CHART OF THE DAY: Fed Rate Hike Expectations Crashing

Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you would like to learn more about how you can subscribe and stay ahead of consensus.


CHART OF THE DAY: Fed Rate Hike Expectations Crashing - z cod bbb


"...Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again."


Bear Squeeze

“Who was the first guy that looked at a cow and said, “I think I’ll drink whatever comes out of those things when I squeeze them”

-Calvin & Hobbes


After reviewing this past week’s macro market moves, I couldn’t think of anything other than something that could make me chuckle for this morning’s quote. It took the worst US data point of the year (SEP jobs report) to drive 2015’s “best weekly gain.”


Everyone nailed it. Yep. After consensus called for > 3% US GDP growth and > 3% long-term (10yr) Treasury Yields, it will take a GDP growth number with a 1% in front of it for Q3, Down Dollar, and Down Rates to “stimulate” the “reflation trade” again.


But how high can it go? Or was this the bull case for Equities all along? After a +9% weekly gain for West Texas Crude Oil (triple the US stock market’s weekly gain) is the next 2015 bull-narrative-drift that “higher-gas prices” are going to pump up the consumer?


Bear Squeeze - denial cartoon 09.28.2015


Back to the Global Macro Grind


Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again.


With the US Dollar Index -1.1% on the week, here were the week-over-week callouts:


  1. EUR/USD +1.4% on the week, taking it to -6.1% YTD
  2. Canadian Dollar +1.6% on the week, taking it to -10.2% YTD
  3. CRB Index +4.4% on the week, taking it to -10.2% YTD
  4. Oil (WTI) +9.0% on the week, taking it to -15.6% YTD
  5. Copper +3.8% on the week, taking it to -14.7% YTD
  6. Gold +1.7% on the week, taking it to -2.6% YTD
  7. SP500 +3.3% on the week, taking it to -2.1% YTD
  8. Energy Stocks (XLE) +8.0% on the week, taking them to -12.9% YTD
  9. Basic Materials Stocks (XLB) +6.7% on the week, taking them to -9.1% YTD
  10. Healthcare Stocks (XLV) +0.2% on the week, taking them to -0.1% YTD


In other words, the new bull-narrative-drift case is A) to get the stock market back to break-even for 2015 by B) arresting the crash in #deflation sectors and C) pretending that it’s still “mid-cycle.”


Fed Easing is the best path to non-economic-prosperity, remember? Whenever the economy slows, we just have to mask the weakness of it all with the illusion of growth – Down Dollar Reflation – and call it “demand accelerating”, or something like that.


At one point on Thursday, the Minneapolis Fed Head (Kocherlakota) suggested that your un-elected Fed should “consider reducing rates.” The Reflation Trade loved that. So did everything that’s been imploding in the land of Emerging Markets:


  1. Emerging Market Equities (MSCI) ripped 2x the SP500’s gain last week, closing +6.9% (still down -10.1% YTD)
  2. Latin American Equities (MSCI Index) squeezed +9.5% higher last week (but still crashing -22% YTD)
  3. Indonesian Stocks ramped +9.1% last week, but are still -12.2% YTD


Does Down Dollar stop Emerging Markets from crashing, for a week? Can you see the TRADE vs. the TREND here?


  1. Brazilian Real +4.9% week-over-week, but -35.8% year-over-year
  2. Russian Ruble +6.9% week-over-week, but -34.7% year-over-year


I’ll bet you a fully-funded Draft Kings account that your average US stock market navel-gazer can’t tell you what the FX market did last week, never mind all of the commodity-country-currency links.


It was a Bear Squeeze to remember (and fade again), indeed.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.13%

VIX 15.94-27.98
USD 94.58-96.01

Gold 1135-1167

Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Bear Squeeze - z cod bbb

October 12, 2015

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USD, Gold and Sectors

Client Talking Points


EUR/USD testing $1.14 after the U.S. Dollar Index dropped for the 2nd week in a row (-1.1%) taking it’s 6 month correction to -4.6% as FICC markets continue to price in a more Dovish Fed. ECB President Mario Draghi doesn’t appear ready to counter that with more QE Cowbell, yet.


