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CHART OF THE DAY: America's Anti-Robin Hood Fed

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.

 

As a refresher, our American Goldilocks Theme (i.e. both stocks and bonds go up, at the same time) works like this:

 

  1. US GDP growth slows from 3% (year-over-year) from its cycle-peak in 2015 to 1% year-over-year
  2. But it neither accelerates sequentially (quarter-over-quarter) > 2% , nor decelerates below 1%
  3. The Fed then pivots back to dovish (from currently hawkish), and all is well for the 10% of us

 

You didn’t get the memo? We’re all killing it because 10% of The People own 85% of financial assets geared to Dovish Fed Asset Reflation (see "Chart of the Day" below for details on that).

 

CHART OF THE DAY: America's Anti-Robin Hood Fed - z 09.13.16 EL Chart


Chitter Fed Chatter

“Like a crane or a swallow, so did I chatter: I did mourn as a dove.”

-Bible

 

Chitter Fed chatter, let’s get at er’ this morning. It’s all about who says what next, Ex-God and economic gravity.

 

While the Federal Reserve continues to confuse both themselves and macro markets, there is a core community of doves out there who have no problem crying. My man Jon Hilsenrath @WSJ gave those lamenting #Growth Slowing what they needed last night:

 

BREAKING: Divided Federal Reserve To Stand Pat –WSJ

 

Booyah! Right? Until we get something like this morning, that is. With everyone running net long everything (stocks, bonds, commodities), perma equity bulls do NOT want Rates Down, Stocks Down. Behold, that is something to mourn!

 

Chitter Fed Chatter - Perma wrong cartoon 09.12.2016

 

Back to the Global Macro Grind

 

You see, the Rates Down, Stocks Down (Long-term Bonds, Gold, VIX, etc. Up) thing is what happened after Janet Yellen “raised rates” into a slow-down in December. That’s also when GDP was tracking towards 0%. That was not American Goldilocks.

 

As a refresher, our American Goldilocks Theme (i.e. both stocks and bonds go up, at the same time) works like this:

 

  1. US GDP growth slows from 3% (year-over-year) from its cycle-peak in 2015 to 1% year-over-year
  2. But it neither accelerates sequentially (quarter-over-quarter) > 2% , nor decelerates below 1%
  3. The Fed then pivots back to dovish (from currently hawkish), and all is well for the 10% of us

 

You didn’t get the memo? We’re all killing it because 10% of The People own 85% of financial assets geared to Dovish Fed Asset Reflation (see Chart of The Day for details on that).

 

As for the other 15% of those assets, borrow against your car lease and lever up long in a 3x Bull Gold Mining ETF and pray that growth continues to slow. Alongside European and UK economic data slowing (again) this morning, you’ll get that US data Thursday/Friday.

 

Back to the “divided Fed”… check out yesterday’s chitter chatter:

 

  1. Atlanta Fed Head, Dennis Lockhart, said “notwithstanding a few weak monthly reports from the ISM, I am satisfied at this point that conditions warrant a serious discussion.” (on raising rates)
  2. Federal Reserve Governor Lael Brainard said that “the apparent flatness of the Phillips Curve together with evidence that inflation expectations may have softened on the downside… makes the case to tighten preemptively less compelling.”

 

One token hawk, one Democrat. That’s the divide.

 

Brainard was Obama’s Undersecretary of The Treasury for International Affairs while Lockhart is now a lifer in missing #GrowthSlowing signals (he missed calling 2007 #LateCycle while heading the Atlanta Fed).

 

Didn’t you hear? Ex-ISM, Ex-GDP, Ex-Oil – that stuff slowing is all “transitory”… but do you really think Lael wants Janet to go for Gold and lose her Democrat rising-star standing under a Trump Presidency?

 

Oh, don’t worry. Another macro market forecasting neophyte, Neil Kashkari (new head of the Minneoplis Fed whose had more jobs than Mark Sanchez at QB in the last 5 years), was “on” Old Wall TV yesterday assuring us “nothing at the Fed is political.”

 

I couldn’t make this up if I tried, but at one point in the interview yesterday, Kashkari told the establishment media journo that “look, I don’t even use a Bloomberg – I get out there in the field and talk to people.”

 

Grrrr-eat!

 

That’s all we need on Wall Street – another qualitative “survey” guy and channel checker when modern machines and predictive tracking algorithms can get you a lot closer to the number by measuring and mapping the rate of change in the actual numbers.

 

On that score, Darius Dale and I will be seeing Institutional Investors in New York City all day today (I’m writing this to you from the car right now) and we’ll provide an intra-quarter update on our proprietary and accurate GIP (Growth, Inflation, Policy) Model.

