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Macro Like You Mean It

“Sleeping is no mean art: for its sake one must stay awake all day.”

-Friedrich Nietzsche


I’m going to make a bold prediction:  This will not be the best Early Look of the year.


Clever linguistic acrobatics are a rested man’s game and I haven’t slept since Tuesday as @HedgeyeFIG and I were busy prepping to bring the housing research thunder on our 4Q Themes call yesterday.  


(Incidentally, we’ve had a pretty $$$ run in housing calls over the last 7-qtrs -  if you’d like the detail on our attempt to maintain the analytical momo in 4Q, email )


Plus it’s Friday – Jobs Friday no less – and risk rarely rests.  And since I'm both head housing drummer and lead domestic econ vocalist for our Global Macro Boy Band, I’ll play the next gig.


… Ya gotta Macro Like You Mean It!


Macro Like You Mean It - z chart 2 cd


Back to The Grind …


As we highlight probably every month, we haven’t figured out a way to consistently model and convictedly forecast a point estimate on the monthly payroll figure – so we don’t.    


The current price/quant signals and our TREND view on domestic fundamentals generally drives our positioning into the number and we simply take what BLS gives us on jobs day and respond accordingly. 


But since the collective investor fascination this morning will be guessing on the over/under on everyone else’s guess on the rand() function that is the NFP print,  we’re tasked with observing and assimilating the machinations of a restless market on its most manic day of the month.   


Keith will be captaining the real-time macro strategy session on Fox Biz this morning before the @Hedgeye Macro Show if you’d like to tune in.


Since we don’t know what the payroll number will be, let’s focus on some stuff we do know: 


  • Trend = Less Good:  No matter how you parse either the NFP or ADP employment numbers, the trend has been slowing:  3M ave < 6M ave < 2015 ave < 2014 ave.  Was it inevitable that we slow off the 2H14 pace of +273K/mo.  Yes, but less good is less good.


  • The Late Late Show:  October will mark the 77th month of the current expansion (the mean & median over the last century are 59-months and 50-months, respectively).  Do expansions following financial crises and balance sheet recessions run longer in period and lower in amplitude (i.e. long and muddling).  Yes, while we’re late cycle, the duration of the expansion is not surprising.  Do conventional expansions and bull markets die of old age and without focused central bank tightening.  Not typically but this, of course, is not a typical cycle (financial crisis, unprecedented global central bank intervention, negative global demographic trends, global over-leverage, global liquidity trap conditions, etc.)


  • RoC | Past Peak:   From a rate of change perspective NFP peaked in February at +2.343% YoY.  Re-breaching that growth rate to the upside is not going to happen.  It’s just math meeting realism.  The M/M change in NFP would have to be +602K for that to happen.  What does that mean?  Not much in the very immediate-term, at least based on historical precedent.  As the Chart of the Day below illustrates, payrolls run into the law of large numbers as an expansion matures with peak rate-of-change in NFP occurring ~2yrs ahead of the peak in the cycle.  Cycles take time to play out – let it breathe.  And, as noted above, typical business cycle oscillations in the post-war period are only loose analogs for the post-crisis expansion.  


  • ISM Mfg:  The employment sub-component in the ISM manufacturing survey for September came in at 50.5 – flirting the contraction line for the 2nd time in 6-months.   Again, is the ongoing softness in the manufacturing sector surprising with slowing global growth, strong dollar (↓ export demand) and cratering energy sector capex? Not really, but that doesn’t mean it doesn’t matter.  And (next bullet) …  


  • Good vs. Services: Because consumption of and investment in durable goods is more cyclical than nondurable/services consumption and carries a higher elasticity to macro conditions, the employment trend in the goods producing sector tends to front-run negative inflections in the broader labor market.  Employment growth in the goods sector has been in discrete deceleration – slowing from +3.0% at the start of the year to just 1.36% as of August.  Watch this trend  – U.S. centric strategists can live in an “de-coupler’s” echo chamber, globally interconnected Macroeconomies cannot – at least not sustainably.


  • What to Watch:  The product of total employment, ave hours/wk and earnings/hr gives you aggregate income for the month and aggregate income determines the capacity for consumption (and, generally, the trend in actual household consumption).  So long as income trends hold in a consumption economy, it will be hard for the domestic (real) economy to truly come off the rails – despite a worsening trade balance and flagging investment. 


  • Tea-Leafing the Internals:  Most of the market angst centers on the read-through to policy.  Here’s a rough playbook and the likely implications for a selection of data combinations:
  1. Big NFP gain, (still) no wage growth = slack still pervasive, Fed probably communicates a bullish interpretation of the data
  2. Lower Print, Accelerating wage growth = slack diminishing – Good in terms of approach toward full employment, but the Fed can’t hike (sustainably) into middling and declining payroll gains.
  3. Lower, (still) no wage growth = stall speed, Doves bunker down a bit, Dots pack their bags for a push out. 
  4. More of Same (200K +/- & Middling Wage growth) = More of same on policy side.  Global macro conditions remain a fulcrum for domestic policy. 


