Macro Tricks

This note was originally published at 8am on August 20, 2013 for Hedgeye subscribers.

“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%

SPX 1642-1676

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

September 3, 2013

September 3, 2013 - dtr



September 3, 2013 - 10yr

September 3, 2013 - spx

September 3, 2013 - dax

September 3, 2013 - nik

September 3, 2013 - dxy

September 3, 2013 - euro

September 3, 2013 - oil

September 3, 2013 - natgas2



September 3, 2013 - VIX

September 3, 2013 - yen
September 3, 2013 - gold

September 3, 2013 - copper


TODAY’S S&P 500 SET-UP – September 3, 2013

As we look at today's setup for the S&P 500, the range is 30 points or 0.12% downside to 1631 and 1.72% upside to 1661.          










  • YIELD CURVE: 2.41 from 2.39
  • VIX  closed at 17.01 1 day percent change of 1.19%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:58am: Markit US PMI Final, Aug.
  • 10am: Construction Spending, July, est. 0.4% (prior -0.6%)
  • 10am: ISM Manufacturing, Aug., est. 54 (prior 55.4)
  • 10am: IBD/TIPP Eco. Optimism, Sept., est. 46 (prior 45.1)
  • 11:30am: U.S. to sell $30b 3M, $25b 6M bills
  • 4pm: USDA crop-conditions report


    • President Obama travels to Sweden for talks on trade


  • Microsoft to buy Nokia’s handset business for $7.2b
  • Microsoft, ValueAct pact has option for Morfit to join board
  • Verizon to buy Vodafone’s 45% stake in Verizon Wireless for $130b
  • Vodafone to look at acquisitions if value creation seen
  • Vodafone U.S. wireless exit not so simple for holders
  • Verizon-Vodafone talked merger before agreeing to stake sale
  • CBS deal ends blackout on Time Warner Cable ahead of NFL season
  • Obama begins push to get Congress behind Syria action
  • Bank of America seeking $1.5b in China Construction Bank offer
  • China PMI manufacturing activity rises to 16-month high
  • Russia detected missiles targeting East Mediterranean, RIA says
  • Jarden to buy Yankee Candle for $1.75b: WSJ
  • BofA $160m Merrill bias deal goes to once-skeptical judge
  • Banks must boost swaps-trade collateral under Basel plan
  • FSB to set creditor-loss rules for failing banks
  • Coca-Cola Femsa to buy Brazil’s Spaipa in $1.86b deal


    • ABM Industries (ABM) 5pm, $0.39
    • Guidewire Software (GWRE) 4:01pm, $0.14
    • H&R Block (HRB) 4:03pm, $(0.37)


  • Gold Swings Below $1,400 After Report on Mediterranean Missiles
  • Copper Rally Reversing as Glut Expands to ’01 High: Commodities
  • Brent Oil Fluctuates as Lawmakers Urge Military Action on Syria
  • Soybeans Climb Most in Week as Lack of Rain May Hurt U.S. Crops
  • Copper Declines Following Report of Detection of Missile Launch
  • Nickel Seen Falling Toward Four-Year Low: Technical Analysis
  • Sugar Climbs in New York on Signs of Import Demand; Cocoa Gains
  • Natural Gas Rises as Warm-Weather Forecast Boosts Demand Bets
  • Gold Miners Set to Start Strike as South Africa Stoppages Spread
  • Tankers Worst Since 1997 as Africa Oil to China Slows: Freight
  • Carbon’s Four-Month Rally Faces EU Permit Hurdle: Energy Markets
  • Decades of Ruptures From Defect Show Perils of Old Pipe: Energy
  • Steel Demand May Follow Rig Count Higher as Crude Climbs
  • Rebar Falls First Time in Three Days as Demand Trails Futures


























The Hedgeye Macro Team













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Innovation's Hand

Economists everywhere have counseled governments to attend to everything except what matters most: innovation.”

-George Gilder


When Adam Smith published Wealth of Nations (1776), he wasn’t thinking about the American Revolution or Twitter – neither was he considering real-time streaming information in the palm of your hand as a birth child of Silicon Valley-style free market capitalism.


