“I’ve learned that the monsters ain’t underneath the bed.”
- Eric Church
For those of you who aren’t Country music fans, 42 year old Eric Church is one of my favs. He’s a beauty from Granite Falls, North Carolina and his latest hit is a song called Monsters.
“I killed my first monster when I was seven years old
He melted like butter in my bathroom's sixty-watt bulb”
And I’m looking forward to killing my first “big beautiful monster” #BeanDeal this morning. Trump clearly wants us to “believe” that he killed it with this deal. I’m happy to move on and just turn on the lights.
Back to the Global Macro Grind…
What we have so far are some monster misses vs. “the bottom is in” consensus expectations:
- USA’s ISM was a massive monster miss, clocking a 127-month low in December
- Our current headline US GDP nowcast of 0.03% implies a monster miss
- Earnings, so far, have missed massively vs. crazy expectations
Even if we’re wrong (we won’t be on the core demand components of how GDP is calculated) and US GDP comes in at 1.03%, don’t forget that’s a massive miss vs. the Trump/CNBC/Kudlow narrative.
Since our nowcasting process made the mid-cycle US GDP Acceleration call in Q4 of 2016 when headline GDP #accelerated to +2.2% (then proceeded to hit 3.5%, twice, in Q417 and Q218, respectively):
A) Trump’s lowest headline GDP print was 1.10% (on our #Quad4 in Q4 of 2018 call) and
B) The Old Wall has been able to “report” +2-3% headline GDP reports since
On Earnings Season, don’t worry, its early… but:
A) SP500 aggregate earnings have #slowed to down -8% year-over-year growth… but
B) Only 17 of the SP500’s companies have reported, so as long as you don’t own those #AllGood
Alongside the President of the United States tweeting in ALL CAPS how BIG and HUGE this “deal” is going to be for his farmer votes, how crazy are Wall Street expectations?
A) Today’s Chart of The Day shows you Old Wall consensus is looking for EPS to be +3% …
B) Then +4.4%, then straight up, to a massively huge +13.9% year-over-year
And people wonder why there’s deflation in sell-side compensation.
But, but, if you “back out Boeing”… and exclude #GrowthSlowing, Margins Compressing, Profits Declining, and Cycle High Valuations, #AllGood.
Mathematically speaking, how do earnings re-accelerate when:
A) COGS (headline CPI as a proxy) have #accelerated to a 15 month-high of +2.3% y/y
B) Labor Costs have #accelerated to classic Late Cycle highs?
If you have any ideas on that, please send them our way. Darius and I are about to start Day 3 of meeting with Institutional Investors in NYC and we haven’t heard one good argument on earnings yet…
“The wolf hunts a hungry man and the devil a lonely heart
A minefield of bad decisions lay hidin' in the dark”
And … I’ve learned that Wall Street rainbows and puppy dogs ain’t underneath my bed.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.76-1.90% (bearish)
SPX 3 (bullish)
RUT 1 (neutral)
Utilities (XLU) 63.86-65.12 (bullish)
REITS (VNQ) 91.22-93.59 (bullish)
Energy (XLE) 59.25-61.14 (bullish)
Tech (XLK) 91.34-95.99 (bullish)
DAX 13108-13606 (bullish)
VIX 11.70-14.69 (bearish)
USD 96.05-97.43 (bearish)
Oil (WTI) 56.92-64.33 (bullish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
