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“Time is like a book. You have a beginning, a middle and an end. It’s just a cycle.”

-Mike Tyson

In 1988, it took Mike Tyson 91 seconds to knock-out Michael Spinks for the Heavyweight Championship of the world. While you may not consider him a thoughtful economist, he is able to explain an economic cycle faster than he could knock out Bernanke.

Before I start calling out Janet Yellen again, I wanted to sincerely thank all of you who tuned into our Q2 Macro Themes Call yesterday. It was, by far, our biggest audience, ever. In a tough business environment like this I don’t take that for granted.

Building a modern model that maps and measures global economies in real-time alongside my teammates has easily been the most rewarding phase of my analyst career. Without your attention, we’d have no one to hold us to account. Thanks for that.

The Cycle - tyson

Back to the Global Macro Grind

First, on Yellen. I couldn’t make this up if I tried, but last night at the International House she explained to Bernanke, Greenspan, and Volcker that a strong US Dollar was a “drag on the economy and consumer spending.”

Ex-her-low-Energy and communication/leadership style (i.e. allowing her regional Fed Presidents to communicate a hawkish policy path and then routinely surprising markets to the dovish side), she’s been in my good books this year. Now she’s not.

It’s as clean cut an absolute fact that a strengthening US Dollar (*rising Purchasing Power for Americans) helped strengthen US consumer spending from 2013-2015, as the sun rising in the East:

  1. US Dollar Index went from $79 at the end of 2012 to $100 in Q1 of 2015
  2. US Consumer Spending (Real PCE Growth) went from 1.6% to 3.3% (y/y) during that same time period
  3. In Q1 of 2016, with the US Dollar dropping -4%, US Consumer Spending has slowed to 2.7% (y/y)

Is a #StrongDollar a drag on commodity and debt addicted cyclical sectors of the US economy? Didn’t Bernanke’s US Dollar Devaluation scheme (capitulating to the 2011 lows) perpetuate a series of illusions of growth (I.e. asset inflations, in Dollars)?

A: Yes and Yes.

Does a #StrongDollar that deflates Wall Street’s asset prices (and puts that incremental margin in the consumer’s pocket instead of a leverage banker’s) equate to a “drag on consumer spending”? Did it under Reagan and Clinton in 1 and 1?

A: C’mon Janet, you’re (allegedly) a lot better than that.

Blame China, The Dollar, and now Europe & Japan. But, whatever you do, do not blame yourselves or #TheCycle.

As Yellen and her colleagues who now read @Hedgeye Macro can see in today’s Chart of The Day (slide 12 of the Q2 Macro Themes deck), #TheCycle is not a mystery. This one has been both obvious and pedestrian in its sequence:

  1. Q2 2014 = Income Growth, Corporate Profits, and S&P 500 Margins #peaked (in rate of change terms)
  2. 1H 2015 = Employment & Consumption Growth, Confidence, Domestic Investment, and Multiples #peaked
  3. Q2/Q3 2015 = US Equities Peaked
  4. Q4 2015 = M&A #Peaked and the #CreditCycle (and market dislocations) began
  5. 1H 2016 = #GrowthSlowing from #TheCycle peak (in rate of change terms) continues

Nope. Not that complicated, is it Mike?


“Not at all bro-heem. Every non-rate of change economist has a plan until they get punched in the face.”

-Michael Gerard Tyson

If Janet wants to try to absolve herself and Ben Bernanke from having nothing to do with a US Dollar appreciating from the post-Nixon 40-year low they perpetuated in 2011 (and all of the commodity, asset, and debt #bubbles embedded therein), fine…

But by the time #TheCycle plays out in full, history will be their judge – not each other.

In other real-time macro and market signaling news, yesterday we saw the SP500 break-down below our long-term TAIL risk level of 2066 again. This came in conjunction with US Equity Volatility (VIX) once again holding long-term TAIL support of 11.73.

Since Yellen seems to be gearing up to go down a path Bernanke didn’t have the spine to mention (he’d NEVER mention USD while is he was devaluing it), the big question I have now is all about what we outlined on yesterday’s call as the #BeliefSystem.

Since targeting weaker currencies and lower-yields (in many cases negative yields) has absolutely crushed Europe and Japan this year, what happens to the USA if and when Janet goes there? What happens to bank earnings, credit, and lending capacity?

Give it time. It’s like a book. And, sadly for these central-market-planners, we’ve reached the beginning of the end.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.68-1.79%

SPX 2025-2059
RUT 1069-1106

VIX 14.08-19.22
USD 94.01-95.79
YEN 108.06-111.68
Oil (WTI) 35.05-39.88

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

The Cycle - 04.08.16 chart