CHART OF THE DAY: Newsflash! Deflation Is a Headwind

Editor's Note: The following chart and excerpt are from this morning's Early Look written by Hedgeye CEO Keith McCullough. If you're tired of lousy market research and commentary we encourage you to subscribe today.


CHART OF THE DAY: Newsflash! Deflation Is a Headwind - z x Chart of the Day


...How about this Chart of The Day? This shows you the classic go-to-move for my Old Wall buddies - back-end loading earnings and revenue estimates into Q3/Q4. Given what’s happened to macro markets in the last 3 months, good luck with that.


Less Compelling?

“Compelling reason will never convince blinding emotion.”

-Richard Bach


Particularly when I look back to those all-time US stock market highs, the botched “reflation” call, etc. in June/July, I can’t count how many times people told me in either meetings or in the media that there was compelling reason for the Fed to raise rates.


Now, “due to international developments” and stocks/commodities/yields crashing, the New York Federal Reserve calls a September rate hike, “less compelling.” Cool. So do Fed Fund Futures.


And I suspect that the oversold bounce we are getting in everything that crashed has largely to do with the catalyst socialized market participants beg for when they don’t get what you can’t print growth – moarrr central planning #cowbell!

Less Compelling? - Deflation cartoon 02.24.2015


Back to the Global Macro Grind


It’s a good thing they bounced stocks/commodities from the lows. Imagine they didn’t?


Since a lot of people are blaming “China” for all of this, how did markets react to the Chinese cutting rates (again) a few days ago? That did nothing but scare macro markets. So… what markets really needed to see was moarrr – and in the last 24hrs they got it:


  1. Rampant rumors that Mario Draghi is going to tell you he can do whatever it takes at Jackson Hole
  2. Rumors that the Fed’s Vice Chair (Fischer) is going to double-down on the dovish Dudley comments (at Jackson Hole)
  3. And since the Chinese can’t dominate the dialogue at Jackson Hole, they just “bought stocks” with State moneys!


Yep. Gotta love the Chinese central-planning dudes. They just went all Japanese on the stock market and bought it themselves.


Wouldn’t that be fun – if the Fed did the same?


Moving along… once markets get through this bounce (after the biggest move in volatility since 2008, it should be big, no?), I still recommend we respect/understand the following risks that caused many of the crashes (defined as price declines of 20% of more in anything that ticks):


  1. #LateCycle Slowdown (locally and globally)
  2. #Deflation (obviously)
  3. #LiquidityTraps
  4. #Volatility Asymmetry
  5. #Credit/Profit Cycles Slowing


Apologies if I left a few out this morning.


Just in case you missed the last one, here’s the update (post 484 of 500 SP500 companies reporting Q2):


  1. Revenues -3.8% YoY
  2. Earnings -2.5% YoY


Old news, eh. How about this Chart of The Day? This shows you the classic go-to-move for my Old Wall buddies - back-end loading earnings and revenue estimates into Q3/Q4. Given what’s happened to macro markets in the last 3 months, good luck with that.


The other big problem (maybe the biggest of all since it’s so obvious in our model) is what I’ve been walking Institutional Investors through for the last 2-days of meetings in Boston and NYC – the GDP Comps for Q3 and Q4.


Comps, meaning comparative base effect or year-over-year comparison. Yes, they matter a lot more than some made-up PMI indicator with a random “lag.” And our call remains that on the US consumer side (toughest Christmas comps since 2007), it’s really going to matter.


Forget consensus being objective and reviewing the causal factors of phase 1 of this crash – they probably won’t do that. Parker at Mogan Stanley reiterates 2275 SPX! Instead, they’ll pivot, hard, to whatever bull case they can find – and that’s definitely “Lower Gas Prices.”


Yep. Everything was awesome at $100-150 Oil, and it’s awesomer at $40. That makes a ton of sense. Even though US Rents are ripping to higher all-time highs and represents 24% of the Median US Consumer’s spending budget vs. Gas at 6%.


Oh, but that part of the country doesn’t matter. Right, right. And Consensus Macro hasn’t perpetuated inequality behaving that way either. How do “high-end” consumers “act” on 10-20% stock/commodity market draw-downs. Can’t wait for those compelling Christmas comps.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.99-2.19%

VIX 23.25-43.42
EUR/USD 1.08-1.16
Oil (WTI) 37.66-40.98


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Less Compelling? - z x Chart of the Day

Euro, Commodities and Yields

Client Talking Points


Big part of the bounce was rumoring from the Europeans that ECB President Mario Draghi is going to deliver the devaluation wood @JacksonHole – we don’t doubt that (FX market didn’t either, $1.16 EUR/USD became $1.13, fast) – that is the catalyst when growth is slowing, moarrr #cowbell.


Pretty much everything that crashed (China +5.3% this morning, WTI +4.2%, etc.) is “off the lows” as they say – don’t forget to understand/contextualize the bounces (and why we had the crashes). The CRB Index hit a new low yesterday of 185 (-20%, since May).



Wasn’t it just U.S. Yields that bounced on the “risk on” trade yesterday; German and Swiss Yields popped (off their lows) too – stay with the #process and respect the range – UST 10yr Yield’s = 1.98-2.19% right now and a dovish Fischer (like Dudley) gets us paid Long Treasuries.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

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It was a very good week for those sitting behind the long-bond coming out of the FOMC minutes release on Wednesday. During a tumultuous 5-day stretch in which the S&P 500 fell over -5%, subscribers who followed our recommendation on TLT were sheltered from the market storm and gained almost +2%. Moreover, during the past month, TLT has gained +5.7% versus a -6.8% loss for the S&P 500 (a 1,200 basis point difference). In other words, it has paid handsomely to buck the consensus tide.

Three for the Road


The Grand Central Planning Experiment Gone Bad



The phrase I can't is the most powerful force of negation in the human psyche.

Paul R. Scheele


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The Macro Show Replay | August 27, 2015


August 27, 2015

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Hedgeye Cartoon of the Day

Hedgeye Cartoon of the Day - bull riding cartoon 08.26.2015


Hedgeye U.S. Macro Analyst Christian Drake in today's Early Look:


...As it stands, every S&P Sector is currently bearish TRADE & TREND in the @Hedgeye model.  Select securities may present compelling short-term long opportunities but, in this setup, attempting to knife-catch beta is not an exercise in fiduciary excellence.