Valentine's Day Massacre

“You must be new to this town, Mister. Only Al Capone kills like that.”

-Bugs Moran


Bugs was a Chicago gangsta, yo. And that’s all I have to say about that. We aren’t making a market call today. Like the entire Connecticut school system (that closes when it drizzles), we’re shutting the office down today for the Valentine’s Day Massacre at Chelsea Piers in Stamford.


Not to be confused with Capone’s made for movies stuff, this is going to be the real deal. At 1PM sharp (attendance is free), we have @HedgeyeRetail analyst (Bugs’ 3rd cousin and former Chicago Blackhawks prospect from Robbinsdale, Minnesota, Alec Richards) between the pipes versus The Dan Holland.


Not to be confused with the 20yr old Holland who you’ll find on (who plays for the New Hampshire Monarchs - 5 games played, 8 PIMS, and 1 assist), Hedgeye’s Holland hails from parts unknown. Scouts from Charlestown say he’s a killer. And all he has to do to win is score 1 goal in 10 breakaway tries on Richards. If he does that, he’ll make Big Alberta, Daryl Jones, a lot of dough.


Valentine's Day Massacre - dh wins


Back to the Global Macro Grind


Oh, you don’t care about Hedgeye hockey and want to make some dough in the market do you?


Heyer: “Hello, boys – something I can do for you?”

Gangster: “Yes, you can shut up!”


Ok, be that way.


While this whole attitude thing may not be what you were looking for on Valentine’s Day, that’s just too bad isn’t it.


Despite people on TV getting all lovey-dovey with the US stock market (on no-volume-lower-highs again) yesterday, I don’t like you buying the US stock market today anymore than I didn’t yesterday.



  1. US DOLLAR – down again this morning (-1.5% in the last 2 weeks and bearish on our long-term TAIL risk duration)
  2. US RATES – after failing @Hedgeye TREND resistance of 2.80% this wk, falling again this morning to 2.72%
  3. GOLD – ripping, alongside the CRB Commodities Index, to fresh new YTD highs of $1308 = +8.8% YTD!

Oh, you don’t like the #InflationAccelerating call because you aren’t long inflation?


Capone: “Wanna know something… I like a guy who can use his head for something more than a hatrack.”




Other than the explicit US #GrowthSlowing signal that has always been Dollar Down + Rates Down = Gold Ripping, what else is going on out there today that has me in such a mood?

  1. JAPAN – Yen breaking out now vs USD and the Nikkei is getting crushed (-3.3% in the last 2 days to -12.4% YTD)
  2. RETAIL SALES – reported yesterday as the worst 1 and 2 year growth rate in 2 years (and everyone blames weather)
  3. RISK RANGES – both the SP500 and VIX risk ranges of 1 and 13.39-20.41, respectively, are wicked wide

And, btw, #InflationAccelerating in the two things I drink/eat for breakfast every morning has me surly too:

  1. COFFEE = +25.7% YTD
  2. OATS = +17.8% YTD

But, whatever you do, don’t tell me there’s never going to be inflation in this world, ever.


Just don’t.


Don’t go there because, as the Interrogator in the Valentine’s Day Massacre told Franky Gusenberg, “I’ve got to tell you Frank, you’re not going to make it. Want me to call a preacher?”


Yep. For Danny Holland versus one of the best goalies in Yale Hockey history, I am officially recommending prayer.


Happy Valentines.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.60-2.80%


Brent Oil 107.69-110.41 (

NatGas 4.76-5.41

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Valentine's Day Massacre - Chart of the Day


Valentine's Day Massacre - Virtual Portfolio

February 14, 2014

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TODAY’S S&P 500 SET-UP – February 14, 2014

As we look at today's setup for the S&P 500, the range is 122 points or 5.67% downside to 1726 and 0.99% upside to 1848.                                   










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.42 from 2.42
  • VIX closed at 14.14 1 day percent change of -1.12%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Benchmark revisions of Producer Price Index
  • 8:30am: Import Price Index m/m, Jan., est. -0.1% (pr 0.0%)
  • 9:55am: UofMich. Confidence, Feb. preliminary, est. 80.2
  • 11am: Fed to buy $1b-$1.25b in 2036-2043 sector
  • 1pm: Baker Hughes rig count


