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“We learn best through stories.”

-Jon Gordon

That’s a great quote from an inspirational book called The Carpenter. It comes to mind this morning after we sat down with one of 2015’s best performing hedge fund managers (in Texas) yesterday.

He started our meeting with, “tell me a story – how does this play out from here.” So, I told the man a story. And he liked it.

Not everyone likes the cyclical story about both US employment and consumption being classic #LateCycle. Consensus preferred the fictional tale that “low gas prices are bullish” for everything Ex-Energy. But the truthful story paid off (again) in spades.

Consumer Slowing Stories - Yellen cartoon 11.11.2015

Back to the Global Macro Grind

I know. I know. It’s different this time and while US Retail Sales have been slowing in rate of change terms since the cycle peak (NOV 2014 US Retail Sales +4.7% y/y), as long as you own Amazon at 996x trailing earnings and shorted everything else, you’re crushing it.

Here are your morning scores, in US Retail Sector ETF (XRT) terms:

  1. XRT is down -11.2% since we introduced it on the bear side in our #ConsumerCycle Slowing deck (July 2015)
  2. XRT is down -7.2% YTD vs. “the market isn’t down huge” narrative

The “market” may not be down huge (yet), but if you’re long mainline USA Retailers like Wal-Mart (WMT), Kohl’s (KSS), and Macy’s (M), you are! That’s the thing about telling people stories about the “market” – there’s this thing called what you own within the market.

Macy’s (M) was down -14% yesterday after veteran CEO Terry Lundgren explained the concept of “tough comps” (at the end of a 6-7 year cycle) to everyone who was begging for him to “spin” into a REIT.

He, like Hedgeye’s founder (me), models the forward outlook using the base effect of the prior comparative (comps) sales period. If you have a better way to front-run rising probabilities of accelerations or decelerations in a business, let me know.

We model the US economy the exact same way.

So, Mucker, tell me a story about what happens from here, in US economic terms:

  1. US Employment Growth (non-farm payrolls) peaked in Q1 of 2015 and will continue to slow through at least Q2 of 2016
  2. US Consumption Growth (Real PCE) peaked in Q1 of 2015 and will continue to slow through at least Q2 of 2016
  3. US Profit Cycle Growth (SP500 Earnings) peaked in Q2 of 2015 and will continue to slow through at least Q2 of 2016

And since both the Federal Reserve and the Old Wall consensus storytelling (that has been wrong all year long on both #GrowthSlowing and #Deflation) is calling for the opposite of the aforementioned 3 chapters, we have one heck of an opportunity to earn our 2 & $29.95/mth.

But, if we continue to be right on the timing of it all:

  1. Couldn’t the “market” go up as the Fed has to ease on that?
  2. Wouldn’t bad (slowing) news be “good” (because everything is always good)?
  3. What happens when bad is breaking bad (see AUG-SEP 2015 for details)?

So many questions. So many stories to tell at every turn.


  1. DEC 3rd ECB meeting where Draghi doubles down on devaluation? (that’s deflationary in USD terms)
  2. DEC 4th US Jobs report where the Fed is going to have to day trade Fed fund futures within a 20-90% range (probability of hike)
  3. DEC 16th Fed Meeting – to hike, or not to hike, into #Deflation Risk and an economic slow-down, remains The Question

In other words, between now and the 1st week of December, you can either trade the chop or bang your head against the wall. You can tell yourself whatever you want, really. But, in the end, both the US economic data and companies have to report #SuperLateCycle realities.

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research view in brackets):

UST 10yr Yield 2.09-2.38% (bearish)

SPX 2054-2093 (bearish)
RUT 1160--1204 (bearish)

NASDAQ 4 (bullish)

Nikkei 180 (bullish)

DAX 101 (neutral)

VIX 14.17-18.83 (bullish)
USD 98.05-100.23 (bullish)
EUR/USD 1.06-1.08 (bearish)
YEN 121.33-123.99 (bearish)
Oil (WTI) 42.07-45.37 (bearish)

Nat Gas 2.19-2.39 (bearish)

Gold 1065-1105 (bearish)
Copper 2.16-2.27 (bearish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Consumer Slowing Stories - 11.12.15 EL chart