Laugh, Smile

“There is nothing in the world so irresistibly contagious as laughter.”

-Charles Dickens


Charles Dickens started writing A Christmas Carol in 1843 as a progressive economic answer to the fear-mongering of the politicians of his age. Negativity, after all, is a long-standing and regressive (but effective) political strategy.


Sylvia Nasar quotes Dickens in Grand Pursuit - he called his story “a tale capable of twenty times the force - twenty thousand times the force of a political pamphlet.” The narrative “argues the economic historian James Henderson, is an attack on Malthus… an England characterized by New world abundance rather than Old World scarcity.” (Nasar, pg 7)


New versus old. Rich versus poor. These are timeless realities of life. But they don’t always have to oppose one another. Leaders, across centuries, have found a positive alternative to perdition’s path. This time was not “different.” There was no “new normal” either. Like laughter, the truth is contagious. And the truth is that patterns of human behavior and business cycles repeat.


Back to the Global Macro Grind


The SP500 and Gold are up 401 points (+28.1%) and down $475 (-28.3%), respectively for 2013 YTD. Depending on who you are talking to, that reality will either make them laugh or cry!


As Dickens wrote in A Christmas Carol, “no space of regret can make amends for one life’s opportunity misused.” And oh boy was investing in growth (and shorting fear) quite the opportunity.


Since my kids are giving me an opportunity to laugh and smile this morning, I’ll keep the rest of my Christmas Eve note to just levels. It’s Daddy’s day off, allegedly.


Top 10 Bullish TRENDS @Hedgeye (and their immediate-term TRADE risk ranges)


1. UST 10yr Yield 2.88-2.95% (bullish)

2. SP-1835 (bullish)

3. Nasdaq 4047-4158 (bullish)

4. Germany’s DAX 9197-9533 (bullish)

5. UK’s FTSE 6 (bullish)

6. Japan’s Nikkei 159 (bullish)

7. British Pound 1.62-1.64 (bullish)

8. Euro (EUR/USD) 1.36-1.38 (bullish)

9. Brent Oil 109.89-112.12 (bullish)

10. Natural Gas 4.36-4.51 (bullish)


Top 10 Bearish TRENDS @Hedgeye (and their immediate-term TRADE risk ranges)


1. BOND (PIMCO Total Return Fund) 104.31-105.32 (bearish)

2. Long-term Treasuries (TLT) 102.08-104.77 (bearish)

3. Short-term Treasuries (SHY) 84.09-84.57 (bearish)

4. Emerging Markets (MSCI EM Index) (bearish)

5. Brazil’s Bovespa 49,308-52,172 (bearish)

6. US Equity Volatility (VIX) 12.56-14.91 (bearish)

7. Gold 1179-1221 (bearish)

8. Silver 19.01-19.97 (bearish)

9. Wheat 5.89-6.38 (bearish)

10. Japanese Yen (vs USD) 102.48-104.92


Most of these intermediate-term bullish and bearish TRENDs aren’t new as of this morning. With sporadic ramps in fear, they’ve been trending for the better part of a year now. What a year it’s been.


From our family and firm to yours, we’d like to thank you for your business and wish you both a very Merry Christmas and a Happy Holiday season,




Keith R. McCullough
Chief Executive Officer


Laugh, Smile - Chart of the Day


Laugh, Smile - Virtual Portfolio

Merry Xmas Bulls

Client Talking Points


The Burning Yen is making a fresh year-to-date low of 104.33. Naturally, the Nikkei is making a fresh 6-year closing high on that at 15,589. Nikkei is up over 55% year-to-date. Bottom line is get USD/YEN right, you get Japanese stocks right. What's that? The US Dollar is up another +20 basis points this morning? Exactly. 


It's a fresh 3-month high for #RatesRising up to 2.94%. We are testing the top-end of my immediate-term 2.88-2.95% risk range. Bond outflows (equity inflows) are going to be real tough to fight in January. We are short Pimco’s BOND.


