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The Most Significant U.S. Political Development In Over 30 Years

Takeaway: The rise of Trump and Sanders is the most significant development in American politics going back to the early 1980s.

Editor's Note: Below is a brief excerpt from an institutional research note written by Hedgeye Demography Sector head Neil Howe. This is the first of several pieces he is writing about the election. To access our institutional research email sales@hedgeye.com.

 

The Most Significant U.S. Political Development In Over 30 Years - trump bernie

 

Let me say at the outset that I get a lot of questions from readers about how Clinton v Trump fits into the predictive schema laid out in a couple of books I co-authored in the 1990s (Generations in 1991 and The Fourth Turning in 1997). I will respond to these questions in my upcoming notes.

 

Let me just say here, as a preview, that I regard the rise of Donald Trump and Bernie Sanders to be the most significant development in American politics going back to the early 1980s—not because of who Trump or Sanders are personally, but because of what their popularity says about a decisive mood shift in the electorate. (And not just here in America, but around much of the world.) In our earlier books, we foresaw this shift as driven by generational aging and occurring on a “seasonal” timetable that has demonstrated remarkable regularity through history.

 

In brief, since the middle of 2000-2010 decade, America has been moving into a “fourth turning era,” a winter season of history in which there arises a surging popular demand for community, public authority, national priorities, cultural tradition, and bottom-line results. There is an equivalent ebbing of popular interest in goals that had earlier been esteemed—such as individualism, personal rights, globalization, cultural transgression, and fair process.

 

Already, the Trump and Sanders movements have radically realigned the American political firmament. Trump, in one blow, has obliterated the party of culture-war social values, imperial globalism, and unregulated free agency. The new GOP stands for pragmatic social solutions, America-first isolationism, and solidarity with the working class.

 

Sanders, meanwhile, has pulled the Democratic Party far to the economic left and endowed its platform with vast new public agendas (including single-payer health, a universal right to college, and soak-the-rich tax rates) that few Democratic leaders previously contemplated, even as recently as 2012. And what Sanders started in the Democratic makeover, the sheer threat of Donald Trump has completed. Can anyone in living memory recall a Democratic convention with so many American flags and “USA” chants, so much talk about “American greatness,” so many appeals to “faith,” “family values” (thanks, Michelle), and law and order. At the same time the party is moving leftward economically, it is moving rightward socially.


ISM Employment: So Bullish You Have To Buy Stocks!

Takeaway: We're kidding.

ISM Employment: So Bullish You Have To Buy Stocks! - ism mfg 8 1

 

Today's ISM Employment number is back to contraction. That 49.4 reading? It marks the 7th month in the last 8 in which the Employment index has been sub-50. Meanwhile, the headline ISM Manufacturing reading of 52.6 also fell from the prior month. That's not going to end The Bull that remains The Long Bond. 

 

In other words, the #GrowthSlowing trend remains firmly intact.

 

Still bullish?


JNK: We Are Removing Junk Bonds From Investing Ideas

Takeaway: Please note we are removing Junk Bonds from Investing Ideas (short side) today.

"We are taking the recent pullback in both Oil and Junk Bonds as an opportunity to take it off our Investing Ideas list," writes Hedgeye CEO Keith McCullough.

 

JNK: We Are Removing Junk Bonds From Investing Ideas - junk


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Full Recording of Today's Show - August 1, 2016

We experienced a technical issue this morning which prevented The Macro Show from being broadcast live. We apologize for the inconvenience. Below is the full show recorded at 9am ET.

 

Click image below to watch.

Full Recording of Today's Show - August 1, 2016 - TMS 8.1.16


6 Charts: Begging For Bailouts Hits An All-Time High

6 Charts: Begging For Bailouts Hits An All-Time High - Bear crossing cartoon 09.29.2015 

 

Bailouts and central market planning galore.

 

That's the macro morning update today.

 

On Friday, Italy's oldest bank, Monte dei Paschi, announced it had found a "definitive solution" for solving its legacy of bad loans, which would raise €5 billion from private investors and sell €9.2 billion of bad debts. Shortly thereafter it was announced that Italy's third largest bank had failed EU stress tests. If the global economy and financial markets came under pressure, Monte dei Paschi's financial position would be wiped out.

 

European markets did not respond kindly to the news, with equity markets down between -0.4% and -1.2% today.

Italy

 

Germany

 

Meanwhile, in Asia...

 

Central-market planning isn't working out so well. Nevertheless, the begging for bailouts continues. Despite rumors that the BOJ could ultimately end up pursuing helicopter money, the Nikkei is up a whopping 0.4% overnight, bringing its year-to-date performance to -12.6%.

