McCullough: The Fed is the catalyst for a stock market crash

Dear investor,

Since the beginning of 2022, Hedgeye CEO Keith McCullough has steadfastly told subscribers that this is the “largest bubble in the history of capital markets.”

Despite periodic bear market rebounds, the S&P 500 peaked in January and has since fallen -16% from today’s sell-off. So, while Keith McCullough has been warning subscribers about the dangers of buying risky assets, nothing experts and would-be Wall Street strategists have spent all year trying to hit the bottom of the stock market.

While we’ve warned about emerging risks, they’ve pumped unsuspecting investors into the busiest parts of the stock market. We were right. They’re wrong.

The Hedgeye Macro team failed to make it through this bear market, recession risk is rising by accident. Our repeatable risk management process identifies new risks like these since our first bear market call in 2008. 2022 was just one more bear market for which our subscribers were proactively prepared.

In addition to risk management, we pride ourselves on market timing. Here’s CEO Keith McCullough of a free January 27 edition of “The Macro Show” this year:



“If the Fed raises rates to a slowdown, they would be a catalyst not only for a stock market crash, but also a slowing economy, threatening a recession.”

Want more?

Below, we’ve unlocked this entire January 2022 edition of “The Macro Show” for you to study how we’ve prepared subscribers for this market sale. Below we have also transcribed a key excerpt for you. See. We think you will like what you see.

One final note. If you’re interested in a better way to invest, we’re here when you’re ready. We don’t think this bear market is over. Still, managing risk requires steady and expert guidance from a true professional.

We have good news. CEO Keith McCullough has been teaching investors our macro approach to risk management since our inception in 2008. If you’re interested in a better offer (and want to preserve and protect your hard-earned capital), here is a special offer on all the Hedgeye research.

Enjoy this free edition and transcript of ‘The Macro Show’.


Keith McCullough: No one else is going to be talking about the yield curve this morning. We’ll start with that. Number two is stock market crashes, which are ongoing or already happening. In this case, that’s a great opportunity for you to take advantage of higher futures. And then finally, I go for gold, which is a great buying opportunity here.

So the yield curve. This is what Powell did with the yield curve. For those of you who don’t stare at the yield curve, you should. So again, that’s taking the 10-year rate minus the 2-year rate. It is already down 12 basis points this week.

That is a lot. And again, if the Fed wants to raise interest rates three, four or five times, I think they’re going to flatten that out to reverse it. In other words, the Fed would not only be a catalyst for a stock market crash, but would also be a catalyst for a very sluggish US economy that is in danger of going into recession.

FLASH BACK |  McCullough: Fed is Catalyst for Stock Market Crash - Yield Curve

McCulloughSo again, you look at the GDP number today and a lot of people are like, I’ve even heard someone on CNBC say, “Absolutely nobody called for this kind of GDP acceleration in the fourth quarter.” Well, that’s total nonsense. I mean on September 23rdrdwe made the call, when the Atlanta Fed went to 0% GDP growth, that GDP would go up.

And that’s definitely what happened. That’s the point now. GDP will go from high to 2% and maybe lower the longer oil stays higher. Remember that GDP is reported on a real basis. So you subtract sticky and high inflation. That’s one point we’re going to get questions about. You can have Quad 3 factors with a Quad 4 market.

I get it? Quad 3, in our vernacular, is when you have stagflation. In other words, inflation will not fall until it peaks. But at the same time, you can get wider Quad 4 market conditions. And Quad 4 is the Quad we are to go to be in. So again, Quad 4 deepens as the oil stays higher. Have it? Write it down.

Now let’s go to point two. Don’t buy things that crash. We have the wild Bill Ackman who always explodes in Quad 4 and talks about going big Netflix (NFLX). Such a stock will crash and if it A) indicates a bearish trend in our Risk Range signals and; B) has a lower low in the range, don’t be that guy. Don’t be Bill Ackman.

But this is The Macro Show. This is pre game. We’re trying to play the game that’s ahead of us today. We are not day traders. We risk managing our asset allocations and longer-term positioning around the immediate term. Why are you looking at something even more short-term if that’s not what you’re doing?

So crashes again. We saw it again last night in South Korea down -3.5%. If you look at South Korea, it’s clear in Quad 4 back-to-back. If you look at slide 20 and go down you will see back-to-back Quad 4s in Russia. The stock market has collapsed again by more than -20%.

South Korea is now down -21% from where its cycle peaked. The Russell 2000 will fall -20% or more from its cycle peak in a short period of time. I think the Nasdaq is also going to crash. It will not be long.

So again, if you’re looking to the future, don’t react emotionally to that it’s not about the color coding or the cheers. It’s about understanding where the puck is going.

Point number 3 is gold. If you don’t want to know anything about quads, buy gold. I get it? Buy it now. Why now? It’s at the bottom of the range.

Okay. So again, that’s what we’re looking for here. Top class in the range. We’ll see if the 10-year yield starts to fall. But we’re definitely at the high end of the range at twos here. And that’s why gold is off for a day and a half. That’s sure to say it’s a buying opportunity. And for those of you who remember this time last year, I said sell it. Every time I told you to sell gold last year, on the short side, it worked.

And those are your top three things.

Here’s another point: volatility. If the volatility of the VIX range is still rising in what we affectionately call the F$%k bucket (ie north of 30) and staying there because you are in Quad 4, the S&P 500 will move lower.

So the range of volatility, or the full of full, is how I derive the range for the S&P 500. It is mathematically derived. It’s not about feelings. I know my style can excite people, irritate people, whatever. Focus on the results.

Again, the F%$k bucket volatility is a very bad place to be. It’s not about picking stocks like Bill Ackman buying Netflix. It’s about choosing the right portfolio. There is a big difference between running real money when the macro environment changes to growth and inflation slowing at the same time (ie Quad 4).

FLASH BACK |  McCullough: The Fed is the catalyst for a stock market crash

So let’s take a look at the setup. You can have sticky and high inflation, which is a Quad 3 type characteristic, but don’t be so intellectual about it. Be like a bastard. Go to where the puck is going. The market pulls out a deep Quad 4.

Look at the volatility of the Russell. I mean, that’s a cry for help, an easy one there with Russell Volatility at 37. Nasdaq Volatility is at 38. These are not buy signals. So don’t get deeply influenced by the color of the Futures again or the comments of people who never made money on them. It means nothing. It’s noise. It’s called Brownian motion at best. That would be a compliment.

so short the Financial (XLF) here. They were up yesterday. Briefly everything that is going on.

If you look at all the global volatility of macros and different asset classes, and you’re not just a monkey on stock charts, you start to see some similar sets. For example, you will see a breakout in high-yield spreads, in addition to a breakout above 30 on the VIX. That’s a pretty similar set if you go to Quad 4, let alone back-to-back Quad 4s with the Fed tightening up.

So that’s an important risk signal. It’s not a setup we’ve seen in modern times. It doesn’t mean it can’t happen.

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