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Is It Over?

“Insanity: doing the same thing over and over again, and expecting different results.”

-Albert Einstein


Is it over?


Well, it depends on what you think it is.


Is it the US Constitution? Is it the US Dollar? Is it US Growth?


Back to the Global Macro Grind


I’ll keep it tight this morning, because if I rant about what I really think about what Ben Bernanke did yesterday, I might lose some clients and have the NSA parked outside of my house.


While it was a great day for those of us who have been US stock market bulls in 2013, it was a very sad day for America.


Basically, Bernanke eviscerated almost my entire bull case for US growth accelerating from here, so it's a good thing he cut his GDP forecast. The best way to slow real (inflation adjusted) economic growth is by burning your currency.


To review the 3 core components of our 2013 bullish thesis for US #GrowthAccelerating:

  1. American Purchasing Power (US Dollar) stabilizes and strengthens by arresting policies to devalue the Dollar
  2. As purchasing power rises, American confidence, hiring, and spending does – rates rise too (it’s called a cycle)
  3. Economic cycles are reflexive – they feed on themselves, so the Fed needs to get out of this one’s way

None of that happened yesterday, because an un-elected central planner decided so. #perfect


Exactly what Jefferson and Franklin had in mind.



  1. After snapping my intermediate-term TREND line of $81.34, Bernanke smoked the US Dollar to a 6 month low
  2. Everything slow-growth went ape (to the upside); Gold, Bonds, Utilities, etc, – everything we don’t want to see
  3. And Emerging Markets went haywire (Turkey +7.6%, Indonesia +4.7%, India +3.7%, etc)

I have no doubt that everyone who is in the business of being long every recipient of the US Dollar devaluation had a great day. But that doesn’t do jack for the hard working American who will be taking this one in the pump and/or the conservative American saver who was actually getting something more than 0% for the last few months.


Bernanke should have respected Mr. Market’s long-standing American pro-growth signal of #StrongDollar, #CommodityDeflation, and #RatesRising – and he did not. Period. For that, he should feel shame.


So you tell me, is it over? And over for whom? Who is going to hold Bernanke accountable for:

  1. Renewing the American Tax at the pump (Dollar Down, Oil up on Bernanke is as potent as Assad)
  2. Cutting risk-free income on savings accounts (2yr yield just dropped 36% to 0.33%)
  3. Causing US GDP growth to go from 2.5% real to 1.5-2% (the GDP Deflator goes up when the Dollar goes down)

Is this all part of the class warfare thing Obama likes to talk about? Other than the political class, who, precisely, Mr. President, got paid by Bernanke’s un-objective and un-elected decision yesterday? Or did all those “folks” you’ve been standing up for refi whatever they have left on their house and buy Gold futures with it yesterday?


I clearly don’t get what Bernanke is trying to achieve by banning things like gravity, consumption tax cuts, and the economic cycle. But my gut says no one in America who doesn’t get paid to say they get it gets it either.  


Unlike the US Federal Reserve who has been behind the curve using broken forecasting models, my research team will continue to respect both the data and markets as leading indicators. That part of what we do isn’t over this morning. Neither will changing our mind as circumstances do.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.58-2.81


VIX 13.11-14.82

USD 80.12-81.34

Brent 109.04-111.76

Gold 1


Best of luck out there with your centrally planned day,



Keith R. McCullough
Chief Executive Officer


Is It Over? - chart


Is It Over? - z. vp 919

What Have You Learned?

This note was originally published at 8am on September 05, 2013 for Hedgeye subscribers.

“Wealth actually springs from the expansion of information and learning.”

-George Gilder


And here we were all thinking that innovation, growth, and wealth depended on what the Fed says next. Silly boys and girls of Keynesian academic dogmas we are sometimes…


In Chapter 5 of Knowledge & Power (pg 38), George Gilder nails something my Canadian craw has had a hard time articulating to both my partisan Democrat and Republican friends:


Believing that a weaker dollar is just the thing to spur a sluggish economy… they miss the consequent devaluation of all the assets of the country… abashed by Ivy League expertise, the great peril of establishment Republicans from the time of both Bushes… all cherish the illusion that leading Yale, Harvard, and Princeton economists possess vital wisdom about the economy. They generally don’t. Their preoccupation with static macroeconomic data blinds them to the actual life and dynamics of entrepreneurship.


