• run with the bulls

    get your first month

    of hedgeye free


Not a Hope in Hell

Client Talking Points


A 2.51% yield starts the week off down after a lot of people said bond yields couldn’t go lower yet. Newsflash: JGB 10-year yields are at 0.58%. If we go 0% forever, there is a precedent. 2.61% TAIL risk resistance = on. Consensus for the 10-year yield is 3.32% for year end - not a hope in hell that happens if inflation continues to slow growth expectations.


Inflation in the oil price of +2.3% last week sees WTIC up another +0.6% this morning, just in time for Memorial Day weekend when Americans are being taxed six-ways to Sunday from rent to food. #InflationAccelerating.


The MIB Index smoked for a -2.9% drop this morning in a rather abrupt move as Italian stocks have given back ½ their year-to-date gains on the “Sell in May and go away” trade – that’s very much on in US growth (Russell 2000) exposures as well.

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.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


76% of people reject socialist policy (to hike min wage to $25/hr) in Switzerland #WellDone @KeithMcCullough


"If you'll not settle for anything less than your best, you will be amazed at what you can accomplish in your lives." - Vince Lombardi


AT&T has agreed to acquire America's biggest satellite television provider, DirecTV, in a deal worth almost $50 billion. (CNN)

Un-friending US Growth

This note was originally published at 8am on May 05, 2014 for Hedgeye subscribers.

“There is no friendship in trade.”

-Cornelius Vanderbilt


Un-friending US Growth - facebook thumbs down


Forget about what Facebook (FB) did on Friday. In one of the more epic 2 hour moves I have ever seen, the US bond market un-friended the US growth bulls, big time.


At 8:30AM the lagging of all lagging economic indicators (the monthly US unemployment rate) was met with some of the funniest tweets my contra-stream has ever seen: “Boom!” (as in this is  great report), “Bye bye Bond Market”, “Stocks gonna rip!”, etc.


By 10:30AM, as you can see in the Chart of The Day, anyone who bought US growth stocks and sold what’s been working all year (Gold, Bonds, etc.) felt shame. #Tweetless


Un-friending US Growth - Chart of the Day


Back to the Global Macro Grind


To be crystal clear, with the 10yr US Treasury Yield -15% YTD to 2.58% and US GDP 0.11% in Q114, Mr. Macro Bond Market has completely nailed it in 2014.


Since everyone other than guys @ISI (who are trying to story-tell about 3-4% US Growth) understands the relationship between a rising bond market (falling bond yields) and falling growth expectations, the real-time price truth is on the tape.


With the Russell2000 (proxy for US Growth stocks) -3% YTD, what else is going on out there on the scoreboard?

  1. US Dollar down another -0.3% last week to $79.51 on the US Dollar Index (re-testing its YTD lows)
  2. The Currency Power Couple (Euro and Pound) were up another +0.3-0.4% last week to +1.9-3.0% YTD vs the Burning Buck
  3. European Stocks (EuroStoxx600) were up +1.3% last week (vs the Russell2000 +0.5%) to +2.9% YTD
  4. MSCI World Equity Index beat the Russell last week too, +1.2% = +1.8% YTD
  5. Canadian Stocks (TSX Composite Index) were up another +1.6% last week to +8.4% YTD

Blame Canada (who also had the “weather”, like the UK did – but didn’t spend the last 3 months blaming it like CNBC growth bulls have).


Now, if they can’t blame the weather for a 9-week high in US jobless claims (reported on Thursday, which isn’t a lagging jobs indicator), what precisely do you think they’ll start to blame as they cut their 2014 US GDP “forecasts”?


Alec, I’ll take US #InflationAccelerating for $500 (pre-tax!):

  1. Food Prices (CRB Foodstuffs Index) were up another +0.7% last week to a tasty +22.3% YTD
  2. Cattle Prices were up another +3.1% last week to +11.1% YTD
  3. Natural Gas Prices were up another +0.6% last week to +14.0% YTD

No worries though, the natural gas thing was all about the weather on the East Coast in February, right? If poor people being pulverized by food and shelter costs can’t afford the air conditioning this summer, tell them to go topless.


Cotton prices up another +1.1% last week to +12.3% YTD are prohibitive to wearing t-shirts anyway. After they eat an iPad, the median consumer in America (who makes $47,296.72 a year pre-tax and spends $42,996.83) can swallow Janet’s un-tapering reaction to slowing data, and like it.


Obviously this isn’t funny – an un-legislated Policy To Inflate (taxing 80% of Americans with QE on their cost of living) rarely is. Looking at the average American’s Spending Breakdown (slide 15 of our Q214 Macro Themes Deck):

  1. Housing = 29.2%
  2. Transportation = 17.6%
  3. Food = 12.5%

Yep, your un-elected Fed tells you all of that stuff is “non-core.” While food and shelter are primitive concepts for some, for most of us they are core costs. And since 30% of the country still rents, the all-time highs in US rents matters to real people with real costs too.