  • GDPNow … or Later:  The Atlanta Fed GDPNow model – which has had the hot hand in recent quarters - currently sits at 0.9% for 3Q.  Recall, the model gets increasingly accurate as quarter-end approaches and more data is incorporated. The skinny on the quarter is basically this: Consumption will remain pretty good while Net Exports, Investment and Inventories will continue to drag – and comps only get tougher.


  • Rationalization Indicators:  This is largely qualitative but my inbox has seen a notable influx of esoteric indicators of late.  The increased trotting out of squirrely, netherworld “indicators” via sell-side distribution channels typically signals that data-mining and the “twisting facts to fit theories” exercise has escalated.   


To summarize and conclude:


Next Verse, Same As the First:  Inclusive of whatever the BLS delivers this morning:   Slower-and-Lower-for-Longer remains the call.   


You buy that theme opportunistically and with a Trend view – you don’t buy it at every time and price.  


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.19%

RUT 1067-1125 

VIX 19.94-29.12
Oil (WTI) 43.64-47.21 

Gold 1104-1155


Happy Friday.  To Sundays, siesta’s and cerebral exfoliation,


Christian B. Drake  

U.S. Macro Analyst


Macro Like You Mean It - z chart 1 cd

The Most Important Chart on Jobs Report Day?

This morning, I'd like you to focus on the chart below - context is critical.


The Most Important Chart on Jobs Report Day? - z jobs km chart


As many of you already know, my team and I here at Hedgeye got bullish on employment growth (and US growth) when this chart bottomed in 2012 - it's bearish now.


On a related note, please bear in mind that our firm's call (for 20 months) has been that the biggest risk to the market is the Fed's forecasts. Their forecasts (on both growth and inflation) in 2015 have been flat out wrong.


The data is slowing. Period.


Now, back to your centrally-planned morning.

October 2, 2015

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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

The Macro Show Replay | October 2, 2015


UST 10YR, Gold and Jobs

Client Talking Points


2.05% yield into this rate of change slowing U.S. jobs report, so the bond market continues to front-run both Janet Yellen and Wall Street’s overly bullish (pro-cyclical) forecasts. On a bad headline NFP print, expect no support to 1.98%; on a “good” one, we could see upside to 2.19% - that’s our risk range.


Is the 3rd time a charm? This is the 3rd time (in 3 months) to buy Gold on a down move (before making a higher-low and ramping for a weekly gain) ahead of the jobs print, and we would. There is immediate-term upside to $1155.


Rate of change data/charts don’t lie; political economic pundits do. When the rate of change in the jobs market bottomed at the end of 2012, Hedgeye went bullish on U.S. #GrowthAccelerating (particularly consumption) and, as it slows here from the FEB 2015 top, we’re bearish – cycles take time to play out.


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


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald’s clearly continues to be well-liked by our Restaurants research team and is a near perfect fit into our macro team’s current "style factor" preferences. This stock is high cap with a low-beta, coupled with a company turnaround story that is currently well underway. We believe this stock will do well through this tumultuous time in the market.


As previously mentioned, the company has all day breakfast starting on October 6. We anticipate this development as not only driving increased visits from existing customers, but also new customers that maybe don’t wake up early enough to get breakfast by 10:30am (or simply just people that enjoy eating breakfast items outside of the morning!)


As Sector Head Todd Jordan notes, "PENN should benefit from the release of state gaming figures over the next few weeks. Recall that August was weaker than many thought. While we predicted this particular slowdown, our model is showing a sharp September rebound.


September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels.  


Is the U.S. economy still showing signs of a cyclical slowdown? Yes.  If you, like us, remain skeptical on the said policy path from our omnipotent central planners, and you believe growth continues to slow, then we respectfully submit that you sit on your GLD and TLT allocations.


3 GDP comps are difficult. And, once the data comes out, we think expectations will be downwardly revised again. In other words, wait for yet another Fed punt on a 2015 hike.

Three for the Road



Newsflash, Captain Stock Picker: Mr. Macro Is In Charge https://app.hedgeye.com/insights/46646-mr-macro-market-is-in-charge-right-now… via @KeithMcCullough #markets #stocks



Never confuse a single defeat with a final defeat.

F. Scott Fitzgerald


The highest paid player in the National Women's Hockey League (NWHL) is Kelli Stack of the Connecticut Whale earning $25,000 this season.

Cartoon of the Day: Red October?

Cartoon of the Day: Red October? - OctoBEAR cartoon 10.01.2015


Below is an excerpt from today's Early Look by Hedgeye CEO Keith McCullough:


...“So,” the Old Wall will say. “Worst quarter for stocks in 4 years… and now everyone is bearish, so you need to buy” (provided that the stock market went up in the day prior #MustChaseGreen).


Roger that.


While I can’t, for the life of me, find an epic stock market bubble that peaked (2000 or 2007), then priced it all in within 3 months of the all-time peak, this constant wrangling of my teddy bear ears should be expected.


After all, “it’s different this time.”


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