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Cartoon of the Day: The Fourth Turning

Cartoon of the Day: The Fourth Turning - demographics cartoon 03.23.2016


Demographic trends are radically reshaping the U.S. economy.

QUICK TAKE: How To Risk Manage Gold | $GLD

QUICK TAKE: How To Risk Manage Gold | $GLD - gold bar

Bullish on Gold? We are.


Here's some key short-term trading advice via our Macro team:


"... Gold is up ~19% for the year, the USD going up and interest rates going up could cause gold to fall. Around 1,225 is an interesting spot to buy more gold but we are going to be a little more patient in the face of all the rate rise commentary. The immediate-term risk range for gold is 1225-1279."


Hedgeye CEO Keith McCullough sent out a key signal in Real-Time Alerts Monday warning subscribers about inherent risks to gold given current macro trading.


Check out McCullough's recent interview with bestselling author Jim Rickards, "Why Gold Is Going To $10,000."

GOP Candidates React To Brussels Terror Attack

Takeaway: What to watch on the election 2016 campaign trail.

Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.



GOP Candidates React To Brussels Terror Attack - brussels


The attacks in Brussels will revive terrorism and national security as premier issues in the presidential campaign, likely displacing economic and social issues.  All of the candidates will now focus their strategies and resolve to combat terror, and will play heavily into Donald Trump's game plan. Trump called practically every major news network yesterday morning, highlighting his views on the importance of border control and echoed his previous statements regarding Muslims -- that our country should shut down our borders until we "know exactly what is going on."  Not wasting any time, Cruz trumped him with his call for the policing of Muslim neighborhoods and treating them like gang areas... hmmm



GOP Candidates React To Brussels Terror Attack - chess board


Cruz's team understands the only he can defeat Trump is to beat him on the second ballot at the convention -- when delegates are no longer bound to any one candidate. Cruz would have access to all of Marco Rubio and Jeb Bush's supporters -- while also making a play to steal Trump's and Kasich's delegates. His campaign has been stealthy in targeting Republican kingmakers and state convention delegates well before they pack their bags for Cleveland, looking to secure their support on the second ballot.

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 80.51%
  • SHORT SIGNALS 78.32%

McCullough: Give Me Liberty!


In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough takes a page out of American patriot Patrick Henry’s playbook on the anniversary of his "Give me liberty, or give me death!" speech. He also addresses critics of his current bearish stance on equities.


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.

From Their Lips: 5 Recent (Head-Scratching) Fed Statements

Takeaway: We think the hawkish tone from policymakers sets up a potential April policy mistake. Watch out.

From Their Lips: 5 Recent (Head-Scratching) Fed Statements - Fed cartoon 12.21.2015


Are the omnipotent central planners at the Fed losing touch with economic reality?


Hedgeye CEO Keith McCullough offered his thoughts in a Real-Time Alerts note to subscribers earlier this morning:


"... I am officially concerned the Fed makes yet another Policy Mistake (either raising rates in April or signaling they're raising in June in the April statement).


The US Dollar has done nothing but go up this week post multiple Fed heads making hawkish statements, and there's obviously a lot of market risk in that (see "reflation" on Down Dollar trades for details!).


While the Fed shouldn't be raising rates into a slow-down (remember what happened to markets post the DEC hike), that doesn't mean they won't. One of the biggest markets risks has always been the Fed's forecasts."


In short... post-rate hike stocks tumbled and Long Bonds (TLT) rallied...  


From Their Lips: 5 Recent (Head-Scratching) Fed Statements - s p 500 rate hike


With the recent stock market rally and hawkish commentary from the Fed, markets are standing on the precipice of yet another precarious setup.


Here's a brief recap of (head-scratching) Fed president statements this week that (we think) raises the specter of a policy blunder:

  • Chicago Fed head Charles Evans said U.S. economic fundamentals are "really quite good," citing improving manufacturing activity. (3/22)
  • San Francisco Fed head John Williams said the U.S. economy is “looking great” and the Fed would raise rates faster were it not for global factors. “All else equal, assuming everything else is basically the same and the data flow continues the way I hope and expect, then April or June would definitely be potential times to have an increase in interest rates." (3/21)
  • St. Louis Fed head James Bullard said a case could be made for rate hike in April, sounding a hawkish tone. "The odds that we will fall somewhat behind the curve have increased modestly... We are going to get some [inflation] overshooting here in the relatively near term that might cause the committee to have to raise rates more rapidly later on." (3/23)
  • Philadelphia Fed head Patrick Harker said "I think we need to get on with... This economy is really quite resilient to a lot of the headwinds (including the strong dollar).... I am not a two (rate) rise person... I'd rather see [more hikes this year]." (3/22)
  • Atlanta Fed head Dennis Lockhart said U.S. economic growth has "sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April." (3/21)