Oh yeah. I almost forgot to tie in the introduction of today’s note with the conclusion. Why is it that bond yields got slammed intraday on a “better than expected jobs report”? That’s easy. As opposed to being a backward-looking-editorial-passive-trend-follower, markets are forward looking.


My read-through on what both the bond and currency markets have been telling you for 4 months is that they’ll be telling you more of the same in the next 4 months. As growth slows, the Fed will get even easier à Dollar and Bond Yields fall further à  Inflation continues to accelerate, and real growth consensus is un-friended, faster.  


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


UST 10yr Yield 2.56-2.68%

SPX 1860-1888

RUT 1093-1133

USD 79.19-79.88

Gold 1291-1324

Corn 4.96-5.21


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer

May 19, 2014

May 19, 2014 - Slide1



May 19, 2014 - Slide2

May 19, 2014 - Slide3

May 19, 2014 - Slide4

May 19, 2014 - Slide5

May 19, 2014 - Slide6

May 19, 2014 - Slide7 


May 19, 2014 - Slide8

May 19, 2014 - Slide9

May 19, 2014 - Slide10

May 19, 2014 - Slide11
May 19, 2014 - Slide12

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 80.46%
  • SHORT SIGNALS 78.35%

CHART OF THE DAY: All-Time Highs in Rent Prices


CHART OF THE DAY: All-Time Highs in Rent Prices - Chart of the Day

Heisenberg, Please Explain

“Some questions have no answers to find.”

-Niels Bohr


This weekend I changed things up a bit and started re-reading a play called Copenhagen which is based on a meeting of the physics minds of Niels Bohr and Werner Heisenberg in 1941.


Heisenberg, Please Explain - HeisenberBohr1


The timing of the play opening on Broadway (April of 2000 at the top in the US stock market) is interesting. I was a newbie on Wall Street back then. I didn’t know much more than I know now about why this time the bubble is “different.”


Copenhagen’s opening scene starts with four questions exchanged between Bohr and his wife, Margrethe:


Margrethe: “But why?”


Bohr: “You’re still thinking about it?”


Margarethe: “Why did he come to Copenhagen?”


Bohr: “Does it matter, my love? Now we’re all three of us dead and gone”


Back to the Global Macro Grind


But why do bond yields keep going down? Why is Old Wall consensus still expecting 3.32% for the 10yr US Treasury yield for 2014 when it’s currently trading at 2.51? Why did consensus come into 2014 expecting US Growth to accelerate, and inflation to fall? Does it matter, my friends?


These questions obviously have obvious answers – unless you are paid to anchor on estimates that are dead wrong, that is. As #InflationAccelerating slows real US growth expectations for 2014, some serious questions remain as to why Wall Street and Washington have not yet come to agree with gravity.


This is, of course, the upshot of Copenhagen – Heisenberg (not the Breaking Bad dude, but Walter White was named after him):


“No one understands my trip to Copenhagen. Time and time again I’ve explained it. To interrogators and intelligence officers, to journalists and historians. The more I’ve explained, the deeper the uncertainty has become…”


“So” embrace the uncertainty associated with how an unprecedented level of un-elected central planning is affecting the rate of change in both growth and inflation in the US economy. There is nothing linear about this.


In addition to US Bond Yields getting hammered last week, here’s what Mr. Macro Market had to say about US growth:


  1. Growth Stocks (Russell 2000) down another -0.4% last week to -5.2% for 2014 YTD (down -8.8% since March)
  2. Yield Spread (10yr yield of 2.51% minus the 2yr yield of 0.36%) compressed another 8 basis points on the week (-48 basis points YTD)
  3. Financials (XLF) were the worst performing sub-sector of the SP500 at -0.8% on the week to -0.5% YTD


In other words, as the long-end of the curve (10yr yield) dropped -10 basis points on the week (-51 basis points YTD), not only is that a leading indicator for US #GrowthSlowing, but it’s as good a proxy as any for bank earnings (net interest margin tracks the Yield Spread).


But why?


Everyone who has followed market history knows why. There isn’t a person in this profession who can tell you with a straight face that growth stocks, financials, and bond yields all declining at the same time is a bullish growth signal.


Neither can they tell you that food and oil prices accelerating is a consumer tax cut. Here’s the update on that:


  1. Oil price up another +2.3% last week (breaking out above @Hedgeye TAIL risk lines of resistance)
  2. Cattle prices up another +1% last week to +13.5% YTD
  3. REITS up another +0.4% last week to +14.6% YTD


Oh, you mean you don’t eat REITS? But you’re still thinking about chasing some slow-growth yield? Obviously cost of living is ripping in this country, and since 1/3 of Americans rent, they can eat that inflation – and like it, because as Heseinberg explained in Breaking Bad, “I say so.”


