Expert Call TODAY With Peter Tchir

Expert Call TODAY With Peter Tchir  - Tchir 3.15.13


We will be hosting an expert call today, March 15th at 11:00am EST entitled "Fixed Income: Opportunities and What It Means for Equity Markets." Peter Tchir, the founder of TF Market Advisors, will discuss what he sees as being most impactful from a macro perspective and break down the current trends in fixed income and equity markets.




  • Fixed Income: Opportunities and signals versus stocks
  • Europe: Current state of play
  • Treasuries: The lack of float and what the Fed is doing
  • U.S. Corporate Credit: A focus on high yield, leveraged loans and the LBO names
  • Emerging Markets: A focus on currency wars



  • Synthesize what is happening in today's global economy  
  • Unveil actionable items in fixed income (via bonds or ETFs)



  • Traded over $1 trillion of fixed income products during his career, including complex structured transactions, bonds, loans, CDS and index products
  • Previously a portfolio manager at KLS Diversified where he employed a strategy that included single name credit positions and macro trades while actively taking advantage of short term mispricing of securities and indices
  • Founding board member of the CDX suite of indices and started and headed the credit derivatives index businesses at UBS and then RBS
  • Started his career at Bankers Trust where he ran high yield credit derivatives
  • Received BS in mathematics and computer sciences from the University of Waterloo and his MBA with distinction from Vanderbilt University



  • Date: Today, March 15th at 11:00am
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 818259#
  • Materials: CLICK HERE

The Energy Sector and the VIX

Takeaway: With the VIX hitting lower lows and with the XLE (the broad energy sector ETF) hitting higher highs, it’s creating a bit of concern.

In the chart below, you’ll see the divergence between the VIX and the performance of the XLE, a broad energy sector ETF, over a five-year period. VIX is a function of price, so there will be an inverse relationship with the XLE.


From a longer-term perspective, with the XLE approaching all-time highs and the VIX all-time lows is not a great set-up for future returns. In the immediate and intermediate terms, though, the sector is bullish TRADE and TREND, says our Energy Sector team.


The Energy Sector and the VIX - VIX XLE



Burning currency, rising stock market

Takeaway: Japan and Venezuela are each devaluing their currencies. Here's the impact on their stock markets.

Japanese and Venezuelan stock markets are two of the best performers this year, and they have one thing in common - both countries are devaluing their currencies. It's a boon for stocks now, as the chart below suggests. The chart shows the performance of both countries' stock markets since the beginning of November. However, the results of currency devaluations over the long haul rarely, if ever, end well.


Burning currency, rising stock market - Jpn Ven

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.

Rational History

Takeaway: The last time we hit these levels in the S&P 500 was October 2007, and it was the worst time of Keith's career. He reflects on that.

This note was originally published March 15, 2013 at 07:55 in Early Look

“Study history, study history. In history lies all the secrets of statecraft.”

-Winston Churchill


The last time we hit these levels in the SP500 was the worst time of my career. It was October 2007, and most of my big (bearish) macro ideas weren’t working yet. Our credit guys were blowing up our fund – and the performance pressure at Carlyle was palatable.


I’ll never forget. Whenever the market tells me I am wrong, I remind myself what it felt like to stay wrong for months at a time. It’s not personal. It’s just the score – and you have to find it within yourself to either change your mind, or live with the consequences.


Hedgeye’s history starts from my professional lows (I got fired in November 2007). I’ve been writing about every market move I make since. Rich Blake and I wrote a book in 2010 called Diary of a Hedge Fund Manager - From the Top, to the Bottom, and Back Again. Oh how history sides with charts that look just like that. The US stock market is back again, and (thank God) this time I didn’t get run over.


Back to the Global Macro Grind


“History will assign a neat set of circumstances for this past crash – the popping of the housing bubble, one created in large part by the US government-sponsored entities, Freddie and Fannie, exacerbated by an overindulgent credit derivatives market. Sounds right.”


