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Cartoon of the Day: A Holy Mess

Cartoon of the Day: A Holy Mess - Brazil cartoon 04.19.2016

 

Amid the impeachment process of Brazilian President Rouseff, Brazil's Bovespa Index is up +39.4% over the past 3 months. Setting aside widespread corruption in the country, Hedgeye Senior Macro analyst Darius Dale had this to say about Brazil in this morning's Early Look, "We think Brazilian capital and currency markets are priced to perfection and anticipate another flush down alongside other reflation assets over the intermediate term."


The Central Planning #BeliefSystem Continues To Break Down

Takeaway: A bitter reality check is around the corner for easy-money addicted investors.

The Central Planning #BeliefSystem Continues To Break Down - bear cartoon 01.26.2016

 

About a month or so ago, hawkish regional Fed heads made the mainstream media rounds (see Fork-Tongued Fed Needs To Get Its Story Straight), talked up the U.S. economy and called for three or more rate hikes this year. Then, a week later, a dovish Yellen dialed back the rhetoric, sounding a cautionary tone on the economic outlook, while reiterating the headwinds we faced would "gradually dissipate."

 

Investors, addicted to easy-money and Fed soothsaying, took these dovish comments in stride, jamming equity markets higher, while the U.S. dollar weakened and rate hike expectations all-but evaporated. Notice, in the table below, the implied rate hike probability for this year doesn't get above 50% again until December:

 

The Central Planning #BeliefSystem Continues To Break Down - fed rate hike prob

 

Following that line of thinking, A few questions:

 

  • What happens when U.S. economic growth and S&P 500 company earnings brush up against the toughest comps of the cycle in Q2 and Q3?
  • Will U.S. investors finally spiral back to reality, understanding that the Fed's impotent monetary tool kit has failed to arrest economic gravity?

 

We continue to believe it is going to get nasty in equity markets... 

 

Click video below to watch.

 

Evidence?

 

The central planning #BeliefSystem is already breaking down in Japan where, since the announcement of negative interest rates in January, the Nikkei has declined in fairly short order while the yen has strengthened.

 

The exact opposite of what they intended.

 

The Central Planning #BeliefSystem Continues To Break Down - nikkei yen

 

It's worth noting that central planners are keenly aware of this macro market breakdown. Over the weekend, BOJ governor Haruhiko Kuroda told the Wall Street Journal:

 

“If excessive [yen] appreciation continues, that could affect not just actual inflation, but even the trend in inflation through its impact on business confidence, business activity, and even through inflation expectations."

 

Kuroda reiterated "if necessary to achieve 2% inflation target" the BOJ would "not hesitate to take further easing measures."

 

Okay.

 

But what makes him so sure anything the BOJ does will actually work?

 

stay tuned. 


Eye on NY Primary: Trump Momo... Bye-Bye Bernie?

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 sales@hedgeye.com.

BYE-BYE BERNIE?

Eye on NY Primary: Trump Momo... Bye-Bye Bernie? - bernie sanders bye

 

Today's contest in NY is a critical make or break moment for Bernie Sanders - and if Hillary Clinton wins big (10% +)- Sanders' nomination dreams all but evaporate. If the race is closer than expected, the narrative then favors Sanders, his crusade continues unabated and he becomes more than a serious challenger.

 

Despite being a progressive blue state where Sanders has roots, Clinton's political experience in her adopted state provides her an edge, and has helped her to hyper-localize issues. Sanders has attempted to retool his national message for NY, but it's too little too late to match Clinton's in-state infrastructure and strategy of tailoring ads and messaging down to each media market and borough.   

IF I CAN, MAKE. IT. THERE...

Eye on NY Primary: Trump Momo... Bye-Bye Bernie? - trump cruz

 

Donald Trump will win NY's primary today - the only question is by how much. A big win (55%+) would allow him to sweep almost all of NY's delegates, whereas winning less than 50% of the vote would mean sharing a handful delegates with both John Kasich and Ted Cruz.

