About Everything: The End of Monetary Policy?

About Everything: The End of Monetary Policy? - monetarypolicy1

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses whether central bank monetary policy has finally reached its limits. Howe explains the broader implications for investors.

Q: How Should Investors Risk Manage Presidential Election Volatility?

Takeaway: Don't be distracted by political narratives and focus on the data.

With so many distracted by their own political spew, Long Bond Bulls roar ahead by focusing on the data. One thing is clear, neither Presidential candidate will be able to change our GDP tracker which is currently at 0.4% Q/Q for Q4.


So who do you love? Do you let your politics influence how you risk manage your portfolio? I predict volatility wins into election day; immediate-term risk range for front-month VIX = 12.01-18.78. I'm staying with Long-term Bonds, Utes, Gold, and Low-Beta as a style factor.



As I've said before, there's a ton of risk that could come out of Donald Trump's mouth between now and Election Day (see video below), not to mention more causal macro considerations like earnings season and continued U.S. #GrowthSlowing.


While I'm On #growthslowing...


Was the pre-Fed Day hyperventilation the last big fat pitch of a buying opportunity for those who have missed #GrowthSlowing and Lower-For-Longer on rates? I think so. US Treasury 10-year yield slammed back down to 1.56%; 10s/2s spread right back to the YTD lows at 81bps and Financials (XLF) -4.4% in SEP vs. our beloved Utes (XLU) +3.2% SEP to-date.


Q: How Should Investors Risk Manage Presidential Election Volatility? - buy bonds



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.

CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race?

Editor's Note: Below is a brief excerpt from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.


"... Going into last night’s brouhaha, the polls basically had the Presidential race at a statistical tie. In fact, at one point yesterday in’s now-cast simulator, which projects as if the election were held today, Trump was ahead of Clinton. At the moment in that same simulator, Clinton’s probability of winning sits at 52.1 and Trump’s is at 47.9.


How will last night’s debate alter the race?


No doubt, Hillary Clinton and Donald Trump dropped the gloves last night. The debate was much less about a discussion of policy, but rather personal attack after personal attack. As it relates to strictly grading the debate, it’s hard not to give Clinton the win as she was prepared, coherent, and largely stayed on point. As for The Donald, well, he was The Donald."


CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race? - EL trump clinton

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Nike: What Investors Are Missing & Why We’re Bullish

In this brief excerpt from a HedgeyeTV video presentation, our Retail team explains why Nike remains a Best Idea Long heading into tomorrow’s earnings report. Analysts Brian McGough and Alexander Richards discuss an underappreciated bullish catalyst.

Cartoon of the Day: Snail's Pace

Cartoon of the Day: Snail's Pace - growth slowing cartoon 09.26.2016


Why did the Fed put rate hikes on hold yet again? U.S. #GrowthSlowing.

Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities

Industry veteran and portfolio manager Michael Aronstein, CIO of Marketfield Asset Management, sat down with private investor Buddy Carter and Hedgeye CEO Keith McCullough in this edition of “Real Conversations.” The trio discussed critical developments facing investors right now and why the markets and economy look increasingly vulnerable.


Below is a transcribed excerpt from that discussion. (Click here to watch the video in its entirety.)


Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities - Aronstein Carter 9.22.16


Aronstein: When I look out my window in Manhattan and see what’s being built and the prices people are asking. It’s an anomaly and the type of thing that signals the terminal stage of a cycle. 


McCullough: Good point. It’s unique but you actually define the topping process as a surge in supply.


Aronstein: It is and it’s relentless. In 2003 to 2007, in the U.S., we were building 1 million extra homes a year because people thought it was like printing currency. But by the time mortgage conditions changed and the yield curve finally flattened there was no escape for anybody because you realized you had a lot more houses than there were people who wanted houses.


Carter: I see similarities today. Keith, you talk to private bankers. They are having the damnedest time appealing to people in any way shape or form because benign neglect has been so profitable. But the problem is that you don’t transition from rewarding benign neglect to being adroit in a single moment.


McCullough: Yes, it just doesn’t happen like that.


Carter: Michael said this to me many years ago. ‘People don't realize the difference in liquidity on the right-hand side,’ meaning past the peak, during the evidence of the new phase condition. The problem is if you are a little late in realizing you're past the peak it can be very expensive. But it's tough to spot. Like what we’re seeing in high-end real estate now. We haven’t seen it before. Not only is there more supply but it’s heavier supply.


McCullough: Heavier and at epic prices. Everything that you guys are talking about is captured in this chart that we show in the Macro deck. It shows household net worth as a percentage of disposable income. As you can see, this is the third of three epic peaks. Buddy, you keep citing Cisco Systems and, Michael, you’re talking about real estate into 2006-2007, I’m looking at this cycle and we have both.


Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities - slide


Now, I’m 17 years into this business so compared to you guys I’m a rookie. But I’m sitting here watching this one and saying ‘Oh my god.’ This has every component of every bubble I’ve ever seen but it has less liquidity. What do you think about that chart and the cyclicality?


Aronstein: As Buddy was saying, one of the things that tells you’re past the peak is when there are no transactions. The bid offer has gone to a point where it’s not even worth picking up the phone. There’s just too big a difference of opinion so the liquidity vanishes.


And so you first get a seizure in the market. Once the volume and transactional liquidity shows itself, that’s when you get the declines like 1987. You get these discontinuities and what has actually happened is that a few trades have pushed something down 10-15-20-25-30%.


McCullough: We like to explain risk this way. It’s like a riverbed that you don’t know what’s around the corner but you can start to measure and map the speed of the water and the rocks that may be around. Because by the time you do get to the waterfall everyone’s dead. 


*  *  *  * 

To watch the discussion in its entirety click on the video below.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.