To Chase Or Not to Chase?

Client Talking Points


After failing our Hedgeye TREND resistance of 2.81%, yields dropped and bonds rallied to their highs for the month yesterday. We think a test of 2.54% for the 10-year is still in the cards if we’re right on U.S. economic growth slowing and GDP falling back towards the 2% handle.


Unsurprisingly (with Dollar Down, Rates Down) the Financials (XLF) were down yesterday, leading decliners alongside the Transports. Inflation slows earnings-per-share growth for the Transports, but the Fed having 0% credibility fighting inflation keeps Yield Spread compression in play (10s minus 2s = -5 basis points for the week.)


Oil is holding its $108.02 support (Brent) and looks primed for a breakout. It's just one of many commodity #InflationAccelerating signals in my model right now that you can make money on from the long side. Energy (XLE) looks great

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term. 


Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike.  The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet.  The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%.  And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


COMMODITIES: inflation continues to slow global growth - CRB Index +7.9% YTD vs $SPY -0.2% @KeithMcCullough


"Most of the shadows of this life are caused by our standing in our own sunshine." - Ralph Waldo Emerson


Some numbers from YouTube’s own blog that put some perspective on its penetration into our culture and time.

  • 1 billion unique monthly visitors
  • 6 billion hours of videos are watched every month
  • YouTube reaches more U.S. adults ages 18-34 than any cable network


Buying Opium

“Opium is like Gold – I can sell it at any time.”

-Robert Taylor


Per British historian Julia Lovell, that’s what one of James Matheson’s first partners told him about selling opium to the Chinese in 1818. Matheson was one of the first Scottish traders to hit the ground running (selling drugs) in China in the early 19th century.


If you’re a market #history student, it’s a fascinating story to try to understand. I’m getting into it via a book all Global Macro investors should have on their shelf called The Opium WarDrugs, Dreams, and the Making of China, by Julia Lovell (pg 25).


The PRC’s state media works hard to convince readers and viewers that modern China is the story of the Chinese people’s heroic struggles against “imperialism” and its running dogs. In reality, the story of modern China could probably be told just as convincingly as a history of collusion with imperialism and its running dogs” (pg 13).


Back to the Global Macro Grind


Teddy Roosevelt wrote poignantly about the American “struggle.” You know, the alarm clock – the grind - the tireless hours we commit to whatever it is that we are committed to. And since most of us are human, we have a tendency to believe that what we are doing is “right”; especially if it gets us paid.


In America today, politicians are trying to pin us against one another using emotional weapons like class and gender. Leaders want the poor to think they are struggling against the rich. They want you to buy into “inequality” being someone else’s (your) fault. In reality, the 2011-2012 all-time highs in US consumer and producer price inflation is a history of US politicians perpetuating a Policy To Inflate.


Why is that?


Q: How do you have the all-time highs in prices for just about everything in your life… and both a Republican and Democrat government telling you there’s a “great recessionary risk of deflation”? A: Debt.


As John Allison simply puts it in The Financial Crisis and The Free Market Cure, “If you owe a great deal of debt (like the US Treasury) it is to your advantage to have inflation.” (pg 21)


In other news, Venezuela is considering defaulting on its debt.


That’s how this bubble story of government debt ends. And no, this isn’t a new story. Countries have been bankrupting their people via currency devaluation for centuries. There’s a 3-step default process – and it takes time:

  1. Politicians have to borrow from The People to meet spending promises (and get paid)
  2. Too much debt leads to deficits and slower growth, which fuels the need for more debt and cheaper money
  3. Inflation crushes real-growth; spending and liabilities run past the point of return, and the country defaults

Cool, eh?


But don’t worry, the stock markets in Argentina and Venezuela aren’t down YTD (in their burning currencies). So, in an effort to get their ratings off all-time lows, CNBC will be moving live broadcasts from NJ to Buenos Aires.


