Look At That Dot

“Look again at that dot. That’s here. That’s home. That’s us.”

-Carl Sagan


And, Sagan, the American astro-everything-ist, went on to write about that Pale Blue Dot:


“On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was…”


This is your market life too. And unless you can show me that dot – as in the one that has the data to support a rate hike, you are going to be subject to the risks associated with one of Sagan’s most basic teachings – gravity.

Look At That Dot - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Where is your dot?


  1. 6-12 months ago, was it June 2015?
  2. Before yesterday’s Fed announcement, was it September?
  3. Where is it now? December, 2016, or 2017?


After pounding a serious amount of caffeine (and air miles) into my system, I can assure you that the Institutional Investor community’s answer on when, precisely, we are going to get that interest rate “liftoff” is imprecise.


Why the confusion?


  1. Some anchor on what has been an inaccurate forecasting process (The Fed’s)
  2. Some hem and haw about what Hatzius and Hyman are saying (after the Fed changes its forecast)
  3. Some don’t have a process (and/or use the Fed’s/Wall Street’s) at all – they just react


So, please, allow me to direct-your-dot this morning to December with a rising probability for another push to 2016, and a misunderstood rising (not declining) probability of 2017 or 2018 and beyond.


“Blah, ha, ha!”


You crazy Mucker (that’s my hockey nickname and please use an M). I had more than one group in California laugh at me out loud as the 10yr US Treasury Yield was testing 2.54% last week when I submitted the scenario analysis for 2016 and beyond…


One PM said “Dude, I am buying TBT (UltraShort 20yr Treasury) and the Financials (KRE) right here #charts look great – don’t you think?” … and I responded (group meeting) that I was going to short both of those right after the meeting.


No it wasn’t a head-bobbing-for-voting-commissions moment. I wasn’t trying to be a mean Mucker either. I have my dot – and it’s not the one that chased those charts (or have chased any “rate hike” fear since I was bullish on #RatesRising in early 2013).


Yes, this is a competitive game – and you’re darn right I like to win. From London, I’m happy to report that I stayed with my #process and did not capitulate. I remain long TLT and would still short the Financials and Industrials (XLI) on up days.


In other news – post the dovish Fed announcement yesterday:


  1. Dollar Down
  2. Rates Down
  3. Bonds (and stocks that look like bonds) Up


Oh, but not all “stocks” are up (going all Global on you now), because:


  1. Japanese stocks get Dollar Down, Yen Up, Nikkei Down
  2. European stocks get Dollar Down, Euro up, DAX Down


Not surprisingly, amidst all of the “blah, ha, ha”, that ole Doctor Dollar did me good. He was signaling a dovish Fed throughout the Global Bond Yield ramp (which wasn’t US economic data driven – it was a technical-liquidity move)… and I thank him for that.


The German DAX is actually -1.4% this morning and -6.7% in the last month on what some of Bloomberg’s Editorial/Advertising department has been saying is all about “Greece.”


Thanks for coming out guys. Please get back to interconnected macro markets and redo the headlines this morning to:


  1. Dovish Fed Pushes Out Dots
  2. Dollar and Rates Fall
  3. Global FX Volatility Drives Global Equity Declines


In terms of levels (they matter):


  1. The 10yr US Treasury Yield has just made yet another epic long-term-lower-high (we’re 18 months into this)
  2. The 2yr US Treasury Yield has now failed to “breakout” from the 0.75% level for the 3rd time since December
  3. My Risk Range model (which I use to front-run volatility) is signaling a narrowing (rather than widening) range


When the risk range widens, the “dot” scenarios are widening – and confusion breeds some bid/ask spread contempt. When my risk ranges are narrowing though, the Fed is usually toning down bond market volatility by telling you where the dot is not.


They showed you their dot yesterday. And I’ll show you mine again this morning – it’s called Slower-For-Longer on US growth as the #LatecCycle slow-down becomes evident. My catalyst for more of that data is called time.


Look again at that cyclical slow-down within the framework of a longer-term TAIL risk of secular demographic headwinds for US consumption growth. That’s here. That’s the baby boom generation slowing. That’s the US growth problem. That’s us.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.15-2.39%

SPX 2072-2114
USD 93.51-95.49
EUR/USD 1.11-1.14
YEN 122.21-124.98
Oil (WTI) 58.11-61.72

Gold 1172-1199


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Click image to enlarge

Look At That Dot - z 06.18.15 chart

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