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Bond Bear Beat Down

Takeaway: In the past year, JGB 10yr yields are down 38bps on the most causal factor in all of macro right now, #GrowthSlowing.

Plenty of clever questions in the @Hedgeye inbox on why “JGB yields might rip” (higher)… and they just went lower (again) instead, back down to -0.07% on the JGB 10yr this morning w/ no support to -0.27-0.28%.

 

As Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning:

 

"Investor consensus is far too focused on the risk of policy action (or inaction) out of the BoJ perpetuating a potentially violent backup in bond yields globally and not nearly enough on the underlying drivers of “lower-for-longer” and negative-yielding debt securities – drivers that are set to remain in place for quite some time."

 

In the past year, JGB 10yr yields are down 38bps on the most causal factor in all of macro right now, #GrowthSlowing.

 

Bond Bear Beat Down - japan gov bond 9 20

 

So why in God’s good name would you “invest” at this stage of the #GrowthSlowing cycle as the #BeliefSystem that the Fed, ECB, BOJ, PBOC, BOE, etc. breaks down?

 

Bond Bear Beat Down - central bankers cartoon 06.29.2016

 

Editor's Note: The snippet above is from a note written by Hedgeye CEO Keith McCullough and sent to subscribers this morning. Click here to learn more.


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets

 

Daily Market Data Dump: Tuesday - sector performance

 

Daily Market Data Dump: Tuesday - volume

 

Daily Market Data Dump: Tuesday - rates and spreads

 

Daily Market Data Dump: Tuesday - currencies

 

Daily Market Data Dump: Tuesday - commodities


September 20, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.73 1.52 1.70
SPX
S&P 500
2,105 2,159 2,139
RUT
Russell 2000
1,200 1,264 1,232
COMPQ
NASDAQ Composite
5,111 5,262 5,235
XOP
SPDR S&P Oil & Gas Explore
34.71 37.15 36.09
RMZ
MSCI US REIT
1,140 1,213 1,187
NIKK
Nikkei 225 Index
16,230 16,771 16,519
DAX
German DAX Composite
10,175 10,770 10,373
VIX
Volatility Index
14.02 19.84 15.53
USD
U.S. Dollar Index
94.50 96.25 95.76
EURUSD
Euro
1.11 1.13 1.11
USDJPY
Japanese Yen
101.07 103.86 101.88
WTIC
Light Crude Oil Spot Price
42.05 45.20 43.86
NATGAS
Natural Gas Spot Price
2.66 3.04 2.93
GOLD
Gold Spot Price
1,302 1,352 1,317
COPPER
Copper Spot Price
2.05 2.17 2.15
AAPL
Apple Inc.
108.19 117.99 113.58
AMZN
Amazon.com Inc.
751 791 775
JPM
J.P. Morgan Chase & Co.
65.30 67.62 66.19
INTC
Intel Corp.
35.88 38.00 37.16
LVS
Las Vegas Sands Corp.
53.50 58.67 56.61
CMG
Chipotle Mexican Grill, Inc.
395 414 402

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


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If the Fed wants to be hawkish, the data isn’t…

Client Talking Points

USD

After signaling immediate-term TRADE overbought on “rate hike fears” USD can easily correct back down to the low-end of my immediate-term risk range = 94.50-96.26 on the USD Index; that would give you a pop in EUR/USD to 1.13 fyi.

JGB

Plenty of clever questions in the @Hedgeye inbox on why “JGB yields might rip” (higher)… and they just went lower (again) instead, back down to -0.07% on the JGB 10yr this morning w/ no support to -0.27-0.28%

Utes

As in Utilities (XLU), ramped back up as Energy stocks reverse intraday yesterday; Utes (XLU) up a full +1% on the day taking their S&P Sector lead for 2016 back up to +15.0% vs. Financials (XLF) -1.3%; market sniffing out another dovish pivot?

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/19/16 52% 3% 4% 10% 29% 2%
9/20/16 49% 4% 5% 11% 29% 2%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/19/16 52% 9% 12% 30% 88% 6%
9/20/16 49% 12% 15% 33% 88% 6%
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

On the inflation front, comps get much easier moving forward (we’ve been in a deflationary environment for 2 years!). Our GDP estimates for Q3 and Q4 are below the street and Central Bank forecasts. For the full-year, we’re well below at +1.2% Y/Y vs. the Fed at 2.0%. If these estimates converge, we expect it to be dovish on the margin when coupled with our bearish rates view.  The inflation comps effect and a policy catalyst are shaping our fundamental views of a longer term gold position (GLD). 

VYM

We continue to observe that growth is slowing in aggregate. We continue to like bonds (TLT, MUB) and bond proxies (VYM). 

TLT

See update on VYM.

Three for the Road

TWEET OF THE DAY

CHART OF THE DAY: A Chance To Buy Long Bonds ... Again app.hedgeye.com/insights/53927… via @KeithMcCullough $TLT #Bonds #Fed pic.twitter.com/9GNn9I0sz0

@Hedgeye

QUOTE OF THE DAY

“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.”

–Arnold Schwarzenegger

STAT OF THE DAY

The Los Angeles Rams have not scored a touchdown since 1994.


CHART OF THE DAY: A Chance To Buy Long Bonds ... Again

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.