 

6 Charts: Begging For Bailouts Hits An All-Time High - nikkei 8 1

Over in China

 

The politburo is trying to manufacture a soft landing for its slowing economy but hasn't been able to prevent carnage in the Chinese stock market. The crash continues...

 

Commodities?

 

Oil is down -16% in the past month, as reflation continues to deflate. 

 

Bull Markets?

 

Gold, on the other hand, continues its rally as blind faith in central bankers continues to wane. That's long been our case for holding gold and it is gaining increasing credence among investors as money managers like DoubleLine Capital CEO Jeffrey Gundlach say "sell everything," buy gold.

 

 

The other bull market worth watching, which has also been our favorite Macro position for some time now, is Long Bonds (TLT). On that front, the year-to-date scorecard is as follows:

 

  • TLT: +16%

  • S&P 500: +6%

 

Bottom Line...

 

Central market planners have been doing their damndest to mask their country's underlying economic issues but when reality sets in the resulting carnage is often sharp and painful. 


MONDAY MORNING RISK MONITOR | TED SPREAD

Takeaway: Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM11

 

Key Takeaway:

Friday's disappointing U.S. GDP reading broke the streak of optimistic risk readings; U.S. financials CDS widened by 5 bps to 81, the high yield YTM rose by 14 bps to 6.54%, and the usually stable TED spread (a measure of bank counterparty) spiked by 10 bps to 50. Interestingly, the TED Spread just hit a 4-year high - the last time it was north of 50 bps was January, 2012. Additionally, in Europe, financials CDS widened by 5 bps to 123 as mostly positive results from banking stress tests were not enough to ease investor worry.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM19

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 3 of 13 improved / 5 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Positive / 9 of 13 improved / 1 out of 13 worsened / 3 of 13 unchanged

 • Long-term(WoW): Positive / 3 of 13 improved / 1 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM15 2


1. U.S. Financial CDS
– Swaps widened for 12 out of 13 domestic financial institutions. With Friday's disappointing read on GDP, which grew only 1.2% in Q2, the median U.S. financials swaps widened by 5 bps to 81.

Widened the least/ tightened the most WoW: COF, GNW, ACE
Widened the most WoW: AIG, JPM, BAC
Tightened the most WoW: HIG, BAC, C
Widened the most MoM: MTG, AON, CB

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM1

 

2. European Financial CDS – Financials swaps were mixed in Europe last week. While the European Banking Authority cleared most banks after evaluating their stress tests, Italian UniCredit, British Barclays and German Deutsche Bank suffered hits to their capital buffers, pushing CDS for Barclays and Deutsche wider by 3 bps to 115 and by 8 bps to 212, respectively. Interestingly, UniCredit CDS actually tightened by -2 bps to 173.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM2

 

3. Asian Financial CDS – In Japan, the BOJ's modest easing announcement was not enough to significantly move the country's financials CDS, although Sumitomo Mitsui swaps did stand out, tightening by -2 bps to 84; the central bank stated it will buy ¥6 trillion of ETFs annually but leave its key interest rate unchanged. Meanwhile, Chinese and Indian bank CDS mostly widened.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese swaps tightened the most, by -13 bps to 270.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM18

 

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Mexican sovereign swaps widened the most, by 12 bps to 152, followed by Russian swaps, which widened by 11 bps to 239.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM16

6. High Yield (YTM) Monitor – High Yield rates rose 14 bps last week, ending the week at 6.54% versus 6.40% the prior week.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index was unchanged last week, ending at 1932.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM6

8. TED Spread Monitor  – The TED spread rose 10 bps last week, ending the week at 50 bps this week versus last week’s print of 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM7

9. CRB Commodity Price Index – The CRB index fell -2.2%, ending the week at 181 versus 185 the prior week. As compared with the prior month, commodity prices have decreased -6.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 6 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index was unchanged last week, ending at 2.02%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM10

12. Chinese Steel – Steel prices in China rose 1.2% last week, or 29 yuan/ton, to 2550 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM12

13. Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM4

14. Chinese Credit Outstanding – Chinese credit outstanding amounts to 151.0 trillion RMB as of June 30, 2016 (data released 7/14/2016), which is up +15.3 trillion RMB or +11.3% year over year. Month-over-month, credit is up +1,514 billion RMB or +1.0%. Note: this data is only updated monthly.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM20

15. 2-10 Spread – Last week the 2-10 spread tightened to 80 bps, -7 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM13

16. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 2 bps to 40 bps.

MONDAY MORNING RISK MONITOR | TED SPREAD  - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT



Patrick Staudt, CFA


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