Macro Tricks

“We were forever inventing new tricks.”

-Hans Bethe


From a strategy and teamwork perspective, one of the most fascinating aspects of reading American Prometheus (The Triumph and Tragedy of Robert Oppenheimer) has been how well these to-be-famous scientists collaborated with one another.


Hans Bethe, who eventually won the Nobel Prize in Physics in 1967, said “the intellectual experience was unforgettable.” (page 182). Since he was working alongside Oppenheimer, Feynman, and Bohr, I don’t doubt that for one second!


I’m not making a political statement on nuclear. I’m simply pointing out how a culture of trust and collaboration can incubate innovation. While the powers that be will likely never acknowledge the Global Macro models we are building here @Hedgeye, we are getting more and more respect from you, the practitioners, every day. On behalf of my team, thank you for this experience.


Back to the Global Macro Grind


One of the most interesting realities embedded in our independent research process is that we don’t know where we are going to end up next. Our Global Macro Themes are born out of intermediate-term market signals and then contextualized by long-cycle research. If it feels like we’re forever inventing new themes, that’s because the market’s ecosystem is forever reinventing itself.


Since #RatesRising and #DebtDeflation have been the two Q313 themes most of our clients want to talk about, that’s what I have focused my time ranting about. That, however, doesn’t mean that our 3rd major Macro Theme for Q3 doesn’t exist. In fact, today is as glaring an example as any in which #AsianContagion should be jumping off your screens.


Reviewing the risks of #AsianContagion:

  1. Some overvalued Asian currencies are breaking down from an intermediate-term TREND perspective
  2. Some Asian debt markets are getting increasingly nervous about the negative deficit impact of a weakening currency
  3. When both a country’s currency and debt deflate, you get local inflation and local #RatesRising – that’s bad

From a process perspective, our Senior Asia analyst, Darius Dale, called out the following equity divergences 24 hours ago:

  • Indonesia -5.6% DoD vs. a regional median delta of -0.2%
  • Thailand -3.3% DoD vs. a regional median delta of -0.2%
  • India -9.1% MoM vs. a regional median delta of -1.2%

Then, on Indonesia in particular, he called out yesterday’s key economic data point:

  • 2Q Current Account Balance - current account deficit widened to a record on both a nominal basis and as a % of GDP

And finally, we get this morning’s Bloomberg headlines (under Economy):


A)     “Rupiah Forwards Plunge To Lowest Since 2009 As Bond Risk Surges”

B)      “Rupee Drops To Record on Fed Tapering Concern”


These macro headlines (i.e. old news) come after Indian, Indonesian, and Thai markets move. The proactive risk management Macro Trick is to know they are moving (and why) before consensus realizes it. This macro theme is 1.5 months old.


Indonesian stocks are -11% in the last 3 days and India’s stock market continues to be one of the worst in the world for 2013 YTD – all for Hedgeye playbook reasoning (this kind of stuff confuses Keynesians who think weak FX is a good thing!).


Again, to review in the most simplest of complexity’s terms:

  1. Currency Burns, then local  
  2. Inflation Accelerates and Growth Slows; and finally          
  3. Deficit worries (and credit risk) rise; and bonds fall (#DebtDeflation)

If you want to be really worried about something other than the US Bond market crashing, we’d suggest Asia (ex-Japan). That’s not a new Hedgeye Jedi Macro mind trick as of this morning either. That’s what was already trending.


Our immediate-term Risk Ranges are now:


UST 10yr 2.70-2.91%


VIX 13.51-15.36

USD 80.91-81.96

Yen 97.11-98.26

Copper 3.25-3.39


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Macro Tricks - Chart of the Day


Macro Tricks - Virtual Portfolio

Asian Contagion? Exactly.

Client Talking Points


Evidently #RatesRising too fast makes consensus very nervous; especially those poor souls who still remain levered long the slow-growth, yield-chasing asset allocation the Fed had them in. The 10-year Treasury yield is backing off its immediate-term TRADE overbought zone of 2.86-2.91%. So this morning should provide a de-stresser on that front; Utilities (XLU) are already down -5.2% already for the month!


Boom! Indonesia is down -11% in just three days as the Rupiah hits a 4-year low and #DebtDeflation takes hold. This is how the ball bounces in our #AsianContagion Q3 Macro Theme. It is both interesting and sad to see it playing out in India (Rupee broke 64 vs US Dollar this morning... new lows) and Indonesia, but not at all surprising. We called this.


