Credit Cycle: The Beginning Of The End?


In this excerpt from The Macro Show this morning, Hedgeye Financials analyst Josh Steiner joins CEO Keith McCullough to discuss why the #CreditCycle is just beginning to wreak havoc on financial markets. Steiner cites the recent blowup in Synchrony Financial (SYF) as a prime example.

Capital Brief: Trump Takes Back Capitol Hill... & Can Democrats Take The House?

Takeaway: Trump Takes Back To Capitol Hill; Ryan's Round Three; Majority Momentum?

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: Trump Takes Back Capitol Hill... & Can Democrats Take The House? - JT   Potomac under 1 mb


Donald Trump is heading back to Capitol Hill ahead of the July convention to address the entire Republican House after his May visit with leadership came under criticism from rank and file members. Trump will have an opportunity to discuss his priorities and share his vision for moving the party forward.


House Republicans are unveiling their “ A Better Way” agenda to show how they would govern should they win back the White House – they’re desperately hoping Trump takes the cue and runs on their issues - we think he has other plans.


Speaker Paul D. Ryan announced the third part of his six-point plan with a focus on regulatory overhaul -  scaling back Dodd-Frank, expanding energy production on federal lands and limiting lawsuits against businesses. Ryan’s laser focus on policy has helped define and forge the Republican agenda ahead of the upcoming Senate and House races. If Republicans want to stay in control of Congress - and take back the White House - they’ll need to run on ideas and draw a distinction with the Democrats and the top of their own ticket.


Democrats feel they have a good shot at taking the White House and Senate this year, but what about the House? Democrats are 59 seats out of the majority - and until last night (Randy Forbes of VA was tossed) - no incumbent House Republican had lost a race.


Given turnout in last week’s presidential primary, CA Republicans, like Rep. Darrell Issa and Rep. Steve Knight, will have big bullseyes on their backs this fall - both candidates narrowly skated by in their primaries. Guilt by association will become the main drag on Republicans with Trump as the presumptive nominee - and the Democrats will remind voters of that every step of the way.

The Industrial Recession Continues

Takeaway: Apparently Industrial Production growth and/or demand has not "bottomed."

The Industrial Recession Continues - The Cycle cartoon 05.12.2016


Stabilization in a recession? Maybe


(Sustainable) Positive inflection in the Industrial Sector? Nope


Being long US Equity Beta now (for a trade), I basically have to hope for the only real catalyst for stocks – a more dovish (Down Dollar) Fed.

1. Industrial Production


Down -0.4% m/m and accelerates to the downside to -1.4% y/y = 9 consecutive months of negative y/y growth.  Deceleration across all major sub-aggregates. 


The Industrial Recession Continues - industrial production 6 15

2. Capacity Utilization


Down, Again.  Declining -30bps sequentially and -1.7% y/y = 15 consecutive months of negative y/y growth


The Industrial Recession Continues - industrial production 6 15 2


I guess Industrial Production growth and/or demand has not "bottomed." 

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About Everything: Demographic Warning Shots Fired In America

More Deaths ... Fewer Births


Editor's Note: In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe explores the troubling rise in the U.S. mortality rate that's coincided with declining fertility rates. Howe walks through the myriad demographic and social trends which have conspired to cause this development.


For more, click here to watch Howe's Q&A with subscribers on the topic.


About Everything: Demographic Warning Shots Fired In America - z babe


Two early releases by the CDC have demographers and economists buzzing.


The first is a historical rarity. Preliminary data from the CDC’s National Vital Statistics System (NVSS) show that the U.S. age-adjusted mortality rate climbed from 723.2 deaths per 100,000 people in 2014 to 729.5 last year—truly a head-scratcher for a society in which continuous advances in medicine and public health slash the rate nearly every year.


In fact, the last time that we saw a mortality rate increase was a decade ago (a slight uptick of 1.3 deaths). The last sizable increase? All the way back in the late ‘90s.


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 2


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 3


About Everything: Demographic Warning Shots Fired In America - about everything callout


As if this news weren’t troubling enough, it’s occurred simultaneously with declining childbearing activity. Another NVSS release based on preliminary data shows that in 2015, the total fertility rate (TFR)—a measure that isn’t influenced by changes in the age distribution among women in their childbearing years—slid by 1.0 percent to its lowest level since the mid-‘80s. 


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 4


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 5


But that’s nothing new, right? Childbearing has been lagging since the Great Recession.


