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Dear President Obama: Who's 'Peddling Economic Fiction' Now?

Takeaway: US growth continues to slow from 3% to 0.5%, while President Obama claims our Macro team's #GrowthSlowing call is "peddling fiction."

Dear President Obama: Who's 'Peddling Economic Fiction' Now? - obama

 

“I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform. By that measure, we probably managed this better than any large economy on Earth in modern history." -President Obama, New York Times Magazine, 4/28/16 

 

Huh?

 

In case you missed it, yesterday's Q1 2016 GDP reading came in at 0.5%.

 

Yes, 0.5%. Meanwhile...

 

 

That's why President Obama's New York Times victory lap is a bit of a headscratcher considering first quarter growth was the worst it's been in two years. As we reminded subscribers yesterday, "We Called The U.S. Growth Slowdown (And Believe The Worst Is Yet To Come)." (Click here to read more about what we expect for growth in Q2 2016.)

 

Dear President Obama: Who's 'Peddling Economic Fiction' Now? - GDP cartoon 10.29.2015

 

To be clear, we've heard It all before.

 

Earlier this year, in his final State of the Union address, President Obama told the nation that anyone "claiming that America's economy is in decline is peddling fiction."

 

Meanwhile, U.S. growth has continued its downward descent, from 3% to 1.4% to 0.5%, so who's "peddling fiction" exactly? Now to be fair to President Obama, unaccountable Wall Street economists and unelected Fed bureaucrats completely missed U.S. #GrowthSlowing too.

 

So, no worries.

 

But we didn't.

 

 

We've taken President Obama to task for these kinds of statements before (see "7 Key Economic Talking Points For Serious Contenders at Tonight's #GOPDebate"). And considering yesterday's lackluster GDP report coupled with today's data on waning U.S. consumption and another declining PMI reading, we're sticking with the call that's been right for over a year now...

U.S. growth slowing


Are You Bullish? A Brief Update On The No Volume "Rally"

Takeaway: Volume was up +22% on yesterday's selloff.

 Are You Bullish? A Brief Update On The No Volume "Rally" - volume cartoon 5.20.2014

 

The lack of conviction in the recent "rally" is obvious.

 

While exchange volume has dried up to a meager drip since the February 11 bottom, that all changed yesterday with a shocking flood of activity ... on a Down Day.

 

Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning. 

 

"Algos/quants lifting little offers on up days; liquidation on the big down days – we still think this is a Liquidity Trap. Total U.S. Equity Volume ramped +22% vs. its 1-month average yesterday (SPX -0.92%, Nasdaq -1.2% on the day)."

 

 

For More...

 

Watch Hedgeye CEO Keith McCullough in the video below entitled, "You’re ‘Crazy’ Buying Stocks Now."

 


Washington Needs to Wake Up! Strong Dollar = Strong America

Takeaway: Down Dollar, Bailouts, Reflation? That’s not an America anyone should be proud of,. That's the 'Inequality' standard.

Washington Needs to Wake Up! Strong Dollar = Strong America - dollar cartoon 07.02.2014 

 

The Purchasing Power of The People (for Americans, US Dollars) is being burned for the sake of Wall Street and The Election. For those of you who aren't paid to be willfully blind, this is how it works:

 

US GDP Slows -> Yellen Burns The US Dollar -> Gas Prices Rise

 

Now, that might be good for propping up the stock market (U.S. Dollar index -0.88 correlation to S&P 500) but it's not good for the purchasing power of everyday Americans. In effect, if Yellen can't keep Oil Up (Dollar Down), she can't keep the stock market up - screw The People.

 

It's not a partisan issue either. Remember Ronald Reagan and Bill Clinton? Republican and Democrat? #StrongDollar, Strong America?

 

That’s what all Americans (not just the 1% of us “making money” on Wall St.) had in the 1980s and 1990s. That’s what allowed their purchasing power to manifest into everything that was not US Dollar Devaluation by the Federal Reserve. That was awesome.

 

Washington Needs to Wake Up! Strong Dollar = Strong America - strong dollar strong america

 

Now?

 

Every time the GDP cycle slows (and profit growth slows in conjunction with that), what do both Republicans and Democrats (Bush and Obama Administrations) beg for? Same thing Nixon and Carter did => Down Dollar, Bailouts, Inflations/Reflations, etc.

 

Not good.

 

That’s not an American Standard anyone in this profession should be proud of. That’s the “Inequality” standard. And, until a legitimate leader figures this out, we’re heading down history’s littered path of failed monetary policies. Sadly, if an un-elected Fed is allowed to devalue the Dollar into the US election… rising gas, rent, and food prices will most definitely be the struggle for both the American People and their economy.

 

Washington Needs to Wake Up! Strong Dollar = Strong America - Fed Up cartoon 03.22.2016

 

You see, inasmuch as Down Dollar asset “reflation” is a windfall for us “rich people,” it’s a passive aggressive consumption tax on the rest of the country (who these politicians patronize as “folks”).

 

As Senior Macro analyst Darius Dale pointed out recently  (see chart below), the Fed's massive monetary policy experiment to reflate asset prices was undoubtedly pocketed by the wealthiest (top 10%) of Americans. Meanwhile, Bernanke eroded the purchasing power of every working class Americans to 40 year lows.

 

In other words, Fed policies paid the few ... and crushed the many.

 

Washington Needs to Wake Up! Strong Dollar = Strong America - dale inequality

 

Maybe one of these big time “for The People” candidates should figure this out. For people with non-partisan standards, it’s really not that complicated. So while everyone on Wall Street is begging for Yellen to devalue the U.S. Dollar, I can draw only one conclusion and it looks like this:

 

 

Sadly, Old Wall has always found novel ways to line its pockets.

