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Stronger Currency Works

Client Talking Points

USD

After last week’s +0.4% bounce off its year-to-date lows, the US Dollar has no follow through buying this morning. Both the Euro and Pound look good on the long side vs USD – so does the Yen, which is scary.

COPPER

Big rip of +1.7% this morning to $3.13/lb after Chinese stocks closed up +2.1%. Copper’s immediate-term TRADE breakout line = $3.06/lb and consensus remains short of it (-17,289 net short position in futz/options).

INDIA

Another solid session for Indian stocks as Dr. Raj proves to the world that a stronger currency works. The BSE Sensex is up +2.2% to +11.2% year-to-date, trouncing the Russell2000 which was down another -1.9% last week to -4.8% YTD.

Asset Allocation

CASH 17% US EQUITIES 4%
INTL EQUITIES 10% COMMODITIES 25%
FIXED INCOME 22% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
HOLX

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.

OC

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.

DRI

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

TWEET OF THE DAY

Swiss Retail Sales +3% y/y in March, despite the "weather" @KeithMcCullough

QUOTE OF THE DAY

"A ship is safe in harbour, but that's not what ships are for." - William Shedd

STAT OF THE DAY

The NFL's top draft pick Jadeveon Clowney just landed around a $22 million contract with the Houston Texans. But while Clowney -- and hundreds of other NFL rookies -- know a lot about football, they know little about managing money. Many are likely to end up bankrupt. Just two years after their athletic careers end, 78% of former NFL players are bankrupt or nearly there. (CNN)


The Era of The Common Man?

This note was originally published at 8am on April 28, 2014 for Hedgeye subscribers.

“One man with courage makes a majority.”

-Andrew Jackson

 

The broad based economic progress of the 1794-1847 period in American free-market-capitalist #history remains unrivaled. In the thick of it, many called Andrew Jackson’s 1828 sweep to become the 7th President of the United States, “the era of the common man…”

 

Jackson represented the victory of an expanded electorate, a rebuke of the old elite… To many Americans, the president embodied the energy, mobility, and enterprise that they believed defined their nation.” (The First Tycoon, pg 84)

 

Shocking, I know. The People didn’t need the Federal Reserve to believe. In fact, leaders with courage ran against it; shutting down initial iterations of a US central bank, twice! On Friday, Janet Yellen said there “may be a flaw in how the Federal Reserve forecasts inflation.” Believe her. Until we abandon this un-elected US Policy to Inflate, the common man, woman, and child in America is going to eat it.

The Era of The Common Man? - Yellen03.20.2014

 

Back to the Global Macro Grind

 

Eat it? Yep. Chow down, rinse it back with some coffee and OJ, and like it.

 

If you back out your rent, food, gas, education, etc. (cost of living), you may not have noticed the following last week:

  1. Corn prices up another +2.4% last week to +17.3% YTD
  2. Nickel prices up another +2.4% last week to +31.5% YTD
  3. Coffee prices up another +1.4% last week to +79.8% YTD
  4. Orange Juice up another +1.3% last week to +16.1% YTD

If you want to call that cherry picking, fine. Eat some of those too. But inflation continues to slow US consumption growth. And all 3 major US market intermediate-term TREND signals (currencies, stocks, and bonds) continue to agree with the same. On that score:

  1. US Dollar Index was down -0.1% to -0.4% YTD (and remains well below our long-term TAIL risk line of $81.17 resistance)
  2. US Consumer Discretionary (XLY) and Growth (Russell 2000) stocks were -0.5% and -1.3% last wk to -5.1% and -3.5% YTD, respectively
  3. US 10yr Treasury Bond Yield dropped another 6 basis points on the week to 2.66% (down -37 bps YTD)

Meanwhile everyone and their brother from the #OldWall in NYC to Washington and now California (PIMCO calling for “high 2% US Growth”) continue to confuse nominal growth (inflation) with real (inflation adjusted) growth.

