• run with the bulls

    get your first month

    of hedgeye free


Equity Flows? Not Looking Good

Client Talking Points


There was a big overbought signal yesterday, so we signal buy EUR/USD again here. In the absence of a jobs print somewhere north of 230,000, I say you short USD and buy the long bond again today as US growth slows. Incidentally, we’re keeping a close eye on US domestic equity fund flows. They’ve seen outflows for two straight weeks with inflows into taxable bond funds for more than seven weeks.


The UST 10-year yield’s TREND resistance is now 2.82%. So the setup is simple. On a jobs whiff, I’d look for the US Dollar down, bond yields down – no support for the 10-year yield to 2.66%. Consensus expectations on these jobs numbers are high.


Gold is up +0.4% early this morning, making a series of higher-lows after holding Hedgeye TREND support of $1,270. Being long Gold (+7.4% year-to-date) or the Commodities (CRB Index up another +0.6% yesterday to +8.2% YTD) beats a flat Dow. #InflationAccelerating.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


CANADA: rockstar yr for the Canadians (Olympic Hockey) vs Americans (Dow) w/ the TSE +6.7% YTD @KeithMcCullough


"Happiness is not something readymade. It comes from your own actions." - Dalai Lama XIV


UK sales of new cars in March rose at their fastest pace for a decade, according to the Society of Motor Manufacturers and Traders. There were 464,824 new car registrations, a rise of 17.7% on a year earlier. The month also saw the biggest-ever rise in sales of alternatively-fueled vehicles, with sales soaring 63.8% compared to last year. (BBC)

Retail Callouts (4/4): KATE, HBC, NKE, WMT

Takeaway: First look at KATE's new Japan Flagship, HBC preparing for a REIT, NKE causes riot, Sam's partners to study small business

***6 interesting callouts, but no takeaways...Hedgeye Retail team on the road. Have a great weekend.




HBC - HBC sees REIT on horizon, but outlook turns cloudy



  • "Hudson’s Bay Co. gave the strongest signal yet that it will spin out its valuable properties into a real estate investment trust…'I find it highly likely that we will do a REIT at some point,' HBC’s chief executive officer Richard Baker said in an interview, but the company has yet to finalize a plan."
  • "Its flagship Saks Fifth Avenue store in New York, which takes up an entire block, could alone be worth $1-billion. The entire portfolio has been estimated to be worth more than $4-billion."


KATE - Kate Spade Builds on Success in Japan



  • "Kate Spade New York is opening the doors of a new international flagship in Ginza…The new flagship, which features 4,541-square-feet of selling space over three levels, is located on one of Ginza’s smaller side streets. It also happens to be right next door to Tory Burch’s flagship and just around the corner from Coach’s sizable space on the main road…"
  • "The store’s first two levels offer a mix of apparel, shoes and accessories, including items from the brand’s more exclusive Madison Avenue collection. The Ginza store is the only point of sale for this higher-end product range outside the U.S. Home goods and furnishings occupy the third floor…"


Retail Callouts (4/4): KATE, HBC, NKE, WMT - morning 4 4 2


NKE - Nike Sneaker Release Shut Down



  • "A campout at the Supreme boutique on Lafayette Street in Manhattan was shut down by the New York Police Department after fans awaiting the new Nike Foamposite release formed dense lines that extended several blocks. Some 800 people reportedly showed up for the launch."
  • "Supreme issued a statement via its Instagram page, citing public safety and the NYPD’s action as the reasons why the Foamposite shoes and apparel would not be sold in-store, but on its website. Once the stock went up on Supreme’s site this morning, the shoes sold out in under a minute."


WMT - Wal-Mart’s Sam’s Club partners with Gallup to study small-business customers



  • "To better understand the needs of its small business customers, Sam’s Club...said on Thursday it’s partnered with polling firm Gallup to study micro-businesses, or those with five or fewer employees."
  • "The new quarterly consumer tracking survey 'is relevant to Sam’s Club,'  the unit’s President and Chief Executive Rosalind Brewer said in response to a MarketWatch question on a media call, adding 70% of its small business customers are micro-businesses. 'We plan to use the surveys to see how we merchandise and price products. We want to connect with them.'”


ICON - Ecko Unltd. in Bankruptcy Proceedings



  • "Streetwear brand Ecko Unltd. and affiliated firms filed a voluntary Chapter 11 petition for bankruptcy court protection on Wednesday in a bankruptcy court in Trenton. Court documents said it had $30 million in assets and $62 million in liabilities. The filing was done under the name MEE Apparel LLC, the operating company that is a licensee of IP Holdings Unltd. IP Holdings is a subsidiary of Iconix Brand Group, which owns the intellectual property of the Ecko brand."
  • "In an affidavit by Jeffrey L. Gregg, the company’s chief restructuring officer, he said declining sales and reduced profitability since 2009 hurt the company. He also said the plan is to pursue an 'expedited sale process' of the company’s assets."


BKS - Liberty Media & Barnes & Noble Announce Change in Liberty Media’s Ownership of Preferred Shares



  • "Liberty Media Corporation & Barnes & Noble, Inc. today announced that Liberty Media Corporation has entered into agreements to reduce its stake in Barnes & Noble.  Liberty Media informed Barnes & Noble that while Liberty has sold the majority of its shares to qualified institutional buyers...it will retain approximately 10 percent of its initial investment.  Liberty further informed Barnes & Noble that the sale is expected to settle on Tuesday, April 8."
  • "As a result of Liberty’s reduced ownership, they will no longer have the right to elect two preferred stock directors to Barnes & Noble’s Board. Additionally, Liberty’s consent rights and pre-emptive rights will cease to apply.  Due to the loss of the right to elect two preferred stock directors, Greg Maffei will cease to serve on the board as of the closing on April 8.  Mark Carleton has been re-elected to the Barnes & Noble Board effective upon the closing on April 8." 

Saving Pennies

This note was originally published at 8am on March 21, 2014 for Hedgeye subscribers.

“A penny saved is a penny earned.”

-Benjamin Franklin


I co-chaired the Bipartisan Policy Center’s dinner/debate on America’s Personal Savings Rate in NYC on Wednesday and one of the most thoughtful portfolio managers I know outlined the following to Senator Kent Conrad (ND) and Jim Lockhart (W.L. Ross):


My wife and I were in the military… we raised our 3 kids teaching them discipline and hard work… my kids all have savings accounts, jobs, and allowances… and my son did pretty well this winter shoveling snow. So I took him to the bank last weekend to make his cash deposit – he looked at his statement and said “Dad, I made 2 cents – why do we do this?”


Very good question, son. With an un-elected Federal Reserve mandate of 0% Rate of Return on American Savings accounts, what is the incentive for the next generation to save?


Saving Pennies - pen1


Back to the Global Macro Grind


Other than the bond and stock market bubbles blowing up, what is your incentive to be in cash this morning? As I was drawing down the cash position in our asset allocation model yesterday, I reminded myself to say my prayers before bedtime last night.


While prayer is not a risk management process, neither is a country destroying both the credibility of her youth’s hard earned currency and savings rate. As you can see in the Chart of The Day, the relationship between the US Dollar’s value and the ratio of personal savings to after-tax income is as obvious as the sun rising in the East.


Now back to dropping my Cash position to 20% yesterday. Damn the long-standing American principle of Franklin Frugality, Ben Bernanke and Janet Yellen have to be proud of me. With return on savings pinned at 0% and #InflationAccelerating, I’m going to go chase myself some hard core nominal yield!


What does chasing yield mean?

  1. The “risk-free” rate of return = 0%
  2. #InflationAccelerating > 2% means your real-rate of return owning 0% is negative
  3. You have to buy stuff (literally anything) that “yields”> 2%, just to break-even

Otherwise known as a Policy To Inflate, this un-elected and un-constitutional tax policy in America pays the debtor and pulverizes not only the saver, but the poor (hint: inflation is an unlegislated tax). And what does the NY Fed have to say about this? Go eat a REIT.


Seriously, let’s go through what you were forced to do in 2011 one more time, because that’s precisely what I am suggesting you do right now (until one day I say, I’m out, and go to 100% under-my-mattress beast mode):

  1. FOREIGN CURRENCIES (22%) – with a Down Dollar policy, buy other country currencies vs the US Dollar (Pounds, Euros, etc.)
  2. COMMODITIES (20%) – since most commodities correlate inversely to USD, buy Gold, Silver, Food – love Coffee!
  3. FIXED INCOME (19%) – yep, if it’s got a yield greater than 1-2%, giddy-up Bernanke Bond Bubble
  4. INTL EQUITIES (10%) – we like #StrongCurrency countries. Period.
  5. US EQUITIES (9%) – slow-growth Utilities, REITS, etc. - love Yield Chasing

Oh, that’s not the asset allocation pie-chart that the Banker-of-bailed-out-America-thundering-turd-high-net-worth-yield-chaser, slash “advisor”, has you in right now? I’m shocked.


