CHART OF THE DAY: Is The Fed's Credibility Crashing?

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.


"... Since the Fed’s forecasts on growth and inflation have been wrong 70% of the time since Bernanke’s reign, why isn’t it normal to assume that the Fed will be wrong on US growth by another 25-45% for the next year like they were this year on #Deflation?"


CHART OF THE DAY: Is The Fed's Credibility Crashing? - 12.03.15 EL chart

What's Normal?

“I shouldn’t say I’m looking forward to leading a normal life, because I don’t know what normal is.”

-Martina Navratilova


In terms of what she is now referring to as the “normalization” of Federal Reserve interest rate policy, Fed Chair Janet Yellen proclaimed her mystery of central-planning faith yesterday, suggesting that it will be “a day we all are looking forward to.”


And US stocks proceeded to go straight down after she said that.


What does “normalization” mean? Is it normal for the head of the Federal Reserve to only answer pre-screened questions (like she did yesterday at The Economic Club of Washington) using cue cards? How about raising rates into a slow-down?


What's Normal? - Yellen cartoon 11.11.2015


Back to the Global Macro Grind


Notwithstanding the lack of credibility in how Yellen characterized the rate of change in recent economic data yesterday, what I found more unnerving was my old boss, David Rubenstein, sitting there nodding his head in exchange for the all-access-gov pass.


In the context of what the Founding Fathers envisioned, what, precisely, is normal about any of this?


While my risk management process is grounded in the opposite of what these ideologues promise (certainty), I am fairly certain that our children (and theirs) will look back on this period in US economic history as one they learned from.


What’s normal about human evolution is learning from all of our mistakes.


What isn’t normal is hanging our every investment decision on the words of a perma-dove pretending to be a hawk. Yellen was grasping for #LateCycle employment reasons to raise rates. Never mind the data – she really wants to hike.


In other news,


  1. The Fed is cutting its GROWTH forecasts (see Atlanta Fed at 1.4% for Q4)
  2. But raising its INFLATION forecasts


For Q4 2015 and for most of 2016, that is.


You see, for the last 18 months, they’ve been calling slowing inflation and crashing oil prices “transitory.” As in, no worries “folks”, even though we had no idea this was going to happen, it’s definitely going to pass. Nothing we failed to forecast can continue.


Meanwhile, inflation expectations continued to crash yesterday – here’s how #Deflation looked, in real-world terms:


  1. Nickel crashing to -44.9% year-over-year
  2. Natural Gas crashing to -44.1% year-over-year
  3. Oil (WTI) crashing to -40.3% year-over-year
  4. Lean Hogs crashing to -33.7% year-over-year
  5. Coffee crashing to -35.4% year-over-year
  6. Copper crashing to -30.4% year-over-year
  7. Aluminum crashing to -27.6% year-over-year
  8. Wheat crashing to -25.3% year-over-year
  9. Cattle crashing to -23.4% year-over-year


Sure, it would be normal to round that off to the Top 10 Crashes in asset inflation bubbles that Bernanke perpetuated in 2011-2012, but I’m having a hard time picking between Emerging Markets, Foreign Currencies, and Junk Debt for my 10th.




Since the Fed’s forecasts on growth and inflation have been wrong 70% of the time since Bernanke’s reign, why isn’t it normal to assume that the Fed will be wrong on US growth by another 25-45% for the next year like they were this year on #Deflation?


I don’t know. I hope someone does.


With both Chicago PMI and ISM Manufacturing PMI at recessionary readings (below 50) in NOV, Janet Yellen should have called the data what it is. But she didn’t. And that’s just sad, partisan, and un-objective – all at once.


If the Fed was audited (i.e. held to account by the taxpayers that fund their rock-star status), many of our frustrations wouldn’t exist. If Yellen was the CFO of a public company, her depiction of the recent “data” would, at a bare minimum, be considered a lie.


That will sound harsh to people who get paid to kowtow to this grand central-planning experiment. But it will sound quite normal to American farmers, miners, and … oh… the entire state of Texas. Who cares about those non-Washington people anyway?


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


UST 10yr Yield 2.15-2.28% (bearish)

SPX 2046-2109 (bearish)
RUT 1163--1209 (bearish)

NASDAQ 5055-5159 (bullish)

Nikkei 191 (bullish)

DAX 101 (bullish)

VIX 14.39-18.45 (bullish)
USD 99.14-100.49 (bullish)
EUR/USD 1.05-1.07 (bearish)
YEN 122.36-123.86 (bearish)
Oil (WTI) 40.02-43.01 (bearish)

Nat Gas 2.14-2.31 (bearish)

Gold 1044-1082 (bearish)
Copper 1.98-2.09 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What's Normal? - 12.03.15 EL chart


On the call we will discuss a number of important topics facing the restaurant industry, from labor issues, to the potential for increased restrictions on alcohol consumption at restaurants.  In addition, Rick will talk about his advocacy organization, the Center for Consumer Freedom, and a number of issues they have with Chipotle.  The Center for Consumer Freedom has been very critical of Chipotle's advertising message among other issues.