 

On Wednesday the US will release GDP for the 1st quarter, and it will likely:

  1. Have a 1% handle on it (down hard from the sequential peak of +4.1% in Q413)
  2. See the Deflator (yes, you have to subtract it from nominal GDP) continue to rise from its sequential Q213 low

In other words, on the 2 core factors that matter in our GIP (Growth, inflation, Policy) model:

  1. INFLATION = will be accelerating
  2. GROWTH = will be slowing

More commonly called stagflation, the common man’s wallet gets squeezed when this starts to happen. That’s not my opinion, that’s US economic history in the post Greenspan era (Bernanke and Yellen).

 

This is the 3rd time Hedgeye has made a big directional call that #InflationAccelerating will slow US consumption growth, with the other two being:

  1. Q1 of 2008
  2. Q1 of 2011

Yep, it’s cyclical. And the ways to measure it in real-time are manifest. But if you want to throw a little Putin on top of your inflated corn flakes this morning (Oil prices accelerating), here are moarrr of them:

  1. US Treasury 5yr breakevens (Bernanke used these until they went against his ideology) +5bps last week and +17bps YTD
  2. CRB Foodstuffs index = +21.5% YTD and Treasury Inflation Protection (TIPs) testing YTD highs
  3. Slow-Growth #YieldChasing sub-sector styles of the US stock market like Utilities +13.5% YTD

What’s really impressive about the inflation-slows-growth trade is how obvious it is at this point. With the biotech and #SocialBubble stocks (FB, TWTR, YELP, etc.) getting pounded again on Friday (Nasdaq down -0.5% on the wk to -2.4% YTD), Utilities (XLU) closed the week up another +1.9%!

 

Sure, if you’re long Gold (up +0.5% last week to +8.1% YTD), Bonds, or any stock that looks like a bond, you’re having a great year. As you should be. You are in the 20% of America that A) has savings to invest into #InflationAccelerating and B) doesn’t have to eat it like the common man does.

 

In other news, not only is Bill Gross way late in getting bullish on US Growth, but consensus bear hedge fund bets in the bond market are. Last week’s net short position (CFTC non-commercial net futures/options contracts) in the 10yr Treasury Bond ramped to -93,722 contracts. If you have courage, you’ve been long consensus being wrong on #RatesRising all year long.

 

Our immediate-term Global Macro Risk Ranges are now as follows:

 

UST 10yr Yield 2.59-2.71%

SPX 1837-1890

Nasdaq 3996-4147

WTIC oil 99.98-105.61

Gold 1276-1324

Corn 4.98-5.18

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Era of The Common Man? - Chart of the Day



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.

The People Are Aware

“There is hardly a part of the United States where men are not aware that secret private purposes and interests have been running the government.” –Woodrow Wilson

 

I had a fantastic Real Conversation (HedgeyeTV video here: https://www.youtube.com/watch?v=hN7-u7Sd7Gk) with best-selling author Jim Rickards last week. Since he suggested we “quarantine the Princeton Economics Department”, I figured I’d quote the 28th US President (who was also President of Princeton).

 

The People Are Aware - 55

 

Princeton is a cool place; especially if you go there wearing Blue and White and crush their Tigers at the Hobey Baker rink. While that may be easier for more recent Yale Hockey teams to do, back in my day Princeton was as tough as any team in the league.

 

There was tough love for the Keynesians in my conversation with Rickards. We talked about the broken Fed model and how the US government doesn’t think about financial market risk the right way. The feedback on this video has been tremendous. Evidently this taps into a new reality – The People Are Aware.