Back to the Global Macro Grind


To learn (from new information channels) or not to learn, remains the question. Those of us building businesses on the back of our own risk capital actually have no other choice. It’s all about learning.


How quickly can we learn from our mistakes, biases, and dogmas? How flexible are we in implementing the constant change that we need in order to be successful? How readily do we dismiss perceived wisdoms for our visions of that change?


Sounds like the process of economic maestros in the Republican and Democrat parties, no? How about the “economists” of the #OldWall who Bush and Obama lovers cite as having “blue chip estimates” on the economy, markets, and #EOW (end of the world) risks?


On January 1st, 2013 here were #OldWall’s year-end (2013) forecasts for the SP500 and US GDP:

  1. Goldman (David Kostin): SPX 1575 on GDP of 1.9%
  2. Morgan Stanley (Adam Parker): SPX 1434 on GDP of 1.4%
  3. JP Morgan (Tom Lee): SPX 1580 on GDP of 1.8%

Now, to be fair, most buy-siders who get it would call Parker a perma-bear and Lee a perma-bull, so to see their views diverge is no surprise. What was surprising to me was that the most bullish guy on #OldWall (Tom Lee) wasn’t in the area code of what we call Bullish Enough.


Fast forward to this past weekend’s Barron’s forecasts (don’t laugh), here are the “revised” #OldWall forecasts:

  1. Goldman (Kostin): SPX 1750 on GDP of 2.2%
  2. Morgan Stanley (Parker): SPX 1600 on GDP of no one is sure
  3. JP Morgan (Lee): SPX 1775 on GDP of 2.5%



All these Keynesian “certainty” models do is anchor on the most recent SPX high and GDP report. Christie and Clinton better sign all these dudes up to advise them alongside Larry Summers (whose economic forecasting track record rivals Parker’s).


Stop it. I’m not trying to be mean. I’m an ex-athlete who is humbly trying to be one of your coaches. I’m just a little voice of annoyance in your ear so that you don’t get run over (I’ve never had a great coach who didn’t make me want to punch him every once in a while, fyi).


As a country (and a profession), after the mother of all global economics crises, what have we learned? Mr. Market helps us all learn in a hurry. Here are the main lessons of 2013:

  1. Be long growth (US growth stocks)
  2. Be short slow-growth (Gold, Bonds, MLPs, etc)

And that makes sense because, as the score board shows, even the most bullish of perma bulls weren’t Bullish Enough on US GDP Growth at the beginning of the year. Bears have been fighting the #GrowthAccelerating data since December. The best growth data of the 2013 (JUL-AUG) has coincided with the highest 10yr bond yields. That’s not Mucker’s genius. That’s just called an economic cycle.


Now you might say that the sell-side is “too bullish” because:

  1. The average SPX “target” has gone from 1531 to 1708
  2. The average GDP “target” has gone from 1.8% to 2.3%

But, if you are me, you’re saying who cares?


The consensus “forecast” by the sell-side only matters when it’s way outside of what your process says could happen. That’s already happened this year. Old News. The new news is that #OldWall’s latest forecast isn’t a forecast – it’s literally the last report:

  1. SPX closing high for the YTD = 1709
  2. US GDP Growth for Q213 = 2.4%



At the same time:

  1. VIX just failed @Hedgeye TREND resistance of 18.98 (again) = down -11% for SEP to-date
  2. II Bull/Bear Survey just clocked the lowest reading of “Bulls” since November 2012 at 37.1%

And that’s all I have to say about that.


