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CHART OF THE DAY: Here's Why You Hide Out In Cash & Gold

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... Now how about us crazy Canucks who have a 60% Cash position in USD (and 10% in Gold)?

  1. US DOLLAR has not only held @Hedgeye TREND support but continues to rise as the Pound (and Euro) are devalued
  2. USD has developed an immediate-term POSITIVE correlation of +0.8 with GOLD
  3. GOLD continues to hold an intermediate-term INVERSE correlation of +0.9 with 10YR Yields" 


CHART OF THE DAY: Here's Why You Hide Out In Cash & Gold - 07.06.16 Chart

Paradigm Shifts

“Discovery commences with the awareness of anomaly.”

-Thomas Kuhn


Shall the Old Wall and it’s media blame China, Brexit, or Miss Piggy this morning? Whatever they do, keep doing what you are doing – being on the other side of them continues to pay off, big time, as the Long Bond (TLT) rips to all-time highs and Gold ramps to +29% YTD.


The aforementioned quote comes from one of America’s most important 21st century multi-discipline (physics, history, philosophy) thinkers, the late “paradigm shift” author, Thomas Kuhn: “Discovery commences with the awareness of anomaly… i.e. with the recognition that nature has somehow violated the paradigm-induced expectations that govern normal science.”


Think about that within the context of the central-market-planning #BeliefSystem (that was never a “normal” science, btw – it was #social)… and think about something big, that breaks… like “The Copernican Revolution, which placed the sun at the center of the solar system as perhaps the most famous example. It replaced Ptolemaic thinking.” (Misbehaving, pg 169).


Paradigm Shifts - central bank kool aid 06.09.2016


Back to the Global Macro Grind


And keep thinking… because Consensus Macro is so busy chasing its own tail from week-to-week (this morning they’re trying to pivot from Brexit to “Italian Banks” – apologies to Macro Muppet fans and Miss Piggy) … and, in doing so, they keep missing the causal factor that’s been wagging their performance all along: Drumroll… Global #GrowthSlowing.


Does it frustrate you that consensus has not been able to see the forest amongst these trivial trees?


This isn’t new. As Richard Thaler goes on to point out about dogmatic and ideological professions that don’t see they are in a paradigm shift, “for centuries astronomers using the geocentric system had done a pretty good job of explaining the movements of the planets! (Misbehaving, pg 169)


I’m not Copernicus. I am Mucker. I am not brilliant, but I can measure and map rates of change …


First, they appear as “anomalies” (because that’s what the beginning of a phase transition in macro markets always looks like before it starts to “TREND”). Then, over time, markets (and returns) start to price it in for what it always was. Global #GrowthSlowing = Lower Long-term Bond Yields. Period.


Instead of bashing the British this morning, let’s take a twirl around the world:


  1. JAPAN – Yen +1.2% (vs. USD) as both Japanese economic cycle #GrowthSlowing (and no reported inflation) renders the monetary policy “arrow” of Abenomics useless; Nikkei down another -1.9% on that, taking its #crash from the Global Equity #Bubble high of 2015 to -26.4%, and Japan’s 10yr Yield to new lows of -0.27% (NIRP)
  2. HONG KONG – Yuan passive aggressively devalued to 6.84 (vs. USD) as Chinese #GrowthSlowing continues; Long Bond investors in  Hong Kong’s 10yr get paid (10yr Yield crashing to 0.86%, down -87bps in the last year) while stock market bulls continue to collapse (Hang Seng down another -1.2% overnight taking its crash from the 2015 Global Equity #Bubble high to -27.1%)
  3. GERMANY – Euro continues to lose credibility ($1.10 vs. USD = bearish @Hedgeye TREND) as Merkel goes after Juncker and Eurocrats move into full blown CYA mode; German Long Bond Bulls getting paid by #GrowthSlowing with a 10yr Yield of NEGATIVE -0.20%; DAX crash from 2015 #Global Equity Bubble High = -24.3% (including this morning’s -1.7% drop)


Before I go on and on … and on … about the rest of the world’s initial “anomalies” turned into very visible TREND and TAIL risks (and callout Italy’s stock market crash of -35.1%), allow me to remind you that the all of these major macro markets (stocks and bonds) have been pricing this in for a YEAR now.


