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CHART OF THE DAY: #GrowthSlowing? (Ignorance Is Bliss!)

Editor's Note: This is a chart and excerpt from today's morning market note written by Hedgeye CEO Keith McCullough. Click here to become a subscriber.

 

...No you didn’t. You didn’t think I’d do what all of the mainstream financial media (and most sell-side strategists) are doing this morning and ignore another rate-of-change #GrowthSlowing in US employment, did you?

 

As you can see in today’s Chart of The Day (I did the Crayola coloring myself over the weekend), the peak in a classic #LateCycle US economic indicator (non-farm payroll growth) was 4 months ago (February 2015) at 2.34% year-over-year.

 

CHART OF THE DAY: #GrowthSlowing? (Ignorance Is Bliss!) - z 07.06.15 chart

 


Oh, No!

“Think left, and think right, and think low, and think high – oh, the thinks you can think up if you only try!”

-Dr. Seuss

 

Apologies in advance for keeping it too simple this morning, but after introducing single-shot Hedgeye Cartoons in the last year we may have to resort to full-form illustrative children’s books in order to explain this Greek debt drama.

 

Oh “No!”, you say? Or is that what they said? And now that’s just a visceral feeling about being levered long beta instead of rotating all of your stock market gains into Treasury Bonds as Global Equity market volatility breaks out to the upside?

 

Think about managing inflation expectations risk during #deflationary shocks. Think sell high and buy low.

Oh, No! - Greek debt cartoon 06.15.2015

**Join Keith McCullough live at 8:30am ET on The Macro Show. Just click here.

 

Back to the Global Macro Grind

 

As our new Hedgeye European Strategy Contributor, Daniel Lacalle, wrote in his risk management note about Greece last night (read it here): “The referendum is not the end of the Greek drama. It is the beginning of the real drama.”

 

And I’ll piggy back on that by linking the drama that is this clown Varoufakis to the real story in Global Macro markets this morning which is #Deflation.

 

To review how the #Deflation blew up many a levered long “guy” from July 2014 to January 2015:

 

  1. Euros were being burnt to a crisp as Draghi did whatever it took to “reflate” asset prices
  2. #StrongDollar was born out of that and the inverse-correlation trades perpetuated by it
  3. Almost everything Inflation Expectations (Oil, levered Energy stocks, Junk Debt, EM, etc.) deflated

 

And what are you seeing in marked-to-market terms this morning?

 

  1. Down Euro, after failing @Hedgeye TREND resistance of $1.13
  2. #StrongDollar breaking out again > @Hedgeye TREND support of $95.51
  3. Oil (WTI) -3.7% to $54.78, Peripheral Debt Down, Emerging Markets Down, etc.

 

Contextualizing this immediate-term reaction obviously matters, so let’s do that vs. last week’s moves:

 

  1. US Dollar Index +0.6% last week = +19.7% year-over-year
  2. Euro (vs. USD) -0.5% last week = -18.4% year-over-year
  3. Oil (WTI) -6.7% last week = -42.4% year-over-year
  4. Energy Stocks (XLE) -2.0% last week = -25.8% year-over-year
  5. Russian Stocks (RTSI) -2.5% last week = -33.9% year-over-year
  6. Emerging Market Stocks (Latin America) -0.9% last week = -25.9% year-over-year

 

Oh, and  don’t tell anyone, but Long-term Treasuries (one of the best hedges against Global #Deflation Risk) had a great end to the week (-8 basis points week-over-week and down another -8 beeps this morning to 2.30%) after a not-great US jobs report.

 

Oh, No!

 

No you didn’t. You didn’t think I’d do what all of the mainstream financial media (and most sell-side strategists) are doing this morning and ignore another rate-of-change #GrowthSlowing in US employment, did you?

 

As you can see in today’s Chart of The Day (I did the Crayola coloring myself over the weekend), the peak in a classic #LateCycle US economic indicator (non-farm payroll growth) was 4 months ago (February 2015) at 2.34% year-over-year.