Sneaky 1-month squeeze to watch as the net short position in Copper went away last week (CFTC futures/options contracts). The question now becomes whether copper will be able to overcome the @Hedgeye TREND line of $3.39/lb? Not today. This is an important commodity to watch as a proxy for the entire commodity complex which has reflated this month.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

Three for the Road


Hedgeye's #AsianContagion Theme taking hold (when a country’s debt and currency values deflate at an accelerating rate) #Rupiah



“I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.” -Jesse Livermore


Hubris? Herbalife and J.C. Penney have cost Bill Ackman's Pershing Square an estimated $1 billion or so (The Economist)

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.68%

No Clear Tracks

This note was originally published at 8am on August 06, 2013 for Hedgeye subscribers.

“The notion that I was travelling down a clear track would be wrong.”

-Robert Oppenheimer


Today in 1945, the US dropped the bomb on Hiroshima. At least 130,000 were killed and 90% of the city was eviscerated. To say that this weighed heavily on the conscience of the “father” of the atomic bomb would be the understatement of my writing career.


The aforementioned quote comes from Chapter 2 (“His Separate Prison”, page 29) of a book I have long waited to crack open: American Prometheus - The Triumph and Tragedy of Robert Oppenheimer.


When it comes to both markets and my life, the notion that I know where things are going isn’t the truth. The reality is that people and circumstances change inasmuch as markets do. Sometimes it happens fast; sometimes it’s slow. Yes, there are patterns of behavior that provide probabilities of direction. But there is no clear path. I’m learning to embrace that uncertainty.


Back to the Global Macro Grind


Einstein said that “the only reason for time is so that everything doesn’t happen at once.” And I like that. For the past 8 months we’ve seen a very simple US market pattern develop:

  1. US economic #GrowthAccelerates
  2. US interest #RatesRising challenge the Fed to taper
  3. Gold Bonds fall, Growth Stocks rise

Now that 1st bullet is the one that provokes the most bitterness from bears. I still don’t think they can believe that A) it’s August and B) both the employment and economic data (NSA rolling jobless claims hit another YTD low last wk) continue to improve.


On top of last Thursday’s #GrowthAccelerating July ISM print of 55.4 (vs 51.9 in June), here’s what the bitterness of it all looked like in the only economic data point that mattered yesterday:

  1. ISM non-Manufacturing (i.e. the highest % of the US economy) = 56.0 in JUL vs 52.2 in JUN
  2. New Orders (within the ISM report) = 57.7 JUL vs 50.8 JUN
  3. “Business Activity” (within the same report) = 60.4! JUL vs 51.7 JUN

Sorry #GrowthSlowing fans, that wasn’t what you were looking for.


It wasn’t what I was looking for either! I thought there was a developing probability that the higher-frequency (weekly and monthly) US economic data points could slow sequentially here in Q313 vs Q213. Evidently, I thought wrong.


It’s ok to say you are wrong. It’s ok to say you made a mistake. Heck, it’s even ok to say you are sorry once in a while too (this morning’s marriage tips are brought to you by your Broda).


The bottom line is that in literally every “Style Factor” we score, #GrowthAccelerating is winning, big time, YTD:

  1. Top25% EPS Growth Stocks (in the SP500) = +7.3% m/m and +26.8% YTD
  2. Low Dividend Yield (growth) Stocks = +6.7% m/m and +28.8% YTD
  3. High Short Interest Stocks (high multiple, high beta too) = +6.9% m/m and +25.4% YTD

Yes, despite the Russell 2000 (another US growth investor proxy) pinning yet another closing all-time high yesterday at 1063 (+25.2% YTD), all 3 of those Style Factors are still beating the Russell!




But what is awesome? “inspiring an overwhelming feeling of” (

  1. Reverence
  2. Admiration
  3. Or Fear?

It’s a great word because, whether we want to admit it or not, we are all human and there are a lot of feelings that start to overwhelm us during phase changes in both markets and our lives.


From a macro market perspective, fear itself is now re-testing its YTD low (Gold and VIX are down -23% and -35%). Growth investors admire that. But they shouldn’t straight-line this as the new normal. Nothing is normal. Everything is always changing.


