Short BWP – New Best Idea

We are adding SHORT Boardwalk Pipeline Partners (BWP) to our Best Ideas list.


BWP is a $6.4 billion market cap MLP primarily engaged in the transportation and storage of natural gas in the south/central US.  The diversified holding company Loews Corp. (L) owns the 2% GP interest in BWP, all IDRs (currently in the 50/50 split), and 52% of the BWP’s outstanding common units.


BWP is a high-conviction short idea given the Company’s deteriorating base business, aggressive accounting, high leverage, unsustainable distribution, valuation, and more...


Our full report on BWP will be published Thursday morning, 12/5; later, at 11am EST, we will host a brief call to discuss the key points of our thesis and field questions.  Hedgeye Energy clients will receive both the report and conference call dial-in information on Thursday morning.


Kevin Kaiser

Managing Director


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Weird Bubbles

This note was originally published at 8am on November 18, 2013 for Hedgeye subscribers.

“If we’re in a bubble, it’s the weirdest bubble I have ever seen, where everybody hates everything.”

-Mark Andreesen


From both a US economic growth and stock market perspective (not one and the same thing), there was a lot of truth in Andreesen’s general statement – if he said it precisely a year ago (he said it on May 1, 2012 with the SP500 at 1406).


A full year ago today, the US economy was tracking 0.14% in the 4th quarter of 2012, US Treasury Yields were a full 100 basis points lower (10yr = 1.70%, all-time lows), and the SP500 was at 1360. So if you bought what everyone hated (growth), and shorted what everyone was clinging too (Gold and Bonds), you crushed it.


Does that make today a bubble? Or was there a bubble back then in fear? Up +32.2% from November 16th, 2012 is the SP500 a bubble? Barrons says “Yes” (in a few names), but “No” (in most names)” and our new central planning diva, Janet Yellen, says “No” (anywhere)… So I’ll agree with Andreesen - there are plenty of weird bubbles; some of the weirdest markets have ever seen.


Back to the Global Macro Grind


Most pundits and politicians who have never forewarned you of a bubble live in their own conflicted and compromised bubble. Most “market-equilibrium” people think bubbles are measured by “valuation.” And most market-practitioners call bubbles things that start to make lower-highs versus their all-time highs in price.


Well, maybe not most market-practitioners. But that’s how this one thinks. And yes, I’m perfectly happy to be in my own little bubble as a write about bubbles from my hotel room on the Santa Monica, California coastline this morning!


At the end of the day, calling something that’s up a “bubble” is about as useful as having another leg in a one-legged butt kicking contest. If you are going to run around trying to make news calling things bubbles, you better be short them, publicly, with timestamps.


To review what we have been calling the Bernanke Bubbles for the last year:

  1. Gold
  2. Bonds
  3. MLPs

MLPs are master limited partnerships. If you don’t know what those are, don’t worry about it. We’ll boil it down for you – they are the sub-asset class of equities that look most like a bond that slow-growth Yield Chasing investors have found tax refuge in.


All 3 of these bubbles have 3 things in common:

  1. They had almost bullet proof storytelling narratives that lasted on the order of 1-3 decades
  2. Their asset prices confirmed the storytelling (making higher-highs) until they all topped in 2011-2012
  3. They’re now all making a series of lower-highs as interest rates make a series of higher-lows

Now, as you all know, all-time is a long time. So this concept of US 10yr Treasury Bond Yields making an all-time low when US Growth expectations were bottoming in November 2012 can make for some exciting causal relationships.


The relationship between interest rates and 0%-rates-forever-bubbles isn’t weird at all. It makes perfect sense. That’s why the upside down of repressed growth expectations (US Growth Stocks) have bubbled up to bring the US stock market to all-time highs:


From a US stock market “Style Factor” perspective, check out the score:

  1. LOW YIELD (i.e. GROWTH) stocks = +40.4% YTD
  2. Top 25% EPS GROWERS (by SP500 quartile) = +37.2% YTD
  3. HIGH BETA stocks = +35.8% YTD

As my boy Jesse Pinkman would say, that growth stuff is “awesome!”


At the same time, the slow-growth-end-of-the-world-fear trade score for 2013 YTD is:

  1. US Equity Volatility Fear Index (VIX) = crashing -32.4% YTD
  2. Gold = crashing -23.6% YTD
  3. UST 10yr Bonds Yields = +54% YTD

In other words, there was this Weird Bubble in fear-mongering that consensus got sucked into last year that popped as everyone trying to call the top in a said “US stock market bubble” ended up being a bubble themselves.


US stock market bears hate that. Another way to measure their “hate” is how well short-interest has performed in 2013. As a “Style Factor”, High Short Interest stocks in the SP500 are currently +31.8% YTD, outperforming the SP500 by +570 basis points.


And that’s why I’ve been so quick to cover “growth” shorts throughout October. Holding the bag on a bubble of fear isn’t exactly how I roll. Neither is holding onto the long side of bubbles (like Gold and Bonds) that are still very much in crash mode.


My holding period on Gold was 72 hours. And I’m not going to apologize for that. I had my catalyst (Yellen being who she is) and I booked that small gain on the event day. I cut my “crazy eights” exposure to both US stocks and bonds in half on that too.


Bubble or no bubble. Weird or not weird. Mr. Macro Market couldn’t care less what we think about markets. He is designed to punish the largest amount of people (consensus) at the most inopportune time. So #GetActive out there, and keep moving.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.66-2.81%

SPX 1773-1803

VIX 11.91-14.35

USD 80.54-81.39

Brent 106.04-108.69

Gold 1260-1308


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Weird Bubbles - Chart of the Day


Weird Bubbles - Virtual Portfolio

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real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.


