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Remember This? McCullough On Fox Business: "Jobs Growth Is Slowing" (11/6/15)

Takeaway: Today's NFP report is a certified train wreck for the "economy is improving" crowd.

Oh how the tables have turned...


Today's #JobsBomb was downright terrible. Vomitous. And to be clear, virtually no one on Wall Street saw this coming ... except of course our Macro team. 


Rewind to November. Outspoken Hedgeye CEO Keith McCullough was on Fox Business. He was warning viewers about the risks of #EmploymentSlowing, while most pundits were applauding the "Where's Waldo" Jobs Report that showed a non-farm payroll number of 271,000. In the clip above, McCullough laid out our call on #TheCycle and why the U.S. economy is sliding off its peak.


By the way, back then the 10-year Treasury yield was at 2.32%.

Today? 1.72%.

Yes, U.S. growth is slowing.

yes. we called it.

Jobs Bomb = Fed Dovish? = December Rate Hike?

Takeaway: Yesterday, markets predicted a more than 50% chance of a July rate hike. Now, rate hike expectations don't get above 50% until December.

Jobs Bomb = Fed Dovish? = December Rate Hike? - Jobs.rate hike cartoon 11.04.2015


The #JobsBomb (a.k.a. the May Non-Farm Payroll number of 38,000) just shocked Old Wall consensus.


How do we know?


Take a look at investor's most recent expectations for a Fed rate hike. Yesterday, markets were predicting a more than 50% chance of a July rate hike. Now, rate hike expectations don't get above 50% until December.


What a difference a day can make...



Jobs Bomb = Fed Dovish? = December Rate Hike? - rate hike prob 6 2



Jobs Bomb = Fed Dovish? = December Rate Hike? - rate hike prob 6 3


We're not surprised. We've been saying #EmploymentSlowing for a while now.


When will the Old Wall learn?

Daily Market Data Dump: Friday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products




Daily Market Data Dump: Friday - equity markets 6 3


Daily Market Data Dump: Friday - sector performance 6 3


Daily Market Data Dump: Friday - volume 6 3


Daily Market Data Dump: Friday - rates and spreads 6 3


Daily Market Data Dump: Friday - currencies 6 3

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Hedgeye Potomac is hosting a call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 


Nicoll will discuss the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.  (Hint: he believes the UK will ultimately vote to Stay...).


The call will take place on Wednesday, June 8th at 11am ET with Nicoll giving prepared remarks followed by Question & Answer.




  • How did the UK get to a vote and where do the divisions lie between political parties?
  • What are the arguments for staying and leaving?
  • Who will win?
  • What are the financial, political, and cultural impacts on the UK from Brexit?
  • What’s the impact of Brexit on the EU and Eurozone?  Could another country vote to break free?




Alex Nicoll is a Consulting Member of the International Institute for Strategic Studies, a London-based think-tank. Previously he was a member of the Directing Staff of the Institute as Director of Editorial, and also headed the defense program.  Before joining the IISS he was a journalist at the Financial Times newspaper for 18 years, with posts covering international capital markets, Asia, and defense. Earlier, he was a foreign correspondent for Reuters news agency, with posts in Hong Kong, Paris, Tehran and New York. 


Ping for more information.

US Equity Volume has evaporated

Client Talking Points


Both the FX and Bond markets have been pricing in another #EmploymentSlowing report – USD is down for the 1st week in 5 and the reflation trade loves that – perversely, equity beta bulls need another headline NFP print that’s inline to slightly worse.

US 10 YR

Despite Yellen saying she’s “probably” going to raise rates in June/July, rates are falling (10yr 1.80% last vs. the recent pop to lower-highs of 1.9%) and the Yield Spread has taken another leg down to its lowest level of both #TheCycle and 2016 (91 bps wide on 10s/2s) – talk about squirrely market expectations vs. implicit economic #GrowthSlowing expectations…


What happens the “hedge” of 14,000 hedge funds doesn’t stay down on no volume? It goes up… to lower-highs… squeezes consensus into a reluctant net long position (net LONG SP500 Index + E-mini futs/options position = 2.73x on a 1yr z-score), then falls again. I can probably get you to 2124-2129 SPX today, but the jobs report might have to be sub 100k for that!

Asset Allocation

6/2/16 80% 0% 0% 4% 8% 8%
6/3/16 80% 0% 0% 4% 8% 8%

Asset Allocation as a % of Max Preferred Exposure

6/2/16 80% 0% 0% 12% 24% 24%
6/3/16 80% 0% 0% 12% 24% 24%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration

For some perspective on the Macro environment and why we favor companies like McDonald's (MCD), here's an excerpt from the Early Look written by Hedgeye CEO Keith McCullough:


Taking a step back, don’t forget where US Consumers (70% of GDP) were at this time last year:


  • US Employment Growth (NFP) was putting in a cycle peak
  • US Consumer Confidence was putting in a cycle peak
  • US Consumption Growth was putting in a cycle peak


Peak. Peak. #Peak!


And what happens when you start to lap the cycle peak? Well, instead of crappy Baby Boom capacity putting up mediocre (barely positive) same store sales at the peak, they look even crappier on the back side of the cycle."


That's why we like large-cap, low-beta, liquid companies like McDonald's in this tumultuous market environment. Case in point, earlier in the week, MCD hit an all-time high. Since we added the company to Investing Ideas, it is up almost 30%.


Stick with it. Restaurants analyst Howard Penney reiterates his "road to $150" call, implyling more than 15% upside from here.


Credit markets are one of the major beneficiaries (maybe the largest) of the reflation trade since February. While yield spread compression has been a positive for Long Bonds (TLT, ZROZ), a perceived monetary policy shift and a collapse in bond market volatility expectations have been a positive for Junk Bonds (JNK), but we don’t expect it to continue.


With growth continuing to slow alongside consensus positioning broadly, downside deflation risk is on the table. As we’ve highlighted on a daily basis, consumption growth and labor market growth peaked in Q1 2015 and both are slowing alongside a continued corporate profits slowdown. This mix:

  • Smells like incremental deflation on the margin;
  • Is a huge risk for high yield credit (JNK)



Our Macro team’s proprietary Growth, Inflation, Policy Model (GIP Model) is a proven model that accurately front-runs the second derivative direction of inflation-adjusted growth. The most important call-out is that our growth estimates for 2016 (year-over-year) remain WELL BELOW Wall Street and Central Bank consensus forecasts:


  • Hedgeye: +1.4%
  • Bloomberg Consensus: +1.8%
  • Central Bank: +2.2%


In conclusion, the Fed remains out to lunch with their expectation for growth, and once they come around the Hedgeye view, the policy playbook calls for incremental easing on the margin.

Three for the Road


Jobs report was the opposite of HUUUUGE



"Don't go around saying the world owes you a living. The world owes you nothing. It was here first."

-Mark Twain


West Virginia University ranks 14th in victories among NCAA FBS programs, as well as the most victories among those programs that never claimed nor won a National Championship.

About Everything | Q&A with Neil Howe: Everything Must Go

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why department stores are slowly fading away. "The downward arc started well over a decade ago—long before the Great Recession," Howe writes. "In fact, you need to go back to the Clinton ‘90s to find a really healthy growth year for department stores... Those days are long gone."


Click here to read Howe’s associated About Everything piece.

Early Look

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