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NEW VIDEO | McCullough Lays Out Our 2016 U.S. Recession Call

In an interesting debate on Fox Business' Mornings with Maria, hosted today by Dagen McDowell, Hedgeye CEO Keith McCullough discussed our U.S. economic recession call for 2016 – adding "there's already a recession in corporate profits and industrials" – with BNP Paribas Senior U.S. Economist Laura Rosner. 

 


So, Who Was Right? Old Wall: 'PMIs Bottomed In October' ... Hedgeye: 'Nope'

Takeaway: The data is in on Old Wall's PMI prediction.

So, Who Was Right? Old Wall: 'PMIs Bottomed In October' ... Hedgeye: 'Nope' - cartoon data soft spot

 

See all that red in U.S. equity markets this morning?

 

Investors had a tough pill to swallow with the release of today's Chicago PMI numbers which fell off a cliff.

 

 

All year long, Wall Street strategists have been calling a bottom in PMIs. It never came. That was supposedly the bullish case for buying equities. 

 

Ahem.

 

"I’m sure they’ll say it’s different this time (or something like that) but for those of you data dependent fans, I’ve attached the historical data series on this index reading," Hedgeye CEO Keith McCullough wrote in a note to subscribers. "Some false positive readings vis-à-vis recession signaling but pretty strong track record."

 

So, Who Was Right? Old Wall: 'PMIs Bottomed In October' ... Hedgeye: 'Nope' - chicago pmi

 

In a series of research notes in late October, when Wall Street was ramping up its PMI story, Hedgeye Senior Macro analyst Darius Dale responded to Wall Street bulls who questioned our economic modeling. Here's an excerpt from a telling note back a follow-up note in November:

 

So, Who Was Right? Old Wall: 'PMIs Bottomed In October' ... Hedgeye: 'Nope' - darius note

 

"... That PMI readings continue to slow on a trending basis across both the domestic manufacturing and services sectors should lend a significant degree of pause to any bullish narrative surrounding domestic economic growth. We continue be among the most accurate firms (if not the most accurate) on the Street with respect to forecasting both trends and inflections in U.S. and global GDP growth and our forecasts for both remain well below consensus with respect to the intermediate-term."

 

(Here's another link to an unlocked research note on global PMI numbers, "Global Growth Has Not "Bottomed." To read more of our institutional research, ping sales@hedgeye.com)

 

Hedgeye CEO Keith McCullough offered more analysis in a Real-Time Alerts note sent to subscribers this morning telling them to cover some of their UUP (bullish U.S. dollar) exposure:

 

"As opposed to being long the fictional storytelling of the Old Wall's Santa Rally ("buy stocks for a December rally"), being long the Long Bond (TLT) and US Dollar (UUP) are green today as the SP500 drops towards down -1.5% for December.

 

Why? This morning's PMI print of 42.9 DEC vs. 48.7 NOV was a certified train wreck.

 

Some of these #recessionary economic reports aren't even in the area code of consensus at this point. That means at least a few "blue chip" economists have to change their forecasts for Q4 inasmuch as the Atlanta Fed has...

 

Keep your core position in USD, but sell some on overbought days so that you can buy some back on oversold ones." 

 

There you have it. The data (and reality) will set you free.


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INITIAL JOBLESS CLAIMS | RAISE SHIELDS!

Takeaway: Emergent cracks in the US economic armor raise serious questions around the now two month upward trend in initial claims.

 

Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims1

 

The holiday period is rife with seasonality-related adjustments that may or may not paint an accurate picture of underlying labor market conditions. This is the disclaimer to keep in mind when interpreting the latest week's initial claims data. On its face, however, the recent trend in the data isn't particularly auspicious. 

 

Initial claims on a single week basis jumped 20k to 287k, but, more importantly, the 4-wk rolling average rose another 4.5k to 277k. While 277k is still very low on an absolute basis, it's the highest reading since mid-July. It's also worth noting that rolling intial claims have been moving steadily higher for the last two months. 

 

Amid various other macro data series showing signs of weakening (see Chicago PMI 42.9 this morning), we've been focused more intently than usual on the claims data for any signs of flow through on the labor front. This most recent trend isn't reassuring. That said, it is the holidays so we'll have to wait a few weeks to see whether January confirms.

 

If this were Stark Trek, we'd offer something along the lines of Raise Shields!

 

Meanwhile, employment in the oil patch continues to reflect the price of crude. In the week ended December 19, energy state claims continued their trajectory of deterioration versus the country as a whole. As energy companies continue cuts into YE2015 hedge expiration, the spread between energy state claims and total US claims rose from 59 to 62.

