Hedgeye - Back To School

“I’d like to get a degree. You ever see the movie ‘Back To School’? I’ll go back with my kids.”

-Derek Jeter

Love ya, Captain Clutch. And I double-love the idea of getting an education. But there’s no way I’m going back to school with my kids. I have 4 of them (love them too!). But the end of the summer is the beginning of this man’s vacation.

Today is Day 1 of Back To School in Westport, CT. Godspeed to all the teachers out there; especially those who are employed to teach linear establishment economics. Kids have Google now. Eventually, they’re gonna getcha!

One thing I’d like to see schools teach is why the distribution of income in America looks nothing like a bell-curve. My man Mandelbrot nailed this well before it went mainstream. “In economics, one classic Power Law was discovered by Italian economist Vilfredo Pareto a century ago. It describes the distribution of income in the upper reaches of society.”

Back to the Global Macro Grind…

I don’t want to give you the impression I’m living large like the Clintons or Trump but I think I’m in the Top 10%. I don’t dislike that. And with 4 educations to pay for and 3 weddings (I have 3 girls), I’m not volunteering to pay more taxes either.

As you can see in today’s Chart of The Day, if you’re part of the 10%, you have to admit we’re killing it as at least 50-60% are getting killed by cost of living. The Top 10% of US Households (by wealth distribution) own 85% of US Financial Assets.

Since the next 25% own 3% and the next 50% only own 1%, who really cares about the Fed other than us?

No. I’m not going to wax philosophically on what’s a “fair” distribution. Life isn’t fair. And taxes suck. So get up every morning and do your best to help whoever you can, without judging everyone by how much money they make.

Reality is that most people in our profession are going to make less money if the Fed tightens into a slow-down again. Since most of our asset inflation is held in Dollars, ramping the USD to new 5 year highs would simply deflate assets levered to “cheap” Dollars.

Macro markets get #Deflation Risk. Assets that are tethered to Down Dollar, Down Rates got clocked on both an absolute and relative basis in the month of August. The last 2 Augusts (2015 and 2016) have sucked for most public financial asset owners too.

But what about the “consumer”? Shouldn’t crashing Oil, Copper, and Corn prices be good for them?

In the very short-term, it doesn’t move the needle.
In the intermediate-term, maybe and maybe not.
In the long-run, we’re all dead anyway.

I borrowed that last truthful (but crude) statement from Keynes obviously. But the entire concept that the WTI kind of crude collapsing again (-15% from $52 back to $44) is the next panacea for the US stock market is one mother of a stretch.

*Hint: the US stock market desperately needs higher Energy stocks and an “earnings have bottomed” narrative.

As Oil started crashing at a faster rate in AUG of last year, did the US consumer break-out to the upside? No. Actually, plenty of US Retailers crashed from their cycle highs of JUL-AUG 2015. How about now? Is the consumer ripping to the upside?

Last night, Costco (COST) reported an AUG same-store-sales result of 0%
Look at the “back to school” results from Abercrombie (ANF) which crashed this week
Don’t tell me that’s because “no one shops at ANF” – who doesn’t shop at Costco?

Keith, you idiot, everyone only shops at Amazon (AMZN) now. Yep. Hadn’t heard that one liner before. Thanks for the update. Oh, and a little trivia for you in return – AMZN has about $60B of the $4.6 TRILLION in total US Retail Sales.

I’d love to see what percentage of the Bottom 30% of Americans (by wealth distribution) has and/or can afford an Amazon Prime membership. Ever see Fedex guys ripping around the hood leaving diapers on porches? C’mon.

Poor people do shop at the “Dollar Stores.” So while we need to go Ex-Energy, Ex-Costco, Ex-Earnings, Ex-RateHike narrative to just “buy the consumer”, we should also ex-out Dollar Tree (DLTR) getting slammed from $98 to $82 in AUG as well.

Forget who is in what percent of this country. We’re all humans. We all need a degree in real-world economics before it’s too late.

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research views in brackets):

UST 10yr Yield 1.51-1.62% (bearish)

SPX 2162-2189 (bullish)
RUT 1 (neutral)

NASDAQ 5180-5260 (bullish)

XOP 35.03-37.85 (neutral)

RMZ 1 (bullish)

Nikkei 161 (bearish)

DAX 109 (bearish)

VIX 11.55-14.47 (bullish)
USD 93.99-96.46 (bullish)
EUR/USD 1.11--1.13 (bearish)
YEN 98.99-103.78 (bullish)
Oil (WTI) 44.09-47.25 (bearish)

Nat Gas 2.55-2.99 (bullish)

Gold 1 (bullish)
Copper 2.02-2.12 (bearish)

Best of luck out there today,

Keith R. McCullough
Chief Executive Officer