"The 2nd worst thing to happen to capitalism (behind ZIRP and QE) is the Fed's decision to constantly think out loud," Hedgeye Senior Macro analyst Darius Dale wrote earlier today.
It's been shocking to watch the market confusion as the Fed pivots between hawkish and dovish (sometimes in just a matter of days).
The latest from the Fed, between the meeting minutes yesterday and the parade of regional Fed heads today, is that a June hike is a "live possibility." Meanwhile, the market doesn't know what to make of the Fed's "thinking out loud." Below is the market-implied rate hike probability yesterday at 1:44pm ET, right before the Fed minutes were released.
Now look at the probability today...
In other words, the probability of a June rate hike doubled in less than 24 hours. Despite all the hawkish tough talk, the market is reluctant to accept the flippant Fed's words as gospel. The current probability of a rate hike is just 28%.
Just to underscore how truly manic these market reactions have been to each and every word out of the Fed, here's the implied rate hike probability at the start of the year, on January 1. Notice the near certitude of rate hikes throughout 2016.
Clearly, the Fed has a credibility problem.
If all of this leaves you a bit befuddled, here's what you need to know via Hedgeye CEO Keith McCullough in today's Early Look:
"If the Fed hikes in June into the face of this economic slowdown it will perpetuate deflation (down yields)."
That's why we're reiterating our big macro call...
Long the Long Bond (TLT).