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims18 normal  1

 

The Data

Initial jobless claims rose 20k to 287k from 267k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.5k WoW to 277k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -5.8% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.3%

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims2 normal  2

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims3 normal  2

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims4 normal  2

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims5 normal  2

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims6 normal  2

 

INITIAL JOBLESS CLAIMS | RAISE SHIELDS! - Claims7 normal  2

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


The [Unvarnished] Market Year In Review

The [Unvarnished] Market Year In Review - market rip

 

While Wall Street's bullish storytelling was creative, December looks like another down month for the S&P 500.  Here's Hedgeye CEO Keith McCullough's analysis, from a note sent to subscribers earlier today, reviewing 2015:

 

"What a year it was! Worst year for US stocks since 2008; worst year for FX funds since 2011; worst year for Commodity funds ever – and no, it wasn’t “transitory,” as Fed head Janet Yellen is fond of saying – I think it’s all just pricing in the end of what was a mediocre economic cycle."

 

Here are the numbers, as of yesterday's close:

 

 

While we're at it, here's a sampling of the rest of equity markets around the world:

 

 

So what does 2016 hold in store for equity investors? In a word, volatility. Here's more analysis from McCullough:

 

"There’s a big difference between a regime of 10-14 VIX and 15-30; provided that the latter prevails, I think we’re going to see equity markets continue to trade choppy at best and continuing to crash at worst to start 2016."

 

You won't hear that kind of honesty from Wall Street. Remember, there were plenty of Old Wall equity strategists looking for "Santa Claus rallies" and "Rip-your-face-off rallies" into year-end. 

 

That didn't happen...

 

Backing up a bit, to our original question about Wall Street storytelling, how did the supposed "blue chip" forecasters do this year? Well, not to belabor the point but MarketWatch has an excellent story assessing the "usefulness" of Wall Street's year-end forecasts.

 

After completely missing 2015 – calling for 2,201 on the S&P versus yesterday's 2,063 close – Wall Street did revise its forecast. Down, down, down... Now, 2016 estimates are below the number projected for the 2015 year-end. Hello flip-flop.

 

The [Unvarnished] Market Year In Review - marketwatch

 

That's why we called 2015 "A Year Of Epic Face-Plants on Wall Street." Meanwhile, our non-consensus analysts made some particularly prescient calls. Here's a look back at some of our choicest picks from 2015

 

Finally, heading into 2016, our outspoken CEO offers up his Best Idea in the video below. 

As far as Wall Street is concerned, while it was a good year for storytelling, ultimately reality, and the pull of economic gravity, won out, as it always does. The perma-bull narrative has been flat-out wrong. Don't let Wall Street blow you up again. That's no way to build wealth. 

 

We've got your back

 

If you'd like to read any of our analyst's institutional research, ping sales@hedgeye.com. Or sign up for our free Market Brief newsletter.


Initial Jobless Claims | Raise Shields!

Takeaway: Emergent cracks in the US economic armor raise serious questions around the now two month upward trend in initial claims.

Initial Jobless Claims | Raise Shields! - Claims1

 

The holiday period is rife with seasonality-related adjustments that may or may not paint an accurate picture of underlying labor market conditions. This is the disclaimer to keep in mind when interpreting the latest week's initial claims data. On its face, however, the recent trend in the data isn't particularly auspicious. 

 

Initial claims on a single week basis jumped 20k to 287k, but, more importantly, the 4-wk rolling average rose another 4.5k to 277k. While 277k is still very low on an absolute basis, it's the highest reading since mid-July. It's also worth noting that rolling intial claims have been moving steadily higher for the last two months. 

 

Amid various other macro data series showing signs of weakening (see Chicago PMI 42.9 this morning), we've been focused more intently than usual on the claims data for any signs of flow through on the labor front. This most recent trend isn't reassuring. That said, it is the holidays so we'll have to wait a few weeks to see whether January confirms.

 

If this were Stark Trek, we'd offer something along the lines of Raise Shields!

 

Meanwhile, employment in the oil patch continues to reflect the price of crude. In the week ended December 19, energy state claims continued their trajectory of deterioration versus the country as a whole. As energy companies continue cuts into YE2015 hedge expiration, the spread between energy state claims and total US claims rose from 59 to 62.

 

 

Initial Jobless Claims | Raise Shields! - Claims18

The Data

Initial jobless claims rose 20k to 287k from 267k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.5k WoW to 277k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -5.8% lower YoY, which is a sequential improvement versus the previous week's YoY change of -5.3%

 

Initial Jobless Claims | Raise Shields! - Claims2

 

Initial Jobless Claims | Raise Shields! - Claims3

 

Initial Jobless Claims | Raise Shields! - Claims4

 

Initial Jobless Claims | Raise Shields! - Claims5

 

Initial Jobless Claims | Raise Shields! - Claims6

 

Initial Jobless Claims | Raise Shields! - Claims7

 

Initial Jobless Claims | Raise Shields! - Claims8

 

Initial Jobless Claims | Raise Shields! - Claims9

 

Initial Jobless Claims | Raise Shields! - Claims10

 

Initial Jobless Claims | Raise Shields! - Claims11

 

Initial Jobless Claims | Raise Shields! - Claims19

Yield Spreads

The 2-10 spread fell -5 basis points WoW to 122 bps. 4Q15TD, the 2-10 spread is averaging 136 bps, which is lower by -17 bps relative to 3Q15.

 

Initial Jobless Claims | Raise Shields! - Claims15

 

Initial Jobless Claims | Raise Shields! - Claims16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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