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Special Extended Edition RTA Live: August 20, 2015

Watch the replay below.

 

 


The Grand Central Planning Experiment Gone Bad

 

On The Macro Show today, Hedgeye CEO Keith McCullough takes central planners to task for their countless failed attempts to outsmart economic cycles and recession by cutting rates and devaluing currencies.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS

Takeaway: Both rolling and spot SA claims are now on the way upwards after each hitting 42-year lows.

Both rolling and spot SA claims are now on the way upwards after each hitting 42-year lows. Spot claims hit their low of 255k five weeks ago. Since then, the reading has risen to 277k. Rolling claims hit their low of 266k two weeks ago and rose to 272k last week. The recent 42-year lows exemplify extreme strength in the labor market. However, the subsequent upward movement in claims exemplifies the point we continue to highlight; the economy faces a high degree of resistance against continued improvement from here.

 

In energy-heavy states, the labor market worsened in the week ending August 8 versus the U.S. as a whole. The chart below shows that as oil prices continued to fall, the spread between indexed claims in energy states versus the US increased from 9 to 11 week over week.

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims18

 

Additionally, to emphasize the weakness in the oil industry, we provide the following chart, courtesy of Ben Ryan from our Macro Team. Year-over-year growth in overall oil industry employment has been accelerating downward since December 2014 and entered contraction territory this March. Furthermore, we expect this reading to fall further. As we shared a few weeks ago, our Energy Sector Head, Kevin Kaiser, pointed out that many energy companies are hedged through year-end 2015, implying that later this year/early next year (assuming no bounce in energy) we'll see a second wave of job cuts from Energy.

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims20

 

The Data

Prior to revision, initial jobless claims rose 3k to 277k from 274k WoW, as the prior week's number was revised down by -1k to 273k.

 

The headline (unrevised) number shows claims were higher by 4k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 5.5k WoW to 271.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.9% lower YoY, which is consistent with the previous week's YoY change.

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims2

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims3

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims4

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims5

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims6

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims7

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims8

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims9

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims10

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims11

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims19

 

Yield Spreads

The 2-10 spread fell -2 basis points WoW to 146 bps. 3Q15TD, the 2-10 spread is averaging 159 bps, which is higher by 1 bps relative to 2Q15.

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims15

 

INITIAL JOBLESS CLAIMS | BACKING UP OFF OF HISTORICAL LOWS - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.48%

Today's Top-8 Tweets From Keith McCullough

Below is a quick highlight reel from Hedgeye CEO Keith McCullough's Twitter feed from earlier this morning. As you can see by the timestamps on the tweets, Keith is at his desk working while most people are still in REM sleep.

 

Today's Top-8 Tweets From Keith McCullough - z 56

 

(If you like what you see here, you'll really like our Early Look (morning market newsletter), Investing Ideas (our analysts' top ideas curated by Keith) and The Macro Show (our live and interactive morning market show). 

*  *  *  *  * 

Today's Top-8 Tweets From Keith McCullough - z chart 2

 

Today's Top-8 Tweets From Keith McCullough - z chart 3

 

Today's Top-8 Tweets From Keith McCullough - z chart 4

 

Today's Top-8 Tweets From Keith McCullough - z chart 5

 

Today's Top-8 Tweets From Keith McCullough - z chart 6

 

Today's Top-8 Tweets From Keith McCullough - z chart 7

 

Today's Top-8 Tweets From Keith McCullough - z chart 8

 

Today's Top-8 Tweets From Keith McCullough - z chart 9


CHART OF THE DAY: This Is the Most Important Economic Chart You'll See This Month

This is an excerpt and chart featured in today's Early Look by Hedgeye CEO Keith McCullough. Please do not subscribe if you enjoy settling for lousy, consensus market and economic research which periodically blows investors up into smithereens. 

 

...[W]hat does it mean when the entire edifice of central-planning and those that market asset management at its alter are promising 2x the baseline growth (GDP) that is actually occurring? *reminder, Hedgeye is at 1.4% q/q SAAR and 1.6% y/y

 

Every single perma-bull economist/strategist in the US has not only a “3-4% US GDP” forecast in the 2H of 2015, but has it mapped in excel as far as the linear-seeing-eye can fathom, into 2016 and beyond.

 

That, to put its duration in historical context, implies the greatest economic expansion since WWII. And I’m thinking less American realists sign up to come fight for an un-elected central planning war today than they did for The People back then.

