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Cartoon of the Day: Hawkish or Dovish?

Cartoon of the Day: Hawkish or Dovish? - Fed hawkish dovish cartoon 09.20.2016

Incessant Fed flip-flopping from hawkish to dovish (6x in 8 months!?) is simply insane. What will they do at Wednesday's FOMC meeting? Tell us what you think by casting your vote in our Poll of the Day here.


PREMIUM INSIGHT

Best Idea Long: Why Expedia Holds All The Cards

Best Idea Long: Why Expedia Holds All The Cards - HETV macroshow thumb expedia 9.20.2016

In this excerpt from The Macro Show, Hedgeye Internet & Media analyst Hesham Shaaban lays out our Best Idea Long call on Expedia and why the company’s HomeAway acquisition is a “considerable opportunity” relative to Wall Street’s expectations.


Did The Buyback Boom Just Go Bust?

Takeaway: After hitting a post-recession high, S&P 500 company share buybacks fell -6.8% y-o-y in the second quarter.

Did The Buyback Boom Just Go Bust? - bull1

is the tide turning?

 

Consider this. After hitting a post-recession high in 2Q16, FactSet reports today that S&P 500 buyback activity tumbled -6.8% year-over-year in 2Q16. 

 

Here's the key excerpt and chart from the FactSet data:

 

"Companies in the S&P 500 spent $125.1 billion on share buybacks during the second quarter, which marked the smallest quarterly total since Q3 2013. This comes after a first quarter that saw buybacks for the index hit a new post-recession high. Aggregate buybacks in Q2 represented a 6.8% decline from the year-ago quarter, which was the largest year-over-year decrease since Q1 2015. This Q2 decline came during a quarter that saw the S&P 500 index hit record-high price levels. On a trailing twelve-month basis, shareholder buybacks amounted to $592.9 billion at the end of the second quarter. This was a 6.8% increase from the same time period a year ago. The TTM buyback total at the end of Q2 marked the fourth largest amount going back to the start of 2005, despite this quarter’s decline."

 

Did The Buyback Boom Just Go Bust? - buyback 9 20

 

This dour question mark is a far cry from the headlines we saw just two months ago when the buyback boom was cited as justification for why the S&P 500 was hitting all-time highs. Indeed, as the Wall Street Journal wrote, "There's No Need To Fear the Buyback-Boosted Stock Market." 

 

We advised otherwise, here(Note: The S&P 500 is down -0.9% since then.)

 

***To understand why we think buybacks, corporate profits, consumer confidence, the labor market etc, etc, etc, are all past peak and U.S. growth continues to slow, watch this 6-second animated clip Hedgeye CEO Keith McCullough in "An Animated History of U.S. #GrowthSlowing" below.

 


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The BOJ's Stench of Desperation

Takeaway: The BOJ is monetizing over half of annual JGB issuance but has still failed to energize economic growth.

Editor's NoteBelow is an excerpt from a research note written by Hedgeye Senior Macro analyst Darius Dale. To access our institutional research email sales@hedgeye.com

The BOJ's Stench of Desperation - Nikkei  BOJ cartoon 09.13.2016 large

That Japan's failure to launch

 

...is occurring at a time when the Bank of Japan (BoJ) is expanding its balance sheet at a near +25% annual clip speaks volumes about the inefficacy of the BoJ’s existing monetary easing platform.

 

And while market participants have yet to defend critical ratios with respect to the size of the BoJ’s balance sheet or the pace of its accumulation of JGBs, the seemingly egregious nature of both is worth flagging.

 

Specifically:

  • The BoJ’s balance sheet is nearly three times the size of the next closest G4 counterpart when adjusted for the size of the respective economies.
  • When assessed as a ratio to total nonfinancial sector credit (a good proxy to evaluate where LSAP programs may face frictional resistance), the BoJ’s balance sheet is twice the size of the next closest G4 counterpart.
  • Prior to the start of Abenomics, the BoJ was a fairly distant third with respect to JGB ownership at 12% of the float. It’s now far and away the #1 holder at 33.9% of the total. Monetizing over half of annual JGB issuance has a tendency to do that for you. 

 

The BOJ's Stench of Desperation - central bank 9 20

 

All told, the purpose of this note isn’t to speculate on what the BoJ will or won’t do tomorrow. For all I care, Kuroda could tightrope across the towers of the Tokyo Metropolitan Government Building wearing nothing but whitey tightys and I would be largely unfazed.

