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Theory vs Practice

“In theory, there is no difference between theory and practice. In practice there is.”

-Yogi Berra


I had a ton of feedback on yesterday’s Early Look (on how and why I use Twitter), so I wanted to thank you for that. Without having to answer to and consider your objective questions and thoughts, I’d just be a man in a room who is hostage to my own thinking. #scary


Your feedback generates more questions and ideas for our research team to work on. So I decided to take 6 minutes to walk through who scores as The 3 Most Overrated Economists in The World (for @HedgeyeTV video CLICK HERE ). I also crowd-sourced (on Twitter) who my followers thought were the most overrated. We came up with completely different answers.


Today, I’d like to throw that right back at you and add the follow-on question – who are The Most Underrated Economists (and/or strategists) that you follow? This has nothing to do with being mean or nice. This has everything to do with competence. We all need to find a better way. In theory, there are “experts” spewing on TV all day long. In practice, you (the players) know who gets it.


Back to the Global Macro Grind


#Davos is a big deal. CNBC focused on Matt Damon’s "Save the World’s Water" thing yesterday and Reuters is all over actress Goldie Hawn this morning. Up next, after living large last night, Nouriel Roubini is Snapchatting the world a picture of him pecking Arianna Huffington on the cheek.

Theory vs Practice - nour5 


In other news, 2 of our Top 3 Global Macro Themes are trending in markets this morning, big time:


1.       #InflationAccelerating
2.       #GrowthDivergences


On Inflation, just to clarify:

  1. Our call here is like all the calls we make – rate of change – deflating the inflation (last year’s theme = #over)
  2. We aren’t purely focused on commodity deflation ending; but it’s a big part of the market expectations mismatch
  3. #InflationAccelerating is a bigger problem in the US than it is in Europe (that’s why we like European Equities more)

Got Commodity inflation in 2014 YTD?

  1. CRB Commodities Index (19 commodities) is beating both the Dow and the SP500 YTD (it’s up instead of down)
  2. CRB Food Index = +1.5% YTD (after food prices crashed last year from the 2012 all-time highs)
  3. YTD Food Inflations = Oats +12.9%, Cattle +5.1%, Coffee +3.9%
  4. Natural Gas at $4.76 (don’t tell Washington about heating your home) = +12.9% YTD
  5. Precious Metals YTD = Platinum +6.5%, Palladium +4.3%, Gold +3.7%

In stark contrast to what you would have seen in the Hedgeye Asset Allocation Model for the better part of the last year (0% allocation to Commodities), we have a 9% asset allocation to Commodities right now. From here, that’s going up, not down.


In Real-Time Alerts we are long of Gold in Gold terms (GLD) and Coffee via the CAFÉ (take the little chapeau off the French spellchecker and you’ll see the Coffee ETN – not a perfect security, so if you’re an Institutional investor, just buy the futures).


On the other side of this Q1 theme, there are plenty of short ideas to sink your teeth into; Restaurant Shorts in particular (Slowing Sales and Rising Food Costs). This is the highest # of short ideas our Food/Bev guru Howard Penney has had since 2008. He held a Best Short Ideas call last week @Hedgeye on Cheesecake Factory (CAKE). And he’ll write the Early Look for you tomorrow.


With Roubini going bullish, got short ideas? Here are some high-quality Food #InflationAccelerating ideas currently in Real-Time Alerts:

  1. Cheesecake (CAKE)
  2. Bloomin’ Brands (BLMN)
  3. Red Robin Gourmet Burgers (RRGB)
  4. McDonald’s (MCD)

In other words, 50% of my #timestamped short book is in Restaurant Shorts (10 LONGS, 8 SHORTS currently @Hedgeye after selling into yesterday’s all-time Russell2000 high of 1181).


In another @HedgeyeTV video this week titled Here’s What’s Working (for video CLICK HERE), I made a very simple point about our #GrowthDivergences theme (which syncs with #InflationAccelerating): country and sector picking matters as much as stock picking right now (i.e. pick the right sectors in the right countries and you’ll look like a good stock picker!).


If you really want to boil that macro point down, for now you want to be:


A)     Long Inflation Expectations assets (like breakevens)

B)     Short US Consumption assets (like restaurants)


Since the European growth recovery is 1-2 years behind the US (and most of Asia, including Japan), that’s the other reason why we think you’re going to continue to see European Equities outperform the Global Equities league tables.