Our immediate-term Risk Ranges are now (you can get all 12 Big Macro ranges in our new Daily Trading Range product):


UST 10yr Yield 2.74-2.94%

SPX 1643-1668

Nikkei 13739-14099

VIX 14.96-17.81

USD 81.81-82.67

Yen 98.49-100.12


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What Have You Learned? - Chart of the Day

What Have You Learned? - Virtual Portfolio


TODAY’S S&P 500 SET-UP – September 19, 2013

As we look at today's setup for the S&P 500, the range is 23 points or 0.96% downside to 1709 and 0.38% upside to 1732.                            













  • YIELD CURVE: 2.37 from 2.37
  • VIX  closed at 13.59 1 day percent change of -6.47%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init Jobless Claims, Sept. 14, est. 330k (pr 292k)
  • 8:30am: Current Acct Balance, 2Q, est. -$97b (pr -$106.1b)
  • 9:45am: Bloomberg Eco. Expectations, Sept. (prior -5)
  • 9:45am: Bloomberg Consumer Comfort (prior -32.1)
  • 10am: Leading Economic Indicators, Aug., est. 0.6% (prior 0.6%)
  • 10am: Philly Fed Business Outlook, Sept., est. 10.3 (pr 9.3)
  • 10am: Existing Home Sales, Aug., est. 5.25m (prior 5.39m)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Treasury’s plans for following wk sale, 2Y/5Y/7Y notes
  • 11am: Fed to buy $2.75b-$3.5b notes in 2020-2023 sector
  • 1pm: U.S. to sell $13b 10Y TIPS in reopening


    • U.S. House Speaker John Boehner, Majority Leader Eric Cantor, Majority Whip Kevin McCarthy, Republican Conf. Head Cathy McMorris Rodgers meet with Facebook CEO Mark Zuckerberg on immigration law
    • Finance ministers from Asia-Pacific Economic Cooperation group in Bali for 2-day summit
    • 9:30am: House Oversight Cmte hears from Thomas Pickering, chairman of Benghazi Accountability Review Board
    • 10am: Senate Homeland Security Cmte hearing on renewing U.S. Postal Service
    • 10am: Sen. Foreign Relations Cmte hears from Caroline Kennedy, nominated to be ambassador to Japan, at confirmation hearing
    • 3:30pm: House Armed Services hearing on lessons of Benghazi


  • JPMorgan said to pay $900m to settle London whale probes
  • CEO doesn’t expect criminal charges for bank, execs: NYPost
  • Wells Fargo eliminating 1,800 more mortgage production jobs
  • Activision’s stock sale blocked by judge over investor vote
  • Tesla CEO says co. to develop practical autopilot for Model S
  • Zuckerberg says undocumented in U.S. treated “unfairly”
  • Obama puts Lockheed, Merck, Pfizer, IBM CEOs on export council
  • Google may stop using cookies to track web users, WSJ says
  • Cisco execs accused in suit of aiding Falun Gong monitoring
  • Harrisburg, Pennsylvania, seeks court approval of debt plan
  • Grand Theft Auto sets $800m 1-day record for video game sales
  • JPMorgan said to underwrite Chrysler IPO, CNBC says
  • East West Bancorp to buy MetroCorp for $273m cash, stock
  • Icahn challenges corporate governance in WSJ opinion piece


    • Cintas (CTAS) 4:15pm, $0.63
    • ConAgra Foods (CAG) 7:30am, $0.39
    • IHS (IHS) 6am, $1.17
    • Pier 1 Imports (PIR) 6am, $0.21
    • Rite Aid (RAD) 7am, $(0.04) - Preview
    • TIBCO Software (TIBX) 4:05pm, $0.22


