January 5, 2016

  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.32 2.16 2.24
S&P 500
1,998 2,039 2,012
Russell 2000
1,092 1,142 1,108
NASDAQ Composite
4,875 4,995 4,903
Nikkei 225 Index
18,111 19,118 18,450
German DAX Composite
10,118 10,633 10,283
Volatility Index
17.21 23.51 20.70
U.S. Dollar Index
97.67 99.41 98.92
1.07 1.10 1.08
Japanese Yen
118.71 121.02 119.40
Light Crude Oil Spot Price
35.16 38.26 36.88
Natural Gas Spot Price
1.81 2.48 2.29
Gold Spot Price
1,055 1,085 1,073
Copper Spot Price
2.06 2.16 2.08
Apple Inc.
103 109 105
618 670 636
Alphabet Inc.
749 791 759
Walt Disney Company, Inc.
101 106 102
Netflix Inc.
107 116 109.96
Facebook Inc.
101 105 102


Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


CHART OF THE DAY: Recession Inching Closer?

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


"... Don’t just blame China. That’s lame. Not only was the ISM report in the US as bad as the made-up Chinese PMI report for December, it was the 1st back to back sub 50 reading (< 50 signals economic contraction) going all the way back to when the US was last in a recession."


CHART OF THE DAY: Recession Inching Closer? - 01.05.16 EL Chart

What Will You Tolerate?

“It’s not what you preach, it’s what you tolerate.”

-Leif Babin


Yep. I’m going back-to-back US Navy SEAL leadership quotes on you to start the year. Welcome to Day 2 of 2016.


When leaders who epitomize Extreme Ownership drive their teams to achieve a higher standard of performance, they must recognize that it’s not what you preach, it’s what you tolerate. When setting expectations, no matter what has been said or written, if substandard performance is accepted and no one is held accountable, that poor performance becomes the new standard.” (Extreme Ownership, pg 54)


With back to back recessionary Chicago PMI and ISM Manufacturing reports of 42.9 and 48.2, respectively, in the USA for December, will you tolerate an internal or external strategist/economist being wrong on US GDP growth for another entire year? Don’t be the person with poor performance.


What Will You Tolerate? - On your mark GDP 6.12.2014


Back to the Global Macro Grind


Don’t just blame China. That’s lame. Not only was the ISM report in the US as bad as the made-up Chinese PMI report for December, it was the 1st back to back sub 50 reading (< 50 signals economic contraction) going all the way back to when the US was last in a recession.


The good news is that someone at the Fed has to keep plugging the actual Q4 2015 numbers into their model, so the Atlanta Fed cut its GDP forecast for Q4 closer to the low-end of our forecast range yesterday to 0.7%.


In other words, if we continue to be right on both #Deflation and #GrowthSlowing, US GDP just got cut in half (sequentially) from Q3 to Q4 and the US Federal Reserve raised rates into that slow-down.


Both credit and stock markets (around the world) are starting to understand the economic gravity of the matter. Yesterday marked the worst Day 1 for US stocks since… drumroll… the last US #Recession started to get discounted by markets (2008).


This morning’s Yield Spread (US 10yr Treasury Yield MINUS the 2yr Yield) of 119 basis points is the flattest it’s been in 12 months too (flattening Yield Spread is one of the many leading indicators for #GrowthSlowing, on the margin).


Additionally, on accelerating volume, some major lines of risk management support broke yesterday:


  1. China’s Shanghai Composite immediate-term TRADE support level of 3561 broke (TREND was already broken)
  2. Japans Nikkei225 intermediate-term TREND support level of 19118 broke
  3. Germany’s DAX intermediate-term TREND support level of 10684 broke
  4. NASDAQ intermediate-term TREND support level of 5020 broke
  5. AMZN (cheap stock, delivers to your door) immediate-term TRADE support of 670 broke


What all 5 of these verified (volume accelerated on the break as volatility broke out) risk signals have in common is that these were market indices (AMZN = core component of FANG chart chasing index) that were UP last year (vs. something like the Russell 2000 down -5.7%).


In other words, they finally wounded the very narrow leadership that was left.


This is not to say that the almighty jungle-multiple-bearer Bezos can’t have a great Christmas and see his stock ramp back above a line that every algo from here to Chicago will chase ($670 AMZN) – but what if he doesn’t?