BREAKING: “stocks rally – things must be great”


Oh, and don’t forget to bring on the Top 100 Central-Planning Socialist Bureaucrats of the last 25 years for an “exclusive interview” on how they think Argentina’s Kirchners can keep it going!


Today’s morning missive was inspired by one of the best days of Institutional Investor meetings I’ve ever had in NYC. What’s fascinating about our #InflationAccelerating theme is that some buy siders really get how this ends – and some are just starting to put all of the pieces of the puzzle together.


I have a very privileged research position as I get to hear the best incremental research thoughts of some of the best investors in the world. Some are extremely well versed in the bottom-up analysis of inflation (i.e. the structural part that is born out of this government forcing companies to disinvest). It’s called constrained fixed capital formation, labor, and capacity.


No, I’m not talking about the overcapacity in things like asset managers, social media companies, and tulips. I’m talking about things like cement, fiberglass, and plumbers. Layer on the structural inflation that you’re already seeing due to capacity shortages with a cyclical rip in things like wage, rent, and commodity inflation – and voila, you find yourself approaching the aforementioned step #3.


But don’t worry, inflation that slows growth is like Gold - you can invest in it at anytime; it’s just that poor people (80% of the country) have to eat it.


Our immediate-term Macro Risk Ranges are now:


UST 10yr Yield 2.66-2.79%


VIX 13.06-15.55

USD 79.83-80.59

Brent 108.02-110.91

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Buying Opium - The Cycle


Buying Opium - virt

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

TODAY! Thought Leader Discussion: What’s the Matter with MLP Non-GAAP Metrics?

***CALL/WEBINAR IS TODAY at 11:00am EST***

***Updated Call/Webinar Details Below***



Julie Hilt Hannink, CFA, Head of Energy Research, CFRA Research

Kevin Kaiser, Managing Director, Energy Sector, Hedgeye Risk Management


Call/Webinar Details (*UPDATED*): 

Today’s call will be in a webinar format. Please follow the directions below to view the slides live (note: the slides are only available during the live webinar). The webinar is not compatible with Safari, we recommend using Google Chrome, Firefox or Internet Explorer.  Please contact if you have any questions.


*You can log in 10 minutes before the Webinar begins.


Webinar Log-In Directions:

  1. Go to:
  2. Enter:
  • Conference dial-in number:  or
  • Conference code: 198965#
  • Enter your name
  • Select “Connect Now”

For anonymous Q&A at the end of the call, send questions to  and 


About the Call:

Julie Hilt Hannink, CFA, of CFRA Research will join Kevin Kaiser of Hedgeye Risk Management for an in-depth discussion of key accounting and regulatory topics in the Master Limited Partnership (MLP) sector: the use and purpose of common non-GAAP metrics (for example, “distributable cash flow” and “maintenance CapEx”); the focus of the SEC’s new Financial Reporting and Audit Task Force, and how it might impact MLPs; the Incentive Distribution Right (IDR) and IDR “forgiveness”; corporate governance issues; and more… 


About Julie Hilt Hannink:

Ms. Julie Hilt Hannink is the Head of Energy Research for CFRA. In this capacity, she is responsible for CFRA’s research and screening on independent oil and gas producers, master limited partnerships, integrated oil companies, refiners and oil services. Ms. Hannink brings more than 25 years of experience in financial and fundamental research and analysis to CFRA. Prior to her tenure at CFRA she was the Director-Oil and Gas at Medley Global Advisors and a Managing Director at J.P. Morgan Asset Management where she was the senior North American oil & gas analyst.  Ms. Hannink holds a BS in Commerce (concentration Accounting) from the University of Virginia.


Special Conference Call Disclaimer:

CFRA Research is co-hosting this conference call at the invitation of Hedgeye Risk Management.  Both CFRA and Hedgeye are individually responsible for their respective contributions to this conference call; neither CFRA nor Hedgeye has verified the accuracy or completeness of the other’s information.  Opinions expressed by Hedgeye and its employees do not necessarily reflect the opinions of CFRA and its employees, and vice versa.


