This note was originally published at 8am on June 09, 2015 for Hedgeye subscribers.
“Great is exactly what it isn’t.”
-Wallace Stegner
For some reason Willie Nelson is ringing in my head this morning. I’m on the road again.
And going West is where that quote from Stegner comes from. My Angle of Repose for the next 3 days will be across the sunny State of California, where I’m looking forward to debating Institutional Investors on what is really going on out there.
US and Global #GrowthAccelerating is exactly what isn’t right now. A #LateCycle US Labor report only reiterates that.
Back to the Global Macro Grind…
For we strategist types, Transporting Narratives is fun. Meeting to meeting, that is what we do. So let’s start this morning’s narrative with the Transportation stocks.
In macro strategy there are some leading indicators that even the most creative storyteller can’t convince you that “it’s different this time.” When we went bullish on US #GrowthAccelerating in 2013, the Dow Transports (IYT) index was breaking out to the upside.
Now, after 73 months of a US economic expansion, it’s breaking down:
- Transports (IYT) led losers yesterday, down -2.1% vs. SPY -0.65%
- Transports (IYT) have been leading losers for the last month, -4.9%
- Transports (IYT) are now -8.7% for 2015 YTD
So what say you Mr. Global Growth Is Back man?
For those of us who have been on both the buy and sell side of the game, what we say with our #Timestamped positions speaks louder than our slide decks. On last week’s bounce, we signaled short the Transports (IYT) in Real-Time Alerts.
Here are my Top 3 ways to get out of the way on both US and Global #GrowthSlowing:
- Short Industrials (XLI) which continue to suck wind -2% YTD
- Short Financials (XLF) which failed (again) yesterday and remain in the red -0.4% YTD
- Short Transports (IYT) -8.7% YTD
Did I mention the Transports?
Actually there is a 4th way to express the Fed being more dovish (again) at the June 17th meeting, which is to take weakness in the US Dollar as a correlated tax on a #LateCycle and slowing US consumer (XRT).
Don’t forget that the US Retail Sales Growth cycle peaked in Q4 of 2014 at +4.5-4.7% year-over-year growth and has since slowed in its most recent reading (April) to +0.9% due to the sunny East coast weather. Did it rain enough in May?
Nah, let’s not talk about that data point or a 46.2 Chicago PMI reading for the month of May, when we can actually go back to a Durable Goods reading of -2.3% year-over-year in April and hope that the Fed didn’t see that one either.
Instead, let’s look away from the US data and see what Global Equities have been signaling for the last month:
- Russia -12%
- Portugal -9%
- Greece -8%
- Brazil -7%
- Turkey -7%
- Germany -7%
- Indonesia -6%
- Taiwan -5%
To be fair, I guess the Dow Transports are “outperforming” Taiwanese Stocks by 30 basis points in the last month. That must be the all-systems go on global growth signal, eh?
Oh, then there’s the narrative that “bond yields are rising because growth and inflation are back.”
On that data front this morning:
- Swiss consumer prices (CPI) deflated -1.2% year-over-year in May
- Chinese producer prices (PPI) deflated -4.6% year-over-year in May
- Chinese CPI slowed from +1.5% y/y in April to +1.2% in May
There’s definitely a narrative out there (perpetuated by Mario Draghi which I think was a huge mistake) that both the European and US economies are accelerating. We hear it in investor meetings every day (I think our competition is on the road too).
Unfortunately for the bullish growth narrative, both the economic data and market moves discounting future growth expectations are reminding you that #accelerating is exactly what it isn’t.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.03-2.41%
SPX 2067-2104
VIX 13.75-15.90
USD 94.64-96.41
EUR/USD 1.08-1.13
Oil (WTI) 56.99-61.50
Gold 1170-1200
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
