“How empty is theory in the presence of fact.”
Twain had his own personal issues. Don’t we all? But I have no issue whatsoever with this quote. In fact, the further I find myself down this winding path of building Hedgeye, the closer I find myself to truths vs. empty theories.
Don’t get me wrong, differentiated theories can make your returns great again. That’s not going to happen taking short-cuts or coming up with clever ideas that have no trending data or facts to support them, however.
Trends trump theories. #GrowthSlowing is the mother of all Global Macro TRENDs that you can measure and map with real-time economic and market data. Theories, like “JGB Yields are gonna rip”, die on the sword of event-driven days like this.
Back to the Global Macro Grind…
My personal views fended off 2 super clever theories in exchange for confirmations of 2 bullish TRENDs overnight:
- Japanese Government Bond Yields didn’t crash to the upside
- Team USA couldn’t beat Team Canada (again) at the World Cup of Hockey
I get it. Every contrarian wants to make the counter-trend calls. But sometimes (most of the time actually), the trend is your friend. Not being Bullish Enough on JGBs for the last decade has been a widow-maker inasmuch as betting on USA over Canada for Gold has.
- “OECD Cuts US GDP Growth Forecast” (again)
- “BOJ Opts For QQE With Yield Curve Control”
Of all the establishment economist teams in the League, after cutting their forecast (again) from 1.8% to 1.4%, the OECD is now closest to Hedgeye’s current 2016 year-over-year GDP growth forecast of +1.2%.
So that’s cool. Ex-Regional-Fed-Heads who have tried to become famous with “the economy is improving calls” in the last few months, consensus is actually getting Bearish Enough on US GDP growth, after it slowed.
That’s usually core to a lot of consensus hedgie-theories btw. After a move like we just had in bond yields, legions of theories emerge on why a short-term counter-TREND move can morph into a full blown Phase Transition.
And when they don’t, we reiterate the TREND.
What was it, precisely, that the Bank of Japan (BOJ) said overnight?
- BoJ to change maximum scale of each ETF buying operation
- BoJ to continue buying JGBs at ¥80T annually
- BoJ to conduct policy to influence interest rates
- BoJ to extend fixed-rate fund-providing operations to 10-yrs from 1-yr
- BoJ to begin fixed-rate JGB buying operation
- BoJ to increase monetary base until inflation goes above 2%
- BoJ adopts inflation-overshooting commitment
- BoJ scraps 7-12 year JGB buying duration period
- BoJ to use QQE with yield curve control
#Riveting, eh? Yep. A whole lot of nothingness emerged from the latest central-market-plan to literally not let the Japanese 10yr Yield move from 0.00%. With a policy rate of -0.1%, you’re going to need a microscope to see that Bad Sushi Yield Spread.
Macro Market Reaction?
- FX: Yen does nothing, confirming its bullish intermediate-term TREND
- BONDS: 10yr JGB Yield moves to -0.04% within an immediate-term risk range of -0.09-0.00%
- STOCKS: Nikkei has yet another bear market bounce, +1.9% in a big relief rally on nothing clever paying out
Onto the next. I have a better theory than a JGB bond market blow-up day (i.e. one that’s complemented by both economic facts and markets confirming the TREND embedded therein): Double-Dip #Recession for global cyclicals.
Got the latest “transports” data?
- Class 8 new truck orders at the lowest level since August 2010 in both absolute and rate of change terms (-56% y/y)
- NA total commodity carloads originated continues tracking down over -5% Y/Y since March 2015 – no bounce whatsoever
- Commodity carloads down -11% y/y. Largest commodity carload declines in Petroleum products (-22%) and Coal (-27%) which are obvious. Other areas of weakness are forest products (-7.5%), Metals (-6.1%), minerals (-3.6%), Farm/Food products (-3.4%)
So maybe the Fed should “raise rates” today. That’s neither an empty nor a clever theory. That would just be dumb.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.55-1.75%
Oil (WTI) 42.05-47.46
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer