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Sentiment Speaks

This note was originally published at 8am on March 12, 2014 for Hedgeye subscribers.

“Listen to many, speak to few.”

-William Shakespeare


I love to read, write, and rant. But, other than our top institutional customers and my research team, I speak to few during a typical market day. While I love my best friend (my brother Ryan), our phone conversations are usually 140 words or less.


If you read voraciously, you can listen to the #history of many. If you create the right contra-streams on Twitter, you can watch the sentiment of the crowd. If you embrace uncertainty of timing market sentiment, you’ll always be prepared to change your mind.


But macro markets don’t care about what I think about all of that. Markets are non-linear. They are structured to pulverize the largest number of people at the most inconvenient time. So listen to Mr. Macro Market’s signals very closely. He’s a front-runner of risk.


Back to the Global Macro Grind


With Japanese, Chinese, and American #GrowthSlowing (oh, and Russia crashing to -22.6% YTD), what could possibly go wrong? Rather than have some character tell you “the market is cheap”, you can listen to #history’s lesson on that:


1. When Inflation Accelerates, and

2. Real (inflation adjusted) Growth slows…


You get:


A) Multiple compression in Equities

B) Multiple expansion in Bonds


And, since:


1. #OldWall consensus is still looking for implied multiple expansion (to 17-18x EPS) for the SP500 this yr

2. #OldWall consensus is still looking for implied multiple compression (higher bond yields) for Treasuries this yr


You have yourself basically the opposite consensus to listen to that you had only 1 year ago today. While last year seems like forever ago to a consensus that missed US #GrowthAccelerating, on March 12, 2013:


1. The Dow and SP500 were at 14,450 and 1552, respectively

2. The 10yr US Treasury Yield was at 1.90% (tracking towards its all-time low of 1.7% in April)


Sentiment then wasn’t off by a little bit – it was off by a country mile.


By year-end of 2013:


1. The Dow and SP500 closed at 16,576 and 1848, respectively

2. The 10yr US Treasury Yield has its biggest % move in 50yrs (closing the yr at 3.03%)


Fast-forward to today, with the US Dollar on its YTD lows and #InflationAccelerating, the Dow Jones is actually DOWN -0.6% YTD and US 10yr Treasury Yield is DOWN -28 basis points to 2.75%. But the SP500 is up a whopping +1.0% (plus or minus whatever happens today), so let’s turn on the tube and keep talking up what was supposed to be a US Equity multiple expansion party!


If you’ve studied the #history of debtor nations devaluing their currencies in order to inflate asset prices, you’ll note that the non-government people living in those countries generally develop miserable sentiment. There’s this thing called the Misery Index (inflation + unemployment). This morning, Japan’s Misery Index hit a 33 year high.


So, let’s encourage consensus to keep cheering on a Policy to Inflate but call it by any other name. This is really the only way to envision being really right versus what you read and hear from consensus every day (consensus #OldWall estimates are still looking for both US and Global GDP to accelerate sequentially to new multi-year highs, and for inflation to be benign).


A few other mathematical realities we’ve back-tested as relevant sentiment checks are:


1. Front-month Equity Fear (VIX) versus the term structure of the VIX curve

2. The II Bull/Bear Spread


This morning front-month VIX has A) established yet another higher-low on our TREND duration and B) the term structure of implied volatility is nowhere near as fearful as it was 12-15 months ago.


On the II Bull/Bear Spread, 2013 bears were eviscerated. On today’s reading, Bulls are +3,770 basis points (55.1%) higher than the Bears (17.4%). That’s not the all-time high in terms of the Bull/Bear spread – but December 31st, 2013 was (when the Dow topped).


I’m not saying I’m nailing everything macro this year. I’m simply saying what very few want to listen to when complacency sets in – and that’s that the US stock market “is cheap, multiple expansion” bulls might get nailed in the coming months.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.58-2.80%

SPX 1844-1890

Nikkei 14449-15194

VIX 13.22-15.72

USD 79.39-79.98

Gold 1324-1359


Best of luck out there today,




Keith R. McCullough
Chief Executive Officer


Sentiment Speaks - Chart of the Day


Sentiment Speaks - Virtual Portfolio

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Social Bubbles

“I wonder how much it would take to buy a soap bubble, if there were only one in the world.”

-Mark Twain


Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it? Someone at Morgan Stanley can surely answer that with a comp table.