 

There are five Northeastern states next on the map, and tonight's results will determine if Trump goes into them with the big 'mo' - or if he will be harried by his competitors and anti-Trump groups along the way. We're betting on the former. Cruz just wants the second half of April and the Northeastern primaries to be over.

CHECK & BALANCE

Yesterday, the SCOTUS justices were divided in their oral arguments with regard to executive actions made by President Obama on illegal immigration in 2014 - leading to the deferred deportation of nearly five million immigrants. The actions have sparked opposition from 26 states, who argue that the president had overstepped his executive role.

 

A split-decision - due to the current vacant seat - would leave the matter in a temporary injunction - as decided by a lower court and likely passing the issue to the next Administration, and dealing a blow to President Obama. 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

Cruise Liner Earnings: What We’re Most Focused On

 

In this brief excerpt from The Macro Show this morning, Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan highlights the key issues his team is most focused on right now as we enter earnings season. 


DE: Adding Deere & Company to Investing Ideas (Short Side)

Takeaway: We are adding Deere to Investing Ideas today.

Editor's Note: Our Industrials analyst Jay Van Sciver will send out a full, detailed stock report outlining our high-conviction short case next week. In the meantime, below is a brief summary of our thesis written by Hedgeye CEO Keith McCullough in Real-Time Alerts earlier today.

 

DE: Adding Deere & Company to Investing Ideas (Short Side) - john deere

 

As many long-term followers of Hedgeye know, we have at least 30 excellent SELL ideas that aren't currently on the short side of Real-Time Alerts.

 

While I made some mistakes going back to the well on some names that had been imploding (on the short side) in FEB, I think I did a good job staying away from putting a lot of names back on the short side too early during the MAR-APR squeeze.

 

Time and prices change, but intermediate-term SELL calls from my Research Team (the one that's kept you from chasing charts high in the last few years) rarely do.

 

Deere (DE) is one of those core short ideas that I wanted to bring back in focus alongside an immediate-term TRADE overbought signal. 

 

Per our Industrials guru Jay Van Sciver, we see DE as a highly cyclical capital equipment supplier to a mature, zero growth industry.  Deere’s key, high margin franchise is large, North American ag equipment.  Prior to 2014 or so, that market experienced a decade long surge in equipment sales, driven by soaring crop prices, increasing land values, and comparatively easy credit.  Since peak, these factors have begun to roll over.  We expect the hangover – elevated new & used equipment inventories, excess manufacturing capacity, tightening farm credit, and declines in farmer equity – to be a prolonged affair that gradually takes equipment sales below ‘normalized’ demand.


4 Videos On Why We Remain Bearish

Takeaway: We'll say it again ... Risk happens slowly at first, then all at once.

4 Videos On Why We Remain Bearish - Bubble bear cartoon 09.26.2014  1

So... why are we bearish on U.S. equities?

 

The brief videos below lay out much of our case. For starters, we believe this recent reflation rally will prove short-lived, due to the fact corporate profits have fallen two consecutive quarters (a rather bearish historical harbinger) and we don't think central bankers can successfully arrest economic gravity.

 

1. Game Over. Central Bankers Can’t Do Anymore

In this brief exchange on The Macro Show, Hedgeye Demography Sector Head Neil Howe and CEO Keith McCullough discuss how global markets are closing in on a critical monetary policy exhaustion end point. “Why don’t people accept that?” Howe asks. “[Central bankers] can’t do anymore!”

 

2. McCullough: S&P Earnings Confront ‘Toughest Comps In U.S. History’

Hedgeye CEO Keith McCullough crystalizes an enormous risk facing the U.S. stock market right now in this brief excerpt from The Macro Show today.

 

3. Dale: 'What Are You Buying'

In this excerpt from The Macro Show, Hedgeye Senior Macro analyst Darius Dale discusses the recent reflation rally and provides critical context about why we remain bearish.

 

4. Beware the Reflation Trade Risk

In this brief excerpt of The Macro Show earlier today, Hedgeye CEO Keith McCullough discusses this week’s Fed meeting, the recent reflation trade bounce and takes a deep dive into commodities markets.


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