 

CHART OF THE DAY: This Is the Most Important Economic Chart You'll See This Month - Z DD Chart of the Day


This War Is It

“Sometime they’ll give a war, and nobody will come.”

-Carl Sandburg

 

Since we started Hedgeye in 2008 with a macro view that the Fed couldn’t devalue their way out of a cyclical slowdown, I can’t tell you how many times I’ve been asked how I think this all ends.

 

“This” being the grand central-planning experiment of our time.

 

You know, the one that’s based on the linear-economist premise that “shock and awe” rate cuts, bazookas, and currency devaluations can not only smooth economic cycles but raise the heavens and part the seas…

 

But what happens then the US economic cycle slows into a stiffening demographic (secular) headwind? What happens when all of the world’s growth and inflation expectations start to slow, at the same time?

 

If you didn’t know the answers to these questions, now you’re starting to know. It ends how it all started. It ends in the capitulation of the Currency War. This is it. This is the war that nobody, other than we Wall Street types, will come to fight for.

 

This War Is It - currency wars

***Catch Keith LIVE on The Macro Show at 9am ET. Click here to watch/interact.

 

Back to the Global Macro Grind

 

Got capitulation via devaluation? After Vietnam devalued the ding Dong (their currency) yesterday, Kazakhstan opted for the -23% daily-devaluation overnight. If you don’t follow Global FX, you do now.

 

“But I’m an equity guy.” Yep. Totally get it. I used to be too. Then I got crushed by the macro and decided I better do some macro before the macro did me. Interconnected risks between policy moves, currency crashes, and equities matter, big time.

 

In the last year alone, “Emerging Market” Equity outflows have almost doubled the outflows they saw during the 2008 crash. Why the 2-bagger? Because when my boy Bernanke devalued the US Dollar to its post Nixon low (2011) chart chasers rammed their asset allocation pie charts into countries that “emerged” with strong currencies on the other side.

 

In other words, the outflow is a function of the prior inflow. Chase high; puke low.

 

Now a US Equity only guy/gal should be quick to say something like “but the market is only -3% off its all-time high.” And last I checked, that was true in NOV of 2007 and MAY of 2000  too. This is what happens at cycle tops – trailing returns look awesome.

 

But then you start to see the internals (and externals) break-down, crash, and challenge all of that awesomeness. And that is precisely what you are seeing right now. From a Global Equities perspective, in the last month alone, here are some draw-downs:

 

  1. Greece -18%
  2. Russia -13%
  3. Singapore -11%
  4. Hong Kong -10%
  5. Germany -10%
  6. Turkey -9%
  7. South Korea -8%
  8. Australia -7%
  9. United Kingdom -6%
  10. USA (Russell 2000) -5%

 

And voila. There it is, the Russell (2000 stocks) is “outperforming” the rest of the global growth and inflation slowing gong show. And the SP500 is outperforming that better yet. “So” everything must be fine. Global reflation and growth must be fixin’ to rip!

 

Let’s get serious here and not make the mistakes many equity only investors did in 2000 and 2007. Let’s not ignore the growth and inflation slowing data. Let’s not close our eyes when we look at the bond market either.

 

What say you Mr. USA Bond Market?

 

  1. TREASURIES (10yr) = 2.11% this morning after dovish Fed Minutes (that reflect dovish data)
  2. JUNK = making lower-lows (4yr lows), daily, as spread risk widens (as it always does when growth slows)

 

There’s that darn combo Hedgeye keeps using, #GrowthSlowing.

 

But what does it mean when the entire edifice of central-planning and those that market asset management at its alter are promising 2x the baseline growth (GDP) that is actually occurring? *reminder, Hedgeye is at 1.4% q/q SAAR and 1.6% y/y

 

Every single perma-bull economist/strategist in the US has not only a “3-4% US GDP” forecast in the 2H of 2015, but has it mapped in excel as far as the linear-seeing-eye can fathom, into 2016 and beyond.

 

That, to put its duration in historical context, implies the greatest economic expansion since WWII. And I’m thinking less American realists sign up to come fight for an un-elected central planning war today than they did for The People back then.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.07-2.18%

SPX 2061-2090
RUT 1190-1213
VIX 13.49-15.83
USD 95.62-98.19
Oil (WTI) 40.07-42.65

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

This War Is It - Z DD Chart of the Day


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