Remember, in theory consensus might think it’s about absolute levels of growth. In practice, it’s all about the rate of change of growth. And that’s all I have to say about that.


Our immediate-term Global Macro Risk Ranges are now:



Brent 105.87-108.75

NatGas 4.35-4.77

Gold 1

Copper 3.30-3.40


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Theory vs Practice - Chart of the Day


Theory vs Practice - Virtual Portfolio






Visitor arrivals increased by 4% YoY to 2,586,829 in December 2013.  Visitors from Mainland China increased by 8% YoY to 1,620,434, coming primarily from Guangdong Province (647,348) and Fujian Province (66,940); Mainland visitors travelling under the Individual Visit Scheme totaled 700,934.  Moreover, visitors from the Republic of Korea (46,412) and Malaysia (40,935) increased by 5% and 8% respectively YoY, while those from Hong Kong (570,830) and Taiwan (86,575) decreased by 7%.  The average length of stay of visitors stayed unchanged from a year earlier, at 1.0 day in December 2013.





Melco International Development Ltd says it has sold some of its shares in a mainland supplier of lottery equipment, MelcoLot Ltd, for HK$224.81 million (US$29 million).  MelcoLot Ltd distributes lottery terminals used by the state-run China Sports Lottery Administration Centre.

January 23, 2014

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Got #GrowthDivergences Yet?

Takeaway: Country/sector/asset picking matters in a lower variance, divergent performance environment.

Hedgeye’s Macro Team recently released our Q1 Macro Themes—three key global macro forces we believe will play a dominant role in shaping the markets near term.


 #GrowthDivergences is one.


Looking to the U.S., Europe, China and Japan, we see the heavyweights of the world economy diverging from an economic growth perspective as some countries and/or regions are much further along in the economic cycle than others. We highlight those divergences and identify which countries and/or regions you want to be allocating assets to at the start of the year.


Our macro call is bearing fruit. Take a look.


Got #GrowthDivergences Yet? - Growth Div


The point here is that country/sector/asset picking matters in a lower variance, divergent performance environment.  Some big YTD divergence…and the YTD is only a few weeks old.  


This is a complimentary excerpt from Hedgeye research.

Join the Hedgeye Revolution today.  


TODAY’S S&P 500 SET-UP – January 23, 2014

As we look at today's setup for the S&P 500, the range is 28 points or 0.91% downside to 1828 and 0.60% upside to 1856.                     










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.45 from 2.47
  • VIX closed at 12.84 1 day percent change of -0.23%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Nat Act. Index, Dec., est. 0.9 (pr 0.6)
  • 8:30am: Init Jobless Claims, Jan. 18, est. 330k (pr 326k)
  • 8:58am: Markit US PMI Preliminary, Jan., est. 55 (pr 54.4)
  • 9am: FHFA House Price Index m/m, Nov., est. 0.4% (pr 0.5%)
  • 9:45am: Bloomberg Consumer Comfort, Jan. 19 (prior -31.0)
  • 10am: Existing Home Sales, Dec., est. 4.93m (prior 4.9m)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 10:am: Leading Index, Dec., est. 0.2% (prior 0.8%)
  • 11am: Kansas City Fed Manuf, Jan., est. 2 (prior -3)


    • FCC set to begin first major airwaves auction since 2008
    • 8:30am: CSIS holds conference on U.S-Australia relations, incl Australian Minister for Foreign Affairs Julie Bishop, White House Council of Economic Advisors Chairman Jason Furman
    • 10am: U.S. Conference of Mayors holds annual meetings; speakers incl Cordray; HHS Sec. Kathleen Sebelius; Education Sec. Arne Duncan
    • 12:30pm: NASA holds teleconference on agency’s Earth science activities planned for 2014
    • 12:45pm: Media briefing by Press Sec. Jay Carney
    • Postponed: SEC open meeting on 2014 budget for Public Company Accounting Oversight Board
    • Privacy Oversight Board says NSA program illegal: N.Y. Times