 

"... In my own 7 game series, this is game 6… and I’m down by a goal going into the 3rd period. As you can see in the Chart of the Day, since this is the 6th “rates are gonna rip” scare in the last 16 months, my team has already won 5 games in a row and now we’re just playing for fun."

 

CHART OF THE DAY: A Chance To Buy Long Bonds ... Again - 09.20.16 EL Chart


The Orginal Long Bond Bulls

“The hallmark of originality is rejecting the default and exploring whether a better option exists.”

-Adam Grant

 

I’ve spent a lot of time in the last 16 months trying to think for myself on why slower and lower for longer was the better option than living in perpetual fear of a redo of the “rates rising” call we made (short the Long Bond and Gold) in 2013.

 

Thank god I have great, data dependent, teammates. Without them grinding through the data on big sequential head-fakes, it would have been next to impossible to explore the real possibility that trending US and Global Growth would continue to slow in the 2nd half of 2016.

 

Now what? Are we in the middle of a double-dip #recession in cyclicals? How about the recession in US corporate profits that hasn’t gone away? After we get through this Federal Reserve nonsense tomorrow, we can go back to doing our job, measuring and mapping the data.

 

The Orginal Long Bond Bulls - Yellen cartoon 04.06.2016

 

Back to the Global Macro Grind

 

The Original Long Bond Bulls understand the secular demand problem that is American Demographics. I think someone like Jeff Gundlach in particular has been right on the money with a view I think he shares with our very own Demography Sector Head, Neil Howe.

 

That’s the longer-term call. It’s one I highly doubt Gundlach has changed his mind on. In the shorter-term, he’s been way more cautious than I’ve even hinted at being on both long-term bonds and their equity proxies.

 

While being on the other side of him at this stage of the game probably makes me overthink my premise (the guy is just flat out good), I think I’ll be less bad at macro if I can come out on the other side of this debate with either a tie or a win.

 

Q: A tie? What kind of a mediocre athlete plays for a tie?

A: One that’s behind in the game

 

In my own 7 game series, this is game 6… and I’m down by a goal going into the 3rd period. As you can see in the Chart of the Day, since this is the 6th “rates are gonna rip” scare in the last 16 months, my team has already won 5 games in a row and now we’re just playing for fun.

 

Oh, and I’m a better hockey player than Jeff too.

 

“Man, you cocky little Mucker.” Yes, Jeff – that is with a M, not an F. The CEO of Wells Fargo spells his last name with F. And let’s just thank God we’re not him testifying in front of the Senate Banking Committee today! Lots of F-bombs from WFC and “Financials” bulls in 2016. #Lots

 

In all seriousness though, I’m feeling pretty good about tying this game up in the 3rd period. Is confidence allowed anymore in this game? I certainly hope so. Versus Gundlach’s view, this is where I think the game is at:

 

  1. Gundlach doesn’t think the Fed makes a policy mistake and raises rates tomorrow – I agree.
  2. Gundlach thinks the Fed’s commentary is going to be hawkish – I don’t (isn’t not raising implicitly dovish?)
  3. If Gundlach is right and the Fed is hawkish, I think the data gets even more dovish in SEP anyway.

 

You see, the Fed going from hawkish to dovish to hawkish to dovish to hawkish (i.e. the last 5 rhetorical policy pivots in the last 16 months of this epic 7 game series) has been a major catalyst augmenting the longer-term TREND of real GDP #GrowthSlowing:

 

  1. When they went hawkish (raising rates in DEC) they triggered Deflation’s dominoes = bearish growth and inflation
  2. When they went back to dovish in MAR, they triggered a reflation of the deflation = stagflation
  3. When reflation ramped, sequential “inflation” data did, and so did lots of things that are in a recession
  4. When they went back to hawkish in August… Oil, PMIs, ISMs, etc. did the double-dip cyclical recession thing
  5. If they stay hawkish, all that cyclical, energy, and industrial “data” will continue to slow

 

Then they’ll go back to dovish into the election anyway. They’re one more bad jobs report away from that.

 

If you actually read one sentence below the Old Wall Media headline that “Gundlach Sees Hawkish Fed Statement And Unfriendly Bond Environment”, you’ll see that he thinks the “new normal” in the 10yr is going to be 1.70% instead of 1.55%.

 

In other words, he pasted me to the boards with this 6 week call to be short duration after the most epic decline in long-term bond yield history. But I don’t think he’s going to beat me being short duration for either the 2016 season, or the rest of game 7.

 

As for Gundlach’s outlook on 2017, that’s a different 7 game series for the little David (McCullough) vs. the Bond Market Goliath. I’m secretly hoping we end up on the same team again. The handoff to “fiscal” is one that could scare yields higher – and maybe for the right reasons.

 

But, some big things happen before we get to that part of #TheCycle. The #1 catalyst for bond yields to rise isn’t a headfake in “inflation”, it’s real GDP growth accelerating like it did in 2013. #BigFiscal needs a catalyst too – a double-dip recession in everything that hasn’t bottomed.

 

That’ll be when this Original Long Bond Bull hopefully sells into a re-test of the all-time high.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.52-1.73%

SPX 2105-2159

VIX 14.02-19.84
USD 94.50-96.25
Oil (WTI) 42.05-45.20

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Orginal Long Bond Bulls - 09.20.16 EL Chart


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%
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