With the S&P 500 up +401 points year-to-date, it’s a Merry Christmas Eve! Higher-lows and higher-all-time-highs are bullish, until they are not. While buying-the-damn-bubble #BTDB may not sound polite, it is what has been working. A stronger US Dollar and #RatesRising can very much perpetuate that further. SPX risk range is 1796-1835.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


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.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


GOLD: pathetic bear mkt bounce of +0.1%, -28.3% YTD @KeithMcCullough


You really have to love yourself to get anything done in this world. -Lucille Ball


Nine-in-ten Americans say they celebrate Christmas, and three-quarters say they believe in the virgin birth of Jesus. But only about half see Christmas mostly as a religious holiday, while one-third view it as more of a cultural holiday. Virtually all Christians (96%) celebrate Christmas, and two-thirds see it as a religious holiday. In addition, fully eight-in-ten non-Christians in America also celebrate Christmas, but most view it as a cultural holiday rather than a religious occasion. (Pew)

Volatility Crasheth

Takeaway: Volatility is back into crash mode.

Volatility (VIX) was down -12.5% last week. It's back into crash mode for 2013 (down -23.5% year-to-date) alongside Gold.


Both of them hate the whole #RatesRising on growth surprising to the upside thing.


More importantly, the VIX is under our 14.91 Hedgeye TREND line again. That of course is bearish for the VIX.


Volatility Crasheth - drakevix

Editor's note: This is an excerpt from Hedgeye's Monday morning research. For more information on how you can join the revolution click here.

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.

December 24, 2013

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TODAY’S S&P 500 SET-UP – December 24, 2013

As we look at today's setup for the S&P 500, the range is 39 points or 1.75% downside to 1796 and 0.38% upside to 1835.                                           










THE HEDGEYE DAILY OUTLOOK - 10A                                                                                                                                                                  



  • YIELD CURVE: 2.56 from 2.54
  • VIX closed at 13.04 1 day percent change of -5.44%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Dec. 20 (prior -5.50%)
  • 7:45am: ICSC weekly sales
  • 8:30am: Durable Goods, Nov., est. 1.7% (pr -2%, rev -1.6%)
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: FHFA House Price Index m/m, Oct., est. 0.4% (pr 0.3%)
  • 10am: New Home Sales, Nov., est. 444k (prior 444k)
  • 10am: Richmond Fed Manufacturing Index, Dec. (prior 13)
  • 4:30pm: API weekly oil inventories


    • Yday’s deadline extended to midnight today for Americans who want coverage effective Jan. 1 under ACA; hundreds of thousands whose health plans are being canceled as their coverage doesn’t meet rules are exempt next yr
    • Federal govt. offices close early


  • JPMorgan boosts banker pay as Morgan Stanley adds cash: WSJ
  • U.S. store traffic sinks 21% as last-ditch deals flop
  • KKR raises $1.5b for property in North America and Europe
  • Blackstone-backed La Quinta files confidentially for U.S. IPO
  • Hyundai, Kia paying as much as $395m to settle U.S. suits
  • China money rate tumbles most since 2011 as PBOC injects cash
  • JPMorgan boosts debit-card spending limits after Target breach
  • Time Warner Cable deal unlikely to hit barriers with regulators
  • Weinstein European bet said to spur 2nd losing yr for Saba
  • Apple-backed Rockstar said to hold discussions to sell patents
  • W.R. Grace bank settlement opens path to exit from bankruptcy
  • Tesla Model S keeps NHTSA 5-star rating amid U.S. safety review


    • No S&P 500 co. earnings scheduled today


  • Brent Crude Futures Rise on Escalating Violence in South Sudan
  • Rusal Claims LME Warehouse Rule Changes ‘Irrational’, HKEx Says
  • Metals Seen Rallying With Crops After Record Tumble: Commodities
  • Copper Rises a Third Day as China’s Central Bank Adds Liquidity
  • Cotton Gains After Report of Damage at Warehouse; Sugar Falls
  • Gold Swings as Investors Weigh Economy Against Physical Buying
  • Wheat Trades Near 19-Month Low as Investors Weigh Price, Supply
  • China Beef Imports Seen Doubling by Rabobank Over Five Years
  • Rebar Rises From Four-Week Low as China Vows to Curb Pollution
  • Rubber Surplus Seen Expanding as Production Outpaces Demand
  • Paris Wheat May Gain 1.7% as 50-Day MA Holds: Technical Analysis
  • Brazil’s BTG Pactual Said to Expand Commodities Hedging, Trading
  • Iran Oil Exports Slow to Rise Amid Sanctions, Insurance Limits
  • Brent Price Movements Partly Linked to Libyan Oil Supply Cuts


























The Hedgeye Macro Team















Ferocious Determination

This note was originally published at 8am on December 10, 2013 for Hedgeye subscribers.