I have to give it to the folks @Facebook. They’re nailing it on “scarcity value.” I didn’t know that either of their last two acquisitions existed. After spending $21 billion on WhatsApp and Oculus, FB’s stock has broken my mo-bro line of $67.52 support too.


Social Bubbles - social media bubble burst


Imagine there was only one bro left in the marketplace? How much would he pay for the all-time-bubble-high in the last social media stock that stops going up? It’s all fun and games until someone gets popped.


Back to the Global Macro Grind


Never mind trying to figure out what Oculus is (an “immersive virtual reality company”) or that it was “valued” at $30M in June. These guys just got $400M large (in cash) and another $1.6B in Facebook’s (FB) bubbled up stock. #cool


Until it’s not…


In FB inflated currency terms, Oculus is “cheap” though. Ask the bankers. When you slap it on a sheet of paper next to Candy Crush (coming public today with at least a $7B valuation), it’s probably relatively “cheap” too.


I know. Fourteen years ago (Q2 of 2000), while I was leaving the big bubble house that Frank Quatrone built (Credit Suisse First Boston), calling a bubble what it was back then was subject to some really smart “it’s different this time” analysis.


But it wasn’t. This time won’t be different either.


Moving along, why don’t they just jam the US stock market right back to the all-time-bubble closing highs (SPX 1878) again in the next few trading days?

  1. It’s quarter-end…
  2. There’s no-volume out there anyway,
  3. And squeezing hedgies who keep shorting low and buying high is easy to do

On that last point, at least from a Style Factoring perspective, being long High Short Interest stocks is back!


Now tracking +2.8% YTD, that beats being long either Low Short Interest (as a style factor in the SP500) which is only +0.8% or, god forbid, the Dow (which is still down -1.2% YTD).


Alternatively, you can triple bypass the stress associated with buying the high short-interest bubble and:

  1. Buy #InflationAccelerating
  2. Buy #GrowthSlowing
  3. Short the US Consumer

How do you buy #InflationAccelerating?

  1. CRB Food Index +18.1% YTD
  2. Gold +9.5% YTD
  3. CRB Commodities Index +7.5% YTD

What about #GrowthSlowing?

  1. Utilities (XLU) +7.4% YTD
  2. REITS (MSCI Index) +8.1% YTD
  3. Bonds (yep, long-term Treasury Yields are down 30 bps YTD)

Oh, and the Short US Consumer Discretionary (XLY) position acts fantastic with the sub-sector -3.3% YTD. That’s horrendous on both an absolute and a relative basis. If you’re into that sort of thing…


You might be into buying former bubbles that blew up too. After all, isn’t that what being long of Gold and as many homes as you can get your hands on from A&E’s house flippers is all about?


Or is the show called Flip This House? Who cares what these $2, $7, or $19 billion dollar companies or shows are called. Fully loaded, listening to #OldWall bankers and mortgage brokers pitch us on why it all makes sense is just getting fun to watch.


Our immediate-term Macro Risk Ranges are now:


UST 10yr Yield 2.62-2.81%


VIX 13.09-17.47

USD 79.18-80.41

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Social Bubbles - Chart of the Day


Social Bubbles - Virtual Portfolio


TODAY’S S&P 500 SET-UP – March 26, 2014

As we look at today's setup for the S&P 500, the range is 24 points or 0.62% downside to 1854 and 0.66% upside to 1878.                                      










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.28 from 2.32
  • VIX closed at 14.02 1 day percent change of -7.09%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 21 (prior -1.2%)
  • 8:30am: Durable Goods Orders, Feb., est. 0.8% (prior -1%)
  • 9:45am: Markit U.S. Services PMI, March (p), est. 54.0 (prior 53.3)
  • 9:45am: Markit U.S. Composite PMI, March (p) (prior 54.1)
  • 10:30am: DOE Energy Inventories
  • 4pm: Fed releases capital analysis and review results
  • 8:20pm: Fed’s Bullard speaks in Hong Kong


