Fed Easing

“Don’t let the sound of your own wheels drive you crazy.”

-The Eagles


Are you experiencing short-term #HPAD (hedgie performance anxiety disorder) or other general stress problems that a middle-aged man like me might have? Take it easy! The Fed just did.


“Well I’m runnin’ down the road try’n to loosen my load

I’ve got seven women on my mind

Four that want to own me, two that want to stone me

One’ says she’s a friend of mine

Take it easy – take it easy”


Definitely don’t let the sound of your own performance drive you crazy. The year is still young. And while Fed Easing ramped what we love (Long the Long Bond, Utilities, and Gold vs. Financials, SP500, and Russell 2000 Short), it’s time to just relax.


Fed Easing - bull atlas 8 ball 03.16.2016


Back to the Global Macro Grind


Did I expect the Fed to ease yesterday? Absolutely not. But I wasn’t positioned for consensus calling for a “hawkish Fed” anyway. If I was, I’d have been long the Financials (XLF closed DOWN on the day), and short Utilities (XLU) with the Demark disciples.


In the end, the economic cycle beats #charts. That’s been my intermediate-term Macro Themes call (and catalyst) since July.

Instead of trying to day-trade their way to fame and “I’m not down YTD” fortune, I can’t for the life of me understand why it’s been so hard for the real growth bears to put on the real positions that are earning their investors absolute returns in 2016:


  1. Gold = +19.4% YTD
  2. Utilities (XLU) = +13.3% YTD
  3. Long Bond (TLT) = +6.4% YTD


Those returns don’t include the “yield.” And yes, I realize that the only “yield” Gold has YTD is:


  1. +2,560 basis points over being long “rate hikes” (Financials, XLF down -6.2% YTD)
  2. +2,480 basis points over the Russell 2000 (which is -5.4% YTD)
  3. +2,020 basis points over the SP500 (which is “only down” -0.83% YTD)


Oh, if you put it that way…


Yes, take a deep breath and call the alpha being generated by understanding what the Fed is starting to acknowledge (US #GrowthSlowing just like the rest of the world’s has) what it is. It’s obvious.


What’s obvious? Well even ex-China-and-CAT-slowing (again in FEB-MAR), the trending economic data remains obvious:


  1. Industrial Production resumed its US #Recession slowing -0.5% mth/mth to -1.03% year-over-year yesterday
  2. Consumer Price Inflation (CPI) slowed -0.4% sequentially (mth/mth) to +1.0% year-over-year yesterday

What is that called when:


  1. Growth Slows
  2. Inflation Slows at a lesser rate (and has “transitory” accelerations off the lows)     


Ah, right. That’s called Quad#3 Stagflation.


Even today’s chart chasers will have the muscle memory to remember the beginning of the year 2011 when macro markets did almost exactly what they are doing now:


  1. Rate of change growth slowed in Europe, Japan, and the USA
  2. The Fed continued to devalue the Dollar in response to rate of change slowing
  3. Utilities and Gold blasted to the upside as Financials (Banks) got crushed


Sure. Every cyclical slow-down is different as everything that’s coming off its cycle-peak has a different narrative and set of mean-reverting risks. What’s not different this time is Wall Street begging for moarrr easing.


But in addition to the 3 Rate Hike Pullbacks (the new rate cuts), what can the Fed do next?


  1. Ease (pullback) another 2 rate hikes? (yes)
  2. Then cut rates by 25 basis points (maybe)
  3. How about cutting by 1 beep, per day, into the election?


Oh boy. And what happens when, instead of the effervescent 1990s economic models all of consensus continues to use in calling for 3-4% GDP, we’re in more of a 1970s type stagflation where GDP growth is +1% and slowing vs. Inflation +1% and rising?


= Equity Multiple Compression


You see, if you keep asking yourself questions that fit on the most probable path of economic outcomes, you really can just take it easy like The Eagles did when Jackson Browne and Glenn Frey released this song going into the Spring of 1972.


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


UST 10yr Yield 1.79-1.98% (bearish)

SPX 1 (bearish)
RUT 1050-1098 (bearish)

Nikkei 161 (bearish)

DAX 93 (bearish)

VIX 14.81-20.94 (bullish)
USD 95.42-97.59 (bullish)
YEN 111.12-114.09 (bullish)
Oil (WTI) 34.86-40.26 (bearish)

Nat Gas 1.64-1.94 (bearish)

Gold 1 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fed Easing - 03.17.16 Chart

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