Down Dollar, Down Rates is the bull case for Gold – and with the Bond Market closed, we’re getting that and more “reflation” priced in with Oil and Gold +0.6% and +0.8%, respectively this morning. We turned bullish on Gold in August and added it to our Top Macro Ideas in our most recent Q4 Macro Themes presentation.


Got Energy Stocks (XLE) +8.0% last week vs. Healthcare (XLV) +0.2%? Is this bear market squeeze in reflation the same head-fake it was in June-July, or a bigger one? The Fed might have to go to Qe4 to keep Oil and Latin American Stocks +9-10% each week!


**Tune into The Macro Show at 9:00AM ET - CLICK HERE


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We think that the catalyst calendar is just starting to pick up, and should be the best that Restoration Hardware has seen – perhaps ever. There are two new and significant merchandising initiatives, which are solid on their own. But to pair them with the square footage growth acceleration seems almost like a fantastic coincidence. But it’s not. This has been in the plan all along. There’ll be many more new concepts and classifications – though we’d argue that the company can go deep and add $2bn in revenue with what it has.


To be clear, there’s much more to this story than just square footage growth – like the ability to consistently merchandise product people want in quantities they need.  Without the ability to deliver on that requirement, a retailer could have the greatest store in the hottest location with the best demographics, and it will still be nothing but a liability (regardless of how low the rent might be). That’s why square footage growth is grinding to a halt for other U.S. retailers. That’s also why the growth profile at RH is so powerful, and unmatchable by anyone we see in Retail today.


As we predicted, a rise in September regional revenues would serve as a catalyst for regional gaming stocks, and in particular, Penn National Gaming. For the record, PENN is up +12% since we added it to Investing Ideas back in May, outperforming the S&P 500 which has fallen -5% since then.


We believe shares of PENN have a lot more room to run, given its strong performance in key markets like Ohio and its successful opening in Massachusetts.  A handful of states still need to report their September revenue figures, but numbers have been in line with our expectations thus far.


PENN will be reporting Q3 earnings on October 22nd.


Bottom Line: We remain 50% below Bloomberg Consensus on GDP growth. Wall Street, the IMF, World Bank and OECD are all still forecasting global growth of around 3% for 2015.  We reiterate our call for growth to come in at or below half that rate.


While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as bond yields hit the market with their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young. With that considered, sit back and relax with your TLT and EDV.

Three for the Road


*Bookmark this video.

Real Conversations: 'Seeing What Others Don’t' w/@KleInsight + @KeithMcCullough



Stop looking for solutions to problems and start looking for the right path.

Andy Stanley


Last night was the first time since 1967 that 2 goalies have made their NHL debuts in the same game. Matt O’Connor (Boston University) started in the net for the Ottawa Senators and Mike Condon (Princeton) was the starting goaltender for the Montreal Candieans. 

The Macro Show Replay | October 12, 2015


Real Conversations: Seeing What Others Don’t with Dr. Gary Klein

Best-selling author and cognitive psychologist Dr. Gary Klein talks with Hedgeye CEO Keith McCullough about his most recent book, Seeing What Others Don’t. Klein offers his own personal experience about gaining insight and valuable lessons for market practitioners and academics alike on this new edition of Real Conversations.


Dr. Klein is widely known for changing the landscape of cognitive psychology by pioneering the Naturalistic Decision Making (NDM) movement in 1989. Dr. Klein currently works as a Senior Scientist at MacroCognition LLC in Dayton, Ohio and recently started a new company in 2014, ShadowBox LLC, which develops training for organizations that allows novices to think like the experts. He is also a fellow of the American Psychological Association and the Human Factors and Ergonomics Society (HFES), and received the 2008 HFES Jack A. Kraft Innovator Award.


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