    • President Obama attends U.S.-EU summit in Belgium, holds press conference, speaks at Palais des Beaux-Arts in Brussels
    • Senate may continue consideration of Ukraine aid bill
    • FY2015 budget hearings/panels:
    • House Appropriations hears from FBI Director James Comey; Air Force Sec. Deborah Lee James, Air Force Chief of Staff Mark Welsh; FEMA Administrator Craig Fugate
    • House Education and Workforce Cmte hears from Labor Sec. Thomas Perez
    • 10am: Supreme Court may issue opinions, hears Secret Service free speech case
    • 10am: House Natural Resources Cmte hears from U.S. Fish and Wildlife Director Dan Ashe on effect of wildlife laws on domestic energy
    • 10:30am: Senator John Hoeven, R-N.D., Rep. Lee Terry, R-Neb., Canadian Ambassador to U.S. Gary Doer, API, others hold press conf. on Keystone XL pipeline
    • 11am: House Speaker John Boehner holds press briefing
    • U.S. ELECTION WRAP: Ricketts Expanding Fund to Reduce Govt


  • Fed to release results from latest supervisory stress tests
  • Facebook to buy Oculus for ~$2b in cash, stock
  • King Digital raises $500m in Candy Crush maker’s U.S. IPO
  • Blackstone said close to Gates Global takeover: Reuters
  • Fed’s Bullard sees ‘bit of ambiguity’ on end date of QE
  • U.K. starts selling GBP4.23b stake in Lloyds Banking
  • Carlyle’s PQ Holdings said to draw offers From Blackstone, KKR
  • Target to tell Congress it’s probing slow response to hackers
  • Ukraine awaits IMF finding as Obama warns of consequences
  • Citic Pacific said planning to buy parent assets in $40b deal
  • Obamacare deadline extended for last-minute enrollees
  • News Corp. names Lachlan Murdoch non-executive chairman
  • HSBC accused of predatory lending in Cook County, Illinois
  • Toyota to repurchase up to 1.9% of shares
  • BlackRock’s Fink says activists hurting L-T outlook: WSJ


    • AGF Management (AGF/B CN) 8am, C$0.12
    • Francesca’s Holdings (FRAN) 7:30am, $0.28
    • HB Fuller (FUL) 6:01pm, $0.50
    • Lindsay (LNN) 7am, $1.13
    • Movado Group (MOV) 7am, $0.30
    • Paychex (PAYX) 4:01pm, $0.42
    • World Point Terminals (WPT) Aft-Mkt, $0.25


  • WTI Near One-Week Low as Crude Stockpiles Gain; Brent Steady
  • Copper Declines on Selling Following Biggest Jump in Six Months
  • U.S. Farmers Sow GMO Corn Banned From China Markets: Commodities
  • Gold Trades Above Five-Week Low as Ukraine Weighed Against Rates
  • Iron Ore Forecast Cut by Australia as Miners Increase Output
  • Japan Raises Wheat Import Plan From 4-Year Low as Output Falls
  • Coffee Drops With ‘Excessive Volatility’ on Drought; Cocoa Gains
  • Rebar in Shanghai Retreats on Demand Outlook, Iron Ore Decline
  • Raise a Glass of Scottish Wine to Climate That Made It Possible
  • Palladium Funds Adding Demand Amid Supply Woes: Chart of the Day
  • Rising Utility Costs Linger After Winter’s Chill Fades: Energy
  • China Gets Gas Bargain as Russia Hit by EU Sanctions: Bull Case
  • Pemex Bids to Keep All of Mexico’s Proven Oil Reserves, CEO Says
  • Wheat Climbs as U.S. Crop Conditions Deteriorate on Dry Weather

























The Hedgeye Macro Team

















Join GLL Sector Leader Todd Jordan in Las Vegas April 7-8th for “Boyd Gaming: Snake Eyes, Box Cars or Craps” – a deep dive discussion with Boyd (BYD) senior management and other local Las Vegas participants, and company meetings with BYI, WYNN, and MGM. 


The primary focus of this trip will be to assess BYD’s ability and willingness to increase shareholder value.  In addition to the deep dive BYD discussions, we also have meetings scheduled with BYI, WYNN, MGM, Station Casinos (BYD competitor – private company), and with Kevin Kelly, former COO of Station Casinos.  Note that LVS, PNK, and IGT will not participate in meetings because they are all in their quiet periods.  Meetings will run from Monday afternoon through Tuesday afternoon. To join our team in Las Vegas or for more details about this trip please contact us at . Please note space is limited.


Tuesday, April 8th – BYD Meeting Schedule

  • 1:30pm: The Orleans – meeting with Tony Taeubel, GM
  • 3:00pm: Meeting with Keith Smith CEO and Josh Hirsberg CFO
  • 5:00pm: Sam’s Town Las Vegas – meeting with John Sou, GM   

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