More Cowbell?

“I gotta have more cowbell.”

-Christopher Walker


As many of you know, every year central-market-planners descend from upon high to the Teton Mountains in Jackson Hole, Wyoming. This is where ideologies associated with being able to bend economic gravity live large. #TaxPayerVaca


Technically speaking, it’s illegal for members of various un-elected and inaccurate forecasting agencies to leak what will ultimately become breaking news (cuts, easing, devaluations, etc.), but I did get an exclusive peak at the after party last night.


Do not forward this to anyone. Here it is: Many thanks to our man on the ground, Will Ferrell, and his version of the Blue Horseshoe Oyster Band for bringing us the catalyst for the next bull market. 

More Cowbell? - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Not to downplay what appears to be the most ominous setup in my macro model since 2008, I think it’s important to start to analyze this tragedy using some humor. Otherwise, the sadness of the situation could very well overcome me.


And I mean that sincerely. As I look at what I call the downside of the “probable range” in Global Equity markets this morning, for the first time in my career I don’t think I want to be right.


That’s a tough thing for me to write because the goal of the game is to be right. We’ve spent the last 7-8 years trying to evolve the Global Macro risk management #process to the point where many aren’t unprepared for this. Unfortunately, many are.


Rather than depress you with words, let me just show you the numbers my models showed me:


  1. SP500 has immediate-term downside of -8.3% to 1822
  2. Russell 2000 has immediate-term downside of -6.3% to 1080
  3. Germany’s DAX has immediate-term downside of -8.1% to 9506
  4. Japan’s Nikkei has immediate-term downside of -9.5% to 17304
  5. China’s Shanghai Comp has immediate-term downside of -19.3% to 2607


If I keep going, I’ll feel ill. And not for me. I mean for the many who have depended on the Fed, ECB, BOJ (and now Chinese) to bail them out of the idea of economic gravity slowing, deflating, etc.


But, but – GDP was +3.7% yesterday. Yep. In sequential (SAAR) terms vs. a sequential bomb of Q1 GDP. But the real bomb is going to be the Federal Reserve raising interest rates into a potential Q3 GDP print of 0.1%.


That’s right, 0.1%. We always model a high and a low range estimate in the Hedgeye Predictive Tracking Algorithm Model for any country’s GDP. And after updating the model for yesterday’s real-time data, here are those two scenarios:


A)     HIGH: Q3 2015 GDP (E) 1.5%

B)      LOW: Q3 2015 GDP (E) 0.1%


While we don’t think you should look at any country’s economic growth in Q/Q SAAR terms (year-over-year rate of change is a much more accurate representation of the cycle’s reality), you actually have to because both non-macro people and the media do.


My greatest fear is that the Fed doesn’t yet look at it the way we (and many of our Institutional Clients) do. My fear looks just like the SP500 did at its 1867 close on Tuesday. Imagine the Fed was raising rates into that?


And trust me, I get it. For God’s sake I’d write about why the Fed should have been raising rates during our #GrowthAccelerating call of 2013 just about every other Early Look. I also drove the #StrongDollar, Strong America thesis. But I also get that:


A)     The Fed missed their window to raise rates

B)      The modern day Fed has NEVER tightened into a slowdown

C)      No one knows how low equity markets can go in that scenario


Reminder: my scenario includes:


  1. The Street LOW forecasts on Q3 GDP (we’ve had them all year)
  2. An expectation of pervasive #Deflationary forces
  3. Downside to Q3/Q4 revenue and earnings expectations


So I don’t expect to see consensus and/or the Fed to see what I see this morning.


I look at the models we have built to proactively predict the #LateCycle slowdowns of 2007 and 2015. They look at whatever they are looking at. And every strategist who has had growth and inflation wrong in 2015 is looking for more cowbell.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.19%

VIX 20.56-44.64
Oil (WTI) 37.55-43.74

Gold 1105-1168


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


More Cowbell? - z ben 77 08.28.15 chart

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more