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McCullough: "We’re One Bad Jobs Report Away From No September Or December Rate Hike"

Takeaway: This [FOMC Decision] is more dovish than expectations.

Editor’s Note: Below is an abridged reaction on Twitter from Hedgeye CEO Keith McCullough to today’s FOMC announcement. McCullough was tweeting live from London where he is visiting institutional customers.

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This [FOMC Decision] is more dovish than expectations.

McCullough: "We’re One Bad Jobs Report Away From No September Or December Rate Hike" - Yellen dove 09.17.2014

 

Mr. Market's analysis of this matter is crystal clear: USD devaluation  … on the lows of the day… Stocks, Bonds, Commodities are off their lows.

 

We are one bad jobs report away from no September or December rate hike.

 

The Fed doesn't target a date - that means data dependence.

 

No Dissent = #data dependent - so you better damn well have a data forecast that's accurate. These Fed estimates are completely back end loaded - if the data slows, push out dots.

 

And to all my friends in London, I bid you good pub time (and good night).


Cartoon of the Day: (Still) a Dove

Cartoon of the Day: (Still) a Dove - Fed cartoon 06.17.2015 dove

"This is more dovish than expectations," Hedgeye CEO Keith McCullough tweeted shortly following release of the FOMC statement. "You're one bad jobs report away from no September or December rate hike."


Buy Everything - Part II?

Editor's Note: This is an excerpt from a note written earlier this morning by Hedgeye CEO Keith McCullough. If you'd like more information on how you can subscribe to our services click here.

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If you ask Doctor Dollar, Janet Yellen may very well do what we think she should do. That is … stay “data dependent” with no timing on interest rates. That would mean Down Dollar, Down Rates and Up Almost Everything (similar to what I said during our live March 18th FOMC meeting call).

 

We think both U.S. equity futures (yesterday), and Oil again today are front-running this scenario.

 

Unfortunately for our friends in Europe (where I happen to be writing this morning) you get #StrongerEuro on this development. And the DAX, CAC (both down -4% in the last month) no likey Down Dollar. It means up Euro.

 

So we still like long U.S. Equities vs. short EuroStoxx with the Slower-For-Longer (down rates) view.

 

For now…

 

Buy Everything - Part II? - z ben cha


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Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich

For better or (mostly) worse, all eyes are on the Fed today. We get it. Our omnipotent, un-elected, all-knowing monetary seers deserve our full and undivided attention this afternoon as they reveal their interpretation, forecasts and plans based on their reading of the economic tea leaves.

 

That doesn't mean we have to be happy about it!

 

In this free-market spirit we give you our favorite Fed cartoons from our Cartoonist-In-Chief .. the one, the only, Bob Rich.

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Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Fed bubbles cartoon 07.09.2 14

2. 

Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - dollar cartoon 07.02.2014

3. 

Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Yellen cartoon 03.17.2015

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Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Yellen Gollum cartoon 02.25.2015

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Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Yellen dove 09.17.2014

6.

Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Fed birdhouse cartoon 04.23.2015

7.

Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Fed balloon03.25.14

8.

Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Yellen duct tape 7.16.2014

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Our 9 Favorite #Fed Cartoons From (The Man, The Myth, The Legend) Hedgeye Cartoonist Bob Rich - Yellen bubbles 07.29.2014


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As always, feel free to ping us with any follow-up questions.

 

Best of luck out there,

 

DD

 

Darius Dale

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Nickels & Steamrollers | Is the Profit Cycle Past Peak?

Takeaway: Tops are processes & “late-cycle” is not some discrete peak on a Macro sine curve. Move while the music plays but don't be willfully blind.

This unlocked research note was originally published June 04, 2015 at 13:42 in Macro. Click here if you would like to learn more about our services and how you can stay a step ahead of consensus.

A CENTURY OF CYCLES: In our 2Q15 Macro Themes presentation we profiled the historical economic cycles of the last century, catalogued a selection of late-cycle indicators and contextualized the current expansion within the historical experience.   