“… self assured, guided by his own ferocious determination.”

-Doris Kearns Goodwin


No matter what your views are on how this epic market move ends, you have to find it within yourself to find a way to win. This has nothing to do with what you’d like your former free-markets to be; it has everything to do with risk managing what they have become.


The aforementioned quote is one that defined President Teddy Roosevelt’s character at a very young age. “Teedie (his nickname) held a distinct place among his siblings; the asthma that had weakened his body seemed to have inordinately sharpened his mind and sensibilities… he was always reading or writing with a most unusual power of concentration.” (The Bully Pulpit, pg 37)


So, in the spirit of what America’s “Strenuous Life” used to stand for, sharpen your mind this morning. Challenge yourself to learn. Evolve your investment process. And, above all else, tone down your emotional market response to whatever you may or may not have missed.


Back to the Global Macro Grind


Are you ferociously determined to beat beta? I am. And I’m not going to apologize for that. Why else would you wake up to play this game every morning unless you wanted to win?


After 382 points of price appreciation, the SP500 clocked yet another all-time closing high yesterday of 1808. That’s a +26.8% gain for 2013 YTD. And once again, it came on a no-taper (in December) market expectation day.


Whether you or I think the Fed should have tapered in September doesn’t actually matter at this stage of the game. Been there, argued about that. What matters is what decisions you make next.


Risk is always changing. Up until September 18th, Mr. Macro Market scored growth as the most relevant stock market risk (to the upside). Sure, some people were bullish – but consensus wasn’t positioned bullish. Here’s what worked from JAN-SEP:

  1. #StrongDollar
  2. #RatesRising (Gold and Bonds weren’t working)
  3. #GrowthAccelerating (as an Equity Style Factor)

Then, post the Fed’s unaccountable decision not to taper (as Q313 US Growth was tracking +3.6%), from mid-SEP to mid-OCT:

  1. Down Dollar
  2. Rates Falling
  3. #GrowthSlowing outperformed growth  

Then, in November, growth as an Equity Style Factor started to recover again:

  1. Rates Rose
  2. Gold fell
  3. But the US Dollar remained no bid (in spite of an ECB rate cut!)

Now, look at what we have – the return of our old un-elected friend: @FederalReserve’s Policy To Inflate:

  1. Down Dollar (for 5 straight weeks)
  2. CRB Commodities Index inflation (and Gold) arrested their YTD lows
  3. Oil prices and inflation oriented equities inflating again

Instead of debating this, look at the trivial matter that is Correlation Risk between the US Dollar and everything else (using a 6 week duration – these are inverse correlations; i.e. Down Dollar = Up X):

  1. SP500 vs USD = -0.63
  2. Brent Oil vs USD = -0.66
  3. CRB Commodities Index vs USD = -0.73
  4. Nasdaq vs USD = -0.79
  5. Natural Gas = -0.85

#Cool, eh?


For whom? The small percentage of us in America who understands it? Or to those who are the recipient of inflated prices at the pump and accelerating costs to heat their homes during today’s CT snowstorm?


Yes We Can, baby. We can re-flate Bernanke’s Bubble in commodity prices. Why not? Who cares if it slows everything that we haven’t had during this entire monetary policy experiment (sustained real-consumption growth). It’s time to buy some coal!


To be clear, this will end in tears. But, in the meantime, I will trade this market’s all-time highs with ferocious determination. Yes, that means that on pullbacks I will buy-the-damn-bubble #BTDB.  Then I’ll sell on green too. Keep moving out there; risk does.


Our immediate-term Risk Ranges are now:


10yr UST Yield 2.80-2.91%

SPX 1800-1815

USD 80.03-80.55

Brent 109.07-111.19

NatGas 4.04-4.26

Gold 1216-1259


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Ferocious Determination - Chart of the Day


Ferocious Determination - Virtual Portfolio

Early Look

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