Rising Recession And Deflation Risk: How To Play It

Takeaway: It’s getting uglier -- faster -- as consensus grapples with #Deflation and #Recession risks.

Rising Recession And Deflation Risk: How To Play It - bloomberg tril


Here's the latest from Bloomberg last night:


"At least 40 stock markets around the world with a total value of $27 trillion are in bear territory, as investors witness the worst start to a year on record."


No worries. Just buy the dip, right? Oh wait, that was Old Wall's pitch three weeks ago. Now that equities have plunged -9% year-to-date, today, the mantra is "sell everything."


That's great.



To be clear, the Hedgeye Macro team got this right before the selloff. And no, we're not getting bullish. Not yet anyway. We're still waiting for the market to fully price in our U.S. #Recession call.




watch this video for more on our recession call. 


Upon further reflection, our proprietary asset allocation model has been largely devoid of U.S. equities and Emerging market exposure for some time. Critically, we warned subscribers to bail on U.S. equities before the July/August crash when market fundamentals were breaking down.


Macro markets aren't looking up. Going forward, investors should be wary of the Fed rate hike ramifications. Remember, Yellen & Co. are implicitly tightening into a U.S. economic slowdown.


And that's perpetuating massive market volatility, as Hedgeye CEO Keith McCullough wrote in a note to subscribers this morning:


"In prior US economic slowdowns, the Fed would A) devalue the Dollar and B) try to smash equity market volatility but that's impossible to do when tightening into a slowdown. This perpetuates the liquidity trap and with the VIX's current risk range 22-31 that’s why equity bulls are selling every bounce – they need to take down exposure to being wrong."


In other words, the Fed is trying to arrest economic gravity by calling #Deflation and the preponderance of #GrowthSlowing data "transitory" while the macro market clearly disagrees.


A prime example? Take a look at Financials. Here's more analysis from McCullough:


"On the margin we said the US Financials (XLF) were one of the best non-consensus shorts in 2016 as consensus was long them on the “rate hike." Well, now the 10yr is at 1.98% and the XLF led losers again yesterday -2% to -11.9% YTD. It won’t be long before consensus is begging for no more hikes, and then a rate cut."


Rising Recession And Deflation Risk: How To Play It - xlf crash


This slow moving train wreck is bound to get more interesting.

SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more