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Dear Janet, Go Ahead. Hike. See What Happens

Takeaway: In today’s speech, Yellen sounded as hawkish as she has all year, even while growth is as slow as it’s been all year.

“When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to.”

-Janet Yellen, Fed Chair speaking at Economic Club of Washington (12/2/2015)


Newsflash: Yellen is a Democrat so she had to obfuscate the actual state of the US economy. Make no mistake, though, Yellen will go down in history as one of the few Fed Heads who tightened into a recession.


In today’s speech, Yellen sounded as hawkish as she has all year, even while growth is as slow as it’s been all year. She spent today’s speech talking up "consumer confidence,” even though that has slowed since seeing its cycle peak in Q1.


Dear Janet, Go Ahead. Hike. See What Happens - Rate hike cartoon 09.04.2015


She didn’t mention yesterday’s recessionary ISM and PMIs that don’t corroborate her rate hike calculus. You can't draw a line (sine curve) that is "accelerating" in almost any US economic data series right now. In fact, Autos and Housing are the only two data points that are accelerating, but both are highly dependent on no hike.


She tried to blame every component of US #GrowthSlowing on non-US factors, while citing higher foreign exchange rates and the statement that “foreign economies still pose risks to U.S. economic growth” but that this risk had “lessened since late Summer.”


It was really sad to watch.


The pinnacle of Yellen’s economic song and dance, however, had to be her touting of the exceedingly rosy "Blue Chip" (Old Wall) economic forecasts. No real help there. They have been consistently wrong on growth by a seriously wide margin, by 50% in 2015 alone. That’s almost as bad as the Fed's own "expectations,” which have been wrong 70% of the time since Bernanke's reign. 


No matter. After this speech, financial markets will be shocked if Yellen doesn’t hike. So I say “Hike baby, hike into the slow-down.” Any tightening into a slow-down will surely "disrupt" financials markets. It's already disrupting them. During and after Yellen’s hawkish speech, the Treasury market sold off, equities fell, and the dollar rose.


Most people who blindly believe the Fed are paid to but so-called “central bankers” have turned America into a socialized state of centrally-planned markets. The obfuscation of U.S. economic data needs to be audited. It is un-elected, un-accountable, and un-American.

McCullough: The Astonishing Audacity of Central Planners


Does it make sense for the ECB to increase QE? An eagle-eyed viewer of The Macro Show doesn’t think so, and Hedgeye CEO Keith McCullough agrees. But whether it’s rational or not doesn’t matter. McCullough explains why in this brief excerpt.


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.

Huh? Atlanta Fed Head Calls Rate Hike "Compelling" But Slashes GDP Forecast?

Takeaway: Is the Fed fibbing about being 'data dependent' or is it just delusional?

Huh? Atlanta Fed Head Calls Rate Hike "Compelling" But Slashes GDP Forecast? - Yellen data dependent cartoon 11.18.2015


The Fed continues to say that they are “data dependent.” We just don’t believe them.


In case you missed it, Atlanta Fed president Dennis Lockhart said there was a “compelling” case for a December rate hike earlier today. Maybe we’re missing something here, but didn’t the Atlanta Fed just cut its GDP forecast yesterday? And didn't they ratchet down their GDP forecast the prior week as well?


Apparently cutting your GDP estimate is the new bullish case for liftoff…


Does this make sense?


We’re still scratching our heads. But let’s take a closer look at Lockhart’s speech. We think there are a few revealing insights for investors heading into the Fed’s December policy meeting.


A few excerpts for your consideration:

  • “Absent information that drastically changes the economic picture and outlook, the case for liftoff is compelling.”
  • “The economy is growing at a solid pace in spite of ongoing headwinds coming from global conditions and the strong dollar.”
  • “To circle back to growth drivers, solid job gains and rising household incomes should contribute to a favorable spending outlook.”


Perhaps most important was this story Lockhart told to conclude his remarks:


“To wrap up, I've given you just the highlights of what I can assure you is a comprehensive review of the economic data that my staff and I perform before any FOMC meeting. Policy considerations at the upcoming meeting call for an especially deliberate process. There are two weeks to go, with additional data still to arrive. That said, absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling.”


Wait. Did Lockhart’s “comprehensive review” include his own GDP forecast?


Just yesterday, Lockhart’s Atlanta Fed cut its fourth quarter U.S. GDP estimate to 1.4%. This was down from 1.8% last Wednesday and lower than its 2.2% forecast from less than two weeks ago. Quick rhetorical question:


Q: What did Lockhart et al cite for taking a hatchet to their estimates?

A: Yesterday’s data


Here’s the Atlanta Fed’s explanation accompanying the GDP downgrade:


"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.4 percent on December 1, down from 1.8 percent on November 25. The decline occurred this morning after the Manufacturing ISM Report On Business from the Institute of Supply Management and the construction spending release from the U.S. Census Bureau."




Interestingly, that cut now puts the Atlanta Fed estimate in-line with Hedgeye’s Q4 GDP forecast. 


Huh? Atlanta Fed Head Calls Rate Hike "Compelling" But Slashes GDP Forecast? - atlanta fed


To be clear, our recent market commentary is nowhere near Lockhart's (illusionary) outlook. In fact, we've been very vocal about the rising probability of a recession in the next 6 to 12 months. 


Huh? Atlanta Fed Head Calls Rate Hike "Compelling" But Slashes GDP Forecast? - 50 percent consensus


So forgive us for thinking Lockhart is being a bit disingenuous when he says that after his “comprehensive review” of the data he still sees a favorable outlook for U.S. growth. (Editor’s Note: In his speech, the Atlanta Fed head didn’t even mention that his team of economists decided to cut their GDP forecast yesterday.)


