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Central Planners Gone Wild! Delusions, Hallucinations & Pipe Dreams

Takeaway: Central planners at the Fed, BOJ & ECB have consistently underestimated the challenges they face and overestimated tools in their arsenal.

Central Planners Gone Wild! Delusions, Hallucinations & Pipe Dreams - central banker house of cards


Do central planners worldwide have any credibility anymore?


This past Wednesday's Fed's FOMC announcement amounted to little more than a shoulder shrug. Apparently, the members will be...


"... monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."


Thanks for coming out.


To be clear, today's U.S. GDP report was unequivocally awful. We're holding our breath in anticipation wondering what Yellen & Co. will have to say about it. Unfortunately, we'll likely have to wait until at least February 10th when Yellen testifies on Capitol Hill.


Meanwhile... outside these fifty states, central planners abroad are doing their best to screw things up too. Here's analysis from our Macro team on Japan in a note sent to subscribers this morning on the BOJ's decision to pursue a negative interest rate policy.


Central Planners Gone Wild! Delusions, Hallucinations & Pipe Dreams - kuroda


"News of the morning = Japan goes NIRP – and the Yen goes >120, 10Y JGB’s trade down to 0.09% (as in “nine” basis points) and along with the balance of global yields, U.S. 10Y treasury yields followed suite and are trading down -6bps to 1.91% as the yield curve (10’s-2’s) compresses to another new low.


Together with yesterday’s durable goods disaster, this morning’s slowing GDP report and more rumors of stimulus out of China the global #GrowthSlowing data remains conspicuous. Resurgent central bank interventionism is not a function of improving macro fundamentals. "



Central Planners Gone Wild! Delusions, Hallucinations & Pipe Dreams - Draghi cartoon 01.08.2015


Heading over to Europe...


"The ECB’s Jens Weidmann (also President of the Bundesbank) warned fellow policy makers that the ECB should not go too far with the QE program, but will President Mario Draghi listen?  We doubt it!  Weidmann rightly points out that the ECB needs to lower its inflation forecast for 2016. A 2% target is after all a pipedream!"


Watch Hedgeye CEO Keith McCullough discuss central banking in the video below.


... So back to our original question, "Do central planners have any credibility?"


The answer ... a resounding NO.

McCullough: ‘Aggressively Sell Any Market Rally’


In this excerpt from The Macro Show, Hedgeye Gaming Lodging & Leisure analyst Todd Jordan explains why you don’t want to be long his sector heading into a recession. Meanwhile, Hedgeye CEO Keith McCullough explains how investors should play our dour economic outlook.

0-Handle | 4Q15 GDP

We’ll leave it to others to review & opine in the internal minutiae of this morning’s GDP report.  We’d highlight a few tangible takeaways:    


  • GDP | #GrowthSlowing, 3 Qtrs & Counting ….   On a year-over-year basis,  growth slowed -30bps sequentially in 4Q15 to 1.80% YoY, marking a 3rd consecutive quarter of deceleration and the slowest rate of growth in 7-quarters.  Sequential deceleration was largely ubiquitous across all expenditure types and sub-aggregates (see summary table below).  It’s not incidental that employment growth, income growth & consumption growth all peaked in 4Q14/1Q15 and have since decelerated alongside headline growth.  We are late cycle in the current expansion and negative 2nd derivative changes across labor, consumption, investment, and credit growth shouldn’t be particularly surprisingly – it’s how the temporal procession of the cycle manifests and 2nd derivative trends naturally precede first derivative changes. 
  • Comps | It Gets Tougher:   Comps only get tougher in 1Q16 and given the base effects in combination with the prevailing trajectory of current domestic and global macro data we expect the trend toward deceleration to extend another quarter or two, at least. 
  • Slow and UnSexy:  Slowing growth puts us in Quad #3 (slowing growth and Inflation) or Quad #4 (stagflation) in our GIP model over the coming quarters.  $USD’s, Bonds and Utilities work under either scenario.  It's not sexy and it's as boring as its been profitable over the last ~6-months but we continue to like those slow growth exposures.  See this mornings Early Look for a further discussion. 
  • NIRP  Action out of the BOJ this morning and the resultant downward shifting of the global yield curve serves to edify our bullish view on bonds.  Divergent central bank policy and an active OUS currency war race-to-the-bottom is supportive of $USD allocations and a perpetuation of the Strong Dollar deflationary trends that have characterized much of the past year.  Resurgent central bank interventionism is not a function of improving macro fundamentals. 


 0-Handle | 4Q15 GDP - GDP


0-Handle | 4Q15 GDP - Income   Consumption Past Peak


0-Handle | 4Q15 GDP - PCE LT


0-Handle | 4Q15 GDP - Cred


0-Handle | 4Q15 GDP - Eco Summary




Christian B. Drake



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BREAKING: Hedgeye Macro Team Nails U.S. GDP (Again). Consensus? Not So Much

Takeaway: Old Wall economists completely missed economic reality once again.

BREAKING: Hedgeye Macro Team Nails U.S. GDP (Again). Consensus? Not So Much - GDP cartoon 05.29.2015


BREAKING: US GDP hit the 0.7% Hedgeye forecast. We maintained our forecast of between 0.5% to 1.7% Q-o-Q for fourth quarter 2015 GDP all year, even while Old Wall consensus consistently ratcheted it back from 3% in July. 


