Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"Isn’t the Fed burning the US Dollar and Wall St begging for more fun? Not in Japanese and European stock “chart” terms; Euro testing $1.16 vs. USD this am (almost a 4 standard deviation move) and European Equity markets remain in crash mode from their 2015 highs (draw-downs: DAX -20%, Spain’s IBEX -25%, Italy’s MIB -25%)"
So, as the Fed burns the buck, consider the delicious irony of the U.S. Treasury adding China, Germany, and Japan to a "watchlist" of currency manipulators.
Outside the dismal realm of Euro-area equity markets...
There's always a bull market somewhere, right?
"Instead of down -20% to -27%, Gold (GLD) is already +22% for the YTD! That remains in our Top 3 Macro Long Ideas (Macro Themes Deck) alongside the Long Bond (TLT) and Utilities (XLU) – these ideas all reflect the same view that #GrowthSlowing globally (i.e. economic gravity) can’t be fixed by a central market planning #BeliefSystem this time."
We think a breakdown in the central planning #BeliefSystem will eventually hit the U.S. (investors have already lost faith in central bankers at the ECB and BOJ). A precarius thing to note: The market has largely priced-in a dovish Fed.
So where do we go from here?
As Hedgeye Senior Macro analyst wrote in a recent Early Look, we would need to see a collapse in both growth and inflation expectations for the Fed to provide additional easing and further prop up the markets from here but that would weigh heavily on asset prices.
"We recognize that this is the most risky view to take because the Fed can do whatever it damn well pleases. It’s a board of unelected, unaccountable bureaucrats and, for all we know, President Obama gave Janet Yellen (a known Democrat) marching orders to keep the stock market inflated into the general election.
Who knows? Anything can happen. But fading what is already priced in is where the money will be made from here."
Undoutedly, as the year plays out, there is much more to be revealed. However, there's one thing that we're crystal clear on:
we're sticking with TLT, XLU & GLD.
