Macro's Visceral Edge

“Power’s flow and ebb can have a visceral edge.”

-Moises Naim


Macro markets tend to make you feel something. The people who are at wit’s end trying to bend and smooth economic gravity have feelings too. This weekend I found the perfect book for some of their central-planning-power lost. Ironically, it’s called The End of Power.


Now that the world has seen almost 600 rate cuts (since Lehman collapsed) and we’re in the midst of a #LateCycle slowdown, is this the beginning of that end? Or is it just my cyclical confirmation bias that Moises Naim tapped into?


“Long established, big players are increasingly being challenged by newer and smaller ones… what they are fighting so desperately to get and keep – is slipping away. Power is decaying.” –Naim (pg 1)


Macro's Visceral Edge - campfire cartoon 10.31.2014


Back to the Global Macro Grind


Isn’t that a nice way to start your week? After doing California last week, I’m in London today. I’m looking forward to seeing whether or not European investors have a visceral response to both the US cycle and secular demographic data #slowing.


#NoWorries, mates.


The way this macro show in the US goes is pretty straightforward. Just read the Barron’s Roundtable for a consensus on that. Yep, growth slowed due to “one offs… weather… etc.” but it will “bounce back” – so back end load those growth and earnings forecasts in 2015.


As you can see in the Chart of the Day, after the Old Wall and its media got blindsided by the Q1 earnings season (smoked in January) it proceeded to cut earnings estimates for the 1st half of 2015. In the 2nd half (and 2016) it’s right back to rainbows and puppy dogs.


Notwithstanding that you’d have to see things like producer prices (commodities, etc.) ramp big (from here) while:


A) the Dollar is rising due to

B) consensus expectations of a “rate hike”,


we’re still calling for both a cyclical and secular (demographic) slowdown.


Newsflash: to get things like Oil prices and PPI (producer prices) up year-over-year, what the Fed actually needs to do is devalue the Dollar and start talking up no-rate-hike. In other words, the bull case for stocks, commodities, and bonds is #SlowerForLonger.


Don’t buy that narrative? Or does it just make you feel something that just ain’t right? Macro markets don’t feel anything – they just tick. Last week’s catalyst for the Dow Jones Industrial Index (DIA) to be up for the 1st week in the last 4 was a DOWN DOLLAR:


  1. US Dollar Index  was down -1.4% last week (down -4.5% in the last 3 months)
  2. Dow, SP500, and Russell 2000 +0.3%, +0.1%, and +0.3% on the week, respectively
  3. Commodities (CRB Index) = +0.4% week-over-week (+4.1% in the last 3 months)
  4. Oil (WTI) = +1.4% week-over-week (+14.7% in the last 3 months)
  5. Gold = +1.0% week-over-week (+2.2% in the last 3 months)


Oh yeah, baby – how do you feel about that? And how, by the way, would you feel if the Fed does precisely what the Fed has been doing since that ugly March employment data point (released at the beginning of April, arresting the USD at epic 10 month highs)?


Need #MoarrrEasing? If you are in the business of never seeing a US asset price depression/recession again, I think the answer to that question is yes.


I think they called it The Great Recession. In reality it was the last time the US cycle slowed, but the 1st time that its core consumer spending cohort (35-54 Year old #Boomers) saw the year-over-year % change in population growth go negative.


(hint: 35-54 yr-old population growth is still negative and will be until the year 2020 – so I’m all in on a 2020 rate-hike)


Oh, and the meeting of that cyclical and secular slowdown (2007-2009) resulted in a “36.3% drop in the incomes of the top 1% of earners in the Unites States, compared to an 11.6% drop for the remaining 99%” (The End of Power, pg 6).


I’m not a boomer. So don’t blame me. Don’t blame my Mom & Dad just because they are Canadian either, eh. Instead, if the Fed hikes “just because it’s time”, you can congratulate Yellen for closing the “inequality gap” – because the pace of asset #deflation will be visceral.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.12-2.50%

SPX 2072-2104
Nikkei 20061-20767
VIX 12.61-15.65
USD 94.01-95.98
YEN 122.61-125.46
Oil (WTI) 57.78-61.80

Gold 1167-1198


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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