    • President Barack Obama meets w/Jordan’s King Abdullah II
    • U.S. federal agencies open with two-hour delay


  • More snow for U.S. Northeast after 14,000 flights grounded
  • AIG boosts div., buybacks as CEO Benmosche eliminates jobs
  • Twitter insiders get first chance to sell shrs as lockup ends
  • Sony’s PlayStation 4 retakes lead over Microsoft’s Xbox One
  • Kennedy Wilson Europe to raise $1.2b in property IPO
  • Rakuten to buy Viber Internet messaging app for $900m
  • Brightoil in talks w/Anadarko, Newfield on China ops: Reuters
  • Pershing, Trian other funds face 13F disclosure deadline
  • Toyota’s Prius keeps top Calif. sales rank as Tesla moves up
  • Euro-area economy grows more than forecast on Germany, France
  • European banks avoiding risky-loan disclosure brace for review
  • China banks’ bad loans reach highest since financial crisis
  • China inflation stays subdued as producer prices drop
  • Fed Minutes, Carney, EU Talks, Olympics: Wk Ahead Feb. 15-22
  • NOTE: No U.S. Daybook Monday due to President’s Day holiday

EARNINGS (all times ET, times are approximate):

    • Allete (ALE) 8:30am, $0.82
    • Brookfield Asset Management In (BAM/A CN) 7:01am, $0.51
    • Campbell Soup Co (CPB) 6:30am, $0.73  - Preview
    • Coty (COTY) 6am, $0.29
    • DTE Energy Co (DTE) 7:15am, $0.96
    • Enbridge (ENB CN) 7am, C$0.45 - Preview
    • Hyatt Hotels (H) 7:30am, $0.20
    • Interpublic Group (IPG) 7am, $0.59
    • ITT (ITT) 7am, $0.47
    • JM Smucker (SJM) 7am, $1.68 - Preview
    • LifePoint Hospitals (LPNT) 6:30am, $0.80
    • Lincoln Electric Holdings (LECO) 7:30am, $0.86
    • Scripps Networks Interactive I (SNI) 7am, $0.97
    • TRW Automotive Holdings (TRW) 7am, $1.64
    • Ventas (VTR) 7:01am, $0.43
    • VF (VFC) 7am, $0.84 - Preview


  • Gold Extends Climb Above $1,300 as Investors Boost SPDR Holdings
  • Palm Imports by India Slump to Lowest Since April on Reserves
  • Natural Gas Heads for Weekly Gain as Cold Erodes Stockpiles
  • Copper Advances as Economic Growth in Europe Exceeds Estimates
  • Soybeans Climb for a Second Day on Chinese Demand Indications
  • Coffee Declines in London to New York With Brazil Rainfall Seen
  • Rebar in Shanghai Advances as Chinese Steel Output Declines
  • Silver Trades Above 200-Day Moving Average for 1st Time in Year
  • Impala Platinum Sees Strike Lasting to May as Talks Stumble
  • Sugar Traders Bullish for Second Week on Dry Weather in Brazil
  • Frozen Peach Trees Help U.S. Southeast Orchards Amid Storm Chaos
  • Derailment in Pennsylvania Adds to Scrutiny of Crude Shipments
  • Iran Nuclear Talks Resume as Companies Prepare for Market Access
  • Palm Reserves in Indonesia Seen at 19-Month Low; Prices Advance


























The Hedgeye Macro Team














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Valuation Shmaluation

This note was originally published at 8am on January 31, 2014 for Hedgeye subscribers.

“Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

-Albert Einstein


Valuation is an analytical staple in deciding whether an asset, company or asset class should be bought or sold.  The challenge with valuation? As a decision making tool, the inputs are often more important than the outcome.  Regularly on Wall Street, especially when some of the large investment banks are involved, valuation becomes an even more amorphous thing.


Yesterday our CEO Keith McCullough discussed price targets for the S&P 500 in 2014 (see video "Is Consensus Too Bullish?") that are being established by some of our peers and the arbitrariness of the multiples being applied to come up with the target.  Now to be fair, coming up with a view on the future price of a market is difficult at best because as Einstein notes all the factors that matter “cannot necessarily be counted”.   (In part, this is why we stay away from precise long-term price targets on the broad market.)


