• IT’S A NEW YEAR
    GET NEW INVESTING IDEAS
    subscribe today for $9.95
    Limited time offer
prev

An Animated History Of U.S. #GrowthSlowing (In Just One Minute)

Takeaway: If you don't do macro, macro will do you.

During his presentation of our top Q3 macro themes to our institutional customers yesterday, Hedgeye CEO Keith McCullough empasized the importance of understanding the cycle. The one-minute video below sheds addiitional light on this economic reality.

 

Click below to watch.


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

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Friday - equity markets 7 8

 

Daily Market Data Dump: Friday - sector performance 7 8

 

Daily Market Data Dump: Friday - volume 7 8

 

Daily Market Data Dump: Friday - rates and spreads 7 8

 

Daily Market Data Dump: Friday - currencies 7 8


Bad jobs report should get you 1.30% UST 10yr; “good” one maybe 1.57% 10yr (1.30-1.57 risk range)

Client Talking Points

Japan

If you’re still looking for clues on how this grand-central-market-planning-experiment ends, it’s Yen Up, and Nikkei down for the 4th day in a row, -1.1% overnight, taking its crash in the #BeliefSystem to -27.7% since this time last year.

Commodities

What if the jobs print is “good” (albeit slowing in TRENDING rate of change terms)? Dollar Up, Commodity Reflation Down? With CRB Index and Oil -5% and -10%, respectively, in the last month I’m sure glad I didn’t chase those April-May reflation charts. To be continued… 

VIX

This 13-15 range for front-month US Beta Chasing Vol (VIX) has been a bear of a spot to be beta-shifting to levered long, so we’ll see what happens on the news this morning, but no matter what it is … I’ve been a seller of all beta chases for a year now in this VIX range and have no reason to change that Fading Beta strategy.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/7/16 58% 0% 0% 10% 27% 5%
7/8/16 58% 0% 0% 10% 27% 5%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/7/16 58% 0% 0% 30% 82% 15%
7/8/16 58% 0% 0% 30% 82% 15%
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
TLT

Since equity markets peaked last summer, TLT has been a resilient and less volatile source of absolute alpha, and the good news is that spotting the opportunity requires a daily data grind and a wrestling with reality more than a sky-high IQ:

  • S&P 500: +0.1% Y/Y
  • TLT: +22.0% Y/Y

Brexit, Frexit, Yuan devaluation – whatever the story, investors are paying higher premiums for the safety and appreciation potential of the long bond, a source of long-standing outperformance in this #GrowthSlowing environment. Moving into 2015, net futures and options positioning shows that traders had the largest net short position in the 10-year Treasury of the entire cycle, as most were positioned for rate hikes and a “lift-off economy."

GLD

It was another week of all-time lows in long-term Treasury yields and YTD highs in Gold (GLD), Treasury Inflation-Protected Securities (TIP), and Long Bonds (TLT is at a new all-time high!) as the rotation out of volatile equity markets continues. 

TIP

See above update on TLT/GLD.

Three for the Road

TWEET OF THE DAY

No matter what the jobs report tells consensus, Hedgeye says short more Financials $XLF

@KeithMcCullough

QUOTE OF THE DAY

“We must take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented.”  

-Elie Wiesel 

STAT OF THE DAY

Nolar Ryan pitched 27 years in the MLB, his career ERA was 3.19


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Ahead Of Today's Jobs Report | Commodities: Bullish Or Bearish?

Ahead Of Today's Jobs Report | Commodities: Bullish Or Bearish? - reflation cartoon 10.13.2015

 

"Most things Commodities 'Reflation' have one thing to thank in 2016, and that's #GrowthSlowing => Dovish Fed => Down Dollar," Hedgeye CEO Keith McCullough wrote earlier this morning. "But what if the jobs print is 'good' (albeit slowing in TRENDING rate of change terms)? Dollar Up, Commodity Reflation Down?"

 

 

McCullough continues: "With CRB Index and Oil -5% and -10%, respectively, in the last month I’m sure glad I didn’t chase those April-May reflation charts. To be continued…"

 


CHART OF THE DAY: This Won't Help Slowing Jobs Growth

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.

 

"... One relationship we re-highlighted on the call  – and one worth highlighting again here since it’s Jobs day – is the relationship between Temp hiring and peak Employment.   

 

The temporal procession looks like this: Temp Hiring Peaks => Jobs Openings Peak => Total Employment Peaks

 

Specifically, Temp hiring has lead the peak in Job Openings by 9 and 8 months, respectively, over the last two cycles and Job Openings peak shortly ahead of the peak in Total NFP."

 

 

CHART OF THE DAY: This Won't Help Slowing Jobs Growth - 7 8 16 Temp COD


Just A Vibe

“I’m just a vibe, man … that you can’t find anywhere else”

-Fabolous

 

I like that quote.  It’s a case study in verbal economy and connotive efficiency. 

 

It perfectly conveys everything it’s meant to without having to say anything specific.  And it’s equally well applicable to any facet of life. 

 

There’s no right recipe for Vibe creation but everyone knows it when they see it.   

 

If you can birth and sustain a vibe that can’t be found elsewhere, I’m pretty sure you will end up on the right side of life. 

 

Yesterday, our Chief Vibe Officer and your favorite risk manager’s favorite risk manager (Keith) delivered the wood on our 3Q16 Macro Themes call.

 

It was another quarter of record participation and we thank you for that.

 

Just A Vibe - jobs cartoon 06.03.2016

 

Back to the Global Macro Grind ….

 

Our 2nd Theme – and one where the vibe has begun to sour - was #ConsumerCredit. 