With pick-toggles, junk bonds, and MLPs trading near all-time historical multiple highs, I don’t know why the Mucker doesn’t just go whole hog on this asset allocation strategy and go 30% Gold, 70% Kinder Morgan (KMP)!


As long as you realize that investing under this Bernanke/Yellen regime has nothing to do with reasonable valuations for anything that looks like a bond, you’re all set.


Back to the MLP bubble Bernanke will have on his #history watch:

  1. The US Equity market cap of MLPs 10 years ago was around $50B
  2. The all-time-bubble-high market cap for MLPs in 2013 was more than 10x that (over $500B)
  3. The all-time-bubble high in something like Kinder’s KMP in 2013 was 40x earnings

This is why someone like Rich Kinder should be considered a genius – he front-ran both Fed policy and the predictable behavior of human beings being forced to chase yield versus ZIRP (Zero Percent Rate Policy); not to mention the 50% rake he pulls from his LPs.


So, back to the NYC Portfolio Manager – what should we tell his son?


I say we tell him to roll-up some capital intensive assets (snow plows?), play around with the non-GAAP numbers, and collect massive fees from yield-chasing retail investors. Forget long-term principles of frugality and foresight in America. Pay me now. Beats 2 cents.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1851-1886

VIX 13.18-15.36

USD 79.64-80.52

EUR/USD 1.37-1.39

Pound $1.64-1.66

Gold 1318-1385


Best of luck out there today – enjoy your weekend,




Keith R. McCullough
Chief Executive Officer


Saving Pennies - Chart of the Day


Saving Pennies - 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.

Hard Core Capitalism

“He is striking at everything. I am afraid of this man.”

-Thomas Gibbons, 1822


That’s the opening line to Part One (titled “Captain” – 1) in the latest brick I’ve cracked open, The First Tycoon The Epic Life of Cornelius Vanderbilt, by T.J. Stiles. If you’re into hard core capitalism, this is where it’s at.


That’s not to say I’m not into Grubhub.com (GRUB) going public this morning (I couldn’t make that up if I tried)… or any company that doesn’t make any money for that matter. If the public is dumb enough to pay 15-20x revenues for companies with no earnings, there is a precedent for that. #1999


Hard Core Capitalism - grubhub


There’s also a longstanding history in America of hard core capitalists making hard core profits. Admittedly, I have a confirmation bias towards them. As William Gibbs McNeil said about Vanderbilt in 1840, “I’d sooner have him with us, than against us.” Amen to that.


Back to the Global Macro Grind


As the European Central Bank (ECB) reduces the size of its balance sheet, Yellen’s Federal Reserve continues to ramp up the size of hers. At $4.2 TRILLION, I was perusing the Fed’s balance sheet last night. It was up another +$9.5B wk-over-wk, and +$1 TRILLION year-over-year. Socialism, baby!


Is that a bad word?


Or should we use statism? What else would you call an un-elected agency (the Federal Reserve), whose mandate is to get tighter as inflation accelerates and the economy expands, getting looser for the sake of the 1%-10% of the population that benefits from asset price inflation?


Economic expansion?


Yes. Newsflash:

  1. The US economic expansion is now going into its 59th month!
  2. Pardon? Yes. Take out all the spew politicians have been whining about since missing the buying opp of a lifetime in 2009.
  3. And focus on what actually happened. In gravity speak, this is called a cycle (see #history table in today’s Chart of The Day)

Oh, and what you’ll note in the historical data is that the average US economic expansion following a recession is also … drum-roll… 59 months!


In other words, during this epic expansion, the Fed:

  1. Didn’t see any inflation, at the all-time-highs in US energy, food, education, rent, etc. inflation – so it didn’t see a need to tighten
  2. Won’t ever see inflation, until we have another inflation crisis
  3. And is now tapering (late) into what will likely be a US consumption growth slowdown

Yep, that last part is the least consensus of everything else I wrote, primarily because my conclusion is embedded in a forecast that isn’t consensus – i.e. that US #InflationAccelerating is finally slowing US consumption growth.


Hard core Keynesianism, this view is not.  And what do you do if you share it? Do more of what you’ve been doing for 3 months:

  1. Buy Inflation (Short US Dollars, and Buy Commodities and/or anything with pricing power)
  2. Buy Bonds (because the Fed has 0% credibility and/or intention to fight inflation)
  3. Buy Foreign Currencies who has monetary policies that are building credibility

That’s why I feel pretty good about selling US Buy-The-Damn-Bubble #BTDB Growth Equities (everything we liked last year), booking those gains and plowing them back into the former Bernanke Bubbles (Food, Gold, Utilities, REITS, Bonds, Emerging Markets, etc.) that blew up in 2013.


