Trouble Ahead In Europe? Keep An Eye On Credit Default Swaps

Takeaway: Europe financials' CDS have been widening all of 2016 despite the episodic hope that ECB stimulus (see March declines) will prove a panacea.

Trouble Ahead In Europe? Keep An Eye On Credit Default Swaps - european cds


Even as financial markets swoon over Italian bank bailout hopes, a number of European financials' credit default swaps remain elevated versus where they were at start of this year. Make no mistake, the chart above is yet another example of the central planning #BeliefSystem breaking down.


Can the ECB save Europe's troubled banks?


Probably not.

Cartoon of the Day: Central Banking 101


Cartoon of the Day: Central Banking 101 - negative interest rates cartoon 07.12.2016


According to the Fiscal Times:


"Japan's household sentiment soured and inflation expectations hit the lowest since the Bank of Japan adopted its massive stimulus program in 2013, a quarterly central bank survey showed... The ratio of households who said they trusted the Bank of Japan's policy management also hit a seven-year low, with more than half of the respondents doubting whether it was independent from government interference, the survey showed."

Is Income Inequality Depressing Demand?

In this excerpt from The Macro Show this morning, Hedgeye Demography Sector Head  Neil Howe answers a subscriber’s question on how whether income inequality in the U.S. is depressing aggregate demand.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Capital Brief: Coup D'eTrump ... Congress' Fiscal Funding Fiasco

Takeaway: Convention Coup; Speaker Engagement; Fiscal Year Funding Fiasco

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: Coup D'eTrump ... Congress' Fiscal Funding Fiasco - JT   Potomac under 1 mb


"Tell the truth, work hard, and come to dinner on time."

-Gerald R. Ford


With less than a week to go until the convention, anti-Trump forces are scrambling faster than ever to dethrone the presumptive nominee. Removing Donald Trump may be their main objective, but another option is being weighed – attempting to select his veep akin to an arranged marriage. The nominee's running mate is still technically decided by an independent delegate vote and delegates have no obligation to support the nominee's choice.


The Rules Committee is set to meet later this week to decide convention rules and the party platform, and we doubt any coup will succeed, but this could get interesting depending on Trump’s highly anticipated pick reportedly coming at the end of this week.


Speaker Paul Ryan has finally agreed to speak at the convention, becoming the most notable stumper on a somewhat atypical lineup. Ryan’s speech is expected to be penned by Ryan himself and will focus on the House Republican agenda and the sharp contrast between Republican ideals and another term of progressive Democratic policies. Expect Ryan’s speech to be more of a pitch for the party than a pitch for the nominee.


If you believed there was any chance of Congress agreeing on its annual spending bills this year, forget it – it’s time to focus on avoiding a government shutdown. As we mentioned numerous times throughout the past few months, the process of moving individual appropriations bills was limping along with some progress in each chamber, but with Congress about to call it quits for the summer, almost all hope has been lost. Republicans have now shifted their attention to a timeline for a stopgap spending bill they would need to move before the end of the fiscal year on September 30.

The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding

Takeaway: Here's our take on some of today's top financial stories.

The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding - Helicopter money 05.20.2016


"Be wary of the arrogant intellectual who comments from the stands without having played on the field."

-Ray Dalio 

Helicopter Ben Visits Japan

"Bernanke met Haruhiko Kuroda, the central bank governor, for lunch Monday," Bloomberg reports. "The BOJ issued no statement on the substance of those talks, which come three weeks before its next policy meeting as it confronts a fresh strengthening in the yen this year that risks undermining inflation and weakening the appetite for investment and wage increases." Interestingly, Bernanke has been weighing in on the efficacy of helicopter money recently.


OUR TAKE: As the BOJ's negative interest rate policy (NIRP) fails and continues to draw the ire of the Japanese public, the likelihood that central planners turn to helicopter money is rising.


