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EVENT | Cummins Inc (CMI) BlackBook

Monday, September 12th at 1:00PM ET

Watch a replay below.

CLICK HERE to access the audio-only replay.


Contact to access to associated slides.

US stocks down for 6 of the last 8 days on Fed threatening to hike into a slow-down…

Client Talking Points


Day 2 of US signaling immediate-term TRADE overbought vs. both Euros and Yens; Japanese Equities love the smell of fresh burning Yen; Nikkei closes up big for the 2nd day in 3, +1%, but remains bearish TREND @Hedgeye.


Long-term bear market in one of Bernanke’s Down Dollar asset bubbles remains firmly intact; after failing the “breakout” for the technicians > 200 in June, the CRB Index is down -7% from that lower-long-term high; it’s going to get decimated by Deflation’s Dominoes if the Fed tightens.


Incredible to watch, really – despite all the selling in anything equity that looks like a bond, the UST 10YR has oscillated between 1.46-1.62% for the last 3 weeks; ALL of Fed policy comes down to 1 number though (nice job making this a lottery ticket, Janet) with the jobs report (which is subject to huge revisions) on Friday.

Asset Allocation

8/30/16 45% 6% 8% 15% 20% 6%
8/31/16 43% 7% 8% 16% 20% 6%

Asset Allocation as a % of Max Preferred Exposure

8/30/16 45% 18% 24% 45% 61% 18%
8/31/16 43% 21% 24% 48% 61% 18%
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

On the other side of the USD expectation, Gold (GLD) lost -1.5% w/w. Again we still like UUP and GLD as a basket against other centrally-planned currency regimes elsewhere.


Long Bonds (TLT), which has been on Investing Ideas since August 4th, 2014, finished the week -0.25%. We continue to believe that growth is the main catalyst for the curve amidst all the central planning noise. Slower growth gets discounted in a flatter curve so even if rates are hiked into a late cycle slow-down, the yield curve pancakes (the long-end of the yield curve fall and the short-end goes up). 


Strength in the U.S. dollar, with renewed rate hike expectations back in the mix over the last few weeks, gave a good boost to U.S. Dollar (UUP) which finished +1.1% on the week. The bid-yield of December Federal funds futures has ticked 10 bps higher in August to 0.55% to close out the week.

Three for the Road


.@JoeMcMonigle lifted the veil on #OPEC #oil "freeze". Here's what he told @KeithMcCullough…



“Dreaming, after all, is a form of planning”.

–Gloria Steinem 


Tim Tebow threw for 9285 yards and 88 touchdowns while at Florida.

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CHART OF THE DAY: Great Job, Janet

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. 


"... That’s right. One super #LateCycle number (US jobs report) will determine the direction of the economy, when they raise rates, and what they do to justify it amidst the rest of leading indicator data. It will determine our market life, while we’re still pitching.


Great job, Janet."


CHART OF THE DAY: Great Job, Janet - 08.31.16 EL Chart

The Fed's Next Pitch

“I aimed to pitch the best I possibly can, day after day, year after year.”

-Tom Seaver


The Mets have been doing their best to fight off injuries and won last night, but they certainly didn’t have “The Franchise”, Tom Seaver, on the mound. After winning Rookie of The Year in 1967, over 20 years (4 teams), Seaver had 311 wins and 3,640 strikeouts.


If you want to build a real franchise, I believe that delivering the wood, day after day, year after year, is the best way to do that.


As Seaver went on to explain in a leadership book I just finished reading called Grit, “Pitching determines what I eat, when I go to bed, what I do when I’m awake. It determines how I spend my life when I’m not pitching.” (pg 63)


The Fed's Next Pitch - Jobs cartoon 08.30.3016


Back to the Global Macro Grind


Imagine that’s how an un-elected “leader” at the Fed thought about forecasting? We might have something greater than mediocre-at-best. Instead, Yellen has allowed herself to make the next Fed policy move based on one big fat pitch.


That’s right. One super #LateCycle number (US jobs report) will determine the direction of the economy, when they raise rates, and what they do to justify it amidst the rest of leading indicator data. It will determine our market life, while we’re still pitching.


Great job, Janet.


The Fed’s “communication process” was supposed to make monetary policy “transparent and predictable” to all, but it’s turned out to be anything but that. If you want to pitch your best and nail the number on Friday, you better be great at Powerball too.


Never mind that non-farm payrolls (NFP) are:


A) Subject to some of the largest margins of error/revisions in all of US economic data, or

B) That they’ve been SLOWING, in rate of change terms, since peaking in Q1 of 2015


No, no, no. You have to Ex-all-that-out, and never call a “really good” number (JUL) or a horrendous number (MAY) “transitory” (like the Fed likes to call inflation reports they don’t like). And pretty much accept this joke/nightmare for what it has become.


Are some real-time market indicators (not to be confused with lagging late cycle labor data) concerned?


  1. SP500 is down for 6 of the last 8 trading days
  2. DOWN days have been met with accelerating Total US Equity Volume
  3. US Equity Volatility (VIX) is +20% “off the lows” and threatening to breakout
  4. Bond Yields are up less than the stocks that trade on them are (Financials)
  5. Bond Yield proxies (Utes, REITS, etc.) had a terrible month


Oh, but Keith, the market “can handle a hike… it’s just one hike… it’s only 25 basis points.” Yep. Been there, seen that pitch. That was precisely what I was being told every other meeting right before the December rate hike, then whammo! #BeanBallToTheHead


The thing about raising rates when consumer data is good (true btw; July PCE growth was in line with how good the data usually is right before the #ConsumerCycle is about to slow, faster) is that you’re now committed to hikes as consumption goes from good to bad.


Since at least 30-40% of the US economy is already in a recession, what the Fed ensures by tightening into a slow-down is that those early cycle (cyclicals) sectors don’t get out of a recession! Why else do you think capex (i.e. real world business decisions) are on hold?


Then there’s this thing Janet used to whine about to provide a reason for her dovish pivots (2 this year alone) – it’s called the Global Economy. Did China, Copper, Japan, Europe, Brexit, etc. all of a sudden show “obvious improvements in the last few months”?


  1. CHINA (and things like Copper supply vs. demand) remains on its knees, making up numbers, just to hang in
  2. JAPAN just reported a recessionary year-over-year decline in Industrial Production of -3.8% in JUL (vs. -1.5% last month)
  3. EUROPE just reported 0.2% year-over-year “inflation” (Italy reported -0.1% year-over-year deflation)


But don’t worry, the Germans (who printed -1.5% Retail Sales this morning) are coming. They’re going to tie two rocks together (Deutsche Bank and Commerzbank) and the European banking system is going to rip with negative yields.


Looks more like an RIP formation in European, Japanese, and Chinese banking to me.


So how do I take my best cut at Friday’s Fed Powerball? Unless I want to abandon the stance I took in the batter’s box in December (telling you to buy the Long Bond and short Financials on a hike), I don’t really have a pitch to swing at, do I?


No matter what happens on Friday’s open-the-envelope event, my teammates and I will continue to measure and map the rates of change in both growth and inflation data, globally, day after day, and year after year.

Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.50-1.62%

SPX 2167-2190

VIX 11.04-14.47
USD 93.91-96.25
Oil (WTI) 44.29-49.08


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Fed's Next Pitch - 08.31.16 EL Chart

The Macro Show with Keith McCullough Replay | August 31, 2016

CLICK HERE to access the associated slides.

 An audio-only replay of today's show is available here.


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