 

As the data changes, we do. There are 30 monthly (backtested) economic data points in the model and currently Real (inflation adjusted) GDP is tracking as follows:

 

  1. Q3 of 2016 +1.1% YoY/+1.7% QoQ SAAR (down from the previous update of +1.2% YoY/+1.9% QoQ SAAR)
  2. Q416 and Q117 we are at +1.0% YoY/+0.4% QoQ SAAR and +0.6% YoY/-0.8% QoQ SAAR, respectively

 

That’s not chatter. That’s math, using one of the few tested and tried forecasting processes that nailed both US #GrowthAccelerating in 2013 and #GrowthSlowing in 2016.

 

Lockhart should ex-out the Hedgeye forecast. Brainard would climb the Democrat ladder, faster, if she paid for our research. And even if Kashkari starts using real-time data (Bloomberg machine, bro), we don’t publish our forecasts there for free anyway.

 

Our immediate-term Global Macro Risk Ranges and intermediate-term TREND Research Views (in brackets) are as follows:

 

UST 10yr Yield 1.50-1.70% (bearish)

SPX 2137-2171 (bearish)
RUT 1 (neutral)

NASDAQ 5140-5241 (bullish)

XOP 36.07-39.15 (neutral)

RMZ 1180-1230 (neutral)

Nikkei 162 (bearish)

DAX 102 (neutral)

VIX 13.29-18.07 (bullish)
USD 94.30-96.31 (bullish)
EUR/USD 1.11--1.13 (bearish)
YEN 100.40-104.37 (bullish)
Oil (WTI) 42.86-47.98 (bearish)

Nat Gas 2.62-2.96 (bullish)

Gold 1 (bullish)
Copper 2.05-2.13 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Chitter Fed Chatter - z 09.13.16 EL Chart


Big beta bounce for US Equities off oversold lows, but no follow through...

Client Talking Points

UST 10YR

Rates down, globally, this morning on the heels of Hilsenrath’s article in the WSJ “Fed Inclined To Stand Pat” and more #GrowthSlowing data in Europe; UST 10YR Yield 1.65% remains in crash mode (-27% YTD) with immediate-term downside in the risk range to 1.50% with more US #GrowthSlowing data due out on Thursday/Friday.

VIX

Since everyone is net long everything (stocks, bonds, reflation, commodities, etc.) markets probably can’t tolerate Rates Down, Stocks Down (that’s what happened post the DEC hike) and our immediate-term risk range for US Equity Volatility (13.29-18.07) implies plenty of chop to risk manage from here. 

SP500

Unless volume backs off and SP500 can re-capture our immediate-term TRADE momentum line of 2171, what was steady support for US Equity Beta this summer is now resistance; the US Equity market needs some really bad growth data to ensure Yellen doesn’t hike into a slow-down.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/12/16 52% 6% 5% 7% 27% 3%
9/13/16 55% 4% 4% 7% 27% 3%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/12/16 52% 18% 15% 21% 82% 9%
9/13/16 55% 12% 12% 21% 82% 9%
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
GLD

No update this week.

VYM

After a relative pull-back in large cap, low beta, liquid names (an exposure we’ve like for the balance of the year). We can now buy back that exposure lower. As you can see in the style factor table below, high debt, high beta, and small cap stocks in the S&P 500 have outperformed over the last month. As Keith McCullough wrote to II subs Friday:

 

“We've seen plenty a one-way chart chaser lose lots of other people's money doing it otherwise (they are chasing what’s worked recently). VYM has a 3% Yield and is signaling immediate-term TRADE oversold within our bullish intermediate-term @Hedgeye TREND view.”

TLT

No update this week.

Three for the Road

TWEET OF THE DAY

$P | our Long thesis in under 60 seconds. Great work by our media team here @Hedgeye youtube.com/watch?v=8otDYP… pic.twitter.com/77xrAgIrN2

@HeshamShaaban

QUOTE OF THE DAY

“The price of success is hard work, dedication to the job at hand, and the determination that whether we win or lose, we have applied the best of ourselves to the task at hand.”

-Vince Lombardi

STAT OF THE DAY

Carlos Hyde ran for 88 yards and 2 TD's last night in a win against the Rams.


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%

EVENT | Platforms and Planks: Clinton Vs Trump on Healthcare

TUESDAY, SEPTEMBER 13TH AT 1:00PM ET

 
Watch the replay below.

CLICK HERE to access the associated slides.

CLICK HERE for an audio-only replay.


EVENT | Platforms and Planks: Clinton Vs Trump on Healthcare

Tuesday, September 13th at 1:00PM ET

 
Watch the replay below.

CLICK HERE to access the associated slides.

CLICK HERE for an audio-only replay.

 

 


Will a ‘Smoking Gun’ Email Take Down Chipotle?

In this clip from his recent call with institutional investors, Hedgeye Restaurants analyst Howard Penney answers a question on the federal criminal investigation facing Chipotle following an outbreak of foodborne illness at Chipotle. This institutional presentation was originally published on September 9, 2016.

 

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