• run with the bulls

    get your first month

    of hedgeye free


CHART OF THE DAY: Another Ugly Economic Indicator... Should The Fed Raise Rates?

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.


"... Got the latest “transports” data?

  1. Class 8 new truck orders at the lowest level since August 2010 in both absolute and rate of change terms (-56% y/y)   
  2. NA total commodity carloads originated continues tracking down over -5% Y/Y since March 2015 – no bounce whatsoever
  3. 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.


CHART OF THE DAY: Another Ugly Economic Indicator... Should The Fed Raise Rates? - 09.21.16 EL Chart

Empty Theories

“How empty is theory in the presence of fact.”

-Mark Twain


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.


Empty Theories - growth skeleton cartoon 08.29.2016


Back to the Global Macro Grind


My personal views fended off 2 super clever theories in exchange for confirmations of 2 bullish TRENDs overnight:


  1. Japanese Government Bond Yields didn’t crash to the upside
  2. 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.




  1. “OECD Cuts US GDP Growth Forecast” (again)
  2. “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?


  1. FX: Yen does nothing, confirming its bullish intermediate-term TREND
  2. BONDS: 10yr JGB Yield moves to -0.04% within an immediate-term risk range of -0.09-0.00%
  3. 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?


  1. Class 8 new truck orders at the lowest level since August 2010 in both absolute and rate of change terms (-56% y/y)   
  2. NA total commodity carloads originated continues tracking down over -5% Y/Y since March 2015 – no bounce whatsoever
  3. 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%

SPX 2108-2171  

Nikkei 162

VIX 14.07-19.39
YEN 101.17-102.95
Oil (WTI) 42.05-47.46

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Empty Theories - 09.21.16 EL Chart

JT TAYLOR: Capital Brief


JT TAYLOR: Capital Brief - JT   Potomac banner 2

“A people that values its privileges above its principles soon loses both.”

–  Dwight D. Eisenhower


THE HEART OF IT ALL: Since 1960, every Republican who has won OH has also won the presidency, so it’s important to note that this week marks the first time we’ve seen Donald Trump overtake Hillary Clinton since either candidate became their party’s nominee. Though popular Governor John Kasich is still in open conflict with Trump and Republican party leaders, rank-and-file OH Republicans have forged a truce of their own with the candidate, and are determined to recapture the Buckeye State after voting twice for President Barack Obama. Although the rift between Kasich and RNC Chair Reince Priebus has muddied the waters for Republicans alike, the state’s Republicans are set on one common goal - Clinton is not an option.


LET’S GET READY TO RUMBLE: Debate season is finally upon us. Topics for next week’s debate include: Securing America, America’s Direction, and Achieving Prosperity. National security is likely to be a major focus following recent terror attacks and the candidate’s subsequent reactions - and ultimately plays well into Trump’s hand as his policy on immigration reform and recent speeches expose a majority of American’s belief that the current Administration is too lenient on immigration. On the other hand, Achieving Prosperity should bode well for Clinton, who will almost certainly rely heavily on the recent census data showing increases in median household income and a decrease in the poverty rate. Either way, the debate is bound to be a dogfight, and don’t discount for a second there won’t be personal attacks.


KICKING AROUND THE CR: It seemed like just yesterday (it was) when we had high hopes of Congress moving a CR before the weekend, but now prospects of an early exit for Congress are looking grim. The optimistic outlook collided with reality with many saying the funding battle could be stretched into next week because of disagreements over ancillary spending requests. Although the Senate has made strides by approving a vehicle that will become the CR, the House is still scrambling. Congress was always scheduled to be in session next week, but Members are itching to get back to pressing the flesh with their constituents with just over a month left until Election Day.


TROUBLE IN THE FAMILY: In an already unproductive year for House Republicans, a new issue is rising - House Freedom Caucus members are refusing to pay dues to the National Republican Congressional Committee believing they favor moderates over true conservatives. The latest mistrust stems from a group of conservatives who tag the NRCC with the establishment wing of the party and lay blame at their feet for the primary loss of HFC leader Tim Huelskamp last month. The HFC, along with other hard-liner Republicans, owe outstanding dues creating a shortfall that exceeds $10 million. In the meantime, top House Republicans are donating millions above their dues to compensate for the shortfall - with Speaker Paul Ryan transferring nearly $30 million alone.


CHARLES IN CHARGE: NY Senator Chuck Schumer could become the Majority Leader of the Senate next year if all goes as planned for Democrats, and he’s putting his best foot forward to help secure it - he’s transferred over $1 million to the Senate Democrats’ campaign arm and given $3.2 million to state parties just in the past week. Altogether in September, Schumer has transferred $6.2 million of the $27 million he has on hand to help Democratic hopefuls. Schumer’s donations are both a vote of confidence in his party’s candidates and a reflection of the Democrats’ future challenges. Democrats are defending 25 seats in 2018 compared with just eight Republican seats, so if Democrats come up short this November, they face huge challenges taking back the majority this decade. 