Q: Who else writes “Global Equity #Bubble High” when they explain being long “Global Stocks” in July of 2015 instead of what Consensus Macro was calling “expensive” and “bubbly” long-term “bond valuations”?


A: Not Many.


Why? Because they still live in their Ptolemaic world where “cutting rates” and “devaluing the currency” was supposed to create some non-consumer driven level of “demand” and +3-4% GDP growth…


Newsflash: consistent with all of post 18th century (when many were “export” economies instead of consumption) human and economic history, burning the currency of The People (British Pound = 31 year low in exchange for a “FTSE rally”), won’t perpetuate real consumption growth. In real purchasing power terms, everyone whose “cash” is in Pounds, just got a lot poorer in the last 2 weeks.


Now how about us crazy Canucks who have a 60% Cash position in USD (and 10% in Gold)?


  1. US DOLLAR has not only held @Hedgeye TREND support but continues to rise as the Pound (and Euro) are devalued
  2. USD has developed an immediate-term POSITIVE correlation of +0.8 with GOLD
  3. GOLD continues to hold an intermediate-term INVERSE correlation of +0.9 with 10YR Yields


That’s right. Unlike many who got caught chasing “reflation” (which peaked on both a relative and absolute basis in Apr/May) we opted to sit back and wait/watch for confirmation that something like being long Oil didn’t have both USD and #SupplyAccelerating risks.


Sure, it may have been boring… but staying with the #GrowthSlowing call (long TLT, MUB, ZROZ, EDV, XLU, GLD… vs. short QQQ, XLF, SPY, JPM, XRT, IYT) was a lot easier than trying to call a phase transition back to bullish Oil $60-80/barrel.


That doesn’t mean that, from a time and price, I’m not interested in buying Oil and/or safe-yield-big-cap-low-beta Energy Stocks. It simply means that a position I didn’t have during the ramp, is still a position I don’t have during the post-ramp-deflation.


Paradigm shifts to the bullish side of an asset-class typically don’t sustain volatility levels of 30-50 like Oil’s has, btw. Paradigm shifts pound the bears, with lower and lower levels of volatility (higher and higher asset prices).


Much like #GrowthSlowing, globally, that’s why one of the best positions to own, for the last year, hasn’t been “stocks”… it’s been an “expensive” paradigm shift into an exposure that consensus is still unwilling to accept they’ve missed.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.30-1.51%



Nikkei 149

DAX 9102-9798
USD 95.01-97.78
EUR/USD 1.08-1.12
Oil (WTI) 45.33-48.41

Gold 1

Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Paradigm Shifts - 07.06.16 Chart

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2


“I not only use all the brains that I have, but all that I can borrow.”

                                 -  Woodrow Wilson


YOU’VE GOT BAIL: Hillary Clinton and her team dodged a bullet (more like a nuclear bomb) after FBI Director James Comey concluded that the agency will not recommend criminal charges against Clinton or any of her aides over the use of a private email server during her tenure as Secretary of State. Comey’s slap on the wrist had a stern sting to it though - as he further characterized her practices as “extremely careless” but lacking clear evidence of an intent to violate the law. The release comes just in the nick of time as speculation about Clinton’s meeting with the FBI over the weekend, along with the stir created by the ill-conceived appearance of her husband and Attorney General Lynch were reaching new heights. Clinton now hopes that the remnants of the controversy fade quickly, so she can refocus on rebuilding her image - we think the Republicans won’t give her that chance.


TAR HEEL TAKEDOWN: Clinton hit the trail with President Obama to tackle the Tar Heel state while Donald Trump and Senator Bob Corker (TN) tried their own hand just hours away. Clinton and Obama touted their friendship, focusing on why she’s the right leader for the job, while hitting on Trump’s obsession with Twitter. Trump bashed Clinton for her email controversy, and rigging the system (of course). Trump rallies on the idea that if Clinton is elected, it will be a continuation of Obama’s presidency - maybe so, but Clinton believes that with the help of the president, she can rouse voters and build her own legacy. Top aides believe NC - which Mitt Romney won in 2012 - is the biggest must-win for Trump - and will be on everybody’s mind until November 8.