 

Back to the Global Macro Grind

 

People in our profession are also very much aware of the real-time score on US Growth expectations falling, fast:

 

  1. Russell 2000 down another -1.9% last week to -4.8% YTD
  2. Nasdaq down another -1.3% last week to -2.5% YTD
  3. US Consumer Discretionary Stocks (XLY) down another -0.6% to -4.5% YTD

 

But, but, the Dow “hit an all-time high” on Friday (which puts it dead flat on the YTD #joy). So make sure you own everything in the Dow that is:

 

  1. Slow-growth
  2. Low-beta
  3. High-Yield

 

But you already have that on because that has been the strategy and asset allocation decision to make for the last 4.5 months. While that may not be trivial to someone who hasn’t evolved their process, in modern day markets real-time risk managers look at what we call Style Factors:

 

  1. Slow-growth stocks (Bottom 25% of the SP500’s EPS Growth is +5.2% YTD)
  2. Low-beta stocks are +6.1% vs High-beta up a paltry +0.4% YTD
  3. High-dividend-yielding stocks are +3.9% for 2014 YTD

 

“So”, what is driving slower-growth-hamster-on-the-wheel #YieldChasing? That’s too easy. It’s the Fed’s Policy to Inflate:

 

  1. So you buy inflation protections via TIPs
  2. Or you buy inflation by buying inflation itself (Oil, Food, Gold, etc.)
  3. Or you buy bonds and/or anything that looks like a bond as slower-growth-expectations drive down interest rates

 

Of course you’d have to let go of most academic ideologies that bonds don’t do well during #InflationAccelerating, and embrace that the Bernanke/Yellen Fed has 0% credibility on fighting inflation. I don’t know how many more times I can rant about this in print – that’s why I went to the video!

 

How about that stuff the Fed calls “non-core” (like ripping US rents and food) last week?

 

  1. CRB Foodstuffs Index up another +0.6% last week to +23.7% YTD
  2. Soybeans up another +1.1% to +11.6% YTD
  3. Corn up another +1.6% to +16.1% YTD

 

Yep. If you don’t like that definition of #InflationAccelerating, eat a REIT – and like it. Last week the MSCI REIT Index was up another +1.2% to +14.1% YTD, which means that you can bet your Madoff that rents are going higher in this country, not lower.

 

Oh, did I mention being long of US Housing in housing and/or related construction stocks terms (ITB) sucked wind again last week? For some reason this and most of the aforementioned market realities didn’t make it into Hyman’s weekly update. ITB (Housing) is down -6.4% YTD.

 

But never mind what Old Wall economists who missed calling the Q1 08’ and Q1 11’ slowdowns in US consumption growth think. As the early response to my un-plugged video with Rickards reminds us, The People Are Aware now. And that’s progress.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.56-2.67%

SPX 1

RUT 1189-1117

USD 79.18-80.08

EUR/USD 1.37-1.39

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The People Are Aware - Chart of the Day


May 12, 2014

May 12, 2014 - Slide1

BULLISH TRENDS

May 12, 2014 - Slide2

May 12, 2014 - Slide3

May 12, 2014 - Slide4

May 12, 2014 - Slide5

May 12, 2014 - Slide6

May 12, 2014 - Slide7

May 12, 2014 - Slide8

 

 

BEARISH TRENDS


May 12, 2014 - Slide9

May 12, 2014 - Slide10

May 12, 2014 - Slide11
May 12, 2014 - Slide12


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 12, 2014


As we look at today's setup for the S&P 500, the range is 20 points or 0.50% downside to 1869 and 0.56% upside to 1889.                                                                                                

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.25 from 2.24
  • VIX closed at 12.92 1 day percent change of -3.80%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 11:30am: U.S. to sell $25b 3M bills, $23b 6M bills
  • 12pm: Fed’s Plosser speaks in Philadelphia
  • 2pm: Monthly Budget Statement, April, est. $114b (prior $113b)

GOVERNMENT:

