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Can Central Planners Save The World? Nope. (So Short Japanese Equities)

Can Central Planners Save The World? Nope. (So Short Japanese Equities) - central bank cartoon 02.17.2016

Don't believe all the central banking hoopla?

 

You're not alone.

 

Here's the latest way to play the breakdown in central planning via Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:

 

"The yen is down -0.2% vs. USD this this morning at 113.72 and that registers an immediate-term TRADE oversold signal inasmuch as Nikkei signaled immediate-term overbought late last week (buy Yen, short Japanese stocks remains our current view there as the #BeliefSystem in central-market-planning breaks down)"

 

 

To be clear, Japan's central planners can't arrest economic gravity. That's why we think the recent rally in Japanese stocks will prove short-lived. 

 

Can Central Planners Save The World? Nope. (So Short Japanese Equities) - boj nirp

 

Here's the abbreviated tip via Twitter McCullough sent to Real-Time Alerts subscribers yesterday:

 

 

Meanwhile ... things aren't shaping up too well in Europe either, where Draghi is attempting to save Europe's deteriorating economy. According to McCullough: 

 

"After an ugly last week, equities are trying to bounce but unimpressively so post the Easter break – Italian Stocks (MIB) were -2.4% last week and +0.6% early this morning, but -14.6% YTD and still in crash mode -24% vs. this time last year when many thought European growth was going to be just fine (its consistently slowing now)"

 

How about Italy?

 

 

Ouch!

 

Other European markets off significantly from their 52-week highs?

 

  • France (CAC 40): -17.7%

  • Germany (DAX): -20.7%

  • Spain (IBEX): -26.0%

 

The central planning belief system is breaking down.


Atlanta Fed GDPNow Model Jumps the Shark

Takeaway: How a “forecast” goes from +2.7% GDP only a month ago to +0.6% today boggles the mind.

Editor's Note: This is an abridged excerpt from today's Early LookClick here to subscribe.

 

Atlanta Fed GDPNow Model Jumps the Shark - z fonz

 

Wow. Is this Atlanta Fed “GDP Now” model getting ugly. How a GDP “forecast” goes from +2.7% GDP only a month ago to +0.6% today is beyond me, to be quite frank!

 

We’re sticking with what was the Street’s low Q1 US GDP forecast of 1% (our predictive tracking algorithm and mapping/measurement #process has been accurate, within 25-50 basis points, on GDP for the last 5 quarters – without the 200bps intra-quarter swings!).

 

And, more importantly, we’re reiterating that the US economic and profit cycle won’t even have a chance of putting in a rate of change (cycle) bottom until Q2 which, candidly, won’t be reported until Q3.

 

Click to enlarge

 

...AND Here's Fonzie jumping the shark.


CHART OF THE DAY: Past Peak Income & Consumption Growth

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... Sure, a growth bull might say “but, the consumer and housing are still strong parts of the US economy”… but a gentlemanly rate of change person like me would correct them by reminding them that rates of change continue to slow from their respective cycle peaks.

 

On economic cycle matters, saying things are “good” or “bad” means absolutely nothing to us; measuring and mapping whether things are getting better or worse is what matters most. We’re very reasonable and tolerant about all 2nd derivative debates."

 

CHART OF THE DAY: Past Peak Income & Consumption Growth - 03.29.16 chart


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Cartoon of the Day: Corporate Contraction

Cartoon of the Day: Corporate Contraction - corp profits cartoon 03.28.2016

 

While U.S. 4Q GDP was revised up to +1.4%, the corporate profit component showed a -10.5% Y/Y contraction. That marks the second consecutive quarter in which corporate profit growth was down Y/Y. Over the past 30 years, two consecutive quarters of shrinking corporate profits have always preceded a material stock market crash.


Small Caps Flirt With Full-Blown Crash Mode

Takeaway: The reality remains that small cap stocks are in rough shape.

Small Caps Flirt With Full-Blown Crash Mode - Russell cartoon 12.02.2014 large

 

As Hedgeye CEO Keith McCullough noted to subscribers this morning:

 

"The Russell 2000 lagged (again) last week, dropping -2.0% on the week (vs. -0.7% for the SP500); at -16.7% from its all-time high in July, RUT is back to within 330 bps of being in crash mode (> 20% decline from the July peak); Russell 2000 peaked when US corporate profits peaked (Q2 of 2015)." 

 

Small Caps Flirt With Full-Blown Crash Mode - russell 2000 high

 

Meanwhile, the average Russell 3000 stock (98% of the available U.S. equity universe) is down -29.2% from it's 52-week high.

Still feeling bullish?

 

Small Caps Flirt With Full-Blown Crash Mode - Small cap canaries 09.23.2014


This May Be The Most Important Market Chart Right Now

Takeaway: For the record, we've been warning about corporate profits since early January.

Hedgeye senior macro analyst Darius Dale wrote a compelling note this past Friday highlighting corporate profits which just posted their worst growth (Y/Y) since 4Q08.

 

While U.S. 4Q GDP was revised up to +1.4%, the corporate profit component showed a -10.5% Y/Y contraction. That marks the second consecutive quarter in which corporate profit growth was down Y/Y. Check out the chart below illustrating why that's such bad news.

 

Bottom line? In the 30 years since 1985, two consecutive quarters of shrinking corporate profits have preceded a material stock market downturn over the next twelve months in all five occurrences.

 

Click to enlarge

This May Be The Most Important Market Chart Right Now - z 77


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