Eurozone’s #BeliefSystem Fails!

What do you believe in?  Do you still believe that ECB President Mario Draghi’s policy to do “whatever it takes” to burn the currency can and will spur Eurozone growth and inflation?


As we present in our Q2 2016 Macro Theme of #BeliefSystem (click here for the replay – slides and video – of our second theme starting on page 37 and minute 25:14), not only do Eurozone fundamentals continue to materially slow (witness the progression of slowing data over the last 12 months in the charts of Eurozone Retail Sales, Industrial Production, Exports, Consumer and Business Confidence, and Inflation), but the region is experiencing the perfect storm given the combination of:


Negative interest rate policy (NIRF) + Quantitative (and Qualitative) Easing + Talking Down of Forward Guidance.


According to our Big Bang Theory that we originally discussed ahead of the ECB’s March 10th 2016 interest rate meeting, we’ve underlined our view that after 600 rate cuts globally, there’s a new regime of investors that has given up on the belief that central bankers can artificially produce stimulus and weaken their currency for economic benefit.  This policy hasn’t worked in Japan, and it isn’t going to work in the Eurozone.


Not only were we right with our call that more ECB “easing” would equate to EUR/USD strength (versus a bearish consensus view), but we’ve continued to be right forecasting growth and inflation levels below consensus.  


Specifically, we’ve signaled through our GIP (growth, inflation, policy) model that the Eurozone would return to Quad 4 (equating to growth slowing as inflation decelerates). In the second chart below, we show our forward GDP estimates over the next four quarters, declining to +0.2% in Q4 2016.  #ouch!


Eurozone’s #BeliefSystem Fails! - EUROZONE

Eurozone’s #BeliefSystem Fails! - Eurozone GDP Est.


If the deterioration of growth fundamentals and consumer and business confidence weren’t enough, the ECB’s negative interest rate policy is artificially pushing down bond yields, making it harder for banks to lend (while pilfering savers), and the equity market has taken it on the chin – the EuroStoxx 600 has crashed, down -20% Y/Y.


Schäuble Speaks – In related news, German Finance Minister Wolfgang Schäuble blew the horn this weekend echoing our sentiment on the negative impact of the ECB’s quantitative and qualitative policy. Specifically he suggested that the ECB’s loose monetary policy is partly to blame for the rise of the populist Alternative für Deutschland (AfD) party in Germany, and argued:


“I said to [ECB President] Mario Draghi…be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this policy. There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem.”


We'll continue to bang the boards with our call that the #BeliefSystem in the Eurozone is broken -- that neither Draghi nor other central banker can bend economic gravity.  This time is in fact not different, and as the Eurozone experiences the drag from an aging population (see chart directly below), the prospect of a buoyant and sustained economic recovery appears even further out of reach. 


Eurozone’s #BeliefSystem Fails! - Eurozone Demographics

McCullough: ‘We Are Vigilantly Bearish On Corporate Earnings & Junk Bonds’

In a recent excerpt from The Macro Show, Hedgeye CEO Keith McCullough responds to a subscriber’s question about the latest permabull narrative that a weaker dollar will lead to “widespread earnings beats.”

Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email


Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game - obama


President Obama has been working full time to use executive powers to cement his legacy on many fronts, and now his latest gambit is to protect Hillary Clinton's flank. Within a week, the president has defended Clinton's qualifications for the presidency and has shown support for the Democratic frontrunner through her FBI investigations. Normally, a sitting president would not get involved in the primary, but Obama can't afford to let an opportunity like this pass. For the most part, a Clinton presidency will be  closer to an Obama a "third" term, while a Sanders presidency has the potential to be problematic for the Democratic party.


Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game - trump forward


After narrowly losing the Iowa caucuses in early February to Ted Cruz, Trump vowed to get his ground game in order - and we're still waiting for that to happen. At the CO Republican convention, Trump's hastily assembled team unintentionally instructed Trump supporters to vote for Cruz delegates helping him sweep the state. States where Trump lost delegate ground to Cruz include IN, GA, LA, ND, SD and TN, and the election of anti-Trump delegates in these places mean that Trump is all but certain to lose support if there is a second ballot in Cleveland.


These mistakes may seem trivial, but they are adding up, and this disorganization could cost Trump a delegate majority heading into Cleveland. The road ahead hardly looks brighter - Trump's campaign emailed WA supporters to encourage them to register as delegates two days after the deadline. We think the arrival of his new top strategist and Washington political veteran, Paul Manafort, will help recalibrate the campaign - Trump has been mostly quiet for the last few days, and avoided all Sunday show appearances for the first time in five months. Good first step...


While Donald Trump maneuvers to amass enough pledged delegates to secure a majority, many pundits are resigned to predicting an open convention. The delegate math supports their predictions, however, those same pundits often ignore a major factor - that at least some of the unbound delegates will also vote for Trump on the first ballot. Many of the people running to be one of the 54 unbound PA delegates have pledged to vote according to the results of their district, while other delegates could easily be swayed to back Trump if he goes to Cleveland just shy of 1,237.  Let's not forget that this is the man that wrote The Art of The Deal.

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*TODAY* Speaker Series Call | Inversion Immersion - Dissecting the Treasury's M&A Inversion Rules*

Takeaway: We will be hosting a call with a top DC policy firm today at 2 pm to outline the new Treasury framework and its potential impact on M&A.

*TODAY* Speaker Series Call | Inversion Immersion - Dissecting the Treasury's M&A Inversion Rules* - invite


  • 3rd Cut the Most Impactful? The third iteration of the Treasury's framework on tax inversions released last week seems to have upset the apple cart with already billions of dollars in merger and acquisition (M&A) transactions canceled. The understanding of the specific language and the "before and after" is still superficial however and we will dig into the specifics of the new 200 page parameters.
  • What is the fallout? While we will avoid specific deal-by-deal commentary, the new rule sets will have an industrial impact on the M&A advisory group which handles deal flow with a trickle down impact to specific sectors with a highlight on the Healthcare group. We will outline inversion percentages within total M&A activity and also which sectors have been most active.
  • Around the Beltway - A DOL Fiduciary Rule Update. In a follow up to our recent call with Bob Litan on the Department of Labor Fiduciary Rules, Jeff Shapiro will also give us the latest on the final details of the DOL Fiduciary Rule and what is new from the prior versions.


About our speaker Jeff Shapiro:


Jeff Shapiro joined Peck Madigan Jones following six years as Chief of Staff to Rep. Adrian Smith (R-NE), a member of the tax-writing Ways and Means Committee. He brings more than a decade of political and public policy experience to the firm, having previously served on Capitol Hill for Rep. Lee Terry (R-NE), who was a senior member of the Energy and Commerce Committee.

In his time on Capitol Hill, Jeff gained a reputation as a skilled political professional among Members and colleagues on both sides of the aisle. Jeff’s command of the legislative process, operational dynamics and inner workings of congressional offices was recognized by House Leadership, who tasked him with transitioning into office several Members of Congress following special elections.



CALL DETAILS - Tuesday, April 12th at 2 pm EST

  • To Watch Live Click HERE
  • Toll Free Number:
  • Toll Number:
  • UK: 0.
  • Conference Code: 13634947
  • To Automatically add to your Outlook Calendar Click HERE

Related Tickers: GS, JPM, MS, LAZ, GHL, EVR, MC, PFE, AGN.


Please let us know of questions,

Jonathan Casteleyn, CFA, CMT 


Joshua Steiner, CFA

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



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



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



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. 



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.

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