Consider our Macro team's insights from a note sent to subscribers earlier this morning:


"Federal Reserve Bank of Chicago President Charles Evans said yesterday that economic fundamentals are “really quite good.” We aren’t sure if he said this immediately after existing home sales was reported being down -7% month-over-month or what he was precisely talking about.


People who have no idea what is going on are preparing to do something that they already did that didn’t work…RAISING RATES. What has led the market higher is USD dollar down and reflation, so what happens in April if the Fed raises rates or indicates that they will raise in June?


That will be a destabilizer in markets."


Investors can choose to double-down on the Fed's wrongheaded economic projections. But two words of advice .. remember December.


NHS | Cohesive Deceleration

Takeaway: Feb New Home Sales mark the second consecutive month of negative Y/Y growth, mirroring the trend seen in Existing Home Sales. Up next: HPI.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


NHS | Cohesive Deceleration - Compendium 032316

Today’s Focus: New Home Sales for February

The NHS data is volatile and subject to significant error and revision which is why we don’t take an overly convicted view of any given month in isolation, giving deference to the larger trend.  This morning’s New Home Sales data for February wasn’t good in isolation and continued the broader trend toward decelerating activity.    The 1st three charts below capture that prevailing trend.


A few highlights:  

  • Sales:  Sales rose +2.0% sequentially but fell to -6.1% YoY, marking the worst pace of growth in 21-months and the first consecutive months of negative year-over-year growth since 2011.  This month went against the hardest comp of the cycle (Feb 2015 = +31% YoY) and compares ease the next couple months so the rate-of-change trend will probably see a modest bounce in March.  That said, the trend has clearly been one of stalling demand as Sales, like Starts, have been flat to down on an absolute basis for the past year.
  • Price Tier Pervasive:  Deceleration characterized all price points with demand at the high end (>$500K) falling to -28% YoY with the lower end (sub-$300K) dropping to -8% YoY. 
  • Price & Supply:  Median Prices rose +2.6% while months-supply was 5.6-months as unit supply rose +17% YoY to the highest level since October 2009.
  • So …. With sales in the existing market (~90% of the market) slowing and looking increasingly likely to print negative YoY growth in the coming months (for more see: EHS | "Meaningfully" Weak) and trends in the new home market softening, housing demand is telling a cohesive story of deceleration – and one we expect to continue over the nearer-term.


As an aside, the WSJ reported yesterday (HERE) that the GSE’s (Fannie Mae and Freddie Mac) – after years of back & forth on the issue - are set to announce a principal forgiveness program for a select group of ~50K underwater homeowner’s. 


There was little in terms of hard details on the proposal but the program, as it was described, carries a couple of notables:

  • There are still 4.3 million borrowers with negative equity positions. No matter how theoretically justified the programs parameters, forgiving principal balances on just 50K of those will carry an air of arbitrariness/unfairness. 
  • Only forgiving balances for borrowers who have been delinquent is a slippery slope and probably sends the wrong message to the balance of underwater borrowers. 
  • In the unlikely scenario that every single one of these 50k homes came onto the market as a result, it would only increase inventory by 2-3% and do little to resolve the prevailing supply problem. 
  • Perhaps fully expanding the program evolves towards political viability but that potentiality probably sits intangibly long out on the timeline at present.




NHS | Cohesive Deceleration - NHS YoY TTM


NHS | Cohesive Deceleration - Sales   Starts Wave


NHS | Cohesive Deceleration - NHS By Price Tier


NHS | Cohesive Deceleration - NHS to EHS ratio


NHS | Cohesive Deceleration - NHS LT


NHS | Cohesive Deceleration - NHS Median   Mean Price


NHS | Cohesive Deceleration - NHS Supply Units


NHS | Cohesive Deceleration - NHS regional YoY




About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.



Joshua Steiner, CFA


Christian B. Drake


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