The inflation topic drives people who take the Fed’s word for it (that there is no inflation) squirrel. But those are mostly people who are educated with a serious level of Western Academic Groupthink and don’t think for themselves. If you ask objective people, they know the government is lying to them.


We did a poll yesterday (powered by Polstir, here) that asked a very basic question: Do you trust the government’s inflation numbers?


87.5% responded no.


Yes Mr. and Mrs. Big-Government-Made-Up-Data, Hedgeye is 6 years older (with much wider distribution) than when we called you out on the last inflation-slows-growth cycle reality (our US consumer recession call in early 2008). We’ll be striking at everything you say going forward. Be afraid of the common man.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.66-2.82%


USD 79.83-80.72

EUR/USD 1.36-1.38

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Hard Core Capitalism - US Recession Cycle


Hard Core Capitalism - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 4, 2014

As we look at today's setup for the S&P 500, the range is 31 points or 1.10% downside to 1868 and 0.54% upside to 1899.                                 










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.34 from 2.34
  • VIX closed at 13.37 1 day percent change of 2.14%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Change in Nonfarm Payrolls, March, est. 200k (pr 175k)
  • Unemployment Rate, March., est. 6.6% (prior 6.7%)
  • 1pm: Baker Hughes rig count


    • President Obama meets with Tunisian Prime Minister Mehdi Jomaa
    • Secretary of State John Kerry on trip to Morocco
    • FY15 budget panels/testimony:
    • 9am: House Appropriations hears from Attorney General Eric Holder on Justice Dept. request
    • 10:30am: House Armed Svcs hearing on FY15 budget request for intelligence activities
    • Deadline for EPA employees to take up option to retire early, take buyout worth up to $25k
    • U.S. ELECTION WRAP: Rogers, Camp Retirements to Test Boehner


  • Employers probably boosted pace of U.S. hiring for 3rd month
  • IMS Health prices IPO of 65m shrs at $20/shr
  • GrubHub sells 7.41m shrs at $26/shr in IPO
  • Meda chairman confirms prelim. Mylan contact, Direkt reports
  • Lenovo-IBM deal under U.S. scrutiny over Pentagon server use
  • Jennifer Lopez-Backed NuvoTV said in deal to buy MSG’s Fuse TV
  • Apple loses patent-use bid in $2b Samsung Trial
  • Bank of America discussing $800m settlement with CFPB: DJ
  • Delta may buy as many as 50 new wide-body jets: WSJ
  • Boeing considers buying supplier Mercury Systems: Reuters
  • Liberty Global unit eyes German stores amid O2, E-Plus merger
  • GE chooses H.K. for aircraft leasing co.’s $700m IPO: IFR
  • German Feb. factory orders beat est.
  • JPMorgan folds London Whale investment office into another unit
  • RBS names Credit Suisse’s Stevenson CFO
  • IMF Meeting, Fed, China Exports, Ally IPO: Wk Ahead April 5-12


    • CarMax (KMX) 7:35am, $0.54
    • Synergy Resources (SYRG) 6am, $0.09


  • Aluminum Heads for Biggest Weekly Advance Since November 2012
  • WTI Crude Rises a Second Day Before U.S. Data; Brent Advances
  • Wheat Fields See Worst Damage in Five Years on Drought to Freeze
  • Drones Portend High-Tech Future for Dangerous Mines: Commodities
  • Port Hedland Iron Ore Shipments to China Reach Record on Demand
  • Wheat Set for Biggest Weekly Drop Since January on Rain in U.S.
  • India’s Gold Imports Said to More Than Double in March From Feb.
  • Robusta Coffee Rises After 23% Stockpiles Draw; Cocoa Advances
  • Rebar in Shanghai Rises for 2nd Week on Iron Ore, China Policy
  • Coffee Exports From India Dropping as Rains Shrink Harvest
  • World’s Biggest Coal Terminal to Review 2015 Goal on Power Cut
  • Pollution Traders Bullish as Europe Squeezes Permit Glut: Energy
  • Gazprom 81% Ukraine Gas Price Surge May Open Door for RWE, PGNiG
  • Gold Prices Pare Weekly Decline in London Before U.S. Jobs Data

























The Hedgeye Macro Team














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.