Hedgeye detailed commentary…


I highlighted what I thought were the more important takeaways.


Market Edges: Week of 1/6/2019

Don’t Confuse Stock Market Dips & Disasters

“We’re going to constantly see these counter-trend bounces because everyone who missed it is trying to tell you that it’s over with. They’re confusing dips with disasters.
–Hedgeye Founder & CEO Keith McCullough

The recent counter-trend bounce in U.S. equities has created an opportunity for Hedgeye subscribers.

“With front-month VIX -25% last week to 21.38 and upside in the @Hedgeye Risk Range to 36-37, are you a chaser or a seller here?” writes McCullough this morning. “Implied vol (i.e. implied expectations of future volatility in futures and options data) on SPY is trading at a -36% DISCOUNT (vs. 30-day historical realized volatility)! Every time it’s been smashed to that level (since SEP 2018) it’s been a great selling opportunity for High Beta stocks.”

Key Takeaway: Don’t confuse dips with disasters.

In this week’s Market Edges, we explain why global growth is slowing around the globe:

  • Client Talking Points:We dissect global PMI data and U.S. ISM Manufacturing reports and reiterate our calls on #GrowthSlowing.
  • Chart of the Week:Did you know that throughout 4Q18-to-date, global central banks have tightened benchmark monetary policy rates by a cumulative +325 basis points?
  • Sector Spotlight:CEO Keith McCullough explains why S&P 500 earnings growth is current past its #CyclePeak.
  • What the Media Missed:We explain the key takeaways from the December#LateCycle Jobs Report.
  • Around the World:In this transcribed excerpt from The Macro Show, CEO Keith McCullough explains why we continue to like the set-up of long Treasurys versus short growth stocks.

Happy Macro Monday! Good luck out there this week.


We are currently working on a complete overhaul of our asset allocation model. This new updated asset allocation will better reflect our current market outlook and draw extensively from our Growth, Inflation, Policy (GIP) model. In the interim, below is our ‘GIP Model Risk Management Overlay’ to better guide your asset allocation decisions. CLICK HERE to watch a brief video about our GIP model.

Click to enlarge


The Impact of U.S. & Global #GrowthSlowing

  1. Global PMI Data = Global #GrowthSlowing

Here’s last week’s global PMI data. Without much analysis you can tell the global growth picture is quite clear…

  1. China’s PMI #slowed to 49.4 in DEC to its lowest level since FEB of 2016
  2. Russia’s PMI#slowed to 51.7 in DEC vs. 52.6 in NOV
  3. India’s PMI#slowed to 53.2 in DEC vs. 54 in NOV
  4. Australia’s PMI#slowed to 54.0 in DEC vs. 54.6 in NOV
  5. Indonesia’s PMI#accelerated to 51.2 in DEC vs. 50.4 in NOV
  6. Turkey’s PMI#slowed to 44.2 in DEC vs. 44.7 in NOV
  7. Spain’s PMI#slowed to 51.1 in DEC vs. 52.6 in NOV
  8. France’s PMI#slowed to 49.7 in DEC vs. 50.8 in NOV
  9. Germany’s PMI#slowed to 51.5 in DEC vs. 51.8 in NOV
  10. Italy’s PMI#accelerated to 49.2 in DEC vs. 48.6 in NOV

We reiterate our call on global #GrowthSlowing.

  1. U.S. Data Continues to Slow

The primary drivers in our predictive tracking algorithms for both Real GDP growth and reported inflation have each accelerated to multi-year highs during mid-to-late 2018.

Even if we assume the same degree of above-trend sequential momentum seen throughout this record run of accelerating growth in each subsequent month for each factor, the most probable outcome is that both GDP and CPI trend lower, from here, over the NTM.

  1. ISM Manufacturing = #Quad4

The December ISM Manufacturing report just hit its lowest level in 2-year. The New Orders component fell -11 points versus the prior month, cratering to the largest decline in 60 months and the lowest level since the throes of the Industrial/Profit recession in August 2016.

Current Production, Backlogs and Employment all declined versus the prior month, confirming declines in the December Fed Regional Surveys. This a #Quad4 (i.e. U.S. Growth and Inflation slowing) data point if we’ve ever seen one!


Global Central Banks Tightening = Global #GrowthSlowing

Did you know that throughout 4Q18-to-date, global central banks have tightened benchmark monetary policy rates by a cumulative +325bps, adding to +2100bps of hikes already seen in the YTD through 3Q18.

If you assume there’s a lagged impact to meaningful shifts in monetary policy (we do – if only because central banks only tighten at high “levels” of Nominal GDP growth, which, by definition, create difficult comparisons in out-quarters), then the aforementioned “Globally Coordinated Tightening” represents a material and underappreciated drag on global growth heading into 2019 – yet one more reason for investors to avoid trying to pick bottoms in and across crashing equity markets worldwide at the current juncture.

Recall that a reversal of the multi-year easing cycle across EM was among the primary reasons we anticipated both a reversal in what had been trending EM equity and FX outperformance, as well as a general slowdown in global economic activity throughout 2018 at the start of the year.

And, though we’ve seen that view come to fruition in both reported data and market price terms, the negative impact of all the aforementioned tightening doesn’t simply fail to exist. Said differently, what is the recorded bull case for global economic growth? We know precisely what the bear case its – i.e. tough comps, tightening financial conditions, waning consumer/business/investor confidence, etc.

Brazil remains the only major economy in the world that has eased monetary policy on a trending basis, which is why its growth dynamics – and markets; Bovespa +9% T3M – continue to stand apart from the rest of the world.

Brian Sly


Brian Sly and Company, Inc.