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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.


CHART OF THE DAY: Dear Janet, The Cycle Is Not Complicated

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. 

 

"... 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"

 

CHART OF THE DAY: Dear Janet, The Cycle Is Not Complicated - 04.08.16 chart


McMonigle: What Lies Ahead For OPEC and Oil Prices

 

Potomac Energy Policy analyst Joe McMonigle discusses his expectations on an OPEC/Russia production freeze and the outlook for oil prices with Hedgeye Macro analyst Ben Ryan.


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Cartoon of the Day: A Crude Joke

Cartoon of the Day: A Crude Joke - Oil cartoon 04.07.2016

 

No follow through on yesterday's 5.1% pop in oil prices. WTI back down today. 


Where We're At: Long Bonds & Crashing Global Equities

rate hike? WHAT RATE HIKE?

 

Where We're At: Long Bonds & Crashing Global Equities - Slow growth cartoon 09.11.2015 copy large

 

There's been a massive rally in Long Bonds today as the Fed tacitly confirmed our #GrowthSlowing macro theme yesterday. On a related note, we are still advising our subscribers toown TLT.

 

Where We're At: Long Bonds & Crashing Global Equities - 10yr treasury yield

 

Meanwhile, in equity markets...

 

There have been fairly stark drawdowns across global equity markets year-to-date. Another symptom of slowing growth. Here's an abbreviated YTD scorecard: 

  • S&P 500: 0.0%
  • Dow: 0.8%
  • Nasdaq: -2.9%
  • Russell 2000: -3.5%
  • Euro Stoxx: -12.1%
  • UK, FTSE: -1.7%
  • France, CAC: -8.4%
  • Germany, DAX: -11.3%
  • Italy, FTSE MIB: -21.5%
  • Spain, IBEX: -13.1%
  • Japan, Topix: -17.8%
  • China, Shanghai Comp: -15.0%
  • South Korea, Kospi: 0.6%

Growing Cracks In Macro Markets

Takeaway: Increasing signs of risk and fragility are revealing themselves around the globe.

Growing Cracks In Macro Markets - Lower for longer cartoon 05.28.2015

 

In case you missed it, just last night, IMF head Christine Lagarde said that growth has been "too low for too long," many people were "simply not feeling it" and warned that the IMF may lower its global growth forecast.

 

In related news.

 

Bingo!

 

Unfortunately... Lagarde returned to the old chestnut that central planners had the tools to gin up economic sentiment, activity, etc. As we've noted, monetary policy potency is failing around the world. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:

 

"But what do doves do when the #BeliefSystem on central-market-planning is breaking down? Draghi + Constancio both out this morning trying “whatever is needed” … Draghi says he “will not surrender”… Euro only moving -0.1% on that; Spanish and Italian stocks barely up and remain in crash mode."

 

Take a look at Germany

 

The dim outlook in Europe isn't getting any brighter.

 

Sorry Draghi.

 

Here's what negative interest rates (NIRP) really do to an economy via the Bank of International Settlements. According the Reuters:

 

"Euro zone banks should be encouraged to keep more of their profits rather than pay dividends, to bolster their capital and finance new loans, the head of research of the Bank of International Settlements [Hyun Song Shin] said on Thursday...

 

In his speech, Shin also said negative central bank interest rates discourage lending by squeezing the margin between the rate at which banks lend, which falls along with the policy rate, and the rate on deposits, which rarely goes below zero."

 

Not to mention Japan's crashing equity markets:

 

 

The #BeliefSystem that central planners can bend and smooth economic gravity is breaking down.


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