Valuing a company has its challenges as well.  Take for instance the Kinder Morgan companies, which are a massive group of pipelines, terminals and oil and gas productions assets cobbled together by billionaire Rich Kinder over the years.  We are currently short $KMI and $KMP on our Best Ideas list because we, simply put, think the company is grossly overvalued.


I won’t steal his thunder but my colleague Kevin Kaiser will be giving an update on his short thesis on Kinder Morgan today at 1pm EST and his presentation starts with the following views on valuation:

  • “Cheap” is a LONG WAY DOWN.  We believe Fair Values are:
    • KMI: $15 - $20/share
    • KMI Warrant: near $0
    • KMP/KMR: $30 - 40/unit (Preferred Way to Play This)
    • EPB: $25 - 30/unit

As always valuation is an opinion, but this opinion is way outside of consensus and likely worth considering if you are invested in or looking at Kinder Morgan.  Please email for details.


Back to the Global Macro Grind...


In my inbox last night was a summary note on the equity markets that was titled, “Equities Explode.”  I’m hoping it was a tongue in cheek title because up 1.1% on less than impressive volume was far from an explosion.  In the Chart of the Day today, we take a look at the last three weeks and highlight the point of accelerating volume on market down days.  


The equity bulls are trying to regain the market’s upward momentum, but meanwhile the bond bulls have just experienced the euphoria of a meaningful move in rates.  Since January 2nd the 10-year bond yield has declined from +3.0% to the most recent yield of +2.7%, for a +12% expedited move down in the last twelve days.   So, now the Fed has finally starting tightening by the way of tapering, why are yields falling?


Simply put, economic growth is decelerating in the U.S. and Mr. Market is beginning to price this in.  As a result, the SP500 is down -2.9% on the year and the VIX is up +26.0%.  We see these market signals even more glaringly in sector performance.  The only sectors that have had positive performance in the year-to-date are healthcare up +1.8% and utilities up +2.1%.  Meanwhile the most negative two sectors in terms of performance are staples down -4.7% and energy down -4.6%.


In a recent book by Frank Partnoy, he shows that decisions of all kinds, whether “snap” or long-term strategic, benefit from being made at the last possible moment. The art of knowing how long you can afford to delay before committing is at the heart of many a great decision—whether in a corporate takeover or a marriage proposal. 


The reality in the investment management business though is that you literally can’t wait until the last minute unless you have unlimited duration on your capital, like say Warren Buffett.  The rest of us market minions actually have to try and stay ahead of market moves and shifts in economic outlook.  This is why in our macro process identifying economic and market changes on the margin is so critical, and why long term valuation targets can be so misleading.


The question of course is whether it is possible to front run (legally) moves in the market.  For example, did any of the bulls on Japanese equity shift quickly enough in 2014 to avoid the almost -9% drawdown in the Nikkei in January? Perhaps, but unlikely.  After all it is human nature to value and project things for perpetuity based on the most recent data points.


An example is Kinder Morgan using $95 oil in their projections for oil or European bears projecting an abject failure of European markets when the sovereign debt turmoil was at its worst.  On the last point, the healing of Europe and European credit markets has been staggering over the past few quarters.


Currently, the Spanish 10-year yield is +3.73% and the Italian 10-year yield is +3.85%, which are literally the lows for the Eurozone.  This morning Italy also sold five year notes at a record low yield of 2.43% with a bid/cover of 1.49 versus a bid/cover 1.28 on December 30th.


This rampant improvement in European sovereign debt obviously begs the question of whether we are closer to the bottom then the top in European debt.  But one thing is for certain, if the European debt markets are again working fluidly, it is positive for corporations that need to borrow to grow. It also begs the question of whether a short European debt and long European equities play is the best relative value play around.  But, as they say, valuation shmaluation!