“If history has proven anything, it’s that patterns repeat, again and again. Greed takes over and the self-fulfilling groupthink of the herd trumps rational process.” (pages 175-176, Diary Of a Hedge Fund Manager)


Rich and I wrote that then, but after 5 long years of making mistakes, I’m not sure what “rational” means. Isn’t rational what we call something after it plays out in full? It’s very rear-view looking.


Here’s what I used to think was rational:

  1. Every positioning that was working

Here’s what I thought was irrational:

  1. Every position that wasn’t working

I thought wrong.


Now that every mistake I make is made out loud for everyone to see (over 2,000 long/short positions #timestamped since 2008). What’s rational has a new definition. It’s called the score. And my team is accountable to you on that front, every day.


I’ve been on the road seeing a lot of clients so far this year. That really humbles me. Sitting across the table from money managers gives me a keen sense of performance pressures, positioning anxieties  - really all the things that used to dominate my day. This is an extremely difficult profession to perform in over long periods of time. That’s why we call it the grind.


Today, my day isn’t like it was when the SP500 was last testing 1565. Today, I have many different pressures. I have my wife and kids to provide for. I have 46 employees and their families that I am responsible for – and I have you.


So keeping it shorter today, I just wanted to thank you – every one of you who has taken the time to read my rants for the last half decade; every one of you who is a new relationship; everyone who has both challenged and supported me in making this happen.


While markets may not always seem “rational” relative to your positioning, you can always believe in some very core principles in sports, business, and in life. It’s important to define what’s rational to you on that front. Then surround yourself with more of that.


Our founding principles: Transparency, Accountability, and Trust. These aren’t principles I give lip-service to. They aren’t the secret to modern day #PoliticalClass statecraft either. They are a rational recipe for a team’s long-term success.  


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, Russell2000, and the SP500 are now $1568-1595, $107.98-110.04, $82.05-83.12, 94.12-97.26, 1.99-2.11%, 10.72-13.41, 937-959, and 1546-1569, respectively.


Best of luck out there today and enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Rational History - Chart of the Day


Rational History - Virtual Portfolio

Study History

Client Talking Points

Burning Yen

As Japan systematically and aggressively burns its currency,  the Nikkei is crashing to the upside, up another 1.5% Friday. The Nikkei is up 45 percent since mid-November, and it’s one of the best performing market in the world so far this year. Meanwhile, Japanese bond yields are hovering near their lows at around 0.63%.  This will not end well, though, as history had told us that when a country devalues its currency, it’s anything but a good idea.

US Bond Signals

The US ten-year bond failed to break-out to a higher-high Thursday, so that should keep the t-bond bulls hoping. But as we say at Hedgeye,  hope is not a risk management process. Keith signal says higher-lows and higher-highs in yields from here. That follows our growth stabilizing macro theme.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


"If you ever worked on a desk, you’d know that the Whale story happens every day; not unique.” -- @Keith McCullough regarding the trading loss at JP Morgan


"Study history, study history. In history lies all the secrets of the statecraft.” – Winston Churchill


5 inches, the screen size of the Samsung Galaxy S4, which was unveiled globally Thursday

Feb Club

This note was originally published at 8am on March 01, 2013 for Hedgeye subscribers.

“Take the shortest route to the puck, and arrive in ill humor.”

-Fred Shero


At my alma mater Yale, the under graduates hold a party every day in February.  If you have ever been to New Haven, CT, you get the reason they do this - New Haven is a rainy and depressing place in February.  Naturally, in the spirit of reliving their youth, a group of Yale graduates resurrected the tradition and started Yale Club Emeritus.  In effect, Yale Club for old people.


Now I’m not sure if I’m officially old or not, but after stopping by the final Yale Club Emeritus last night at the infamous Dorrian’s Red Hand Bar in the Upper East Side of Manhattan, and perhaps staying a little too late, I feel old this morning.  Or to refer to Fred Shero’s quote above, I’m at the very least in ill humor.