The only good news I can give you on the US stock market is that buy-side consensus is starting to figure out the #InflationAccelerating slows US consumption growth theme. Here’s the updated CFTC Non-Commercial net long/short positions in the Big Macro stuff that matters:


  1. SPX (Index + Emini) closed the wk with a net short position of -40,901 contracts (vs. an avg NET LONG position of +16,256 contracts over the last 6 months)
  2. 10YR Treasury has a net long position now of +23,948 contracts (vs an avg NET SHORT position of -81,337 contracts over the last 6 months)


Put another way:


  1. If you were long growth equities and short bonds 6 months ago, you were killing it (but about to get killed)
  2. If you made the turn (out of growth stocks into slow-growth bonds) in the last 6 months, you are still killing it


Just because consensus is moving the way of economic gravity doesn’t mean the move is done. In Breaking Bad, Walter White explained this reality quite effectively to Saul too: “We’re done when I say we’re done.” And that’s all Mr. Macro Market is going to have to explain about that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.48-2.61%


RUT 1089-1111

USD 79.16-80.21

WTIC Oil 101.05-102.97

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Heisenberg, Please Explain - Chart of the Day


 TODAY’S S&P 500 SET-UP – May 19, 2014

As we look at today's setup for the S&P 500, the range is 21 points or 0.90% downside to 1861 and 0.22% upside to 1882.                                       













  • YIELD CURVE: 2.16 from 2.16
  • VIX closed at 12.44 1 day percent change of -5.54%


MACRO DATA POINTS (Bloomberg Estimates):


  • 11:30am: U.S. to sell $25b 3M, $23b 6M bills
  • 12:10pm: Fed’s Williams and Fisher speak in Dallas
  • 12:50pm: Former Fed Chair Bernanke speaks in Dallas



    • House in session; Senate returns Tue.
    • President Obama attends evening fundraiser at private home in Potomac, Md.
    • 10am: Supreme Court may release opinions
    • 11:45am: Former Treasury Sec. Tim Geithner speaks at Politico lunch
    • 1pm: Energy Sec. Ernest Moniz, EPA Admin. Gina McCarthy participate in Google+ Hangout
    • Financial Stability Oversight Council hosts conf. on risks to financial system; includes Citadel’s Ken Griffin



  • AstraZeneca rejects Pfizer’s sweetened $117b takeover proposal
  • AT&T agrees to buy DirecTV for $95/shr as TMT deals continue
  • Deutsche Bank to raise $11b as Qatar taking stake
  • GE said to seek partners on Alstom assets for French approval
  • Johnson Controls to spin off Automotive Interiors into JV
  • Credit Suisse guilty plea looms as U.S. said to reassure banks
  • Blackstone sells five Boston towers for $2.1b: WSJ
  • Walgreen considering GBP10.5b Boots buyout: Sunday Times
  • Cisco CEO calls on Obama to rein in surveillance: FT
  • Google’s YouTube said to buy Twitch for $1b: Variety
  • Yahoo Japan cancels plan to buy EAccess from SoftBank
  • ’Godzilla’ wins N.A. box office with est.-beating $93.2m
  • Gasoline prices fall to $3.6876/gal. in Lundberg survey
  • Gunmen storm Libya parliament as violence grip oil producers
  • Marriott offers EU130m for Madrid Ritz Hotel, Expansion says
  • Ryanair targets profit growth by flying 3m more travelers
  • Ousted NYT Editor Abramson to speak at Wake Forest commencement



    • Campbell Soup Co (CPB) 6:30am, $0.59
    • Urban Outfitters (URBN) 4pm, $0.27
    • Valspar (VAL) 7:30am, $1.04



  • Brent Extends Weekly Gain as Libya Fighting Worsens; WTI Rises
  • Hedge Funds Cut Bullish Gold Wagers Most in a Month: Commodities
  • Thai Gold Imports Plunge Amid Political Deadlock: Southeast Asia
  • European Central Banks Make Gold Agreement Without Sales Limit
  • Gold Climbs on Speculation of India Relaxing Import Restrictions
  • Cocoa Drops on Outlook for West African Crops; Arabica Declines
  • Wheat Set for Longest Slump in 15 Years as Rain Aids U.S. Crops
  • Nickel Advances as Norilsk Forecasts Move to Deficit Next Year
  • Norilsk Sees Nickel Surplus Shrinking to Smallest in Four Years
  • Natural Gas Bets Drop to Five-Month Low on U.S. Supply: Energy
  • Biggest 10 Banks’ Commodities Revenue Rises 26% Amid Pullback
  • Iron Ore Futures on SGX Below $100 for First Time Since 2013
  • Global Grain Production Records Show No Signs of Peak: Bull Case
  • Russia Gas Supply Fears Spur Record Trading on ICE Exchange


























The Hedgeye Macro Team














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.