Earthquakes, Unforeseen Events & Brexit

The OECD will hold off on publishing its Composite Leading Indicators (CLIs) – "an effective tool during periods of extreme volatility" – until September in order to properly assess the Brexit shock. In a press release, the OECD compared Brexit to an unforeseen event like a natural disaster:


"The CLIs cannot, however, account for significant unforeseen or unexpected events, for example natural disasters, such as the earthquake, and subsequent events that affected Japan in March 2011, and that resulted in a suspension of CLI estimates for Japan in April and May 2011.


The outcome of the recent (23 June) Referendum in the United Kingdom is another such significant unexpected event, which is affecting the underlying expectation and outturn indicators used to construct the CLIs regularly published by the OECD, both for the UK and other OECD countries and emerging economies." 


OUR TAKE: As Hedgeye Director of Research Daryl Jones wrote in today's Early Look "So the moral of the story is: if you don’t like the numbers, just suspend reporting them. That’s one way to deal with adversity anyway. Practically speaking, it is pretty difficult to call Brexit an unforeseen event. Perhaps it was viewed as improbable, but hardly unforeseen."

Yup. #EuropeImploding

A pre-Brexit survey of 8,2000 firms in the U.K., conducted by the British Chambers of Commerce, found that "UK economic growth was uninspiring in the run-up to the EU Referendum." The BCC found that services sector sales continues to fall and manufacturing sales remained at historically "low ebb." 


OUR TAKE: In our Q3 Macro Themes, the Hedgeye Macro team warned that "Europe's cyclical and structural growth and inflation headwinds" combined with political risk would cause ... #EuropeImploding. More to come.

Equity Market Bull & S&P all-time highs

"We don’t have the rising (bond) yields that would typically check the market rally, that’s one of the reasons we keep going higher," Jim Paulsen, chief investment strategist at Wells Capital Management told Reuters. Paulsen continues: "I certainly think (low bond yields) are creating problems in the bond-like stocks. I wouldn’t want to be sitting in utilities or REITs right now."


OUR TAKE: We've been The Bulls on Long Bonds (TLT) and Utilities (XLU) on U.S. #GrowthSlowing. That's been the right call and we're sticking with it (see chart below). As for Paulsen's call against bonds and utilities, it is what it is ... a whole lot of bull.


The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding - s p 500 xlu tlt

Taleb: The Importance Of Probability

"One thing it took me 30 years to realize is that the way people compute future performance of portfolios is wrong because they take alpha and simply apply it as if you were invested in that strategy. But if you have any uncle point, in other words if you hit ruin, then you never realize that return," author and distinguished professor Nassim Taleb tells Bloomberg.


The "uncle point" Taleb is talking about is the point at which you have to reduce your position or take a loss. Now, an investor might have realized their expected returns if they were able to wait for a downturn to mean revert but "uncle points," like a margin call, prevent such long-term patience. Taleb's conclusion? "People [therefore] underestimate how much protection they need."


OUR TAKE: Taleb's analysis is always thoughtful and this video is no exception.

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs

Takeaway: Total market volume was down -24% versus the 1-month and 3-month average yesterday as the S&P 500 breached its all-time high.

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume knob 


All-time high in the S&P 500 yesterday? 




Meanwhile, US Equity Volume crashed. Here's analysis from our Macro team in a note sent to subscribers earlier today:


"Take a look at volume the last two trading days. We’re comfortable calling the nearly 2% move in the SPY Friday-Monday a “melt-up”. Market and Total exchange volume on Friday was down -8% and -7% vs. 1-month averages on Friday and yesterday volume was much lighter still. Total market volume was down -24% vs. 1-month averages and total exchange volume was down -19% vs. 1-month Averages showing the lack of breadth at all-time highs and cycle high market multiples."


In other words, yesterday's no volume up day is an expression of investors' lack of conviction. Funny how market volume rips on down days and is nowhere to be found on bull-touted "rallies."


A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume 7 12

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.