Here's the inglorious breakdown: 

BREAKING: Hedgeye Macro Team Nails U.S. GDP (Again). Consensus? Not So Much - wall street 4q15 


In other words, our non-consensus macro team nailed the last five GDP reports while economic reality still confounds Wall Street's pundits. We'll say it again #GrowthSlowing





Here's the breakdown of today's GDP release via Hedgeye U.S. Macro analyst Christian Drake. Note all the red in the right-hand column. (That's bad.)



It's funny. Supposed "blue chip" economists can hold up personal consumption expenditure (PCE) as an economic "bright spot" all they want. But staring at the absolute number of any data release tells you nothing about where we're headed.


At Hedgeye, our analysis is more dynamic and based on the year-over-year rate of change. By this measure, PCE is slowing. (That's also bad.)



The preponderance of economic data – from employment to incomes to PCE growth – is rolling over on a rate-of-change basis. We'll throw in one more metric for good measure: Credit growth.


See the chart below. (Again, bad.)


Interesting. All of these economic indicators peaked in 1Q 2015. 


Coincidence? We think not.



For investors (particularly long-only investors), the current macro environment presents an especially tough setup. Our Macro team has been highlighting the increasing likelihood of a U.S. #Recession in the 2Q or 3Q of this year.


Moreover, as Hedgeye CEO Keith McCullough continues to reiterate, regardless of whether our #Recession call is right or not, the U.S. stock market is headed for a 20% correction. No ifs, ands, or buts about it.


How do you play it?


Here are our top Macro ideas: Long bonds (TLT) Utilities (XLU)



In the meantime, stay (far) away from consensus forecasts.


AMZN | Timing

Takeaway: This would’ve been a great qtr a wk ago. We’re bifurcated by duration on AMZN. While we like it 1 yr out, need to get past next 2 Qs first.

It goes without saying that this is one of the more polarizing quarters for Amazon in quite a while. But let’s put aside the stock move for a minute and look at what’s changed fundamentally – after all, with the sell-off the stock is trading about in line with where it was just two days ago.


  1. The irony with all of this is that the quarter itself was very good. Sales grew by 25%, in its core business – what we’ll call US Retail – 60% of sales (it’s actually North America EGM + Media). This is a BIG plus for those out there that think that AMZN can one day capture 10% of total US Retail Sales.  That’s a $500bn number. You may balk at it. We might too. But people believe it, and as long as they do, they’ll hold this stock forever.
  2. AWS also looked relatively solid. Yes, it decelerated to 69% (from 78% last quarter) but is well above a rate we need to make this model work.
  3. International is a clear hole we can poke in the quarter, as we saw growth of only 12%. Keep in mind that AMZN has about 33% share of US Online Spending, but only about 8% in its more developed non-US regions.  While there’s a big opportunity for AMZN to grow outside our borders – potentially fueling one of the next multi-year legs of growth – it’s not acceptable for a company like this to see Int’l sales go from 45% to 33% over the past economic cycle.
  4. That brings us to the only thing we’re really concerned about, which is AMZN’s profitability to the extent we are, in fact, headed into a recession.  Roughly 65% of its total sales are in the US. At the same time, we just saw gross margin improvement decelerate materially, suggesting tougher GM compares 2-3 quarters out. If we have down gross margins, sales erode on the margin due to the economy, then the only thing that could sustain AMZN’s EBIT line is cuts to SG&A growth. If there’s anything we know (and respect) about AMZN, it’s that the company will spend money how, where, when and on what it so chooses. In fairness, this is a $100+bn revenue company that is producing over 50% returns on incremental cash. From where we sit, Bezos has earned a hall pass to do pretty much whatever he wants (that hall pass can be revoked if returns go the other way).


Hedgeye has a very bearish view on the US economy, so we’re concerned about the guide in another 13 weeks.  The SIGMA chart below supports this, as it’s the first time AMZN has been in a negative Sales/Inventory position in seven quarters. Unless estimates come down materially when they hit by the end of the weekend, we’re more on the bearish side from a near-term perspective. Though from a TAIL duration 3-years or less, we still like the story a lot.


AMZN  |  Timing - 1 29 2016 amzn chart1


AMZN  |  Timing - 1 29 2016 amzn chart2


Charts include consensus estimates:

AMZN  |  Timing - 1 29 2016 amzn chart3


Gross Margin expectations remain high.

AMZN  |  Timing - 1 29 2016 amzn chart4

[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.


Subscribers now receive risk ranges for 20 tickers each day -  the last five are determined by what's flashing on Keith's radar screen and what tickers subscribers are asking about. Click here to subscribe.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.03 1.92 2.00
S&P 500
1,850 1,913 1,893
Russell 2000
980 1,020 1,003
NASDAQ Composite
4,412 4,592 4,506
Nikkei 225 Index
16,112 17,820 17,041
German DAX Composite
9,304 9,959 9,639
Volatility Index
20.45 28.96 22.42
U.S. Dollar Index
98.19 99.93 98.62
1.07 1.10 1.08
Japanese Yen
118.06 120.61 118.82
Light Crude Oil Spot Price
27.69 33.99 33.72
Natural Gas Spot Price
2.04 2.29 2.23
Gold Spot Price
1,080 1,130 1,115
Copper Spot Price
1.95 2.10 2.05
Apple Inc.
92 97 94
Amazon.com Inc.
539 616 635
Netflix Inc.
89 99 94
McDonald's Inc.
118 124 122
iShares 20+ Year Treasury
125 128 126
Microsoft Corp.
50.22 53.72 52.06

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