    • Senate in session, House out
    • President Barack Obama to discuss economic ties with Uruguay President Jose Mujica Cordano
    • 8:30am: U.S. Chamber of Commerce, Natl Assn of Manufacturers, Council on Competitiveness, Organization for Intl Investment hold discussion on “Now Serving: Economy,’
    • WASHINGTON WEEKLY AGENDA: Nebraska, W. Virginia Hold Primaries
    • U.S. ELECTION WRAP: Increased Koch Spending; Primaries Tuesday

WHAT TO WATCH:

  • Lockhart expects Fed to use reverse repos during stimulus exit
  • BSkyB in talks to buy Fox’s pay-TV assets in Germany, Italy
  • Eastern Ukrainian separatists say referendums back independence
  • Dubai to sell Mauser for $1.7b to Clayton, Dubilier
  • Microsoft group guards patent secrets in $7b Nortel trial
  • Xi says China must adapt to “new normal” of Slower Expansion
  • BNP Paribas, Credit Suisse seek leniency in U.S., NYT says
  • Apple, Beats deal may be announced this wk
  • Ex-Treasury Sec. Tim Geithner book “Stress Test” released
  • Nissan leapfrogs Ford behind Toyota, Honda in supplier survey
  • Russia’s Severstal said to get offers for U.S. steel plants
  • Samsung Chairman stable after surgery following heart attack
  • NBC shifts ’Blacklist’; other networks to release this wk
  • Nasdaq hires Adena Friedman as co-president
  • CME Clearing Europe agrees to offer collateral system with SIX
  • Siemens CEO sees many open questions in Alstom talks: Spiegel
  • Qualcomm said to acquire Wilocity for $300m: Globes

AM EARNS:

    • Concho Resources (CXO) Pre-Mkt, $0.98
    • DiamondRock Hospitality (DRH) 6am, ($0.01)
    • Elizabeth Arden (RDEN) 6:59am, $0.00
    • Gogo (GOGO) 7:30am, ($0.25)
    • Inter Pipeline (IPL CN) 11:16am, C$0.29

PM EARNS:

    • Arena Pharmaceuticals (ARNA) 4:03pm, ($0.10)
    • Babcock & Wilcox (BWC) 4:20pm, $0.42
    • Halozyme Therapeutics (HALO) 4:15pm, ($0.14)
    • MannKind (MNKD) 4pm, ($0.13)
    • MBIA (MBI) 4:05pm, $0.14
    • McKesson (MCK) 4:10pm, $2.40
    • Parkervision (PRKR) 4:01pm, ($0.04)
    • PDL BioPharma (PDLI) 4:02pm, $0.51
    • Pengrowth Energy (PGF CN) 4:30pm, $0.02
    • Penn Virginia (PVA) 4:05pm, ($0.06)
    • Rackspace (RAX) 4:01pm, $0.11
    • Towerstream (TWER) 4pm, ($0.10)
    • Vector Group (VGR) 4:05pm, N/A

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Nickel Extends Gains on Supply View Amid Vale Plant Suspension
  • Brent Gains for First Time in Three Days on Ukraine; WTI Rises
  • Gold Bulls Bet Wrong for Second Week on Fed Easing: Commodities
  • Iron Ore Trade at Risk as Port Hedland Tugs Approve Stoppage
  • Gold Trades Above One-Week Low as Ukraine Weighed Against Dollar
  • Wheat Falls to Two-Week Low as Global Supply Outweighs U.S. Woes
  • Cocoa Extends Longest Slump Since June in London; Sugar Declines
  • MORE: Aluminum Wait at Pacorini Depots in Vlissingen Is 748 Days
  • Coffee Sales Set to Slow in Vietnam as Reserves Drop From Record
  • Russia to Discuss Gas Price Cut With Ukraine Only If Debt Paid
  • Probe Breakthrough Elusive a Year After EU Raids Big Oil, Platts
  • Hedge Funds Cut Gasoline Wagers by Most in Three Months: Energy
  • Cocoa Net Long of Money Managers in London Was 53,071 Lots
  • Nine Nickel Smelters Seen in Indonesia This Year After Ban

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%
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