 

While there’s no doubt the BoJ has the potential to shock global bond markets for a TRADE, there’s also no doubt that nothing they do tomorrow or in the not-too-distant future will outweigh economic gravity in the pricing of interest rates over the long term. How they plan to achieve the aggressive growth and inflation targets as mandated by Abenomics remains well beyond our purview – and likely theirs too (hence the stench of desperation and policy fatigue).

 

See the forest, not the trees. The central planning #BeliefSystem continues to break down right before your very eyes.


Poll of the Day: Will The Fed Raise Rates This Week?

Takeaway: What do you think? Cast your vote. Let us know.


Syria: Another 30 Years War?

Editor's NoteBelow is a complimentary research note written over the weekend by Hedgeye Potomac National Security analyst LTG Dan Christman USA Ret. To access our institutional research email sales@hedgeye.com

 

Syria: Another 30 Years War? - syria

 

With Russian foreign minister Sergei Lavrov at his side, Secretary John Kerry a week ago announced a Syrian cease-fire deal that could lead to coordinated U.S.-Russian air operations against Syria-based jihadists; Kerry also posited that the deal could provide an eventual path to a negotiated political settlement to replace the Assad regime in Damascus.

 

  • Unfortunately, based on previous efforts to secure a pause in the fighting alongside Moscow, this will likely prove to be a classic triumph of hope over experience. 
  • Syria is already on a long path to repeat Europe's 17th Century 30 Years War - one that laid waste to much of what is today's Germany. Syria will never again be the pre-2011 unified state it was before the onset of the current anti-Assad fighting.  Sadly, this latest Kerry deal will probably do nothing to alleviate the horrific suffering of the Syrian population or even begin the process of putting the Syrian "Humpty-Dumpty" back together.

 Consider the deal itself: 

  • In its essence, it requires a cease fire, effective last Monday, in which all parties - the Assad government as well as the opposition - stop air and ground attacks; humanitarian corridors would be opened to relieve suffering in the city of Aleppo in particular; and IF the cease fire is effective for seven continuous days, then and only then would the US and Russia work to establish a Joint Implementation Center (JIC) to coordinate air attacks against ISIS and the principal al Qaeda affiliate in the area, "Syria Conquest" (formerly al Nusra).  
  • But who seriously believes that the dozens of opposition groups battling Assad (many closely intertwined with Syria Conquest) or the Damascus regime will adhere to this? The "support" for the deal from Russia, Iran, Damascus, and Hezbollah is beyond cynical.  Because of "facts on the ground," each now holds the military advantage; there's no incentive for them to change anything.
  • Numerous cease fire violations of the accord this week have confirmed the worst; yet, so far, the deal has gotten off the ground – but barely; sadly, like the “cessation of hostilities” accord from last February, an agonizing death for this deal probably awaits.

Many have talked about what might be needed to change the "facts on the ground" in Syria. Here's one answer: 

  • First, because nearly all of the civilian casualties in major population centers like Aleppo, Homs, and Hama - and the refugees flows from these areas - are caused by barrel bombs, cluster bombs, and chlorine gas dropped from Syrian aircraft and helicopters, Washington needs to bluntly warn Assad, in simplest terms: "NO More!"
  • Then, if Assad uses those systems, after a one hour notice to the Russians (the notice they gave us before they launched their first air combat sorties in Syria), the U.S. should send cruise missiles, drones, rockets, and stealth aircraft to target every Syrian fixed wing asset, every helicopter, and all of Assad's personal aircraft. If a restrike is necessary after a bomb damage assessment (BDA), we should execute it immediately. 
  • The U.S. should then say to Assad, "Don't do this again." This becomes a “no-fly” zone, but vigorously enforced from the outset.
  • The Russians would howl; but Washington would have their attention, and in the end, their cooperation.   

The U.S. is currently not a country that believes in changing "facts on the ground" in the Middle East, even "facts" that have produced over 400,000, largely civilian, deaths. But an action like the one outlined above may be about the only way to get the attention - and the respect - of Vladimir Putin. And it can also help move us to the ultimate goal: a political solution in this fractured country - one that is the only way to end the Syrian version of Europe's 30 Years War. 


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