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JT Taylor: A Controlled Bern & The Hawks In South Carolina

Takeaway: Sanders faces a pivotal moment in Nevada. Republicans get hawkish on national defense.

Editor's Note: Below is a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning. 

CONTROLLED BERN:

 

JT Taylor: A Controlled Bern & The Hawks In South Carolina - bernie

 

The next two weeks of the Democratic primary are pivotal, determining whether Clinton can contain Sanders' momentum.  Her "firewall" will face its first test in Nevada, where the state's diversity mirrors the U.S. as a whole.  With the contest now a dead heat, a Sanders victory in Nevada could give him enough momentum to knock a hole in Clinton's double-digit lead in SC, calling into question the integrity of her wall across the other Southern states. Someone had better tell the Clinton campaign that fire does sometimes jump firewalls...  

HAWKS CIRCLING SC:

 

JT Taylor: A Controlled Bern & The Hawks In South Carolina - cruz

 

Republican candidates in veteran-heavy SC have been competing for the title of most-hawkish. Marco Rubio has been hitting Ted Cruz as "weak on national security," for his votes on defense reauthorization bills. Meanwhile Cruz pledged to expand the military by 100,000 active-duty troops and "unleash the holy wrath" of America on its enemies. Bush is on tour this week with venerable hawk Senator Lindsey Graham, and even John Kasich has toughened his rhetoric.

 

Excluding Bernie Sanders, every candidate in this race would be more interventionist than President Obama -- there's a growing consensus on Capitol Hill as well as the campaign trail that current policies and spending on defense are inadequate. To reiterate our colleague LtGen Gardner's point, it's hard to see how the current environment doesn't result in increased defense spending.


Under 60 Seconds: Walmart's Earnings Report | $WMT

Hedgeye highlights three key points from Walmart's quarter courtesy of our Retail analyst Brian McGough.

 


Recessionary Gales Are Billowing Over The U.S.

Takeaway: A quick wrap up on our Macro team's U.S. recession call.

Recessionary Gales Are Billowing Over The U.S. - recession cartoon 02.04.2016

 

Since January, our Macro team has highlighted the increasing likelihood that the U.S. economy slips into recession sometime in Q2 or Q3 of 2016. Below are charts and analysis from Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale based on today's economic data.

 

While today's jobless claims data was strong, a "strong" jobs market always precedes a recession.

 

Consumer confidence is beginning to roll over...

 

"On a ratio basis, however, it's starting to signal what the trend in corporate profits and jobless claims already have ("Recession" in ~6 months)," Dale writes.

 

Here's the chart.

 

Recessionary gales are blowing. Dale is also tabulating a massive amount of economic data that is heading south.

 

Recessionary Gales Are Billowing Over The U.S. - data

 

Still unconvinced? Watch McCullough in the video below laying out "The Three Signs of A Coming Recession."

 

 

No, we're not bullish.


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McCullough: ‘Markets Are Looking Crashy’

In this brief excerpt of The Macro Show earlier today, Hedgeye CEO Keith McCullough explains why he’s more convinced than ever that stocks will crash and why 2016 is eerily reminiscent of 2008.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.


INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE

Takeaway: We're late in the cycle and the Fed has little room to maneuver. This is (and should be) causing alarm for most Financials investors

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims1

 

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 

 

This week we want to take a step back from the high frequency claims data and take stock of where we are in the cycle, and consider what policy tools the Fed has at its disposal.

 

Where are we in the cycle? As the chart below shows, we're now in month 23 of initial jobless claims running at a sub-330k level. The last 3 cycles have seen the expansion last 24, 45 and 31 months at a sub-330k level, with an average of 33 months. Coupled with the slew of weak economic data coming from the industrial/manufacturing/energy side of the economy, we think it's a better than bad bet that economic contraction isn't far away. 

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims18

 

What can the Fed do about it? We think the cycle being late warrants asking the question: What can the Fed do? The table below shows that the Fed's average response to the past seven recessions has been a -750 bps rate cut. However, it is facing a significant shortfall in its accommodative ability with the Fed Funds rate currently sitting at around 0.36%. In other words, it's one and done to get back to zero, and then it's QE or NIRP. As we show at the end of this note, the yield spread is already at a post-crisis low (108 bps), which is ratcheting up the pain for banks. 2016 was supposed to be the year when this pressure finally turned tailwind, but instead it's increasingly looking like the opposite is the most probable course for 2016 and beyond. 

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims17 normal  1

 

Meanwhile, the three charts below show that claims in energy states continue to grow, rising most recently at a +14% year-over-year rate.

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims12 normal  1

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims13 normal  1

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims14 normal  1

 

The Data

Initial jobless claims fell 7k to 262k from 269k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -8k WoW to 273.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -2.9% lower YoY, which is a sequential improvement versus the previous week's YoY change of -1.5%.

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims2 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims3 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims4 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims5 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims6 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims7 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims15

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


INSTANT INSIGHT | We Said 'Beware The Bounce' A Crash Is Coming

Takeaway: That "bounce" in stocks? It's deflating.

INSTANT INSIGHT | We Said 'Beware The Bounce' A Crash Is Coming - Bull SCREAM 01.06.2015

 

After a 3-day squeeze off the lows, nothing has changed the causal factor of growth and profits slowing. Below are key observations from Hedgeye CEO Keith McCullough's macro notebook sent to subscribers earlier this morning:

 

"REFLATION – this is what, the 4th or 5th or 6th time (July, Oct, Feb = were the biggest “bottom is in” commodity led rallies) I’ve had to quintuple down on #Deflation being non-transitory – Australia and Russia (Equities) +2.3% this morning vs. Copper down -1% - who has the intermediate-term call from here right? Copper"

 

We've been warning our subscribers about the next dramatic leg down in stocks. 

 

"RUSSELL – after “covering” (Real-Time Alerts signaling product) SPY last week, the signal said to re-short the Russell (IWM) into the close yesterday – fully loaded with the 3-day squeeze, don’t forget that the Russell 2000 is still in crash mode (-21.9% since July) and being long illiquidity (junk and small caps) is killing returns – short lower-highs; cover lower."

 

We're already seeing the air start to come out of this week's bounce. The key question for investors now: "Are you bearish enough?"

 

Watch the video below where McCullough explains why he's the most bearish guy on Wall Street.

 

 

stick with us. It's getting nasty out there.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.49%
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