A Humbling Moment For St. Louis Fed Head James Bullard?

A Humbling Moment For St. Louis Fed Head James Bullard? - Fed cartoon 05.04.2016


Even the hawks are "cooing" these days.


St. Louis Fed head James Bullard has finally acknowledged that the U.S. economy is slowing. The eye-opening part of Bullard's Friday morning admission is this: He now says the U.S. economy's growth is so underwhelming that we may need no more than a single additional rate hike for the next 2.5 years.


As we've pointed out before, Bullard joins San Francisco Fed head John Williams in dialing back prior rate hike expectations. (Williams was perhaps the most ardent hawk, yearning for as many as five rate hikes in 2016.)


Oh how the mighty have fallen...


In a shocking mea culpa though, Bullard released a statement today about Fed forecasting and the U.S. economy saying:


"We are backing off the idea that we have dogmatic certainty about where the U.S. economy is headed in the medium and longer run. We are trying to replace that certainty with a manageable expression of the uncertainty surrounding medium- and longer-run outcomes."


A Humbling Moment For St. Louis Fed Head James Bullard? - Fed grasping cartoon 01.14.2015


Bullard now predicts that, “Output grows at a trend pace of 2%, but the unemployment rate remains quite low and inflation remains at 2%” over the next two-and-a-half years.


He even brought up the dreaded "R-word":


"We are currently in a no recession state, but it is possible that we could switch to a recession state. If such a switch occurred, all variables would be affected but most notably, the unemployment rate would rise substantially. Again, the possibility of such a switch does not enter directly into the forecast because we have no reason to forecast a recession given the data available today. The possibility of recession is instead a risk to the forecast."


And here's another interesting admission about the Fed's concern about "asset price bubble risk":


"The approach presented here also says little about asset price bubble risk, a factor that often enters the actual policy discussion."


Bullard's statement is an interesting read. Hopefully, we're moving toward a Fed that puts humility before dogma. 


Time will tell.

CHART OF THE DAY: The First Shot Fired Across The Credit Cycle Bow

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Financial analyst Josh Steiner. Click here to learn more.


"... Synchrony fired a shot across the credit cycle bow on Tuesday by raising its guidance for expected net charge offs from a range of 4.3-4.5% to a range of 4.5-4.8%. SYF shares reacted by dropping ~14%, while the rest of the card space followed suit: Capital One (COF) was down ~5%, Discover (DFS) was down ~3% and so on...


I think Synchrony’s announcement Tuesday will prove to be one of the early timestamps used in the future to mark the end of the current credit cycle. Incidentally, many of the lender stocks peaked in mid-2015." 


CHART OF THE DAY: The First Shot Fired Across The Credit Cycle Bow - 06.17.16 EL Chart

Capital Brief: Can Trump Beat Back The Three-Headed Monster?

Takeaway: Trump's Triple Threat; Slow Bern; Clinton's Comfort Zone

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: Can Trump Beat Back The Three-Headed Monster? - JT   Potomac under 1 mb


It’s been exactly one year since Donald Trump announced his candidacy for president and through many highs and more lows than anyone ever expected, he finds himself on the ropes again. Seven out of ten Americans give Trump unfavorable marks beating out Hillary Clinton’s high negatives by a healthy margin - and Clinton is now up 8-12 points over Trump in the general election.


Negative views of Trump are rising among a number of groups, jumping by double digits among liberals and conservatives, and among both Republican women and Democratic men. Even Republican leadership is scratching their heads and dodging questions regarding the presumptive nominee as the Republican party image faces historic lows.


Trump faces major challenges on three fronts: Clinton and the Dems, the media, and his fellow Republicans. He now has one month left to win over the Republicans and stanch the bleeding as the threat of a three-headed monster will be too difficult to overcome this fall.


In the beginning, few believed Bernie Sanders was a serious challenger to Clinton, but when the dust settled, Sanders won 23 primaries and more than 12 million votes, all while energizing progressives with calls for a political uprising. Sanders, who has spent most of his political career on the sidelines, is now a major symbol and is expected to play a feature role at July’s convention. He’s vowed to help Clinton defeat Trump and shepherd his supporters her way - but don’t forget to read the terms and conditions. Sanders will take his time before endorsing while aggressively pushing his leftist policy agenda to Clinton, party leaders and convention power brokers.


Despite her success, Clinton ran a rather uneven primary failing to understand and then extinguish the Sanders threat from the onset. Her victory speech after CA marked a turning point and now, on top of an multi-million dollar advertising assault, robust voter turnout, and her prudent response to the tragedy in Orlando, Clinton is becoming more comfortable with her message and her measured attacks on Trump. She’s engaging the people and opening up more on the trail - but still needs to inject much-needed confidence back into party, win over Independents and doubtful voters.

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Cartoon of the Day: Brexit

Cartoon of the Day: Brexit - Brexit cartoon 06.16.2016


A few catalysts to keep an eye on: 

  1. The Fed (Yellen went dovish yesterday and equities turned red on that into the close)
  2. Brexit (what if they do exit?)
  3. Mean Reversion and performance chasing

Investors Losing Faith In Flippant Fed

Investors Losing Faith In Flippant Fed - Fed birdbrain cartoon 06.15.2015


For those of you keeping score, this year the Fed has shocked markets pivoting from hawkish to dovish a dizzying number of times. Here's the rundown:


Hawkish, December

Dovish, March

Hawkish, May

Dovish, June


Investors Losing Faith In Flippant Fed - Hawk dove cartoon 06.06.2016


Investors are justifiably frazzled and have scrambled to keep up with all the flip-flopping. When Yellen went hawkish in May, during a speech at Harvard University, she remarked that investors should "probably" expect a rate hike in the coming months.


Taking the Fed chair at her word, investors thought there was a greater than 50% chance the Fed would hike rates in July (see below). 


Today, markets think that possibility is essentially zero.


Click image to enlarge

Investors Losing Faith In Flippant Fed - rate hike prob 6 16


What's happening here?


Well, the Fed revised its dot plot (which shows each participant's expectations for future rate hikes). Interestingly, six Fed officials now see just one rate hike in 2016 versus just one participant suggesting as much in March. 


Investors Losing Faith In Flippant Fed - fed dot plog


It was quite the about-face for most FOMC members. As we noted earlier this week, San Francisco Fed head John Williams was publically calling for up to five rate hikes at the outset of this year. 


Then reality set in.


Here's what central planners have failed to fix:



(To name a few...)


And yet, here's the lead in yesterday's FOMC statement:


"Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up."


That's simply not true which is why we'll reiterate once again...


Fade Rosy Fed Forecasts

Drake: Why The Central Planning #BeliefSystem Is Breaking Down



In this excerpt from The Macro Show, Hedgeye Senior Macro analyst Christian Drake gives subscribers a brief tutorial on one of our top three Macro Themes.

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