Both Hedgeye and CFRA have invited their subscribers, clients, and potential clients to participate on this call.  By dialing in to participate on this call, you agree that your name, firm affiliation and contact information may be shared between Hedgeye and CFRA for marketing purposes.  Identifying information will be shared only between Hedgeye and CFRA; as with all Hedgeye calls, participants will not be made aware of each other’s identity.   Live participants are entitled to submit questions during the call.  If you do not wish your identifying information to be shared, please contact your sales representative to arrange to receive a podcast recording.


Hedgeye Risk Management Disclaimer:

Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not make investment recommendations. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is the work of CFRA and is protected intellectual property.  CFRA, a global leader in forensic accounting research, analytics and advisory services, is offering this presentation by special arrangement with Hedgeye.  Hedgeye has not verified the accuracy or completeness of this presentation.  Opinions and views expressed by CFRA do not necessarily reflect the opinions of Hedgeye, and vice versa.


CFRA Research Disclaimer:

The content and opinions expressed by CFRA are those of CFRA. Analysis provided by CFRA has not been submitted to, nor  received approval from, the United States Securities and Exchange Commission or any other regulatory body. While CFRA exercised due care in compiling its analysis, CFRA AND ALL RELATED ENTITIES SPECIFICALLY  DISCLAIM  ALL WARRANTIES, EXPRESS OR IMPLIED, regarding the accuracy, completeness or usefulness of this information. and assumes no  liability with respect to the consequences of relying  on this information for investment or other purposes. In particular, the research provided is not intended to constitute an offer, solicitation or advice to buy or sell securities. CFRA, CFRA Accounting Lens, CFRA Legal Edge, CFRA Score, and all other CFRA product names are the trademarks, registered trademarks, or service marks of CFRA or its affiliates in  the United States and other jurisdictions

February 26, 2014

February 26, 2014 - 1 


February 26, 2014 - Slide2

February 26, 2014 - Slide3

February 26, 2014 - Slide4

February 26, 2014 - Slide5

February 26, 2014 - Slide6

February 26, 2014 - Slide7

February 26, 2014 - Slide8 


February 26, 2014 - Slide9

February 26, 2014 - 10

February 26, 2014 - Slide11



TODAY’S S&P 500 SET-UP – February 25, 2014

As we look at today's setup for the S&P 500, the range is 35 points or 1.47% downside to 1818 and 0.43% upside to 1853.                










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.38 from 2.39
  • VIX closed at 13.67 1 day percent change of -3.94%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Feb. 21 (prior -4.1%)
  • 10am: New Home Sales, Jan., est. 400k (prior 414k)
  • 10:30am: DOE Energy Inventories
  • 12pm: Fed’s Rosengren speaks in Boston
  • 7:30pm: Fed’s Pianalto speaks in Wooster, Ohio


    • 9:30am: Senate Homeland Security panel holds hearing on offshore tax evasion by multinational cos.
    • 10am: FDIC releases Q4 report for insured institutions
    • 10am: House Financial Svcs panel meets on allegations of improper lobbying and obstruction at HUD
    • 10am: House Homeland Security Cmte hears from Homeland Security Secretary Jeh Johnson on agency priorities
    • 10am: House Oversight Cmte holds hearing on surveillance at FDA
    • 2pm: President Obama speaks on economy in St. Paul, Minn.
    • 2:30pm: Senate Armed Svcs panel hears testimony on Defense Dept IT acquisition process
    • Reid opposes wage below $10.10 as some Democrats ready to talk