 

One can’t talk about consumer debt without also discussing labor as employment and income trends define both the consumer’s capacity for incremental debt and the ability to service it. 

 

One relationship we re-highlighted on the call  – and one worth highlighting again here since it’s Jobs day – is the relationship between Temp hiring and peak Employment.   

 

The temporal procession looks like this:  Temp Hiring Peaks => Jobs Openings Peak => Total Employment Peaks

 

Specifically, Temp hiring has lead the peak in Job Openings by 9 and 8 months, respectively, over the last two cycles and Job Openings peak shortly ahead of the peak in Total NFP.   

 

The intuition is fairly straightforward: 

 

Early in the cycle employers are hesitant to onboard full-time workers because of uncertainty around the durability of the expansion. 

 

This psychology persists as the expansion matures and is augmented by the flexibility to transition temps to full-time employment and by the progressive rise in demand for output that accompanies the upslope of the cycle which, in turn, drives incremental labor demand.   

 

Slowing demand for output quells demand for temp workers (which are a primary source pool to fill available positions) with the number of advertised available positions adjusting and reflecting that decline on a short lag.  As job openings stall and retreat in response to macro conditions so too does actual hiring. 

 

Given the rising prevalence of freelance and contract work, the signal flowing from the current stagnation in temp hiring may be higher fidelity than in cycles past. 

 

Further, in addition to serving as a lead indicator for hiring activity, the trend in temp employment influences the separation side of the labor market. 

 

Individually and collectively, temp and part-time employment have been at their highest level ever as a share of the labor force (relative to similar points in prior cycles). 

 

This acts as a depressive force on reported initial jobless claims as these workers carry the highest probability of not qualifying for unemployment benefits.  If their collective share of employment is elevated relative to the historical experience, it should serve to suppress the level of separations implied by the initial claims figures. 

 

So, watch the temp hiring component in the employment release this morning and the Job Openings figures in next week’s JOLTS release. 

 

Where else to focus attention?

 

As we annoyingly harp on every month, from a Trend perspective, the low intensity way to monitor the progression of the cycle is to watch the rate of change in payroll growth.  

 

We discuss the rate of change in payroll growth a lot because:

  1. 2nd derivative inflections naturally lead the trend in the primary series (i.e. negative rate-of-change in payroll growth eventually leads to declining absolute employment), particularly if the series is autocorrelated and ….
  2. Payroll growth is autocorrelated in the sense that it looks very much like a sine curve or periodic function that smoothly and fully plays itself out in both directions.   

 

We don’t get a lot of pushback on that.  Mostly because it’s not really an “opinion” on the cycle, it’s simply the empirical reality and the chart is almost impossible to argue with.   

 

When we get pushback, it’s usually because:

  1. While the rate-of-change is slowing, the absolute #’s are still “good”.  Progressively less good but still ‘okay’.  Absolutism becomes unprofitable slowly, then (very) quickly. 
  2. The cycle takes time to play out.  When we say the labor cycle is past peak and will continue to slow there’s a tendency to translate that directly to a call for imminent recession.  That’s not how it works – big developed market economies don’t just whimsically oscillate from +3% to 0% in rate-of-change terms on big macro metrics like employment and consumption growth.    

 

Is headline NFP likely to be better in June than in May on an absolute basis?  Yes. 

 

From a rate of change perspective, the magic numbers are:

  1. 232K:  Anything >232K will = a sequential acceleration in YoY growth
  2. 1,068K (as in >1 million net adds):  That’s what it would take to re-breach the peak rate-of-change in NFP growth observed in February of last year.  Not happening. 

 

In short, the trending slowdown in employment will remain ongoing.  And, from here, unless wage growth consistently rises more than employment growth slows then aggregate income and consumption growth will continue to traverse their downslopes as well. 

 

As it relates to wage growth and the effervescent hope for acceleration in that fulcrum policy factor - wage growth has seen some modest mojo recently but it’s important to contextualize the implications.

 

If we get the wage inflation every Phillips Curve policy maker is looking for, what does that mean:

  1. Late-cycle confirmation: Wage inflation is one of the latest of late cycle indicators.  To the extent it actually manifests, its more writing on the late-cycle wall.
  2. Labor Compensation ↑, Profits ↓:  Payroll growth, while slowing, continues to grow at a premium to productivity growth and unit labor costs continue to rise as a premium to output prices.  That’s the technical way of saying corporate margins are contracting and with the sales/profit recession still ongoing higher labor costs only = ↓ margins.  And with corporate margins still very much elevated on a historical basis the path of least mean reversion resistance remains to the downside.
  3. Rates ↑, Dollar ↑ = Reflation ↓:   As we’ve seen recurrently, hawkish policy and strong dollar deflation serve to deflate global activity and equity prices/multiples.  It also deflates forward growth and inflation expectations – further inflating the #growthslowing trade that continues to get bond bulls paid.   

 

As Keith highlighted this morning, the open-the-envelope risk on the 10Y this morning is significant:  “Bad jobs report should get you 1.30% UST 10yr; “good” one maybe 1.57% 10yr (1.30-1.57 risk range)”

 

Whatever the print this morning, the trend conclusion will remain unchanged and elevated volatility and wider risk ranges will continue to characterize the breakdown in the belief system. 

 

Trades vs Trends, Trees vs Forests, VIX reflecting the Vibe.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.30-1.57%

SPX 2001-2113

VIX 13.12-25.80
USD 95.04-97.11 

Gold 1

 

Best of luck today,

 

Christian B. Drake

U.S. Macro Analyst

 

Just A Vibe - 7 8 16 Temp COD


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next