“The Wealth of Nations depicts macroeconomics as a “Great Machine” in which every cog of every gear, governed by an “invisible hand,” functions perfectly in its time and place, as smoothly and reliably as Newton’s gravity.” (Knowledge & Power, pg 28)


While that might make for an tidy intro to an economics textbook at Yale, it doesn’t reflect the new reality of what we’ve learned about economies and markets. They are non-linear. And they observe large doses of surprise (entropy), whose “opposites are predictability, order, equilibrium, and tyranny” (pg 34 - Gilder absolutely nails our framework in chapter 4, “Entropy Economics”).


Back to the Global Macro Grind


After the lowest volume week of 2013, the SP500 holds @Hedgeye TREND support of 1631 and #RatesRising looks just about right again this morning. We like growth stocks. We don’t like Gold or Bonds. Welcome to September.


“The most important feature of an information economy, in which information is defined as surprise, is the overthrow, not the attainment of equilibrium.” (Knowledge & Power, pg 30)


I make lots of little mistakes, but the baseline process behind not making the really big macro mistakes adheres to the 2nd law of thermodynamics (entropy). Assuming Bernanke’s Fed (and the entire bond market) wouldn’t be surprised by bullish economic surprises has rendered itself the biggest macro mistake you could have made in 2013.


Why did the SP500 hold TREND support last week?

  1. JOBS: US weekly jobless claims hit another fresh YTD low last week (NSA rolling avg = -10.6% y/y, YTD lows)
  2. GROWTH: New Orders component of the August PMI accelerated to 57.2 versus 53.9 in July (fresh YTD highs)
  3. CONFIDENCE: US Consumer Confidence (U of Michigan Survey) bumped back up to 82.1 AUG vs 80.0 last

Well, maybe that’s not why the US stocks held support – maybe it’s just coincidence. But in our model all economic surprises matter to the extent that the market says they do. Against the heavy-hands of your big government gods, US interest #RatesRising  (see 10yr US Treasury Yield in our Chart of The Day) has fit US #GrowthAccelerating data since last November like a glove.


And, sorry Krugman fans – this simple real-time market model fits almost perfectly in the birthing zones of John Maynard Keynes and Adam Smith themselves. Check out the direness of it all, born out of UK style austerity:

  1. United Kingdom Producer Manufacturing Index (PMI) for AUG = 57.2 versus 54.6 in JUL = new highs
  2. United Kingdom Construction PMI for AUG = 59.1! (versus 57 in JUL) = new highs
  3. UK 10yr Gilts (Bonds) up to 2.84% this morning = +44bps (+18%) month-over-month (+121bps y/y)

Maybe that’s why the UK stock market (FTSE) held its intermediate-term TREND support line of 6378 too. Maybe not – maybe it’s just coincidence. Regardless, if the world is really ending, I don’t mind living in it while it lasts.


I know it’s crazy, but I have to say I’m loving life and Innovation’s Hand altogether this morning. Information empowers the average person like me to take on the tyranny of perceived wisdoms. Summer time is over, and it’s time to create!


Are you crazy? I can be; especially when I get bullish. June got me more bullish on buying growth (and shorting slow-growth assets like Bonds, MLPs, etc.). So did August. This time I could be dead wrong. But if I’m wrong that will mean consensus finally has it right.


Here’s my real-time sanity (consensus sentiment) check:

  1. Front-month fear (US Equity VIX) just ripped a +23% w/w move to another lower-high (TREND = 18.98 resistance)
  2. II Bull/Bear Survey just registered the least amount of Bulls in 2013 at 38.1%
  3. II Bull/Bear Spread (Bulls minus Bears) just dropped from +3310 in the 1st wk of AUG to +1460

In other words, since the US stock market registered all-time highs (1st week of August 2013):

  1. VIX = +44%
  2. II Bull/Bear Spread = -56%

And that’s ahead of the seasonal headwind in the most important leading indicator for US employment #GrowthAccelerating (NSA rolling Jobless Claims) turning into a tailwind (until February 2014) in September.




And so are the entrepreneurs and innovators who have been getting it done while a bunch of politically-partisan and compensation-conflicted folks in this country have spent the last 9 months whining.


We’ve always been the backbone of American Free-Market Capitalism, and unless you let some government dude take that liberty away from us, we’ll be cranking out the change you all want to see in this country while Krugman is sleeping.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield = 2.71-2.93%


DAX 8180-8292

Nikkei 13,362-13,998

VIX 15.74-17.81

USD 81.83-82.29


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Innovation's Hand - Claims vs 10Y 082913


Innovation's Hand - Virtual Portfolio

Alpha Baby!

This note was originally published at 8am on August 19, 2013 for Hedgeye subscribers.

