Reading Between the Macro Lines

Client Talking Points


Janet Yellen opened the door for “un-tapering” yesterday. Great. No surprise... the slow-growth commodity inflation rip-trade? It loved that. Utilities and Gold are leading the V-bottom S&P 500 parade as the US Dollar remains bearish TREND versus both the Euro and Yen now. 


Got Pounds? The Bank of England's Mark Carney is definitely not Janet Yellen. The BOE doesn't have to do the whole lingo thing about “taper” or un-taper in the UK; they just need to talk about rates and currency higher, which perpetuates purchasing power, consumption growth, etc. At $1.65 versus the USD, this remains our favorite major currency.


continued yesterday w/ the CRB Index and Gold moving to +3.6% and +7.2% YTD (vs SPX and Russell2000 -1.6% and -4.4%); while I was dead wrong being net short the US stock market yesterday, that doesn’t mean I capitulate on what I think is our most outside of consensus theme

Asset Allocation


Three for the Road


The Fed's Bullard must be smoking something in CO w/ this 3% US GDP call for 2014 @KeithMcCullough


"It is the trouble that never comes that causes the loss of sleep."

-Charles Austin Bates


It's estimated that at any given time, 7% of the world's population is drunk.

We Are Short US Growth

“We don’t see things as they are, we see them as we are.”

-Anais Nin


We are short the consumption growth components of the US stock market. And that means we were wrong yesterday. It’s ok to say it that way – we see the real-time score for what it is, not what we want it to be.


Ellen Langer uses the aforementioned quote in a #behavioral psych book I just finished called Counterclockwise. Her concept of “mindfulness” fits how I see things in macro (on the margin). “Noticing differences is the essence of mindfulness. Don’t imagine, however, that all this needs to be exhausting… mindfulness is actually energizing, not enervating.” (pg 52)


Being wrong for a few days is a little different than being wrong for a few months (or years). When I was younger and wrong, I’d get mad. Now that I am less young, being wrong energizes me – especially when I notice something that isn’t consensus.


Back to the Global Macro Grind


To be clear, I’m not the only one who has noticed that Janet Yellen is re-opening Pandora’s real-world inflation box with another Federal Reserve ideological “innovation” (the #untapering). Mr. Macro Market has been front-running her for 6 weeks:

  1. Dollar Down
  2. Rates Down
  3. Inflation Expectations Up

That, of course, is fantastic for slow-growth-yield-chasing asset prices like:

  1. Gold +7.1% YTD
  2. MSCI REIT Index +6.3% YTD
  3. Utilities (XLU) +3.5% YTD

Not to be confused with US #GrowthAccelerating asset prices like:

  1. Consumer Discretionary (XLY) -4.1% YTD
  2. Consumer Staples (XLP) -3.3% YTD
  3. Russell2000 -3.0% YTD

Alongside Boehner waiving the debt limit last night (without conditions!), what we have here is another Big Government policy investing-style shift towards #InflationAccelerating. This isn’t new. It’s what happened to the Dollar in both Q1 of 2008 and 2011. Inflation is a tax.


The inflationary concept that zero isn’t zero is what the Fed calls “policy innovation.” Happy #Darwin Day! #1806


In Q1 of 2008, Bernanke whispered to his boys that he was going to do the “shock and awe” thing and cut to zero; so, while demand was slowing, Oil prices ripped humanity a new one by the summer time ($150/barrel), perpetuating US #GrowthSlowing.


In Q1 of 2011, Bernanke continued to send sweet nothings down his communication pipes that zero really wasn’t zero – it was zero minus whatever # of QE’s he damn well wanted. The CRB Commodities Index, Gold, etc. ripped to all-time highs, US consumption growth slowed, and Utilities (XLU) closed the year +14.8%.


In Q1 of now, zero still really isn’t zero because you have to:

  1. Subtract 2 tapers from the 0 minus 3-4 QE’s
  2. Then add expectations of un-tapering to the 2 tapers…
  3. And add a minus taper to a real-rates # … and you get a dovish Dollar

Or something like that.


The Fed, of course, doesn’t see it this way. But no matter how they want to see their theoretical world, market expectations and prices see them the way the real-world is.


While I am sure this will all end well, can the US stock market continue higher? Obviously the answer to that is yes. But what parts of the market will lead? Will they be food/energy inflations, real-estate inflations, and/or some of those beauty MLPs?


I don’t know anything about nothing, but I am certain that everything that you eat, put in your car, and pay for from a housing perspective has nothing to do with inflation or your cost of living.


In other news, as both the British Pound and Euro gain strength versus Yellen’s Burning Buck, both the UK and German governments are taking up their GDP growth estimates for 2014 (British Pound remains our favorite currency vs USD).


How that #StrongCurrency correlation to growth thing works is cool. It’s too bad that un-elected and unaccountable US central planners aren’t paid to see the history of currency appreciation, real-purchasing power, and consumption growth for what it is.


Our immediate-term Macro Risk Ranges are now (all 12 macro ranges are in our Daily Trading Range product):



VIX 13.21-17.61

Pound 1.63-1.65

Brent 107.84-110.03

Nat Gas 4.57-5.34

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


We Are Short US Growth - Chart of the Day


We Are Short US Growth - Virtual Portfolio

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

February 12, 2014

February 12, 2014 - Slide1



February 12, 2014 - Slide2

February 12, 2014 - Slide3

February 12, 2014 - Slide4

February 12, 2014 - Slide5

February 12, 2014 - Slide6

February 12, 2014 - Slide7

February 12, 2014 - Slide8



February 12, 2014 - Slide9

February 12, 2014 - Slide10

February 12, 2014 - Slide11
February 12, 2014 - Slide12



TODAY’S S&P 500 SET-UP – February 12, 2014

As we look at today's setup for the S&P 500, the range is 98 points or 4.93% downside to 1730 and 0.45% upside to 1828.                                       










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.41 from 2.36
  • VIX  closed at 14.51 1 day percent change of -4.91%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Feb. 7 (prior 0.4%)
  • 8:45am: Fed’s Bullard speaks in New York
  • 10am: New York Fed issues small business credit survey
  • 10:30am: ECB’s Draghi speaks in Brussels
  • 10:30am: DOE Energy Inventories
  • 2pm: Monthly Budget Statement, Jan., est. -$10b (pr +$2.9b)


    • Senate may consider legislation to extend debt ceiling following House passage yday
    • 9am: Treasury Dept meeting of Financial Literacy and Education Commission, with Sec. Jack Lew, Delaware Gov. Jack Markell, CFPB Director Richard Cordray
    • 9am: CFTC’s Division of Market Oversight public roundtable on application of Commodity Exchange Act’s trade execution requirement to so-called “package transactions”
    • 10am: Senate Health, Education, Labor and Pensions Cmte Chairman Tom Harkin, D-Iowa, holds news conference to reveal the results of a “Seclusion and Restraints Report”
    • 1pm: Intl Trade Commission begins 2-day public hearing on India’s trade, investment, industrial policies
    • 2:30pm: Senate Energy panel hearing to consider lessons for federal policy from state efficiency and renewable programs


  • House passes measure suspending debt limit until March 2015
  • Fed seen easing capital requirement for smaller foreign banks
  • N.Y. Fed awards primary dealership to Toronto-Dominion Bank
  • China’s exports unexpectedly accelerate as imports increase
  • Ford China says Jan. sales up 53% vs yr earlier
  • Ashland water-chemicals unit said to get 3 bids by deadline
  • MSCI to announce quarterly index rebalancing post-mkt
  • Imerys to buy Amcol for $1.6b to add industrial clays
  • SocGen profit exceeds estimates on consumer banking
  • ING 4Q profit beats ests. as banking unit earnings climb
  • Toyota recalls 1.9m Prius worldwide for software update
  • Pimco boosts government holdings as bonds gain most since 2008
  • SoftBank profit beats ests. as iPhone spurs customer growth
  • Las Vegas Sands sites hacked as posts criticize Adelson
  • Wm Morrison founding family said to sound out buyout firms
  • Reckitt Benckiser sees slowdown as emerging markets weaken
  • Total’s quarterly profit drops as refining margins narrow
  • China’s crude imports surge to record high on stockpiling