Time: Today, December 3rd @ 11:00am ET

Toll Free: 


Confirmation Number: 13625958


Discussion Points:

  • A view "inside the beltway" on minimum wage and the risks facing the restaurant industry
  • Potential new restriction on the sale of alcohol and what can be done to mitigate the impacts of increased regulation
  • What Chipotle's protein "standards" are versus other restaurant companies (beef, pork and chicken)
  • A discussion about the use of antibiotics in the food supply and the difference between USA vs International standards
  • Concerns about antibiotics in meat: myth, or reality?
  • Did CMG change its standards regarding antibiotics in the meat its serves?
  • Is CMG's advertising a form of fear mongering?
  • What is the real meaning of cage-free/free range?  Does this definition matter?
  • How prevalent is non-gmo feed, and why does it matter? 



Rick Berman Bio

Rick Berman is President of Berman and Company, a Washington, DC-based public affairs firm specializing in research, communications, and creative advertising.


Berman has founded several leading nonprofit organizations known for their fact-based research and their aggressive communications campaigns.

A long-time consumer advocate, Rick champions individual responsibility and common sense policy. He believes that democracies require an informed public on all sides.


Berman was previously employed as Executive Vice President of Public Affairs at the Pillsbury Restaurant Group, where he was responsible for the government relations programs of all restaurant operations. He was also a labor lawyer at the United States Chamber of Commerce, the Dana Corporation, and the Bethlehem Steel Corporation.


Rick Berman has testified on numerous occasions before committees of the various state legislatures, the U.S. Senate and the U.S. House of Representatives. The Hill, a popular Washington, DC newspaper has named him a “Star Rainmaker” on Capitol Hill. Rick has appeared on all the major broadcast and cable television networks, and has organized national coalitions to address a wide variety of issues.


Here is the link to the center for Consumer Freedom web site -


In addition, here is a link to the Chubby Chipotle web site -


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw


Daily Trading Ranges

20 Proprietary Risk Ranges

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Stock Report: Nu Skin (NUS)

Takeaway: We added NUS to Investing Ideas on the short side on 11/27.

Stock Report: Nu Skin (NUS) - HE NUS table 12 2 15


Broken Business Model

Multi-Level Marketing (MLM) companies should not be public companies. NUS can only grow its revenues by recruiting new distributors into the system. This requires either growth in new markets, and/or new products in order to attract new distributors.


At market saturation, all this is really illusory: there’s not enough addressable market left, and not enough margin so that a new distributor can actually make a profit. It all falls apart when a light is shone on the company’s business practices. In our view, Nu Skin’s questionable business practices have been a part of the company's since it was founded.


VitaMeal Hiding in Plain Sight

Selling VitaMeal as a charitable donation is a genius idea! Unfortunately, it appears those days are over, or we should say, are nearly over. Until recently, VitaMeal has been the secret weapon of NUS: the ultimate pyramid scheme within a pyramid scheme, and presented as a charity. The unwinding of this product could have significant implications for NUS financially.  


SEC Investigation and the Lack of Disclosures

NUS is under investigation by the SEC. Given how significant VitaMeal is to the earnings of the company and the significant conflicts of interest that it appears to present, we think it’s just a matter of time before the SEC expands its investigation into the company’s business practices. Any new allegations of improper behavior will be financially devastating to the company on the heels of the ongoing 2014 scandal in China and the already challenging financial statements.



The SEC is already investigating NUS for charitable giving the company made in China. With the SEC already under the hood, what else might they find? We believe that there is a high likelihood that they will uncover more than they were expecting. 


The increased level of scrutiny surrounding VitaMeal, combined with how the company/distributors promote the sale or “donation” of the product, cannot be overlooked. If, in fact, the SEC brings the hammer down on NUS regarding actions in China and they are required to change the way they represent VitaMeal, it could greatly diminish their ability to recruit new distributors. This is key because distributor growth is the only way that NUS revenues really grow, as revenue per distributor has been in a precipitous decline since 3Q12. 



If what we think comes to fruition in the intermediate term, there won’t be a long-term for NUS. However, if we are wrong we still predict a precipitous deterioration of the company fundamentals. As the company continues to burn through cash, it will be hard to maintain their share buybacks to prop up the stock, especially while under immense pressure from regulators. Additionally, the allegations of the DOJ against USPlabs, among others, specifically called out anti-aging regimens as a focus for current and future investigations. The dietary supplement industry is under enormous pressure from regulators, and MLM’s add an additional layer of risk to the equation.


Stock Report: Nu Skin (NUS) - HE NUS chart 12 2 15


Cartoon of the Day: Naughty Fed

Cartoon of the Day: Naughty Fed - Fed cartoon 12.02.2015


"Janet Yellen is a Democrat so she had to obfuscate the actual state of the US economy," Hedgeye CEO Keith McCullough wrote following the Fed chair's speech earlier today. "Make no mistake, though, Yellen will go down in history as one of the few Fed Heads who tightened into a recession."

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.

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