 

Oh right. I am sure European and US equity beta has bounced “off the lows” again on some kind of a “summit” of central-market-planners in Europe tomorrow. So let’s stop with the US cycle slowing analysis and get back to the Greek drama:

 

  1. Italian Stocks (MIB Index) -2.8% lead losers this morning after deflating -5.4% last week
  2. Italian and Portuguese 10yr Yields are +10-11 basis points to 2.34% and 3.02%, respectively

 

Oh, that’s not Greek. That’s the Italian and Portuguese stuff. Right, right. I’m hearing things are fantastic in both of those places from a secular growth perspective and that their “credit” risk should trade in line with US Treasuries…

 

Or should they trade higher? Thinking lower? I thought every market risk eventually meant higher prices (after the central planning response)? “Oh, the thinks you can think up, if you only try!”

 

Our immediate-term Global Macro Risk Ranges are now (intermediate-term TREND views in brackets):

 

UST 10yr Yield 2.21-2.40% (bearish)

SPX 2043-2092 (bearish)
RUT 1 (bearish)
Nikkei 20004-20554 (bullish)
VIX 15.02-19.94 (bullish)
USD 95.51-97.42 (bullish)
EUR/USD 1.09-1.13 (bearish)
YEN 122.21-124.4.60 (bearish)
Oil (WTI) 54.53-57.94 (bearish)

Nat Gas 2.69-2.87 (neutral)

Gold 1161-1191 (neutral)
Copper 2.51-2.66 (bearish)

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Click to enlarge

Oh, No! - z 07.06.15 chart


July 6, 2015

July 6, 2015 - Slide1

 

BULLISH TRENDS

July 6, 2015 - Slide2

July 6, 2015 - Slide3

July 6, 2015 - Slide4

 

 

BEARISH TRENDS

July 6, 2015 - Slide5

July 6, 2015 - Slide6

July 6, 2015 - Slide7

July 6, 2015 - Slide8

July 6, 2015 - Slide9

July 6, 2015 - Slide10

July 6, 2015 - Slide11


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Greece Votes 'No'. Risk On The Rise

Editor's Note: This special Hedgeye Contributor View was written by Daniel Lacalle. Mr. Lacalle is an economist, fund manager and author of Life In The Financial Markets (Wiley) and The Energy World Is Flat (Wiley). You can follow him on Twitter at @dlacalle. 

By Daniel Lacalle

 

"Born to raise hell, we know how to do it and we do it real well"

-Motorhead

 

The referendum in Greece ended with a win of the "no" against the proposals of the European Union.

 

But this is not the end. It's the beginning.

 

For once, Greece's prime minister Tsipras' belief that this result will provide the country with more strength to negotiate was and is incorrect. If anything, the result brings the country one step closer to full intervention. Why?

 

As time passes, Greece is suffering not only from lack of funds to pay for public services and pensions, but its main industry, tourism, is also suffering, with a loss of more than 50,000 visitors in a week.

 

Greek banks are already requesting further liquidity from the ECB. It is not clear that support will remain indefinitely.

 

Greece is also facing bankrupcies in the private sector, where most companies are small shops and SMEs suffering from complete lack of credit.

 

Yes, as we explained last week in our call, this has been a political move, not one looking for the best financial deal.

 

Syriza has turned a problem of financing and liquidity into one of a possible failed state close to being intervened. While the Greek TV clings on to the "greater fool" theory of a possible Russian or Chinese aid, this has failed to materialize. Not only China and Russia face their own internal issues, but they are unlikely to come to the rescue of a country that sets lack of commitment to creditors at its core.

 

So, what now?

 

Don't expect a quick solution. The EU is unlikely to bow down ahead of a large maturity in August.

 

Additionally, Greece's vote is likely to cause shockwaves throughout Europe as we mentioned in last week's call, with fringe parties making this vote a validation of their own aspirations.

 

More importantly, so far we have only seen the reaction of the ones that receive... Let's wait for the answer of the ones that pay. The UK vote is coming soon, and it is unlikely that German, Finnish or Dutch citizens will feel happy to see their taxes raised to maintain Greece's public spending and generous pensions.

