“Like a crane or a swallow, so did I chatter: I did mourn as a dove.”
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!
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:
- US GDP growth slows from 3% (year-over-year) from its cycle-peak in 2015 to 1% year-over-year
- But it neither accelerates sequentially (quarter-over-quarter) > 2% , nor decelerates below 1%
- 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:
- 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)
- 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.”
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:
- Q3 of 2016 +1.1% YoY/+1.7% QoQ SAAR (down from the previous update of +1.2% YoY/+1.9% QoQ SAAR)
- 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,
Keith R. McCullough
Chief Executive Officer