Except that plenty of demographers thought the slide was over when the 2014 numbers showed a birthrate increase. That news was a crutch for analysts who believed that declining fertility was just a “tempo effect” of the Great Recession, destined to bounce back once the economy got rolling again.


But rather than a turning point, 2014 now looks like a head fake.


By and large, past single-year death rate spikes can be traced back to a lone anomaly. In 2005, for example, we had an especially bad flu season. In 1993, a devastating year for AIDS caused the overall mortality rate to jump by a full 20 deaths per 100,000 people.


Although detailed data behind the new death rate increase won’t be out until later in the year, the story in 2015 looks a bit more complex.


America’s opioid epidemic. According to NVSS, the death rate for drug overdoses was 15.2 per 100,000 people in Q2 2015, up from 14.1 during the same period a year earlier.

Given the much-discussed recent surge in American opioid use, we can be sure that opioids (both prescription painkillers and their illegal substitute, heroin) play a significant role in 2015’s overall death rate hike.


A recent report from the National Safety Council shows that, over the decade ending in 2014, deaths from drug overdoses shot up 78 percent—overtaking car crashes as the number one source of accidental deaths in the United States. According to Dartmouth economist Jonathan Skinner, the graph of drug overdose deaths over time now looks like that of an infectious disease that spreads exponentially, “diffusing out and catching more and more people.”


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 6


The headline here is not that young adults have been caught up in this epidemic. That’s been the historical norm.


The real news is that drug-related death rates are skyrocketing even within older age brackets. For instance, since 2000, the death rate from drug overdoses for 45- to 54-year-olds has more than doubled. And it’s not just risk-taking Gen Xers. Baby Boomers have taken their infamous drug habits with them into elderhood: The drug death rate for 55- to 64-year-olds has more than quadrupled over the same period. That’s the greatest percentage increase for any age bracket. 


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 7


A slowdown in chronic disease improvements. Chronic illnesses like cancer and heart disease have an outsized impact on the overall death rate because of the sheer number of Americans impacted by these prominent killers. It follows that even a slight lag in the mortality rate improvement for these diseases can cause the overall death rate to rise.


Lo and behold, the mortality rate for heart disease rose in 2015 for the first time in two decades. Last year also saw a spike in the absolute number of deaths from a myriad of diseases: chronic lower respiratory disease, stroke, hypertension, Alzheimer’s disease, and Parkinson’s disease.


Boomers behaving badly. Of course, rising opioid use among the elderly and an increase in deaths from chronic illnesses are rooted in a broader trend. Boomers are bringing their notoriously unhealthy lifestyles with them into old age—along with all sorts of diseases and afflictions.


In fact, a major 2013 JAMA study found that across the board, 46- to 64-year-olds in 2007-10 (nearly all Boomers) were less healthy than members of the same age bracket in 1988-94 (nearly all members of the Silent Generation). They had vastly higher rates of obesity, inactivity, hypertension, and excessive cholesterol—and took far more medication to deal with these maladies.


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 8


The Great Recession. The declining birthrate has an undeniable economic component. After climbing for years, births per 100,000 women of childbearing age peaked around 70 back in 2007; each year since (with the exception of 2014), that rate has declined.


The recession and its aftereffects are still hampering consumers far more than a quick check of the U.S. unemployment rate would suggest. For example, since the end of the recession, real GDP growth has exceeded median real income growth in nearly every quarter, leaving consumers with less purchasing power in spite of a modestly improving economy.


What’s more, the cohorts that were particularly hammered by the recession—early- and late-wave Xers, as well as early-wave Millennials—are the very ones responsible for most births.


Millennials behaving well. The single biggest contributor to the shrinking birthrate has been a dramatic decline in Millennial childbearing. While the birthrate within all five-year cohorts above age 30 has grown since 1990, the under-25 birthrate has plummeted. In 1974, someone in their early 20s was more than twice as likely to have a child as someone in their early 30s. Today, the script has flipped: Someone in their early 20s is 20 percent less likely to have a child than someone in their early 30s. 


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 9


The drop-off in the teenage birthrate has been especially dramatic. Women ages 15 to 19 were responsible for more than 60 births per 100,000 back in the early ‘90s. Today that rate is down to just over 20—a decline of two-thirds.


Why? Millennials are vastly more risk-averse than previous generations of young adults. Look no further than the continuously dropping unplanned pregnancy rate.