Yesterday I had the pleasure of joining Mario Bartiromo on CNBC’s closing bell. The topic of the discussion was what’s next for U.S. equities. The gentleman I was debating cited the fact that most Wall Street analysts had reduced their estimates for U.S. GDP growth recently and he was therefore negative on growth and the market.  As I countered, I went to these funny critters called facts.  The three most recent data points on the U.S. economy that I’d seen which were as follows:

  • New home sales up 29% y-o-y and inventory is at the lowest level since 2005;
  • Chicago PMI new orders reading coming in at 60.1, an 11-month high; and
  • Jobless claims in the most recent week showing an 8% improvement year-over-year.

As they say, facts don’t lie, people do.  Now those are only the facts that I happened to see as I was prepping for my interview yesterday and it is certainly not to say that all is well in the world, but those facts are supportive of our growth stabilizing thesis.


The caveat to my points above is the Chinese economic data that came out this morning was definitely slightly disappointing. Chinese PMI came in at 50.1 versus the estimate of 50.5 and was down from January’s reading of 50.4.  Now this reading is still expansionary, but is indicative of a sequential slow down, although admittedly the February economic data from China is distorted by the Lunar New Year.


Even as we continue to express our bullish stance on U.S. equities, we are not bullish of all markets.  In fact, a key global market we remain bearish on is the Japanese Yen.  This morning we received more confirmatory data of that stance as Japanese CPI fell for the eighth time in the last nine months.  Since the political leadership of Japan intents to manufacture inflation, they will obviously react to this by doubling down on their policy of debauching the Yen.


On that note, in the Chart of the Day (titled: Japanese Consumers Are Going to Get Bag Skated) we highlight how difficult it will actually be to create inflation in Japan via monetary easing.  This chart goes back to 2004 and highlights that annual CPI has been consistently below 0%.  The point being that if the Japanese leadership is really intent on taking CPI to a 2% level, it will take a massive amount of Japanese Yen printing, which begs the question: are we bearish enough on the Yen?


While we are doing the around the globe macro review this morning, it is probably prudent not to forget the currency experiment gone awry – the Euro-zone. This morning European manufacturing PMIs are out and the results are mediocre at best.  The headline number for the Euro-zone is 47.9, which is slightly better than the 47.8 estimate but still suggesting of an economy in decline.  As always though, Europe is bifurcated.


On the positive extreme, consistent with our research, is Germany with an expansionary PMI of 50.3.  Meanwhile on the negative end of the spectrum is France with a dreadful PMI of 43.9.   To the credit of the French politicians who implemented tax rates that have motivated capital to flee France, they actually don’t have the worst PMI in the Euro-zone. That title goes to Greece at 43.0.


Before you head off into the weekend, let’s talk stocks for a second.  As many of you know, we are instituting a best ideas list that highlights our best ideas across our research team.  On Wednesday we did the second part of that launch and our Financials Sector Head, Josh Steiner, presented the idea Nationstar Mortgage (NSM), a company that is in the business of servicing delinquent loans and originating agency mortgages for sale.  The thesis is as follows:

  • The company operates in a oligopoly with only two true competitors;
  • We think the street is too low in 2013 and that the earnings power of the company is ultimately close to $10 per share;
  • A spin-off of its Solution Star business could unlock $6 in incremental value; and
  • NSM has a servicing acquisition pipeline of some $300BN in the foreseeable future.

So, here we have a company with a big market opportunity, operates in an oligopoly and is trading at less than 4x its ultimate earnings power.  Stock ideas like NSM, are starting to put me in a much better mood this morning.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, UST10yr, and the SP500 are now $1549-1591, $110.04-112.85, $81.45-82.46, 1.83-1.95%, and 1502-1519, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Feb Club - Chart of the Day


Feb Club - Virtual Portfolio

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.