Our immediate-term Global Macro Risk Ranges are now:


SPX 1755-1809 (bearish)

Nikkei 14738-15411 (bearish)

VIX 15.31-20.41 (bullish)

USD 80.17-81.19 (neutral)

Gold 1231-1272 (neutral)


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Valuation Shmaluation - Chart of the Day


Valuation Shmaluation - Virtual Portfolio

Mucker’s Cheat Sheet, Refreshed

Takeaway: Be careful out there.

Editor's note: This is a recap of CEO Keith McCullough's market thoughts as shared no-holds-barred on Twitter today. To learn more about how you can subscribe to our services click here.


*  *  *  *  *  *  *


It was a fun day for us. While I was wrong on the market call, I was really right on the stocks. I thought this market was going to crack (maybe it still will). But I do think wrong sometimes.


Our shorts have been working out extremely well during an up tape. Twitter (TWTR) and Whole Foods (WFM) are two examples. (Check out WFM after hours down 20%. Two of our analysts nailed this short two weeks ago on HedgeyeTV.) Speaking of short calls, our energy analyst Kevin Kaiser absolutely tagged Boardwalk Pipeline Partners (BWP) the other day. The stock is down over 40% this week. The “Hedgeye Short-Selling Machine” is grinding. Great job by all of our analysts. I am nothing without my team.


On a more somber note, the US Dollar continues to lose credibility. It’s actually sad to watch. You can thank the Fed for that.  


Mucker’s Cheat Sheet, Refreshed - wekd


Does anyone truly believe this whole “Down Dollar, Down Rates” thing is going to end well for America? If you do, I'm guessing you're smoking some of that funny stuff now legal in Colorado.


Oil inflation? It looks primed to rip the economy another new one. The Fed would do well to take a page out of the Bank of England’s playbook. Carney’s Pound continues to crush Yellen’s Dollar.


This time last year, I was extremely bullish on US #GrowthAccelerating because it was “Dollar Up, Rates Up.” That was unmistakably a pro-growth signal – what’s going on now is a slow-growth one.


Some Quick Thoughts:

  • Financials (XLF) look identical to the S&P 500 – it needs to go a lot higher to change my market view.
  • Gold ripping new highs is a very bearish growth signal.
  • Flat to down YTD for the US stock market is the new perma bull up.
  • If you're a bullish momentum monkey, just buying the market because it’s up, well I guess that's why you’re a monkey.

Look, I get the whole catalyst that allowing Janet Yellen to torch America's currency inflates stocks. Just don’t confuse that with the America that you want.

Join the Hedgeye Revolution.

Why you should worry about U.S. inflation (not deflation)

Takeaway: Inflation is likely to lead to stock market multiple compression, the very opposite of what most Wall Street strategists are calling for.

Editor's note: This is an excerpt of an article written by Hedgeye Managing Director Moshe Silver just published on Fortune.


FORTUNE – Believe it or not, commodity prices are breaking out right now as other inflationary pressures continue to build. Don't believe it? Take a look at gold prices. They have already risen over 7% year-to-date as the S&P 500 has fallen 1.5%. Meanwhile, the CRB Commodity Index is up 4% year-to-date.


Something is stirring here and it doesn't have the whiff of deflation.


Why you should worry about U.S. inflation (not deflation) - 7777


If U.S. Federal Reserve Chair Janet Yellen decides to "rescue" equity markets by reversing the central bank's plans to scale down its bond purchases, the impact could knock down the U.S. Dollar and trigger investors to chase yield, which would drive up inflation hedge assets and likely spark another round of growth-slowing commodity inflation.


After peaking in 2011-2012, commodity prices cratered in 2013. Because of last year's price declines, period-to-period comparisons are especially sensitive, so even a moderate commodity price increase looks inflationary year-over-year. This is an optical effect, not yet an economic reality. But policy – and market panics – are made in response to how things appear, not how things actually are.


Hedgeye CEO Keith McCullough says we are unlikely to see 2011-2012 style actual inflation (which the Fed did not see at the time.) But, as people perceive the rise in commodity prices alongside decelerating growth and declining stock prices, there will be speculation that the Fed will again loosen policy to support flagging growth. If Yellen reverses plans to scale down the Fed's bond purchases, a process dubbed, 'tapering,' your stocks will lift temporarily. But globally the dollar will suffer, causing inflation to rise faster.


Click here to continue reading at Fortune.

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