But we digress...


Lockhart also called the December 15th and 16th Fed policy meeting “historic.”


Finally, something we can agree on...


As Hedgeye CEO Keith McCullough has reiterated in the past few days, a December rate hike would be the first time the Fed raised rates into an economic slowdown. 


So to piece together the reality that Lockhart won't tell you:


Huh? Atlanta Fed Head Calls Rate Hike "Compelling" But Slashes GDP Forecast? - tweet data 

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

On Fox Business: What Does A Fed Rate Hike Mean For U.S. Banks?

On Fox Business' Mornings With Maria today, Hedgeye CEO Keith McCullough discussed the implications a December rate hike and how to play the banking sector with SkyBridge Capital’s Anthony Scaramucci and Anton Schutz of Mendon Capital Advisors, 


Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch

Takeaway: W sees big Cyber 5 results, but spending big to penetrate overestimated TAM. Hedgeye Recession Watch. We give TGT open house A for effort.

W - Wayfair Cyber Five Sales Results


Our Take: These Holiday sales numbers for Wayfair are big with direct sales up 130% this year and up 103% on a 2yr basis. Management called out the fact that it would up the ante during this holiday season in areas like seasonal décor, housewares, etc. as it realized last year that could play the Black Friday game in areas less tied to furniture and more directly competitive with retailers like Bed Bath, Target, Walmart, Kohl’s, etc. While the press release came 6 weeks ahead of last year's, there was no comment this year on the number or percent of orders that were placed by repeat customers which is an interesting omission in its own right.

Also, let’s not forget two things 1) most people did not know what Wayfair was last Black Friday, and 2) people don’t use Black Friday as an excuse to buy higher-ticket/margin furniture.

The bottom line on Wayfair is that this company is spending – and it’s spending big – around penetrating what management believes to be the company’s TAM. Unfortunately, we think they are overestimating it by a country mile, and are building an infrastructure for growth that will not materialize – at least profitably.


Recession Watch - Macro Comments from Hedgeye CEO Keith McCullough

ISM bomb of 48.6, but no worries – if you back out company selling prices alongside strong dollar/weak demand deflation, and don’t look at US Retail Sales and/or consumption growth slowing from Q1 cycle peak – all good.

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart2


TGT - Target's Connected Open House


Our Take: This might be the coolest thing that Target has done since exiting Canada. This is a store in San Francisco we visited last night that is basically a prototype for TGT to embrace IoT. They’re selling the ‘connected home’ experience with everything from smart thermostats, door locks, baby scales, light bulbs (for $199 3-pack) to dog collars (think doggie Fitbit).

This is in no way scalable, bc you could buy half of this stuff in Home Depot. But the reality is that we give Target an A for effort on this one.

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart3

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart4B

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart5B

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart6B

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart7


AdiBok - Adidas looking to sell-off hockey brand CCM, along with Taylormade



WMT, AMZN - Amazon Received 12 Times as many Twitter mentions than Walmart on Cyber Monday



GIII - 3Q16 Earnings

Retail Callouts (12/2): W Cyber Five, TGT Open House, Hedgeye Recession Watch - 12 2 2015 chart8


OXM - Michelle McQuality Kelly to Succeed Scott A. Beaumont and James B. Bradbeer, Jr. as Group CEO of Lilly Pulitzer



CAB - Cabela’s Inc. to Explore Strategic Alternatives



SVU - SUPERVALU Names Eric Claus New Chief Executive Officer of Save-A-Lot



Purchase Apps | New Highs ... & Salt Grains

Takeaway: Purchase activity in November = highest YTD. Seasonal factors and rate considerations are both probably impacting reported demand.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


Purchase Apps | New Highs ... & Salt Grains - Compendium 12.2.15


Today’s Focus: MBA Purchase Applications


Purchase Applications rose +7.7% WoW and accelerated to +30% YoY, taking the demand index up to its strongest level since 2010 at 228.1.  


This morning’s data marks a third consecutive week of elevated demand and takes activity in November to the highest monthly average YTD.  The strong November also reversed the underwhelming demand trend observed in October, bringing sequential growth in 4Q up to +1.4% QoQ and +22.9% YoY.


The Caveats:  Two the last three weeks of data have included holidays (Veteran’s Day, Thanksgiving) and holiday associated statistical adjustments are notoriously imperfect and capable of pushing the data in either direction in any given week. 


However, the non-holiday week was also strong and the seasonal factor applied to both of the holiday weeks was not out of line with recent year adjustments – in fact, the adjustment factor applied in 2015 was marginally less supportive of the seasonally-adjusted headline number than what we’ve seen the last couple years. 


Also, as we’ve highlighted in recent weeks, its more probable than not that we’re seeing some measure of demand pull-forward with prospective buyers pulling the purchase trigger in fear of further financing based affordability declines.   


The Conclusion:  The new November highs are noisy and perhaps overstate the underlying demand trend but, on balance, the data suggests some measure of uptick in purchase activity in recent weeks aptly characterizes the underlying reality.  Seasonal noise will remain a factor for most of the next 6-weeks - ready your grains of salt.   


Purchase Apps | New Highs ... & Salt Grains - Purchase 2015 Monthly


Purchase Apps | New Highs ... & Salt Grains - Purchase 2013v14v15


Purchase Apps | New Highs ... & Salt Grains - Purchase YoY


Purchase Apps | New Highs ... & Salt Grains - Purchase THanksgiving Seasonal Adjustment


Purchase Apps | New Highs ... & Salt Grains - Purchase Index   YoY Qtrly


Purchase Apps | New Highs ... & Salt Grains - Purchase LT


Purchase Apps | New Highs ... & Salt Grains - 30Y FRM




About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake



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