  • JPMorgan, Goldman, 16 others to end some analyst surveys
  • Credit Suisse said to face SEC probe over accounting moves
  • Credit Suisse helped clients hide billions, U.S. Senate says
  • GE takes $1.7b charge in accord to end Shinsei liability
  • Morgan Stanley agrees to pay $275m to resolve SEC probe
  • BofA cuts deal with Buffett on preferred stake to boost capital
  • J. Crew said to be talking with banks about IPO later this yr
  • Facebook-WhatsApp deal risks sparking privacy probes across EU
  • AB InBev sees improving beer market trends in U.S., Brazil
  • Airbus predicts profit gain as it boosts A320 jet production
  • Mt. Gox shutdown triggers Bitcoin industry damage control
  • Trade leads U.K. economy to growth as recovery broadens
  • DreamWorks Animation tumbles as "Turbo" leads to rev. drop
  • Honda to end production of Insight hybrid as sales trail Prius
  • Delta plans major rewrite of frequent-flier rules: WSJ


    • Abercrombie & Fitch (ANF) 7am, $1.04 - Preview
    • AES (AES) 6am, $0.29
    • Ares Capital (ARCC) 8am, $0.41
    • Barnes & Noble (BKS) 8:30am, $0.51
    • Cablevision Systems (CVC) 8:30am, $0.09 - Preview
    • CenterPoint Energy (CNP) 8:15am, $0.28
    • Chesapeake Energy (CHK) 7:01am, $0.40 - Preview
    • Dollar Tree (DLTR) 7:31am, $1.05 - Preview
    • First Majestic Silver (FR CN) 7am, $0.11
    • Lowe’s (LOW) 6am, $0.31 - Preview
    • Royal Bank of Canada (RY CN) 6am, C$1.45 - Preview
    • Target (TGT) 7:30am, $1.24 - Preview
    • Taser Intl (TASR) 7:30am, $0.08
    • TJX (TJX) 8:28am, $0.83 - Preview


    • American Water Works (AWK) 4:05pm, $0.46
    • Antero Resources (AR) 4:05pm, $0.25
    • Assured Guaranty (AGO) 5:26pm, $0.65
    • Autodesk (ADSK) 4:01pm, $0.34
    • Continental Resources (CLR) 6:12pm, $1.31
    • Darling Intl (DAR) 4:30pm, $0.28
    • Gulfport Energy (GPOR) 4:05pm, $0.18
    • Halcon Resources (HK) 4:15pm, $0.05
    • Infoblox (BLOX) 4:05pm, $0.11
    • J.C. Penney (JCP) 4pm, $(0.86) - Preview
    • L Brands (LB) 4pm, $1.61
    • Nektar Therapeutics (NKTR) 4:15pm, $(0.37)
    • Pembina Pipeline (PPL CN) 4:05pm, C$0.30
    • TiVo (TIVO) 4:01pm, $0.04
    • Transocean (RIG) 4:39pm, $0.72
    • Whiting Petroleum (WLL) 4pm, $0.88
    • Workday (WDAY) 4:02pm, $(0.16)


  • WTI Crude Trades Near Week Low on U.S. Stockpiles; Brent Stable
  • Bird Flu Brings More Pain for Feed Sellers in China Hurt by Hogs
  • Soybeans Drop From Five-Month High as Global Supply Seen Ample
  • Credit Agricole Says Easy Money Shorting Gold Over as China Buys
  • Tin Reaches Four-Month High as Indonesian Exchange Sets Minimum
  • Sugar Falls as Traders Take Profit on Rain Return; Coffee Slides
  • Tin Floor Price Set by Indonesia Bourse to Help Mining Companies
  • U.S. Natural Gas Poised for Biggest Three-Day Loss Since 2007
  • Winter Warmth Seen Flooding Asia With Japanese Kerosene: Energy
  • Oil-by-Rail Disasters Prompt U.S. Crackdown on Risky Shipments
  • Investors Mount Attack on Norway in $20 Billion Oil, Gas Row
  • Singapore Bids for Asia’s LNG Hub Role With Second Terminal
  • Agrium Forecasts Higher U.S. Corn Cash Margin, Lower Soy in 2014
  • Gold Reaches 17-Week High on U.S. Data as SPDR Holdings Expand


























The Hedgeye Macro Team














the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.