What’s more, older Millennials are putting off parenthood in the wake of the recession—and the idea that they’ll just “play catch-up” when times are better isn’t a given. Exhibit A: the early wave of the G.I. Generation, who were of peak childbearing age during the Great Depression, and whose completed fertility rate ended up among the lowest of any cohort group in U.S. history.


What about the rise in 2014, you ask? Maybe that was the catch-up effect—and now it’s over.


Rising mortality and falling fertility each have significant short-term and long-term implications.


A rising death rate implies higher morbidity—that is, not only that more people are dying, but that the overall health of the population is worsening. This would mean more dollars flowing to the health care sector, which already accounts for just over 18 percent of GDP.


From an industry perspective, the implications of higher mortality are more mixed. Of course, it does promise increased demand for health care services. But in an era when so many private and public plans are under increasing pressure not to raise premiums or deductibles, profit margins may suffer.


What falling fertility says about the economy, on the other hand, is more one-sided—and it is not good.


In the short term, a stagnant or falling birthrate reflects depressed consumer confidence. This becomes evident when we see that U.S. personal consumption expenditures roughly track with a nine-month delayed TFR. As the willingness to spend rises and falls, so too does the willingness to start a family. 


About Everything: Demographic Warning Shots Fired In America - 6.15.16 chart 10


Second, one of the economic benefits of a rising birthrate is that it’s an instant (and lasting) inflationary push. New parents are forced to spend heavily as they raise their child, giving a boost to the economy. A falling birthrate means less spending, more saving, and (perhaps) a longer detachment from the market economy. This does not help Janet Yellen and others at the Fed who want consumers and businesses to spend now, not later.


Finally, the birthrate has a major long-term impact on how fast (or slow, as the case may be) the economy is poised to grow in the future. A sustained low birthrate means fewer working-age adults and a smaller tax base in the decades to come.


  • The U.S. mortality rate is on the rise for the first time in a decade. Opioid deaths are skyrocketing, heart disease improvements have plateaued, and Boomers’ unhealthy habits are catching up to them.  An America in poorer health may marginally benefit some health care providers—but may also point to rising social and economic stress, along with declining productivity in our health care system as a whole.
  • Meanwhile, the fertility rate is sinking again following a slight uptick in 2014. While many thought we were past the bad news, the Great Recession continues to take its toll on women of prime childbearing age. Not to mention the fact that cautious Millennials have been driving down fertility rates anyway.

A Quick Look At The Brexit Bounce

Takeaway: European equities popped following U.K. Finance minister George Osborne's Brexit assessment. The FTSE is still down -11% from its 2015 high.

A Quick Look At The Brexit Bounce - Brexit cartoon 06.07.2016 


Ah, the Brexit Bounce...


European equities popped this morning following U.K. Finance minister George Osborne's warning shot to Brexit voters. Osborne suggested that a "Leave" vote would force the U.K. to raise taxes and enact spending cuts worth 30 billion pounds ($43 billion) and proposed measures to fill an economic "black hole" from lower trade, investment, and tax receipts.


Essentially markets bet that Osborne's dire predictions raised the likelihood of a "stay" vote. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers this morning: 


"Big bear market slash Brexit bounce this morning as Osborne threatens tax hikes – levels matter here as yesterday was a big immediate-term oversold signal in almost every major European index. The FTSE is up +1.1% to 5,986 and would need to recapture 6,305 to not be bearish TREND however."



Take a look at the most recent Brexit tracker (an aggregation of various polls) via Bloomberg. At this point, polls are showing a coin flip vote:


Click image to enlarge. 

A Quick Look At The Brexit Bounce - brexit tracker 6 15


By way of contrast, we've laid out why we think there are Political, Financial, and Behavioral reasons why the balance is tipped toward a "Stay" vote on June 23, in "An Update On Brexit: Should I Stay Or Should I Go Now."


**In case you missed it, here's a good wrap of Osborne's proposed emergency public spending cuts and tax increases from the BBC and the opposition party's pushback.

Daily Market Data Dump: Wednesday

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: Wednesday - equity markets 6 15


Daily Market Data Dump: Wednesday - sector performance 6 15


Daily Market Data Dump: Wednesday - volume 6 15


Daily Market Data Dump: Wednesday - rates and spreads 6 15


Daily Market Data Dump: Wednesday - currencies 6 15


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