  • Lenovo to acquire IBM’s server unit for $2.3b in cash, stock
  • EBay says Icahn proposes PayPal spinoff after taking stake
  • Berkshire said to face start of U.S. systemic-risk scrutiny
  • China manufacturing index trails estimates as orders cool
  • Toyota beats GM, VW in 2013 car sales, sees 3% growth this year
  • Microsoft will allow foreign customers to store data overseas
  • Credit Suisse sued by China Green chief over alleged negligence
  • Haniel, Elliott close to agreement over Celesio stake: Boersen
  • Target’s virus linked to 23-year-old southern Russian: WSJ
  • Swiss raise bank capital buffer to rein in real estate market
  • Banks aid U.S. forex probe to fulfill duty in Libor settlements
  • Most JPM employees didn’t get raise due to legal bills: Reuters
  • Iceland traps hedge funds in refusal to discuss bank claims
  • Euro-area January factory output expands more than forecast


    • Alaska Air Group (ALK) 6:01am, $1.07
    • AmerisourceBergen (ABC) 6:15am, $0.78 - Preview
    • Avnet (AVT) 8am, $1.11
    • BankUnited (BKU) 7:30am, $0.46
    • Baxter International (BAX) 7am, $1.25  - Preview
    • CapitalSource (CSE) 9am, $0.17
    • Cypress Semiconductor (CY) 8am, $0.08
    • Fairchild Semiconductor Intern (FCS) 7:30am, $0.09
    • Fifth Third Bancorp (FITB) 6:30am, $0.42
    • Janus Capital Group (JNS) 7am, $0.19
    • Johnson Controls (JCI) 7am, $0.70
    • KeyCorp (KEY) 6:14am, $0.25
    • Lockheed Martin (LMT) 7:25am, $2.11 - Preview
    • McDonald’s (MCD) 7:58am, $1.39  - Preview
    • MGIC Investment (MTG) 7am, ($0.02)  - Preview
    • National Penn Bancshares (NPBC) 6:31am, $0.17
    • Popular (BPOP) 8am, $0.65
    • Southwest Airlines Co (LUV) 6:35am, $0.29
    • Union Pacific (UNP) 8am, $2.49
    • United Continental Holdings In (UAL) 7:30am, $0.71


    • Altera (ALTR) 4:15pm, $0.31
    • Celanese (CE) 4:30pm, $1.01
    • Compuware (CPWR) 4:05pm, $0.14
    • Cubist Pharmaceuticals (CBST) 4pm, break-even - Preview
    • Discover Financial Services (DFS) 4:05pm, $1.19
    • E*Trade Financial (ETFC) 4:05pm, $0.19
    • Federated Investors (FII) 4:02pm, $0.37
    • Hexcel (HXL) 4:06pm, $0.46
    • Informatica (INFA) 4:05pm, $0.48
    • International Game Tech (IGT) 4:15pm, $0.31  - Preview
    • Intuitive Surgical (ISRG) 4:05pm, $4.02
    • Juniper Networks (JNPR) 4:05pm, $0.36 - Preview
    • KLA-Tencor (KLAC) 4:15pm, $0.80
    • Leggett & Platt (LEG) 4:05pm, $0.33
    • Maxim Integrated Products (MXIM) 4pm, $0.40
    • Microsoft (MSFT) 4:01pm, $0.69 - Preview
    • ResMed (RMD) 4:05pm, $0.64
    • Starbucks (SBUX) 4:03pm, $0.69 - Preview
    • Synaptics (SYNA) 4:05pm, $0.90


  • WTI Crude Trades Near Three-Week High Before U.S. Inventory Data
  • Rubber Output in Thailand Seen Dropping as Growers Join Protest
  • Australia Drought Spurs Beef-Sales Boom on Herd Cut: Commodities
  • Copper Touches One-Week Low as Manufacturing Contracts in China
  • Gold Rises From Two-Week Low as Investors Weigh Demand, Tapering
  • Wheat Climbs on U.S. Freeze Concern and Signs of Import Demand
  • Coffee Rebounds as Vietnam Sales Slow Before Tet; Cocoa Advances
  • Platinum Strike Paralyzes Mines as Intimidation Claims Arise
  • China Rebar Has Biggest Gain in Three Months on Restocking Hopes
  • Iran’s Rouhani Invites Oil Companies to Invest as Sanctions End
  • Arctic Air Blankets Northern U.S. as Texas Set to Receive Snow
  • Alaska Coastal Oil Drilling Challenge Revived by U.S. Court
  • Traders Buying Dutch Weaken U.K. Gas Market: Chart of the Day
  • Platinum Tops Gold by Most Since ’11 on Strike: Chart of the Day


























The Hedgeye Macro Team














Opportunity Knocked

This note was originally published at 8am on January 09, 2014 for Hedgeye subscribers.

