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PREMIUM INSIGHT

[UNLOCKED] Keith's Daily Trading Ranges

[UNLOCKED] Keith's Daily Trading Ranges - Bull and bear extra cartoon

We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.


CHART OF THE DAY: #PastPeak --> Where the U.S. Economic Cycle Is At

CHART OF THE DAY: #PastPeak --> Where the U.S. Economic Cycle Is At - 10.12.16 EL Chart

It's pretty simple.

 

As you can see in our Chart of The Day, here’s our stylized model for how every economic cycle plays out with commentary from Hedgeye CEO Keith McCullough in this morning's Early Look:

 

  1. "Cyclicals peak 1st (that’s why we call them cyclicals)"
  2. "Late Cycle (employment and consumption) peak and roll last"

 

That's the point. Alcoa (AA) is a cyclical. The industrial conglomerate kicked off earnings season yesterday. The stock was down over -10%, missing even Wall Street's bombed out earnings and revenue numbers. Honeywell (HON), PPG Industries (PPG), and Dover Corp (DOV) are industrials too. Those companies all pre-announced ugly revisions to previous earnings and revenue estimates. The stocks got hammered.

 

In case you missed it, then came Fastenal (FAST) earnings yesterday. Here’s what Fastenal’s CFO, Holden Lewis, had to say on the FAST call:

 

"Qualitatively, it's not clear to us that the tone changed much in the third quarter. We saw that the sales of fasteners and heavy manufacturing construction end markets were relatively weak as we have seen before. The same could be said of our largest customers, our top 100 was flat to maybe down slightly during the period. But again, these are the same dynamics that have persisted throughout 2016." 

 

Then, during the Q&A, Fastenal CEO, Daniel Florness was asked whether or not he was “seeing any signs that the industrial economy was bottoming." Florness replied:

 

“I can’t say that we are… I can’t say that we’re seeing any kind of inflection.”

 

So there you have it. Industrials are rolling over again (a.k.a. #DoubleDipRecession called out by our Macro team last week) and jobs market growth, the latest of #LateCycle lagging indicators, continues to decline. There's really only one takeaway from all of this...

U.S. #GrowthSlowing.


Cartoon of the Day: Bailouts!

Cartoon of the Day: Bailouts! - bankers bailing cartoon 10.11.2016

 

Central bankers are trying to bail out the sinking global economy. But the water keeps on coming in.


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.

Earnings Season? Ugly. Nasty. Just Getting Started

Takeaway: Earnings season has just begun and the outlook for the Industrials is looking awful.

Earnings Season? Ugly. Nasty. Just Getting Started - Earnings cartoon 11.03.2015

 

If the past week of company earnings updates is any indication of what's in store for earnings this quarter, it could get ugly in equity markets fast.

 

First, we heard pre-announced guidance revisions on Friday from Honeywell (HON) and PPG Industries (PPG), and then Dover (DOV), yesterday. The results weren't pretty, with downward revisions to company earnings and revenue estimates which sent shares tumbling.

 

Alcoa (AA) kicked off (official) earnings season today with a bang. But not in a good way. Shares of the industrial conglomerate have plunged -11% so far today after reporting $5.21 billion in revenue. That's down 6% from the prior year. It missed analyst projections of $5.31 billion. 

 

For the record, Alcoa even managed to miss bombed-out Wall Street consensus' earnings per share estimates of $0.33, versus as reported EPS of $0.32. (Note: Wall Street's estimates were down -12% from the prior week and down -30% from a year ago. #Sad.)

 

Then came Fastenal (FAST)...

 

Shares are down -5% so far today after the manufacturer of screws, nuts and bolts missed EPS and revenue estimates. Not pretty.

 

Digging into Fastenal's conference call revealed some interesting insight about the broader U.S. economy. Here's CFO Holden Lewis:

 

"Qualitatively, it's not clear to us that the tone changed much in the third quarter. We saw that the sales of fasteners and heavy manufacturing construction end markets were relatively weak as we have seen before. The same could be said of our largest customers, our top 100 was flat to maybe down slightly during the period. But again, these are the same dynamics that have persisted throughout 2016."