    • Air Canada (AC/B CN) 6am, C$0.11 - Preview
    • AllianceBernstein (AB) 7:15am, $0.43
    • Alpha Natural Resources (ANR) 7am, $(0.63) - Preview
    • BGC Partners (BGCP) 8am, $0.11
    • Deere & Co (DE) 7am, $1.53 - Preview
    • Dr Pepper Snapple (DPS) 8am, $0.84 - Preview
    • EZchip Semiconductor (EZCH) 8am, $0.33
    • Hospira (HSP) 7:30am, $0.50 - Preview
    • Husky Energy (HSE CN) 7am, C$0.38 - Preview
    • Incyte (INCY) 7am, $(0.13)
    • ING US (VOYA) 5:50am, $0.69
    • Lorillard (LO) 7am, $0.85
    • Owens Corning (OC) 7:28am, $0.27
    • Pinnacle Entertainment (PNK) 8am, $0.34
    • Rogers Communications (RCI/B CN) 6:50am, C$0.74 - Preview
    • Sinclair Broadcast (SBGI) 7:30am, $0.43
    • SPX (SPW) 6:30am, $1.82
    • Thomson Reuters (TRI CN) 7am, $0.52
    • Valspar (VAL) 7:30am, $0.66
    • Vonage Holdings (VG) 8am, $0.03


    • Agnico Eagle Mines (AEM CN) 5pm, $0.20 - Preview
    • American Equity Investment (AEL) 4pm, $0.50
    • Angie’s List (ANGI) 4:05pm, $0.13
    • Applied Materials (AMAT) 4:02pm, $0.22 - Preview
    • CBS (CBS) 4:01pm, $0.76 - Preview
    • CenturyLink (CTL) 4:07pm, $0.59
    • Cheesecake Factory (CAKE) 4:15pm, $0.59
    • Cisco Systems (CSCO) 4:05pm, $0.46 - Preview
    • Corrections of America (CXW) 4:15pm, $0.41
    • Fidelity National Financial (FNF) 4:03pm, $0.35
    • Intrepid Potash (IPI) 4:05pm, $0.01
    • Kinross Gold (K CN) 5pm, $0.03 - Preview
    • MetLife (MET) 4:05pm, $1.29
    • Mondelez Intl (MDLZ) 4:02pm, $0.44
    • NetApp (NTAP) 4:01pm, $0.71
    • NetEase (NTES) 6pm, $1.42
    • NVIDIA (NVDA) 4:20pm, $0.24
    • Regency Centers (REG) 4:30pm, $0.17
    • Rovi (ROVI) 4:05pm, $0.57
    • Ruckus Wireless (RKUS) 4:05pm, $0.05
    • Sun Life Financial (SLF CN) 5:10pm, C$0.69
    • SunPower (SPWR) 4:05pm, $0.28
    • TAL International (TAL) 5:01pm, $1.00
    • Taubman Centers (TCO) 4:01pm, $0.70
    • Whole Foods Market (WFM) 4:03pm, $0.44 - Preview
    • Zillow (Z) 4:30pm, $0.07 - Preview


  • Natural Gas Rises for Second Day on Outlook for Inventory Drop
  • Rice Tumbling as Thailand’s Unpaid Farmers Demand Stockpile Sale
  • Soy Switch on U.S. Corn Farms Expanding World Glut: Commodities
  • Copper Advances as Imports of Metal Into China Jump to Record
  • Gold Falls From 3-Month High on Stocks as Advance Curbs Demand
  • Credit Curbs Help Fuel Record Chinese Imports From Copper to Ore
  • LME Aluminum Benchmark Challenged as CME Plans New Contract
  • Rubber Exporters in Thailand to Avoid Selling Below Output Cost
  • Corn Slides a Third Day Amid Expectations for Record World Crop
  • Glencore Joins Trafigura Cutting LME Warehouses Before New Rules
  • Gasoline Profit Seen Gaining in U.S. as Refineries Shut: Energy
  • Storm Bringing Ice to Atlanta as Northeastern U.S. Faces Snow
  • China Eating 50% of Global Pork May Spur Industry Consolidation
  • WTI Rises to 7-Week High as Distillate Supplies Drop Amid Freeze


























The Hedgeye Macro Team














Bear Droppings

This note was originally published at 8am on January 29, 2014 for Hedgeye subscribers.

