A Brief Appraisal Of Fed False Narratives

Takeaway: Recent macro market moves in the Long Bond contradict the Fed's "all is good" narrative.

A Brief Appraisal Of Fed False Narratives - Fed ducks in a row

Hurray! No recession, no bubbles and the Fed's December rate hike went exactly as planned.

That's the latest delusional takeaway from Fed head Janet Yellen. Last night, Yellen joined her predecessors Ben Bernanke, Alan Greenspan and Paul Volcker in NYC for a panel discussion to parade the U.S. economy's "tremendous progress" since the '07-'09 financial crisis.  

Where do we begin?

We've been steadfast in our criticism of the Fed's and Wall Street's serial overoptimism on U.S. economic growth. Here's Hedgeye CEO Keith McCullough, in the video below, explaining what we really think about Fed "data dependence."

Last night, Yellen's storytelling hit an all-time low. Here's analysis from McCullough in a note sent to subscribers earlier this morning: 

"Yellen has had quite the year of storytelling so far, but last night’s USD comment took the cake: “higher currency was a drag on the economy and consumer spending.” Wow. #StrongDollar (rising purchasing power, falling gas prices, etc.) perpetuated a 6yr cycle high in Real Consumer Spending in 2015; in Q1 Consumer Spending slowed alongside a weakening USD."

 

Another issue for the Yellen "all is good" narrative is the continually falling Long Bond (i.e. U.S. growth is slowing):

"Another great day for the Long Bond yesterday (best way to be long #GrowthSlowing); 10yr Yield of 1.71% is re-testing the FEB lows as Yellen tries to keep Oil/Commodities/Inflation higher. The Cycle call remains firmly intact; US Equity Beta (like at OCT and DEC end) is behind the curve pricing in what should be the worst quarter of the slow-down (Q2)."

Fading the Fed's false narratives has been a winning strategy all year.

Stick with it.