REPLAY | ELECTION UPDATE: CHARLIE COOK OF THE COOK POLITICAL REPORT: In case you missed it, we hosted a call with Charlie Cook, founder of the Cook Political Report and one of the nation’s leading authorities on American politics and U.S. elections. He shared his outlook on the presidential race, discussed the state of play for House and Senate elections, and gave us a preview of the upcoming presidential debates later this month. You can listen to the replay here.


FCC EASING FOREIGN BROADCAST OWNERSHIP LIMITS: Our Telecommunications-Media Analyst Paul Glenchur discussed how the FCC is preparing orders to enable increased foreign ownership of broadcast television stations - a plus for Televisa (TV) and Univision. You can read his piece here.


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%

The Macro Show with Keith McCullough and Darius Dale Replay | September 21, 2016

CLICK HERE to access the associated slide. 

 An audio-only replay of today's show is available here.

Freeze Put On Ice For September

Takeaway: Key Question Going Forward is When Iran Will be In a Position to Agree to a Freeze. Even They Don’t Know.

Last Friday we published a lengthy note on the five reasons why OPEC would not agree to a production freeze at the upcoming informal OPEC meeting in Algeria next week.  On Sunday night, OPEC Secretary General Mohammed Barkindo confirmed our view when he announced that there would be only consultations but no freeze decision at the Algeria meeting.


We think it became clear to all the players that Iran is not going to participate in the freeze and Saudi Arabia will not freeze without Iran. Both Iran and Saudi Arabia want to appear cooperative with other OPEC members in stabilizing prices so now neither has to play the bad cop in Algeria. By signaling now that there will be no freeze decision, it avoids the Doha debacle of the last freeze attempt in April.


Freeze advocates will continue their efforts in the hope of consensus. We suspect that some OPEC members who are big freeze proponents were miffed by Barkindo’s blunt acknowledgement that there would be no decision next week in Algeria. As a result, Barkindo is now offering a fig leaf saying that OPEC ministers are working “very hard” to forge a deal and floated the potential of holding a special “extraordinary meeting” if an agreement can be reached. We highly doubt there will be such a special meeting since the next regular OPEC meeting is scheduled in late November. But the “extraordinary meeting” is the new freeze to try to keep prices in check.


Another trial balloon being floated by Venezuela and Russia is a one-year freeze to stabilize prices. This would be an incredibly short-sighted move that would result in moderately higher prices. It might help some struggling OPEC producers in need of revenue but it would also throw a life-line to US shale producers and undo the last two years of pain to acquire market share. For this reason, we think a one-year freeze will be a non-starter for Saudi Arabia.


The key question going forward is when will Iran be in a position to agree to a freeze or any limits on production. We continue to believe that a production freeze is a non-starter for Saudi Arabia unless Iran also participates. There will be no Iran exemption from participating in a freeze. Therefore, when Iran might think its production has risen sufficiently in order to agree to limits is a critical factor for purposes of any change in OPEC production policy.


For now, Iran simply cannot agree to any limits on production after just nine months into ramping up production and exports since nuclear sanctions were lifted. Iranian production has risen by about one million barrels a day (b/d) this year but some analysts now suggest production has hit a plateau and speculate that Iran might be in a position to freeze. We think arguments that Iranian production is plateauing will fall on deaf ears in Tehran for purposes of the freeze.


So what level of Iranian production is necessary for Iran to consider participating in a freeze or agree to limits? Even Iran has not answered this question.


First, Iran’s official position is that OPEC should return to country-specific quotas instead of a group ceiling. A country quota production policy would require a unanimous decision by OPEC, and Saudi Arabia opposes it.


For its part, Iran has said it cannot participate in a freeze until “it returns to the market share before the sanctions.”


Last year we forecasted that Iran could increase production by about one million b/d on their own but in order to get back to pre-sanctions levels they would need western capital and technology. Iran recently put its current production at about 3.85 million b/d and said it intends to get back to pre-sanctions production levels. Before sanctions Iran was producing about 4.2 million b/d but Iran may now view its pre-sanctions level relative to other OPEC producers like Saudi Arabia. So the “pre-sanctions level” may be much higher than 4.2 million.


Iran has finally completed its Iranian Production Contract (IPC) and expects to begin finalizing agreements with western energy companies on upstream projects later this year. When these projects come online, Iranian production could potentially increase another one million b/d in several years. 


If in fact we do begin to see a plateauing trend in Iranian production and Iran has completed a few tenders for major projects, we may start to see signals that Iran is ready to play ball on a freeze or another change in OPEC production policy. Until then, the freeze is on ice.



Pandora: 2 Reasons Why We’re Now Bullish (But Still Dislike The Company)

Hedgeye Internet & Media analyst Hesham Shabaan recommended shorting Pandora Media (P) from December 2014 until earlier this year. Recently, he’s flipped to the long side. For now. Shabaan explains why in this excerpt from The Macro Show yesterday.


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.