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[From The Vault] Cartoon of the Day: In Case You Didn't Know

[From The Vault] Cartoon of the Day: In Case You Didn't Know - Fed lady cartoon 06.25.2016  1


Our inimitable, in-house cartoonist Bob Rich is on a much-deserved summer vacation. While he kicks back and relaxes, we're going into the Hedgeye Vault and highlighting some of his best work. On that note, ahead of tomorrow's Fed policy announcement, we bring you another audience favorite

Uncertainty? 10% Probability of Fed Rate CUT to 10% Rate HIKE (In Just One Month)

Takeaway: Yeah ... this is normal.

Uncertainty? 10% Probability of Fed Rate CUT to 10% Rate HIKE (In Just One Month) - rate hike cartoon 11.05.2015


U.S. equity markets are backing off today ahead of a full week of central planning. (The Fed's policy announcement is tomorrow and the BOJ meeting on Thursday.)


Market expectations for 2016 Fed rate hikes are now within spitting distance of pre-Brexit hike probabilities.


Uncertainty? 10% Probability of Fed Rate CUT to 10% Rate HIKE (In Just One Month) - rate hike expectations 7 26


What a difference a month can make. Contrast this against the implied rate hike probabilities directly following the Brexit vote when rate CUT expectations for the July meeting spiked to 10%.


Uncertainty? 10% Probability of Fed Rate CUT to 10% Rate HIKE (In Just One Month) - rate prob 6 24


None of this is really shocking. In fact, it highlights the unbelievable amount of uncertainty surrounding Fed policy that's supposedly undergirding the recent rally to all-time highs.


Remember... it ain't over until the Fed lady Sings.

Capital Brief: Dems Battle Dumpster Fires In Philly

Takeaway: Bridges Over Troubled Waters; From Russia With Love; Barnberner

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 sales@hedgeye.com.


Capital Brief: Dems Battle Dumpster Fires In Philly - JT   Potomac under 1 mb


“He who knows best knows how little he knows.”

-Thomas Jefferson


Despite the “united together” theme, day one at the Democratic National Convention got off to a very rough start, but ended on high note as Democrats moved swiftly to head off dissention in their ranks before it subsumed their four-day brotherly lovefest. After much gloating and finger wagging at Republican disarray last week, Democrats began their convention with the news of a Trump bump in the polls, a Russian email scandal and the DNC Chair’s subsequent resignation.


Though the protests that have ushered in the week are larger and more vocal than those in Cleveland, they were more than offset by powerful speeches by First Lady Michelle Obama, Senator Cory Booker, progressive icon Elizabeth Warren - and Bernie Sanders doubling down on his endorsement of Hillary Clinton. We expect the healing process to continue with speeches by President Bill Clinton tonight and President Obama on Wednesday evening.


Emails have been a recurring nightmare for Democrats all year long - this time with DNC Chair Debbie Wasserman Schultz in a starring role resigning under pressure after thousands of internal emails revealing a coordinated effort to stop Bernie Sanders were uncovered and released by suspected Russian hackers, creating an uproar within the party and initiating an FBI probe to boot.


She’s been a scapegoat for Democrats on a number of fronts, even though her supporters point to the good she’s accomplished for the party – including raising record sums of money and working tirelessly in FL and across the country on behalf of Obama’s re-elect. Team Clinton has been swift and authoritative in trying to turn the page, but the outrage felt by Sander’s most fervent supporters won’t go away overnight and our friends in the media likely won’t let it.


Fissures in the Democratic ranks continued to show as Sanders supporters were welcomed to Philly by a new dumpster fire with the DNC email expose and revelations of manipulation by party officials, the selection of Senator Tim Kaine and residual unease with Clinton. Proving he’s no Ted Cruz, Sanders energized the delegates by delivering a barnburner of a speech on behalf of his ideals and Hillary Clinton.


But we think there’s more work to be done and expect Sanders to make more appearances this week and throughout the campaign this fall. Featuring progressive speakers like Sanders, Warren, and Michelle Obama was a prescient kickoff strategy and we think that it will quell most - but not all - of the anger that still burns on the far left.  

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

The BS Filter: Socialism, Big Bank Bailouts, & Super Abe To The Rescue

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

The BS Filter: Socialism, Big Bank Bailouts, & Super Abe To The Rescue - Italian bank cartoon

Socialism, Pension Funds & Italian Bank BAILOUTs

According to Reuters, Italian pension funds have agreed to invest in the country's bad bank loans at the insistence of the government. The combined bailout program will be called Atlante 2, a follow up to a previous bailout fund that has already "used more than half of its initial 4.25 billion euro endowment to take over two failing regional banks." Sources familiar with the matter say the government asked for €500 million, as investors have become increasingly concerned about troubled loans totalling €360 billion.


OUR TAKE: "Socializing market risk continues," Hedgeye CEO Keith McCullough wrote earlier today. Italy's stock market crash accelerated this morning, at one point the FTSE MIB was down as much as -1.8% today before ending the day at essentially flat. Still the MIB is down -32% from 2015 top, as the ongoing big bank "rescue" freaks people out.

In other pension fund news...

"Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens," the Wall Street Journal writes. Pension funds are expected to put up twenty-year annualized returns of 7.47%, raising concerns about whether states and cities can continue to afford pension obligations.


OUR TAKE: We've long been concerned about future pension fund returns and the possibility of a coming retirement crisis. Required reading on the subject include Hedgeye Financials analyst Josh Steiner's Early Look, "The Retirement Reality Check," and "Are 10 Million Americans About To Be Screwed Out Of Their Pensions?" by Hedgeye Restaurants analyst Howard Penney.

Freak out & Fire Up The Printing Presses!

"Bank of England policy maker Martin Weale said he’s begun to favor immediate stimulus for the U.K. economy... chang[ing] his mind on the timing of stimulus after purchasing managers’ indexes released July 22 were a lot worse than he had thought," Bloomberg writes.


OUR TAKE: Central Planning Orthodoxy = Print, Print, Print.

Super Abe To the rescue?

"Japan looks to inject 6 trillion yen ($56.7 billion) in direct fiscal outlays into the economy over the next few years, double the amount initially planned," the Nikkei newspaper reports. Meanwhile, the Wall Street Journal writes that Japan's Prime Minister Shinzo Abe is increasingly pressuring BOJ head Haruhiko Kuroda to "coordinate efforts by expanding the central bank’s monetary easing."


OUR TAKE: Even Abe's doubling of fiscal outlays can't stop the economic bleeding in Japan. Investors don't think so either. The Yen strengthened 1.2% today and Nikkei tumbled -1.4%.


Other stories worth mentioning:

  • FT - "Anheuser-Busch InBev has unilaterally raised its offer for rival SABMiller to £79bn to quash an investor rebellion that threatened to disrupt the third-biggest deal in corporate history."
  • Nasdaq - "BP posted its third straight quarterly loss as the British oil giant reels from a two-year crude-price slump and remains haunted by the 2010 Gulf of Mexico spill."
  • MarketWatch - "Royal Bank of Scotland and Natwest could become the first U.K. banks to charge customers to hold their cash if the Bank of England yanks benchmark interest rates below zero in wake of the Brexit vote."

The Long-Term Twitter Story Isn’t Good

In this excerpt from The Macro Show, Hedgeye analyst Hesham Shaaban goes granular on the major headwinds facing Twitter. “Over the last two plus years, management has inflicted so much damage on its model that we really can’t see a way to fix it,” says Shaaban. “If Twitter can figure this out, there’s a ton of upside, given how badly the stock has been dinged throughout its public history. We just can’t see it—not yet at least.”


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.

What Jobless Claims Say About Recession (And Risk Of Significant Stock Market Selloff)

Takeaway: We're knocking on recession's door according to historical jobless claims data.

In the two charts below, Hedgeye Financials analyst Josh Steiner highlights how jobless claims data sub-330,000 is a harbinger of recession and hence significant stock market selloffs.


The first chart shows the last three cycles and the length of time jobless claims dropped below 330k before recession hit. The numbers are as follows: 24, 45, and 31 months (average: 33 months). With the current cycle in its 29th month below that level, we are


  • 5 months past the minimum
  • 4 months shy of the 33-month average
  • 16 months from the max

Chart #1

What Jobless Claims Say About Recession (And Risk Of Significant Stock Market Selloff) - zgogo



In the last cycle, the bottoming in jobless claims preceded a massive equity selloff.


What Jobless Claims Say About Recession (And Risk Of Significant Stock Market Selloff) - jobless stocks


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