“Maybe something as dramatic as a scientific revolution is in store for us.”
I know. Sometimes I sound a little bearish (on growth). But that’s a good thing (in alpha space). After all, the year-over-year rate of return from this day in June of 2015 in #GrowthSlowing (TLT) is +15.1% vs. the beloved US equity beta of the SP500 (-1.6%).
Maybe I should have started a 2 & 20 operation on that.
Kidding. What I signed up for when I went down this path to start Hedgeye was to sit on the front lines of what my favorite professor in New Haven (Shiller) told me could be in store – a revolution. A Behavorial Revolution in the study of economics, that is.
Back to the Global Macro Grind…
By the time I got to Yale in the 1990s, the revolution was well underway. “The debate between behavioral finance researchers and defenders of the efficient market hypothesis was just beginning.” (Misbehaving, pg 168)
Little did I know what I didn’t know back then. That said, almost 20 years later, I don’t think the head of the Federal Reserve knows how to apply basic behavioral economics to her decision making process now either.
In what seemed like an exasperating moment for the Fed Chair yesterday, when Senator Pat Toomey (PA) asked Janet Yellen if she’d yet considered that 0% rates might be a bad thing in the years 2017 and beyond… she answered “no.”
Upon further questioning by another gentleman on the Senate Banking Committee (sorry, these aren’t leaders in my life – I don’t know them all by name), when he asked Yellen why she didn’t consider her favorite labor market indicator bearish (now that her Change in Labor Market Conditions Index has been negative on an absolute basis for 5 months in a row), she muddled an answer about “levels.”
You see, when it comes to establishment economists, they don’t think in rate of change terms – they think about levels.
And that, for those of us who have evolved in this profession, is a damn shame. It’s not like 2nd derivatives (high-school math) are new. It’s not that people winning Nobel Prizes in Behavioral Economics should be epiphanies to these central-market planners either. What’s super sad about all of this is that no leader in either our established government or media holds these un-elected people to account.
We’re probably going to need a crisis to change that.
How else do you think this scary movie of abysmal forecasting (and monetary policy based on those forecasts) is going to play out? Will it get so bad that they just give up on it? Or are we about to enter the next frontier of OMG market operations?
Senator Reed (RI) gave us a looksy into that yesterday.
Yep. If Hillary wins, you know that Larry Summers is the front-runner to take over for Janet Yellen, right? If you didn’t know, now you know. He’s going to try to combine FISCAL policy with MONETARY!
Oh yeah, baby. We’re talking maybe a 50-year Treasury Bond issuance to finance building “bridges and roads” … and heck, anything someone in Big Government Spending land has ever dreamed of. Didn’t you hear, there’s supposed to be a “multiplier” on that!
Maybe that will make non-behavorial-linear-economic forecasting great again.
The way that math works is that you take The People’s taxes to securitize and finance the G (Government) in GDP = C + I + G (Consumption + Investment + Government Spending) equation … and voila, you’ll have a better forecast for GDP!
Don’t worry about the debt side of that equation. As Summers taught us with the Harvard Endowment’s, that stuff is for the birds.
After 8-9 years of printing and easing, Janet Yellen said that “considerable uncertainty about the economic outlook remains.” And per Senator Reed, that’s only “because you have one hand tied behind your back.”
Imagine what the next government can do with both hands in your pockets? Maybe Shiller was right. Maybe something dramatic is in store for us. But is that going to be a good thing? Or will that finally expedite the revolution?
Our immediate-term risk ranges (with intermediate-term TREND research view in brackets) are now as follows:
UST 10yr Yield 1.54-1.72% (bearish)
SPX 2055-2095 (bearish)
RUT 1125-1175 (bearish)
NASDAQ 4 (bearish)
Nikkei 150 (bearish)
DAX 99 (bearish)
VIX 16.26-22.67 (bullish)
USD 93.52-95.28 (bullish)
EUR/USD 1.11-1.14 (bearish)
YEN 103.09-105.95 (bullish)
Oil (WTI) 46.14-51.06 (bullish)
Nat Gas 2.41-2.79 (bullish)
Gold 1 (bullish)
Copper 2.00-2.14 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer