prev

IMF Calls On Impotent Central Planners To Save Global Growth

Takeaway: As lackluster growth confounds stimulus-addicted economists & policymakers, markets signal breakdown in the central planning #BeliefSystem.

IMF Calls On Impotent Central Planners To Save Global Growth - growth cartoon 10.08.2014 large

 

In case you missed it, the IMF cut its 2016 global growth outlook again today, to 3.2% versus 3.6% put forth in October (see the revisions in the chart below). The IMF's policy prescription? More central bank monetary accommodation. 

 

IMF Calls On Impotent Central Planners To Save Global Growth - imf table

 

But hang on a sec. How effective can additional stimulus actually be?

 

After 600 rate cuts globally, $8 trillion in negative yielding bonds & years of central bank easy money, global growth has continually surprised IMF economists to the downside. Furthermore, we continue to highlight that central bankers are increasingly pushing on a string as equity and currency markets in Europe and Japan move in direct opposition to the ECB and BOJ's easy-money intent. 

 

IMF Calls On Impotent Central Planners To Save Global Growth - Kuroda cartoon 02.18.2015

 

Here's analysis on Japan from Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:

 

"The yen finally stops going parabolic (down -0.3% vs USD) on these poor Japanese central planners who are now calling for an “end to one-sided speculative moves”, lol. Nikkei gets relief on that obviously, +1.1% and still -24% since #TheCycle peak in July."

 

Here's the long-looking chart of Japan's TOPIX (-16% year-to-date) and USDJPY (-9.6% ytd) inclusive of today's modest bounce:

 

 IMF Calls On Impotent Central Planners To Save Global Growth - topix

Meanwhile, in Europe...

 

IMF Calls On Impotent Central Planners To Save Global Growth - Draghi cartoon 03.09.2016

 

"No relief for the Euro’s ramp ($1.14 vs USD) for European Equity bulls who not only have to deal with the reality of an economic slow-down from #TheCycle (2015) peak, but crashing banks and equity indices; Italy leading lossers (again) this morning taking the MIB Index crash to -27% since July."

 

 

 

Here's the chart of the Euro Stoxx 600 (-9.2% year-to-date) and EURUSD (+4.7% ytd):

 

IMF Calls On Impotent Central Planners To Save Global Growth - euro stoxx

 

The final holdout in the fast evaporating central planning belief system is the Fed. As we head into 2Q16, the U.S. faces its toughest GDP comp of the cycle, not to mention the ongoing industrial and corporate profit recessions. Make no mistake Yellen & Co. can't arrest economic gravity forever. 

 

More to be revealed...


About Everything: When Less is More

Takeaway: Millennials are trusting brands to pre-select the best products for them. They want the authoritative brands that Boomers rebelled from.

Editor's Note: In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why "we’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand." 

 

About Everything: When Less is More - scale

WHAT’S HAPPENING

 

For the last half-century, America has fallen into a growing love affair with choice. It blossomed in the 1980s with supermalls, megamarts, and big-box retail, and amped up further in the 1990s by promises that you could always “have it your way”—even if that meant choosing your way through thousands of sizes, colors, styles, and tastes.

 

Today, Starbucks offers a mind-boggling 87,000 different beverage blends. The average American supermarket in 2014 carries nearly five times more items than in 1976.

 

About Everything: When Less is More - neil slide 2

 

But apparently, this romance is cooling. A countermovement toward simplicity is underway.

 

Look at some of these trends:

  • Last year, Walmart reduced its average number of store displays by 15 percent.
  • British grocery chain Tesco slashed its inventory by 30 percent.
  • Paintmaker Glidden drastically thinned its color palette from 1,000 to 282.
  • Procter & Gamble reduced its range of Head & Shoulders shampoos by nearly half.

Other changes aim to streamline the decision-making process. Tesco now groups typical meal ingredients together to save shoppers time. Sites with large inventories like Netflix offer recommendations to nudge users along. Travel companies like Expedia and Four Seasons Hotels curate high-end bundled vacations.

 

We’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand (think Apple, Tesla, Chipotle, or Google’s home page). And a clutter of endless choices is now a symptom of a troubled brand (think JC Penney, McDonald’s, or Yahoo’s homepage).

 

About Everything: When Less is More - neil slide 4

 

About Everything: When Less is More - neil slide 5

 

About Everything: When Less is More - neil slide 6

 

About Everything: When Less is More - neil slide 7

 

About Everything: When Less is More - neil slide 8

WHY IT’S HAPPENING: DRIVERS

 

Choice fatigue

In his paradigm-shifting 2004 work, The Paradox of Choice, psychologist Barry Schwartz wrote that, beyond a certain point, “choice no longer liberates, but debilitates.”

 

About Everything: When Less is More - neil slide 9

 

When choice builds up, consumers are bogged down. The average American now makes 70 decisions a day. Should we really spend so much time worrying about what to order from Starbucks?

 

Schwartz cites research (on products such as jam, chocolate, and 401(k)s) showing that consumers faced with fewer options are actually more likely to settle on one.