Our immediate-term Risk Ranges are now as follows:


UST 10yr 2.56-2.72%

SPX 1674-1714

Nikkei 13644-14898

VIX 11.69-12.97

USD 81.41-82.47

Gold 1289-1311


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


No Clear Tracks - Chart of the Day


No Clear Tracks - Virtual Portfolio

August 20, 2013

August 20, 2013 - dtr



August 20, 2013 - 10yr

August 20, 2013 - spx

August 20, 2013 - nik

August 20, 2013 - dax

August 20, 2013 - dxy

August 20, 2013 - euro

August 20, 2013 - oil



August 20, 2013 - VIX

August 20, 2013 - yen

August 20, 2013 - natgas
August 20, 2013 - gold

August 20, 2013 - copper



TODAY’S S&P 500 SET-UP – August 20, 2013

As we look at today's setup for the S&P 500, the range is 34 points or 0.25% downside to 1642 and 1.82% upside to 1676.                 










  • YIELD CURVE: 2.49 from 2.53
  • VIX  closed at 15.1 1 day percent change of 5.08%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC retail sales
  • 8:30am: Chicago Fed Natl Activity Index, July (prior -0.13)
  • 8:55am: Redbook weekly retail sales
  • 11am: Fed to purchase $750m-$1b in 2024-2031 sector
  • 11:30am: U.S. to sell 4W bills, $25b 52W bills
  • 4:30pm: API crude, oil product inventories


    • Northrop Grumman holds media briefing on aircraft unmanned systems and their impact on military, commercial aerospace
    • U.S. Senate Finance Cmte Chairman Max Baucus, House Ways and Means Cmte Chairman Dave Camp make tax tour stop at Intel
    • Coal foe named to FERC latest Obama pick drawing industry ire


  • Kyle Bass said to bet on J.C. Penney comeback w/loan purchase
  • PepsiCo said to be considering offer for India’s Balaji Wafers
  • JPMorgan energy trades probed by DOJ, WSJ reports
  • W&G Investments to submit $2.4b bid for RBS branches
  • Icahn asks court to dismiss lawsuit by Herbalife short-seller
  • Glencore takes $7.7b charge on Xstrata mining assets
  • BHP seeks potash partners after approving $2.6b spend
  • Barnes & Noble distribution spat w/Simon & Schuster resolved
  • Tesla says Model S electric sedan gets top U.S. crash rating
  • EA asks appeals court to delay college athletes’ suit ruling
  • India may delay capital infusion into banks as stocks slump
  • TiVo updates set-top boxes in bid to boost retail sales
  • Zillow follows StreetEasy deal with $411.9m share sale
  • Urban Outfitters 2Q EPS, comp sales beat estimates
  • Ex-Qwest head Nacchio seeks tax refund as prison term ends
  • Weapons for Egypt under review; U.S. public favors aid cutoff


    • Analog Devices (ADI) 4pm , $0.54
    • Barnes & Noble (BKS) 8:30am, ($0.67)
    • Best Buy (BBY) 7am, $0.12 - Preview
    • Dick’s Sporting Goods (DKS) 7:30am, $0.74
    • Home Depot (HD) 6am, $1.21 - Preview
    • Intuit (INTU) 4pm , ($0.01)
    • JC Penney (JCP) 7:30am, ($1.07) - Preview
    • La-Z-Boy (LZB) 4:05pm, $0.15
    • Medtronic (MDT) 7:15am, $0.88 - Preview
    • TJX (TJX) 8:33am, $0.63 - Preview


  • U.S. Gold Coin Sales Slump as Prices Rebound on Asian Demand              
  • Soybean Trading Mogul Shao to Double China Imports: Commodities
  • WTI Crude Falls for Second Day as Fed Tapering Speculation Grows
  • Gold Is Little Changed After Rally to Two-Month High on Demand
  • Copper Declines on Concern Reduced Fed Stimulus to Erode Demand
  • Glencore Xstrata Reports $7.7 Billion Writedown as Profit Drops
  • India Seen Defying Rupee Plunge to Import Record Cooking Oil
  • Kenya From Nowhere Plans East Africa’s First Oil Exports: Energy
  • Rebar Falls Following Broad Sell-Off in Commodities, Equities
  • Copper Exchanges Stocks-to-Use Ratio Hits 7-Month Low: BI Chart
  • U.S. Retail Gasoline Drops for 4th Week as Supplies Remain High
  • Palm Oil Drops as Decline in Crude Oil Reduces Biofuel Appeal
  • Real-Life Na’vi Snub Billionaire Agarwal’s Bauxite Mining Plan
  • BHP Seeks Potash Partners After Approving $2.6 Billion Spend


























The Hedgeye Macro Team













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