“I think I’m different. I’ve got alpha, baby.”

-Andy Kessler


That’s a quote from Andy Kessler’s foreword to the latest book that has surfaced to the top of my reading pile, Knowledge and Power, by “techno-utopian intellectual” (per Wikipedia), George Gilder.


“Everyone says that, of course, but most investors are all beta… when markets go up the beta warriors outperform, and when markets go down they get killed.” (Knowledge and Power, pg xii)


That sounds about right. If you want to see what the getting “killed” part looks like, check out the 2013 YTD returns of PMs who levered themselves up long of the bond market as it was traversing its all-time bubble highs.


Back to the Global Macro Grind


As a macro risk manager, most of your alpha is generated by not being long the stuff that is getting killed. From January to July, that meant not being long Gold, Silver, etc. Since May/June, that’s meant being out of Bunds, Gilts, and Treasuries.


No, we don’t have to wake up every morning and nail every tick in Apple (AAPL) to help you generate risk-adjusted alpha. Our primary risk management focus has always been aligned with Buffett’s 1st rule of investing – “Don’t lose money.”


I think I’m different because I’ve got the ability to cut an asset allocation to 0%. #OldWall banks and broker dealers won’t opt for that strategy because they need to support their new issue markets. Rule #1 (for them) is more like ABS (always be selling).


We have a 0% asset allocation right now to Fixed Income because it’s the 1st time we’ve ever had 2 of our top 3 Global Macro risk management themes focused squarely (and bearishly) on bonds:

  1. #RatesRising (
  2. #DebtDeflation (

Since these are Q313 themes and the quarter is almost half over now, we’ve re-produced these themes with our new @HedgeyeTV videos (links attached) in order to re-communicate our strongest slides on the subject matter.


The latest addition to our senior research team, Director of Financials Research, Jonathan Casteleyn, also has a video up on the front page of our site titled “Bond Bear Market: Just Beginning.” So we think we’re being pretty clear on our view here.


So far, in July-August, Mr. Market agrees. Month-over-month, look at what’s happened to 3 major sovereign debts:

  1. US 10yr Treasury Yield = +36 basis points (+14%) to 2.85%
  2. Germany’s 10yr Bund Yield = +38 basis points (+25%) to 1.90%
  3. UK 10yr Gilt Yields = +43 basis points (+19%) to 2.70%

So, US stocks finally having a down-week for once notwithstanding, this is where the real negative alpha is eating into the standard #OldWall pie of asset allocations – via #DebtDeflation.


The economic data in the 3 aforementioned countries supports #RatesRising. Germany’s data has improved, sequentially, for the past few months and the UK’s data has been nothing short of fantastic relative to both absolute levels of years past and market expectations. In the USA, jobless claims shocking to the upside drove last week’s +25 basis point week-over-week move too.


Now that the SP500 has corrected -3.2% from its all-time closing high of 1709 in the first week of August, we have to ask ourselves (as we have many times this year) if we A) buy the equities dip or B) join the long list of #PTCs (professional top callers) who have had issues understanding that this is a growth investors market.


If you have a 0% asset allocation to US Fixed Income, your job gets a little less complex. If you just have to break-down the US Equity pieces of the Sector Style Factor pie, you’ll note that the slow-growth sectors still look the worst, especially for the month of August to-date:

  1. Utilities (XLU) lead losers at -4.4% MTD
  2. Healthcare (XLV) is -3.2% MTD
  3. Consumer Staples (XLP) is -2.7% MTD

In other words, with the SP500 -1.77% MTD, being “overweight” those slow-growth sectors is also a negative alpha position relative to something that’s growthier, like Tech (XLK), which is +0.3% for August to-date.


Don’t get me wrong, there are plenty of things out there that concern me about being long US growth equities. There always will be. But the market A) doesn’t care about my concerns and B) is a lot more concerned with the bubbles that are popping in anything fixed income and/or Yield Chasing that Bernanke #force-Fed people into over the last 5 years.


Getting out of the way of Bernanke’s Bubbles as they are popping – it’s the new alpha, baby!


Our immediate-term Risk Ranges are now:


UST 10yr 2.67-2.86%

SPX 1642-1678

VIX 13.21-15.22

USD 80.91-81.96

Yen 97.21-98.16

Gold 1326-1385


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Alpha Baby! - Chart of the Day


Alpha Baby! - Virtual Portfolio