 

Growing desire for authoritative brands

Faced with endless choice, consumers often feel that companies don’t care about their time — or, even worse, that companies don’t understand their own products enough to know which one is clearly superior. Americans today want brands that they trust will give them what they want without choosing. They want brands that cut down on options, effectively deciding for the consumer.  

 

Generational change

When choice was shiny and new, Boomers were all for it. In response to a society that wallowed in Pleasantville sameness, young Boomers pushed for a bigger range of choices that allowed them to live life on their own terms and express their inner values.

 

Generation Xers followed suit. They learned to rely on themselves from an early age and equated choice with survival. Letting institutions choose for you was unthinkable. More options meant more freedom.

 

For Millennials, however, unlimited choice offers diminishing returns. When faced with countless options, this generation fears “missing out” (FOMO) on the best one. Millennials trust their favorite brands to pre-select the best products for them. They want the authoritative, in loco parentis brands that Boomers rebelled from. They’re relieved when their employer offers an opt-out default benefit plan, because they feel someone cares enough to recommend a “best” course of action.

 

About Everything: When Less is More - about everything 4 12

BROADER IMPLICATIONS

 

Businesses should break their inventory down into manageable chunks. Retailers with diverse product lines can limit choice simply by separating items into categories, such as brand, color, size, or flavor. E-tailers should offer robust search and filter functions, while highlighting some (but not too much) useful information about each product.

 

Millennials in particular appreciate companies that pare down the field for them. Default options are often characterized as paternalistic—yet this can be a positive attribute in the minds of young consumers. In scenarios with high trust and low knowledge (think health care, tourism, and retirement savings), fewer choices can be reassuring. 

TAKEAWAY

 

If you’re in search of the next cutting-edge brand:

  • Don’t look for the firm that only knows how to proliferate option clutter.
  • Do look for the firm that knows how to simplify the complex — and augment its value by boldly choosing for you.

CHART OF THE DAY | Profits Past Peak: Next Up? Recession

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 you can see in today’s Chart of The Day (slide 14 of the recently published Q2 Macro Themes Deck), Aggregate US Corporate Profits put in the mother of all peaks (all-time high) in the 2nd half of 2014. In this chart you can also see where:

 

  1. SP500 Operating Margin PEAKED and rolled
  2. US #Recessions typically appear AFTER profits and margins PEAK"

 

CHART OF THE DAY | Profits Past Peak: Next Up? Recession - 04.12.16 chart


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Gen-X Weighs on Housing Market

 

In this brief excerpt from The Macro Show earlier today, Hedgeye Housing analyst Christian Drake discusses the demographic and structural headwinds facing U.S. housing. 


Cartoon of the Day: The Cycle

Cartoon of the Day: The Cycle - GDP cartoon 04.11.2016

 

The U.S. growth outlook is getting pretty grim. The Atlanta Fed's GDPNow tracker for U.S. economic growth in Q1 2016 just hit 0.1% after a spate of new negative data.

 

We've been making this bearish call for a while now and highlighted in our Q2 Macro themes that "the U.S. economy faces its toughest GDP comp of the cycle in 2Q16."


Central Planning Delusions: From Helicopter Money To NIRP

Central Planning Delusions: From Helicopter Money To NIRP - central bank cartoon 02.17.2016

Falling behind on the latest central planning nonsense?

 

We think it's pretty clear that the central planning #Belief system is breaking down (see chart below... since the BOJ announced negative interest rates (1/29), the Yen is up +10.8% and the Nikkei is down -10.1%)

 

Central Planning Delusions: From Helicopter Money To NIRP - boj nirp nikkei jpy 

 

However, the links below are must-reads to stay up on the latest central planning shenanigans around the world. Whether you agree or disagree with the authors, insights abound, from Ben Bernanke's defense of "helicopter money" to German Finance Minister Wolfgang Schäuble comparing easy-money policies to drug addiction.

 

Enjoy!

 

  1. Ben Bernanke's Brookings blog: What tools does the Fed have left? Part 3: Helicopter money --  Helicopter money gets the Bernanke stamp of approval and how it would work... "Money-financed fiscal programs (MFFPs), known colloquially as helicopter drops, are very unlikely to be needed in the United States in the foreseeable future... However, under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs may be the best available alternative. It would be premature to rule them out."
  2. IMF: The Broader View: The Positive Effects of Negative Nominal Interest Rates -- Insight on the IMF's latest thinking about negative interest rates... "Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability. Still, there are limits on how far and for how long negative policy rates can go."
  3. WSJ: Germany’s Schäuble: Time Is Near to End Central Banks’ Easy-Money Policies -- Refreshing sanity from ECB critic German Finance Minister Wolfgang Schäuble... "There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem,” Mr. Schäuble said, comparing the move away from easy-money policies to ending a drug addiction."

  4. Bloomberg: Former Yellen Adviser Proposes Sweeping Reform of Fed System -- Good ideas... "Dartmouth College professor Andrew Levin targeted four areas of change for the Federal Reserve system: make the Fed a fully public institution; ensure the process of picking regional Fed presidents is transparent; set seven-year term limits for regional presidents and Board governors; and make the entire Fed subject to external review."

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next