TODAY’S S&P 500 SET-UP – December 2, 2013

As we look at today's setup for the S&P 500, the range is 18 points or 0.49% downside to 1797 and 0.51% upside to 1815.                                                      










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.51 from 2.46
  • VIX closed at 13.7 1 day percent change of 5.55%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Fed’s Bernanke at “College Fed Challenge” in D.C.
  • 8:58am: Markit US PMI Final, Nov., est 54.3
  • 10am: ISM Manufacturing, Nov., est. 55.0 (prior 56.4)
  • 10am: Sept/Oct construction spending data released
  • 7pm: Fed’s Potter speaks to Money Marketeers in New York


    • House in session
    • House Oversight and Govt Reform Cmte hears from Washington, D.C., planning officials on whether to alter a 1910 federal law restricting building heights in the U.S. capital
    • Biden visits Japan as part of Asia trip w/ China air-zone issue in forefront


  • Amazon testing drones for same-day package delivery: CBS
  • Black Friday weekend spending drop pressures U.S. profit
  • ComScore says online holiday-to-date sales up 3% to $20.6b
  • NRF sees 141m shopping Thanksgiving wknd vs 139m y/y
  • Cyber Monday seen drawing 131m shoppers, up 1.6% y/y
  • U.K. fund mgrs press FCA for more disclosure on forex-rigging
  • GrainCorp CEO resigns after $2b ADM takeover blocked
  • ADM’s GrainCorp bid would’ve been blocked by others: Abbott
  • Ex-BP engineer begins first criminal trial from 2010 oil spill
  • Barrick’s Thornton said to seek China deal to rebuild miner
  • Panasonic in talks for auto parts makers in expansion hunt
  • Stakes for Obamacare raised as U.S. says repair goals reached
  • China’s manufacturing tops ests. in growth boost for Li
  • China sets IPO reform plan signaling end of listings freeze
  • Facebook in talks for 1st acquisition in India: Standard
  • PTTEP, Pertamina agree to buy $1.3b Hess Indonesia assets
  • UBS plans EU1.75b bonds buyback to lower funding cost
  • Euro-area manufacturing expanded more than estimated in Nov.
  • NYC derailment kills 4, may snarl commuter traffic


    • Ascena Retail (ASNA) 4pm, $0.32
    • Krispy Kreme (KKD) 4:03pm, $0.15
    • Thor Industries (THO) 4:15pm, $0.71


  • Gold Falls on Speculation U.S. Data to Boost Case for Tapering
  • Worst Raw-Material Slump Since ’08 Seen Deepening: Commodities
  • OPEC VIENNA: Ministers Expected to Arrive Today Before Meeting
  • Copper Declines Amid Signs Investors Are Shunning Raw Materials
  • Soybeans Rise to 10-Week High as Demand for U.S. Supply Climbs
  • Iron Ore Exports to China Decline From Port Hedland in November
  • Palm Oil Retreats a Second Day as Exports From Malaysia Decline
  • Barrick’s Thornton Said to Seek China Deal to Rebuild Miner
  • OPEC Inaction Masks Looming Supply Glut in 2014: Energy Markets
  • Stocks Triumph Third Month in Best Run Since 2009 as Gold Sinks
  • Robusta Coffee May Climb to October Level: Technical Analysis
  • Pirates Wielding Grenades Spur Japan to Ease Samurai-Era Gun Ban
  • EU Periphery Refineries Most Threatened by Closure: 2014 Outlook
  • WTI Crude Gains as China’s Manufacturing Growth Beats Estimates


























The Hedgeye Macro Team















The Economic Data calendar for the week of the 2nd of December through the 6th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




Takeaway: Current Investing Ideas: BNNY, CCL, FDX, FXB, GHL, HCA, MD, NKE, RH, SBUX, TROW and WWW

In light of the holiday shortened trading week, we have chosen to highlight three timely, topical and potentially profitable investment ideas below that we sent out recently to our institutional clients. We will resume our usual stock updates next week.


We would like to take a moment to thank you for making all that we have set out to achieve here at Hedgeye possible. We’re going on 6 years since the founding of our firm. You have helped us create 50 jobs in America. More to come. For that we are grateful.


Enjoy your holiday weekend.


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Gold: Is It Time To Get Back In On The Long Side?

Right now may be a bit early, but gold is shaping up to be a compelling long idea heading into 2014 according to Hedgeye's Macro Team. Since the start of November, Keith has been trading gold with a bullish bias in our Real-Time Alerts signaling product. This is a marked shift from having traded gold with a largely bearish bias since late 2011. All told, we think a waning threat of tapering, at the margins, is likely to serve as a positive catalyst for the price of gold.



E-Cigs at the Thanksgiving Table

We continue to express great excitement in the growth prospects for the e-cigs, despite its current diminutive size (~ 1% of the $800B global tobacco market).  We expect consumer interest in and investment behind e-cigs to grow, especially following “Big Tobacco’s” entrance into the category.  We think e-cigs demonstrate truly disruptive and compelling innovation and are bullish on the U.S. and global runways for the category.



#Rates-Rising: A Current Look At Rate Sensitivity Across Financials

Our Financials Sector Team led by Josh Steiner and Jonathan Casteleyn present their latest thinking about rate sensitivity across the Financials sector. Rates will be your best friend or worst enemy. Steiner and Casteleyn look across the FIG sector for the names with the most quantified exposure, + or -, to rates.



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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.