 

The company execs were candid about the outlook for the industrial economy. During Q&A, the first question was directed to CEO Daniel Florness about whether he was "seeing any signs that the industrial economy is bottoming?"

 

"I can't say that we are... I can't say that we saw any kind of inflection."

 

Wow. Keep in mind this is the same guy who said, while CFO of Fastenal in October 2015, “The industrial environment is in a recession. I don’t care what anybody says because nobody knows that market better than we do.” Believe him.

 

On a related note, our Macro team reiterates last week's 4Q Macro Themes call for a #DoubleDipRecession in Industrials. An appropriately timed callout, indeed. With earnings season just getting started there's no telling what's in store.

 

So far, it's not looking good.


Yellen's Favorite Economic Indicator Is Still Falling

Takeaway: The latest signal from Janet Yellen's favorite economic indicator flies square in the face of a rate hike.

Yellen's Favorite Economic Indicator Is Still Falling - labor market conditions 10 11 16

 

SO THE FED SAYS THE 2016 RATE HIKE CASE HAS "STRENGTHENED." Okay, got it.

 

Now go flip a coin as to what they'll say tomorrow (they've flip-flopped their rate hike rhetoric 7 times in the last 10 months) particularly in light of what Fed head Janet Yellen's *favorite* economic indicator just revealed.

 

That indicator, "Change in Labor Market Conditions Index," just fell again to -2.2 for the month of September. This index has declined 8 of the last 10 months. Aside from a short-lived blip in July (a reading of 0.8), the last time the index registered positive sequential readings was back in December. Of course, that was the last time the Fed raised interest rates.

 

At its September meeting, the FOMC said "the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year." It will be interesting to see how continued job market weakness and slow growth filters into the Fed's rate hike calculus heading into its November and December meetings.

 

  • Will they pull back their hawkish rhetoric ... ?
  • Will they ignore economic reality and raise rates anyway ... ? (The latter would be disastrous)

 

Your best bet is to flip a coin with this "data dependent" Fed.

 

Yellen's Favorite Economic Indicator Is Still Falling - Fed birdbrain cartoon 06.15.2015 


This Chart Is a Powerful Indictment of Current Fed Policy

Takeaway: It's a wonder anyone listens to anything the Fed says anymore.

This Chart Is a Powerful Indictment of Current Fed Policy - rate hike prob 10 11 16

 

Take a close look at that (ridiculous) chart. 

 

What it shows you is investor rate hike probabilities for November (grey line) and December (black line), overlaid with the myriad policy pivots (Fed commentary included). As crazy as it may sound, our omnipotent Fed has gone back and forth on its rate hike rhetoric 7 times in just the last 10 months.

 

  • Hawkish (December 2015)
  • Dovish (March 2016)
  • Hawkish (May 2016)
  • Dovish (June 2016)
  • Hawkish (August 2016)
  • Dovish (September 2016)
  • Hawkish (October 2016)

 

Absurd? You decide.

 

Now, with current December rate hike expectations at 70%, here's the key takeaway for investors confused about what all this Fed jawboning means:

 

(An excerpt from today's Early Look by Hedgeye CEO Keith McCullough)

 

"If we’re right on the profit, employment, and GDP cycle slowing to its slowest point in Q4 (we’re at 0.4% q/q SAAR GDP), Yellen's either going to pivot for the 8th time (back to dovish) or make her 2nd policy mistake of #TheCycle and hike into the slow-down."

 

That's right. When the Fed raised rates last December, the S&P 500 dropped over -10% (peak-to-trough), as economic data continued to slow and investors freaked about the prospects of rate hikes into this slowdown. 

 

In other words...

 

This Chart Is a Powerful Indictment of Current Fed Policy - zyb


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