 

Canonical Macro cycles, left to themselves (i.e. with central banks following a largely passive policy reaction function), follow a pattern that largely resembles the circular, counter-clockwise flow captured in the inflation-output loop depicted in the chart below. 

 

Conventional monetary policy is designed to function within the context of this naturally evolving cycle.  The broader goal of current policy efforts is to both jump-start and (perhaps discordantly) smooth such a cycle in the face of persistent cyclical challenges and sectoral/secular shiftings.  

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - z Drake ... Inflation Output Loop

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Century of Cycles

 

“PATIENCE” - TOPS ARE PROCESSES:  The halcyonic days of the late-cycle invariably birth discussion about whether it is, in fact, different this time, whether the economic cycle actually matters to stocks over protracted, investible periods of time and whether great central-bank catalyzed volatility moderations can matriculate into perma-profiteering opportunities.   

 

The “It’s different” tag-line holds credence to the extent it refers to using the temporal pattern of typical business cycle oscillations as the appropriate anolog for the current expansion.  Indeed, a defining characteristic of financial/balance sheet crises is the muted and crawling pace of the subsequent recovery.  ‘Lower in Amplitude and Longer in Period’ is the periodic function speak we’ve used to describe the likely macro path over the last 2 years. 

 

As it stands, we’re now 73-months into the current expansion – which compares to a mean of ~60 over both the last century and post-war era.  What’s worth re-remembering is the fact that, on average, it takes between 6.5 and 8 years to reach pre-crisis levels of income following a financial crisis.  In the current cycle - real per capita income in the U.S. reached pre-crisis levels at the end of 2013, so just about 6 years from the onset of the recession. 

 

So, even with unprecedented intervention and global policy coordination we still fell basically right on the average. This time, in fact, was not particularly different. 

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Patience

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Longest Expansion

 

PROFITS PAST-PEAK?  As Keith referenced in an institutional highlight yesterday - during the 2000 and 2007 economic (and profit cycle) slow-downs, Wall St ramped M&A/IPO/Buyback activity to levels never seen before. I.e. the ramp in “everything is different” was happening to offset the cyclical slowdowns. 

 

Corporate Profits peak mid-to-late cycle and the last few quarters of data suggest we’re probably past peak in the current cycle.  Past peak profitability in combination with companies facing prospective acceleration in wage inflation, a continued dearth in aggregate global demand and the ongoing secular retreat in the worlds core consumption demographic of 35-54 year olds is not a factor cocktail supportive of a step function rise in capex.  

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Corporate Profits NIPA

 

VALUATION IS NOT A CATALYST…BUT IT IS A DECENT HARBINGER: 

Valuation is not a catalyst and investor’s maintain varying proclivities for particular multiples and conceptual valuation frameworks. There is good debate to be had regarding the superiority or shortcoming of different multiples but there is a more general point to be made about current levels of valuation. 

 

Looking across the selection of metrics below, broadly, current valuations are richer than pretty much at any point except the nose bleed tech bubble highs.  Lower neutral policy rates and perma central bank interventionism may indeed be supportive of higher mean valuations but that only modestly dilutes the conclusion.  When valuations are in the top decile of LT historical averages, subsequent returns over medium and longer-term periods are just not that compelling.   

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Valuation Composite

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - World Mkt Cap to GDP

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - CAPE vs 3Y Ave Performance

 

LATE-CYCLE REALITIES: 

Solving for what drives prices higher as profits flag is trivial.  But if you’re going to be paying near-peak multiples on peak margins as margins appear to be past peak and the expansion enters its twilight, you should at least be aware that that’s what you are doing. 

 

Tops are processes and “late-cycle” is not some discrete peak on a Macro sine curve.  We’re continuing to move tactically while the music plays but we won’t be willfully blind to the #LateCycle reality of it all.   

 

Nickels & Steamrollers | Is the Profit Cycle Past Peak? - Growth cartoon 05.19.2015

 

 

Christian B. Drake

cdrake@hedgeye.com

@HedgeyeUSA


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