 

How much longer will working class Americans stand for it?


Early Look

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  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.90 1.70 1.84
SPX
S&P 500
2,060 2,093 2,076
RUT
Russell 2000
1,115 1,155 1,140
COMPQ
NASDAQ Composite
4,781 4,869 4,805
NIKK
Nikkei 225 Index
16,101 17,602 16,666
DAX
German DAX Composite
9,971 10,408 10,321
VIX
Volatility Index
13.69 17.94 15.22
USD
U.S. Dollar Index
93.43 95.11 93.73
EURUSD
Euro
1.12 1.14 1.13
USDJPY
Japanese Yen
107.01 110.59 108.11
WTIC
Light Crude Oil Spot Price
41.24 46.60 45.88
NATGAS
Natural Gas Spot Price
1.88 2.30 2.06
GOLD
Gold Spot Price
1,230 1,277 1,268
COPPER
Copper Spot Price
2.13 2.31 2.23
AAPL
Apple Inc.
93 103 95
AMZN
Amazon.com Inc.
590 680 602
MCD
McDonald's Inc.
125 130 128
XLU
Utilities Select Sector SPDR
46.43 49.90 48.13
GOOGL
Alphabet Inc.
692 740 705
FB
Facebook Inc.
111 120 117


Volume, Gold and Japan

Client Talking Points

VOLUME

Algos/quants lifting little offers on up days; liquidation on the big down days – we still think this is a Liquidity Trap. Total U.S. Equity Volume ramped +22% vs. its 1-month average yesterday (SPX -0.92%, Nasdaq -1.2% on the day).

GOLD

Gold absolutely loves the U.S. GDP #GrowthSlowing call – ramping to +20.2% year-to-date this morning and since not a lot of managers are long it, it’s probably best to focus on whether the SPX is up or down 2%!

JAPAN

Unfortunately, they do have to re-open the Japanese stock market on Monday (closed overnight) with Yen +1% and Nikkei futures -3%; we think this is the epicenter of the #BeliefSystem (in centrally planning equity markets) breaking down.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 28% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald's (MCD) released earnings Friday reporting strong numbers across every important metric. Consider, for example, Q1 EPS $1.23 versus FactSet's consensus estimate of $1.16. Same-store sales in the U.S. were +5.4% vs consensus +4.4%. Revenue in the U.S. was $2.02B vs consensus $1.98B. Company-operating margin was 15.4% vs consensus 14.9% and year-ago 14.3%. We are sticking with our $150 target and believe that $7.00 in EPS for 2017 is not out of the question.

CME

Please note we are removed CME Group from Investing Ideas (long side) on Thursday. "I thought there was going to be more upside to the numbers than there was," Hedgeye CEO Keith McCullough wrote yesterday. "The market reaction looks right on that (companies that beat big go up big – see FB). So I’ll remove it today, as I think the U.S. stock market broadly has a ton of risk pending May-July."

 

Earnings analysis via Financials analyst Jonathan Casteleyn:

 "CME Group had solid earnings results this week with revenue up +11% and earnings up +18% year-over-year. Investors will be hard pressed to find similar growth in the Financials sector with interest rates that continue to compress and very low banking and trading activity. In contrast, the average result for Financial companies in the S&P 500 thus far in earnings season has been top line revenue declines of -3.3% with earnings decay of -14.5%. With 2Q16 trading volumes up +4% year-over-year to start the new quarter, CME will likely put up another solid quarter and out comp the rest of the sector again."

TLT

The market is currently pricing in a rate hike but not until … late 2017. So if you’re looking for reasons to buy the market at all-time highs, don't expect a boost from incremental Fed policy. To be clear, the dovish Fed commentary of late is a direct result of U.S. growth slowing. Friday’s manufacturing PMI continued its downward trend (it peaked in rate of change terms in August 2014). Clearly, the market gets decelerating growth, which is why Utilities (XLU) are leading equity sector divergences YTD (+9.3%) and the U.S. Treasury 10-year yield down 0.35% over that same period. (That translates into TLT +6.5% and ZROZ +10.2% year-to-date.)

 

With that being said, the alpha on our long utilities and Long Bonds (TLT & ZROZ) vs. short Junk Bonds (JNK) position has gone against us in the last two months. Notably, we have no direct exposure to commodities or commodity-related sectors, but being short of JNK amidst a huge rally in commodities has not been a good position. Much of the beaten down resource-leveraged credit has rallied.

Three for the Road

TWEET OF THE DAY

Again, My Thoughts On This Lousy GDP Report  https://app.hedgeye.com/insights/50593-my-thoughts-on-this-lousy-gdp-report… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Always borrow money from a pessimist. He won’t expect it back.

Oscar Wilde

STAT OF THE DAY

According to a YouGov survey conducted in 10 countries across four continents U.S. Democrats and Republicans are about as likely as each other to prefer blue as their favorite color (33% for Democrats and 29% for Republicans). However, 17% of Republicans like red – twice the number of Democrats who do (8%).


CHART OF THE DAY: Fed Forecast = WRONG

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. 

 

"... Why does the Fed have to keep making up new policies? That’s simple. It’s because they keep getting their growth and inflation forecasts wrong. Since the Fed is un-elected and un-accountable, they tend to corroborate a view from the highest office in the land, where Obama was allowed to call people like me “peddlers of economic fiction” in his State of The Union Address."

 

CHART OF THE DAY: Fed Forecast = WRONG - 4 29 cod


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