“There was certainly never a more inopportune time to launch a new business.”

-S.S. McClure


That’s what Irish born Samuel Sidney McClure said after the Panic of 1893 as he founded one of the most important investigative research companies in US history – McClure’s Magazine.


“He dreamed of creating a full time staff of writers who would be guaranteed salary and generous expense accounts. The job of staff writer was a new concept; in years to come, McClure would claim he himself almost invented it – a justifiable assertion…” (Doris Kearns Goodwin in The Bully Pulpit, pg 169)


Old School Research. That was what McClure’s Ida Tarbell, who exposed Standard Oil to America and helped force its breakup, did. Today’s stroking of government officials and storytelling execs in exchange for media access would be considered shameful back then. We started Hedgeye in 2008 to change that. Rather than fearing the system itself, opportunity knocked to change it.


Back to the Global Macro Grind


With change comes trial and error. The first thing we needed to change was the platform of delivery. Not having the conflicts of interests embedded in a broker-dealer, investment bank, or advertising business was an easy change to make.


Changing the process, language, and pace of research communication was tougher. Technology (Google, Twitter, @HedgeyeTV, etc.) is now making this less tough. When your principles are transparency, accountability, and trust – all tech tools can do is expedite your vision.


Given the circumstances (a raging bull stock market), I think our analysts have done a great job shining a flashlight on what’s really going on at big US corporations in the last year: Caterpillar (CAT), McDonald’s (MCD) and Kinder Morgan (KMI) – that something is not always good. On macro matters however, some of the best opportunities in the last year have been in revealing what’s actually improving.


Today we’ll be hosting our most popular Institutional Research event – our Q1 Global Macro Themes Conference Call. If you’re an institutional investor, please ping Sales@Hedgeye.com for access.


Our Macro Research Team does this call quarterly. There are 3 themes per call with anywhere from 45-75 slides of proprietary research and data. The idea of the call is to highlight the big themes in macro that are A) changing or B) trending.


In the case of A):

  1. Our models focus on rate of change (2nd derivative, slope of the line)
  2. The 3 Big Macs (macro factors) Growth, Inflation, and Policy (our GIP Model)
  3. Inflation is going to be the biggest change we focus on today (both locally and globally)

In the case of B):

  1. This happens most of the time in macro – that’s why we call them TRENDs (they trend)
  2. @Hedgeye TRENDs can either be cyclical or secular (sometimes both)
  3. On Twitter, I highjack the hash-tag on TRENDs we see developing before consensus does (#RatesRising, for example)

Today’s Hedgeye research hash-tags (Global Macro Themes for Q1) are going to be as follows:

  1. #InflationAccelerating
  2. #GrowthDivergences
  3. #FlowShows

#InflationAccelerating is a reversal from former Hedge Macro Themes #DeflatingTheInflation and #Bubble#3.


I know, too many hash-tags!


Bubble #3, of course, was Bernanke’s Commodity Bubble (2011-2012). You know, the one where you saw all time highs in Gold, Food, etc. – the one where the Fed would say they “see no inflation, because there is none in iPods.”


So that deflated (commodities crashed), and now The Economist has “The Perils of Deflation” on its cover as Ben Bernanke takes a “nailed it” victory lap around the weenie bins.


Inflation expectations are already rising. But you already know that – because we don’t do research on a lag. That and the #GrowthDivergences you are seeing manifest between Europe and Asia aren’t new either. With South Korea’s KOSPI -3.3% YTD versus Austria and Denmark’s stock market’s already +4.7% YTD, Mr. Macro Market gives you the research “call” every day.


From our un-conflicted and un-compromised financial media distribution platform, all we have to worry about is staying true to our principles. They will inevitably lead us to the truth. And, while there will never be an opportune time to be wrong about the truth, there will always be an opportunity to learn from our mistakes and improve our investigative research process.


Our immediate-term Risk Ranges are now:


SPX 1825-1850

DAX 9467-9613

KOSPI 1928-1978

VIX 11.91-14.45

USD 80.73-81.34

Gold 1191-1246


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Opportunity Knocked - Chart of the Day


Opportunity Knocked - Virtual Portfolio

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