“Daddy, that looks like bird poop.”

-Jack McCullough


Nah, he wasn’t talking about the complexion of yesterday’s stock market bounce or Obama’s class warfare speech. My son was talking about the risk-on trade my 2.5-week old baby girl placed all over my shirt last night.


Risk happens fast, and slow.


Back to the Global Macro Grind


Given that the Russell 2000 hit an all-time high on January 22nd, I think most of you will agree that the “risk-on” trade in being long of big US equity beta happened pretty fast.


The speed of an information surprise (real-time prices) to the downside can kill both confidence and returns. And I think this is what will keep volatility above @Hedgeye TREND support (VIX TREND = 14.91) for longer than consensus might think.


While consensus isn’t as bullish as it was 4 weeks ago, here’s one way to contextualize sentiment:


  1. The II Bull/Bear Spread (one of my favs) peaked at +4650 basis points wide to the bull side in DEC (all-time high)
  2. This morning’s Bull/Bear Spread is +3780 bps wide (that’s a 16% correction)
  3. The peak in Bulls was 61.7% and this morning it’s down to 53.1% (that’s a 14% correction)


As for the Bears, there still are none that survived all of 2013. By the time it was all over, very few long-only managers were allowed to remind clients they’d been bearish for the last 12 months. Even after last week’s -2.6% drop in the SP500, Bears went from 15.1% to 15.3%. I know, #scary.


Unlike the last three 3-4% US stocks market corrections that we told you to buy, this one has a glaring difference – rather than accelerating both month-to-month and quarter-over-quarter, on the margin, US growth is slowing.


Slowing? Yes. And very evidently so in some of the big stuff that matters:


  1. HOUSING: New Home Sales missed big on Monday and Case/Shiller Home Prices declined m/m (both are new)
  2. CONSUMPTION: from Retail Sales to ISM Services and every company check from my analysts = #GrowthSlowing
  3. ECON CYCLE: yesterday’s New Orders in the DEC Durable Goods report dropped -4.3% m/m (vs +2.6% last)


And sure, people who are in the business of being bullish will give you plenty of excuses (including the weather) as to why slowing is occurring, but few made the call 2-4 weeks ago when the call needed to be made.


Blame Turkey.


No thanks. Did consensus seriously think all these dysfunctional emerging market countries could try what we did (burn their currencies) and not see local inflation rise, consumption growth slow, and social unrest rip?


NEWSFLASH: devaluing the purchasing power of The People is called inflation.


And inflation pays the rich and starves the poor.


Obviously that whole money printing and political power thing (which crushes upward mobility in a society) didn’t make it into last night’s State of The Storytelling. But I digress.


Political digressions, transgressions, and obfuscations aside, what markets cannot seem to get away from is this thing called economic gravity. So let’s try an if/then risk management exercise. If…


A)     #InflationAccelerates

B)      #GrowthSlows


Then… the stock market sees multiple compression. Period.


If stagflation gets really amped up (think 1970s when American socialists perpetuated it through things like currency devaluation, price controls, and government spending), stock market multiples really get whacked.


Sorry Abby (as in Goldman’s Cohen, who says the SP500 is going to 18x EPS = 2088 this year). If inflation continues to ramp and growth continues to slow, you might have to slap a lucky 13 on that super-duper-magic-market-multiple thing you do.


Actually, god just called and told me 13 “feels a little low.” How about 14x the 2014 consensus EPS = 1624? Jack, that would look and feel like bear poop to me.


Our immediate-term Macro Risk Ranges (with bull or bear TREND in brackets) are as follows:


UST 10yr Yield 2.72-2.80% (bearish)

SPX 1771-1819 (bullish)

Shanghai Comp 1984-2071 (bearish)

VIX 14.91-18.55 (bullish)

USD 80.16-80.79 (bearish)

Pound 1.64-1.66 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bear Droppings - Chart of the Day


Bear Droppings - Virtual Portfolio

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.