  • Wall Street Defends Commodity Trades Against Regulatory Scrutiny
  • Lead Glut Diminishing as Bear Market Shuts Smelters: Commodities
  • Copper Touches Three-Week High as Fed Continues U.S. Stimulus
  • Brent May Target $115 If Resistance Breached: Technical Analysis
  • Soybeans Climb for Second Day as China Buys More U.S. Supplies
  • Sugar, Coffee, Cocoa Advance as Fed Unexpectedly Keeps Stimulus
  • Gold Fluctuates in London After Surging on Fed Stimulus Plans
  • Red Kite Spins Off RK Mine Finance Fund II Under Oskar Lewnowski
  • Commodity Revenue at Top Banks Climbs in Asia as Loans Rise
  • Carbon Trade Seen Losing Globally in Aussie Vote: Energy Markets
  • Cotton Output in Australia to Drop as Drought Curbs Planting
  • Cheese Maker Uses Pig and Cow Poop to Trim U.K. Energy Bills
  • Copper Exchange Stocks-to-Use Ratio at 10-Month Low: BI Chart
  • JPMorgan Leads Banks in Commodities Revenue Followed by Goldman


























The Hedgeye Macro Team













FDX: Another Notch of Credibility



We will save our main commentary until after the 10-Q tomorrow, but we think it is fair to say that the FedEx report today exceeded muted expectations and added credibility to the Express restructuring program.  FedEx continues to show that it can deliver higher Express margins and, as it does, the market should move to price in continued success.  We continue to think that there is significant potential value at FedEx Express that the market is not pricing in. 



The Quarter vs. Our Thesis

  • Express Margin:  Despite continued negative mix of IE/IP, FedEx Express held onto its 50 basis points of margin expansion from FY4Q (YoY).  That is good enough, since we would guestimate a net headwind of 10 to 30 basis points from mix, fuel, depreciation etc.
  • Valuation & Sum of the Parts:  As the shares move higher, our DCF-based fair value range suggests a bit less upside.  That said, in this market, the potential still looks favorable.  There was nothing new that moved the needle on our valuation.  An updated sum of the parts presentation showing the low implied market valuation for FedEx Express is presented below.

FDX: Another Notch of Credibility - as1


  • Thesis Playing Out:  We think the market has been overly fixated on the 'trade down' headwinds at FDX, while missing the underlying potential of FedEx Express.  FedEx Express is a competitively advantaged player in a structurally favorable industry.  Many of its challenges have been self-imposed, with higher energy costs and inventory trends filling the balance that are not.  We believe that FedEx Express should be able to meet or exceed competitors’ margins in pretty much any operating environment.  This was just the second quarter where we have seen a focus on closing that gap, with further progress likely through FY14 and FY15. 
  • Pricing In Success:  As FedEx gains credibility on the Express restructuring, the market is likely to price in success well before it is actually completed.   That anticipation may explain the strong reaction to merely maintaining the FY4Q 2013 Express margin gains amid a more difficult operating environment.  


We continue to think that FDX will prove a rewarding long-term position, as FedEx Express focuses on profitability instead of market share.  FedEx is also well positioned to benefit from signs of stronger economic growth.







Jay Van Sciver, CFA

Managing Director

111 Whitney Avenue

New Haven, CT 06510


The Outlook on U.S. Debt + Growth

In the Hedgeye Chart of the Day below, we show the trend in the Deficit-to-GDP ratio. After reaching a peak of ~10% in 2009, the ratio has showed steady decline with accelerating improvement over the last year, alongside stronger economic growth, higher taxes, a retreat in stabilizer payments, and a number of non-recurrent inflows.   


The Outlook on U.S. Debt + Growth - drake1


We expect the ratio to retreat further as the domestic macro data continues to reflect ongoing, albeit modest, improvement. 


Indeed, yesterday, in its latest update to the long-term budget outlook (Here), the CBO projected deficit spending would continue to drop over the next few years, falling to 2% of GDP by 2015 with the Debt-to-GDP ratio declining to 68% from its current level of ~73%. 


Yes, we are keenly aware that the long-term budget outlook, saddled with unsustainable growth in entitlement obligations, remains dire. We’ll break down the budget outlook in detail, by duration, in subsequent notes, but the key takeaway here is that the outlook for both growth and debt spending over the intermediate term remains positive.   


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[VIDEO] McCullough: Bubbles Starting to Pop

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