Not that the numbers matter more than Old Wall’s narrative that US Retail (XRT) only sucks because of “Amazon”, but AMZN has less than $50B (billion) in US Revenues while total US Retail Sales = $4.6T (trillion).


What if Facebook (FB) sees the multiple compression that Google (GOOGL) did during the last US #Recession? How about the ongoing “cheap” multiple Apple (AAPL) has had since it started crashing from the all-time US stock market #bubble high in July?


Oh, right. We’re the only ones making the US #Recession call (for now). So these “what if” questions don’t have to be tolerated (yet).


My Global Macro Team and I will present the case for what is already a US #Recession in industrial/cyclical terms on our Q1 Global Macro Themes call today at 1PM EST – please ping if you’d like access to the call.


Since we’re the rate-of-change-data-dependent guys, you’ll see 73 compelling slides (and some cartoons!) of historical and forward looking data that supports why you shouldn’t tolerate +2.5-3% US GDP “forecasters” this year.


Neither should you tolerate SP500 “revenue and earnings growth” forecasts, particularly in the 1st half of 2016. If you’re preaching #SuperLateCycle on both employment and consumption, you shouldn’t ignore the credit market cycle we’ll be focusing on either.


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


UST 10yr Yield 2.16-2.32% (bearish)

SPX 1 (bearish)
RUT 1092-1142 (bearish)

NASDAQ 4 (bearish)

Nikkei 18111-19118 (bearish)

DAX 10118-10633 (bearish)

VIX 17.21-23.51 (bullish)
USD 97.67-99.41 (bullish)
AAPL 103-109 (bearish)

AMZN 618-670 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What Will You Tolerate? - 01.05.16 EL Chart

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Cartoon of the Day: China's Slowdown Resurfaces

Cartoon of the Day: China's Slowdown Resurfaces - China cartoon 01.05.2015


"The Shanghai Composite was down as much as 7% to welcome in 2016 after China's PMI had the recessionary 4-handle again at 48.2 in December versus 48.9 last month," Hedgeye CEO Keith McCullough wrote earlier today. "That crushed complacent investors who didn't understand #GrowthSlowing."

Not Again! Atlanta Fed Cuts Its GDP Forecast

Takeaway: The Atlanta Fed has cut its GDP forecast four times since November. That is not a misprint.

Not Again! Atlanta Fed Cuts Its GDP Forecast - fed forecast crystal ball


This is getting, how shall we say it ... bizarre.


The Atlanta Fed just lowered it's fourth quarter GDP forecast. Again. Now, they predict that GDP will come in at 0.7%. For the record, in late November, the Atlanta Fed put that same forecast at 2.2%. In other words, they just supported the rate hike but have tacitly admitted that growth is slowing.


Not Again! Atlanta Fed Cuts Its GDP Forecast - atlanta fed gdp




It gets worse. If our memory serves us right, just two weeks ago Atlanta Fed head Dennis Lockhart called U.S. growth "solid."


Question: What's so solid about cutting your GDP forecast four times in the past six weeks?


We've been chronicling this almost weekly occurrence for weeks now (here and here). To be clear, at 0.7%, their estimate is at the lower-end of our long-held and apparently justified gloomy GDP outlook.


Meanwhile, Wall Street is deluding itself with estimates that are nowhere near today's #GrowthSlowing reality. That, of course, is par for the course.



In other Fed "Fantasy Land" news, San Francisco Federal Reserve President John Williams said on CNBC today that he was unfazed by today's weak (recessionary) economic data out of China.


CNBC asked Williams what it means for the U.S. economy. Here's his response:


"In terms of those developments ricocheting into the U.S. economy, I think we have really really strong fundamentals, in terms of consumer spending, in terms of our economic trajectory, so right now at least this isn't a big concern for me... I think something in that three to five rate hike range makes sense at least at this time."


This is frightening.


Remember when the Fed was spooked into postponing its September rate hike because "many [officials] acknowledged that recent global economic and financial developments may have increased the downside risks to economic activity somewhat"?


Such concerns are apparently now a distant memory, the narrative of which has shifted to some rose-colored ideal of how strong the economy should be.


Again. Frightening.

Why A U.S. Recession Is Actually Bullish For The Dollar


In this brief excerpt from Real-Time-Alerts Live, Hedgeye CEO Keith McCullough responds to a subscriber's question and explains why our dour economic outlook is actually bullish for the U.S. dollar.



Subscribe to Real-Time Alerts today for access to this and all other episodes. 


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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.