“My wife watches me like a hawk.”
-Carl Icahn
I bet she does. And, Carl, you should be watching Janet, like a hawk!
Janet, as in the Dead Dove Walking, suddenly found some life yesterday. Wow the plumage almost overcame me. Never count a perpetually-dovish-central-market-planner out of becoming a bird of a data dependence feather!
Two exclamation points in my opening volley this morning. Things must be getting exciting here! Oh boy. That’s 3 now. How about more than 3 hikes in 2017? Or why not 3 fifty basis points hikes apiece and get this fund flow reversal party started?!?
Back to the Global Macro Grind…
Did I write Janet off too early? What if she actually cares about her legacy and doesn’t want to be remembered as The Mother of All Doves? What if, god forbid, she goes all data dependent on us… and leaves the Fed with shock and awe rate hikes?
Shhh. Do not tell anyone this. But…
- By Q2 of 2017, Yellen could be looking back at headline inflation running closer to 3% than 2%
- By Q2 of 2017, Yellen could be looking at a US GDP print of +4.2% q/q annualized (Hedgeye’s forecast)
- By Q2 of 2017, “wage growth” may not be something Old Wall Media can whine about …
Oh boy, oh boy, oh boy! And what if the US stock market is in a raging bubble formation at that point? What will she do?
These are not non-probable outcomes btw.
With the SP500 (2337), Nasdaq (5782), and Russell 2000 (1396) all registering fresh all-time closing highs yesterday… and our predictive tracking algos forecasting the aforementioned growth and inflation readings, I call them probable.
And what does consensus consider probable?
- Probability of a March 2017 rate hike = 34%
- Probability of a May 2017 rate hike = 53%
- Probability of a June 2017 rate hike = 74%
Clearly, if Hedgeye’s forecasts for 2017 are right, those probabilities are wrong (if Janet is indeed “data dependent”, that is). That’s mainly why we saw an impressive ramp in US interest rates yesterday.
That’s right. The same ole #MAGA song from your Canadian Mucker: Dollar Up, Rates Up, Stocks Up.
And even though I’d been “booking gains into these highs” (US Equities), I liked it. I liked it, mainly, because I haven’t yet covered my Long-term US Treasury Bond (TLT) short position. There’s always a bear market somewhere!
Is your portfolio positioned Hawkish Enough? Basic “Underweight/Overweight” setups like this paid off youge yesterday:
- Financials (XLF) +1.2% to +4.7% YTD
- Utilities (XLU) -0.7% to +1.2% YTD
And, again, I highly recommend you stay with that hawkish tilt. While Yellen is predictably late to sounding incrementally more hawkish, just wait until she sees these #InflationAccelerating reports for FEB and MAR (reported in MAR and APR)…
Oh, and then there’s the whole Trump card factor to consider on who he appoints to the now 5 (yes five!) open seats at the Federal Reserve. Imagine he appoints a few (or five) hawks?
Here’s a guy who has appointed an anti-EPA guy to run the EPA, an anti-Labor guy to run Labor… so why not appoint some anti-Fed guys and gals to run the Fed? We’ll be watching for whispers on these appointments like hawks too!
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND Research Views in brackets) are now:
UST 10yr Yield 2.35-2.53% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5 (bullish)
XOP 38.90-40.99 (bullish)
RMZ 1135-1169 (neutral)
Nikkei 19050-19503 (bullish)
DAX 115 (bullish)
VIX 10.36-11.98 (bearish)
USD 99.55-101.40 (bullish)
EUR/USD 1.05-1.07 (bearish)
YEN 111.85-114.84 (bearish)
Oil (WTI) 51.90-54.25 (bullish)
Nat Gas 2.85-3.19 (bearish)
Gold 1 (neutral)
Copper 2.65-2.81 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
