more than 180 basis points to 25.7% and 10-year yields were up 100 basis points to 12.65%.  If the IMF wants interest rate volatility, they got it.

As for Greek catalysts, there are a couple to focus on:

  • The Eurogroup meeting next week on April 24th; and
  • The next payment to the IMF due on May 12th of 747 million euro.

Overtime for the Greek debt market is here! Let’s hope they have a good goaltender in PM Alexis Tsipras.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.86-1.96%

SPX 2083-2117
VIX 12.34-15.49
USD 98.01-100.24
EUR/USD 1.04-1.08
Oil (WTI) 48.19-56.69


Keep your head up and stick on the ice,

Daryl G. Jones

Director of Research

The Holy Grail - 04.16.15 chart