 

Greece's demands are simply impossible to grant. And what is most important is that, no matter what happens on a political level, investment and job creation will suffer after the country puts the word "uninvestable" at the door. Greeks are facing a prolongued period of recession and the very likely implementation of much harsher cuts than what they have voted against as the country moves to default and institutional implosion.

 

Greece Votes 'No'. Risk On The Rise - 7 5 2015 4 16 59 PM

 

For investors there is a very relevant fact to remember. The monetary bazooka of the ECB cannot contain the perception of risk throughout other countries if the EU allows the victory of the message that default and lack of commitment is feasible. This is why the IMF and EU's response has to be one of strength, or face slow implosion.

 

Low growth, lack of investment and poor job creation remain the central scenario. In the next months we have to add financial stability and the euro as a sustainable currency to the picture...again.

 

The referendum is not the end of the Greek drama. It is the beginning of the real drama.


Greece Votes 'No'. Risk On The Rise

"Born to raise hell, we know how to do it and we do it real well"

-Motorhead

 

The referendum in Greece ended with a win of the "no" against the proposals of the European Union.

 

But this is not the end. It's the beginning.

 

For once, Greece's prime minister Tsipras' belief that this result will provide the country with more strength to negotiate was and is incorrect. If anything, the result brings the country one step closer to full intervention. Why?

 

As time passes, Greece is suffering not only from lack of funds to pay for public services and pensions, but its main industry, tourism, is also suffering, with a loss of more than 50,000 visitors in a week.

 

Greek banks are already requesting further liquidity from the ECB. It is not clear that support will remain indefinitely.

 

Greece is also facing bankrupcies in the private sector, where most companies are small shops and SMEs suffering from complete lack of credit.

 

Yes, as we explained last week in our call, this has been a political move, not one looking for the best financial deal.

 

Syriza has turned a problem of financing and liquidity into one of a possible failed state close to being intervened. While the Greek TV clings on to the "greater fool" theory of a possible Russian or Chinese aid, this has failed to materialize. Not only China and Russia face their own internal issues, but they are unlikely to come to the rescue of a country that sets lack of commitment to creditors at its core.

 

So, what now?

 

Don't expect a quick solution. The EU is unlikely to bow down ahead of a large maturity in August.

 

Additionally, Greece's vote is likely to cause shockwaves throughout Europe as we mentioned in last week's call, with fringe parties making this vote a validation of their own aspirations.

 

More importantly, so far we have only seen the reaction of the ones that receive... Let's wait for the answer of the ones that pay. The UK vote is coming soon, and it is unlikely that German, Finnish or Dutch citizens will feel happy to see their taxes raised to maintain Greece's public spending and generous pensions.

 

Greece's demands are simply impossible to grant. And what is most important is that, no matter what happens on a political level, investment and job creation will suffer after the country puts the word "uninvestable" at the door. Greeks are facing a prolongued period of recession and the very likely implementation of much harsher cuts than what they have voted against as the country moves to default and institutional implosion.

 

Greece Votes 'No'. Risk On The Rise - 7 5 2015 4 16 59 PM

 

For investors there is a very relevant fact to remember. The monetary bazooka of the ECB cannot contain the perception of risk throughout other countries if the EU allows the victory of the message that default and lack of commitment is feasible. This is why the IMF and EU's response has to be one of strength, or face slow implosion.

 

Low growth, lack of investment and poor job creation remain the central scenario. In the next months we have to add financial stability and the euro as a sustainable currency to the picture...again.

 

The referendum is not the end of the Greek drama. It is the beginning of the real drama.

 

-Daniel Lacalle

 

About the Author

Daniel Lacalle is an economist and fund manager, and author of 'Life In The Financial Markets' and 'The Energy World Is Flat' (Wiley).


The Week Ahead

The Economic Data calendar for the week of the 6th of July through the 10th of July is full of critical releases and events.  Here is a snapshot of some of the headline numbers that we will be focused on.

Click image to enlarge

The Week Ahead - z 07.02.15 Week Ahead


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