GUNS, RYAN AND DEMS: Though House Democrats put a lot of work into forcing a vote on guns in the coming week, the actual thrust of the legislation remains a sticking point. Democrats believe the Republican proposal does not take sufficiently strong enough action to thwart terrorism, warning that renewed protests are possible later this week. Remember, we have just eight legislative days until a very loooong summer recess. Better get moving.


THIRD TIME’S A CHARM: Trump thinks so, as he will head to the Hill later this week to address rank-and-file House and Senate Republicans for the third time in recent weeks. In the past, we’ve seen Trump push his own agenda and philosophies, but could this time be different? Republican’s hope Trump’s plan is to listen given that we’re less than two weeks away from the convention and there remains scant unity between the standard bearer and practically everyone else in the party. He faces an uphill battle though as many Republicans, particularly those who face tough reelection fights, plan to skip the meeting this week and will be as far away from Cleveland as possible.


HEALTHY PLATFORM: July is finally here, which means both parties are in the throes of  finalizing their agendas for the upcoming conventions. Democrats are calling for a public health insurance option while their platform committee plans to wrap up the full agenda for the big blue party by the end of this week. Notch a victory for Bernie Sanders (remember him?) as the inclusion of the language was one of the centerpieces of his “Medicare for all” campaign. Looks like remaining in the race paid off…for him.


TWITTER THUMPS TRUMP: Trump simply cannot get out of his own way, this time sparking a major backlash on his favorite media outlet and taking the Clinton email story off the front pages. Trump claims that an image he tweeted depicting Clinton alongside a Star of David and a pile of money wasn’t anti-Semitic. Whether he likes it or not, he has offended nearly every race, religion and culture, and continues to give Clinton and her surrogates easy fodder to attack him. He may be a loose cannon in front of the cameras, but his unforced errors on social media should be easy to prevent. He must know that the impact of images like these is immediate and consequential, and that the originals will continue to circulate, even if he deletes them.


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The Macro Show with Keith McCullough Replay | July 6, 2016

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Cartoon of the Day: Pounded

Cartoon of the Day: Pounded - Pound cartoon 07.05.2016


The British pound hit a 31-year-low against the dollar today as the Bank of England warned that "the current outlook for UK financial stability is challenging."

The Latest Nonsense From SF Fed's Williams: Brexit Isn't A Big Deal For U.S.

Takeaway: San Francisco Fed head John Williams is full of baloney.

The Latest Nonsense From SF Fed's Williams: Brexit Isn't A Big Deal For U.S. - marketwatch story


According to San Francisco Fed head John Williams, Brexit isn't "a big deal for the U.S. economic outlook."


Reminder: This is the same guy who, in January, said the Fed should raise rates as many as five times in 2016 because the U.S. economy was "in very good shape."


Question: What happened between January and today to make the Fed significantly dial back rate hike expectations? 


Answer: The U.S. economy continued to slow...


In other words, why should we listen to Fed forecasters who are so continually on the wrong side of their own predictions? Well, we shouldn't.


Here's the key Brexit excerpt from the wider interview via MarketWatch and other delusional statements:


  • Williams on Brexit: "And so even though I think [Brexit] is a significant event, I am not trying to downplay Brexit, I’m just saying that with a little bit of time, people have kind of gotten more reasonable and kind of sharpened their pencils and said 'ok what does this really mean for Britain, Europe and the global economy' and when you do that, it doesn’t seem quite a big deal for the U.S. economic outlook."
  • Williams on the May Jobs Report bomb: "... A good chunk of the May weakness was either partly due to the Verizon strike effect but also due to some unusually good weather earlier in the year and this was payback for that. So when you take out the effects of the strike, and you adjust for the fact of the unusual weather pattern, you basically see a pattern that job growth has continued to be very good, above trend, through the six months of this year."
  • Williams on Fed-induced financial market imbalances: "... If asset prices, real estate prices, continue to go further and further away from longer-term fundamentals I think that creates risk for the economy, I think it creates risks eventually for the financial system. I don’t think these are risks that are really powerful today. These are not things that worry me, “oh are we going to have a big crash next week or something,” it is just as these imbalances in the economy continue to grow slowly over time I think we will just be facing more difficult challenges in our economic and policy environment in a few years."

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