Real World Education

“If I had learned education, I would not have had time to learn anything else.”

-Cornelius Vanderbilt


If you want to be humbled in this good life, study economic #history. The more I read, the less I realize I know. Given that our economy is centrally planned by people who have no financial incentive to un-learn failed policies and re-learn from the past, that often scares me.


Real World Education - 44


Then I’ll go back to a book, read some more, and find that light of American progress. While it may be dimming, it’s always there. We don’t put two feet on the floor for our families and firms every morning thinking about what government can do for us.


I think about what we can build to change a failed status quo. That’s not easy. I don’t want it to be. My education provides me with the context of its frailty. If I wasn’t paid to read and write to you every day, I wouldn’t be so optimistic that there’s a much better way.


Back to the Global Macro Grind


New ideas scare a certain type of people; especially people whose failed ideas you are challenging. “So”, let’s do that this morning and challenge 3 of the most widely held academic economic dogmas of America’s 21st century:


1. Money Printing (Dollar Devaluation and Debt Monetization)

2. The American Dream (everyone has to own one, right? #Housing)

3. Yield Chasing (you have to invest in bubbles, or you don’t get paid)


Fair Enough. You can go back to school and write a Ph.D. disproving each of these and I’ll see you in the 22nd century. In the meantime, you’ll have to use A) common sense and B) real-time market data:


1. Fed’s Balance Sheet (Money Printing) update – up +$929 beeelion dollars year-over-year to $4.3 TRILLION and now the NY Fed’s Bill Dudley (formerly of The Goldman Sachs, who helped bail out the banks) is saying $1.7 TRILLION of that (MBS –Mortgage Backed Securities) never has to be sold, unwound, etc. I’m still digging through the Constitution to find who made him god.


2. US #HousingSlowdown (The American Dream) update – post whatever the “weather bounce” was supposed to give us (oh, and rates falling, fast), both supply and demand numbers released for April Housing were not good yesterday.


A) Housing Demand – existing home sales released by the NAR (National Assoc. of Realtors) were down -6.8% year-over-year in April (vs. -7.5% y/y in March) and the Northeast (which was really supposed to have the weather bounce) saw existing home sales down -6.3% in April vs. -4.8% in March.

B) Housing Supply - #drumroll… saw its biggest sequential (month-over-month) ramp, ever. Yes, by our proprietary calculations, ever is a very long time. In percentage terms, existing homes inventory ramped +16.8% in April versus March. I’ll circle back on this colossal failure of the government trying to reflate a bubble that already blew up once at the end of this note.


3. Fixed Income vs. Equity Fund Flows (#YieldChasing) update – since the un-elected and unprecedented ideology that “rates on savings have to be 0% forever” has many unintended consequences, let’s just focus on the most obvious one – forcing investors to chase a yield (a rate of return to live on) greater than the risk free rate (of 0%).


A) Fixed Income Fund flows accelerated to +$3.9B in weekly INFLOW (versus the YTD weekly avg of $2.1B)

B) Equity Fund flows saw their 3rd wk of OUTFLOW in 2014 at -$1.0B (versus the YTD weekly avg INFLOW of +$3.1B)


“So”, in hash tag-less English that an “educated” person can’t obfuscate with big words:


1. Money Printing – the Policy To Inflate (but not calling it that) causes US consumption growth (71% of the economy) to slow

2. Yield Chasing – i.e. buying bonds and anything that looks like a bond (selling growth stocks) takes hold as the economy slows

3. The American Dream – yeah, baby!


Oh, yeah, baby!


Damn those free-market American Capitalists (Vanderbilt, Carnegie, Rockefeller, etc.) of the 19th century and/or anything that looks like them – and go lever yourself up and buy an unproductive asset (a house). Then sit on it, and rotate, until the Fed bubbles its price up.


Janet Yellen is having a bird right now because The American Dream that she and her boy Barney (Frank) drew up just isn’t working. As interest rates fall and the redo of the housing bubble takes hold… newsflash: first time buyers can’t afford to buy a house.


First time buyers of US homes represented 29% of demand in April. That’s down from 30% in March and testing 10 year lows. Rents, meanwhile, are hitting all-time highs in America. I know – that’s not inflationary. It’s not the American progress they planned for either.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.45-2.61%


RUT 1086-1121

VIX 11.84-14.01

WTI Oil 102.45-104.36

Gold 1

Copper 3.10-3.20


Best of luck out there today and enjoy your long weekend,



Keith R. McCullough
Chief Executive Officer


Real World Education - No Bounce


 TODAY’S S&P 500 SET-UP – May 23, 2014

As we look at today's setup for the S&P 500, the range is 32 points or 1.45% downside to 1865 and 0.24% upside to 1897.                                                            














  • YIELD CURVE: 2.20 from 2.21
  • VIX closed at 12.03 1 day percent change of 1.01%


MACRO DATA POINTS (Bloomberg Estimates):


  • 10am: New Home Sales, April, est. 425k (prior 384k)
  • 1pm: Baker Hughes rig count



    • Obama to unveil San Antonio mayor as nominee for HUD secretary
    • 9:30am: Fifth round of Transatlantic Trade and Investment Partnership talks
    • 9pm: Rolling Thunder opens Memorial Day events with candlelight vigil for prisoners of war, MIA
    • Federal judge to rule on constitutional issues raised by Rep. John Conyers in his effort to be listed on Michigan’s Aug. 5 primary ballot
    • U.S. ELECTION WRAP: Conyers Ruling Tomorrow; Steyer, Gates Funds



  • German business confidence declines as economy seen slowing
  • Pfizer, AstraZeneca face May 26 deadline on possible deal
  • Anti-bailout Syriza party leads in Greek EU election poll
  • Keryx gets notification of Pdufa date extension for Zerenex
  • France, Netherlands, Slovenia, Spain ratings watch
  • Encana says PrairieSky IPO shares priced at C$28 apiece
  • Michigan Rep. Conyers faces primary ballot ruling
  • Duke Energy shareholders sue over coal-ash cleanup oversight
  • Ukraine, EU Elections, U.S. GDP: Week Ahead May 24-31



    • Foot Locker (FL) 7am, $1.06
    • Hibbett Sports (HIBB) 6:30am, $1.09



  • Barclays Fined $44 Million for Manipulating London Gold Prices
  • WTI Set for Longest Gain Since February on Supply; Brent Steady
  • Aluminum Climbs to Three-Week High Amid Shortage Speculation
  • Gold Declines in London as Strengthening Dollar Curbs Demand
  • JPMorgan’s CEO of Asia Commodities Eyles Resigns After 25 Years
  • Robusta Coffee Drops for Third Week on Fund Selling; Sugar Falls
  • Palm Posts Biggest Weekly Drop in Three on Malaysian Production
  • Rebar Falls for 4th Week as Demand Concerns Cloud PMI Optimism
  • Credit Suisse Sees Commodities Openings as Competitors Pull Back
  • LNG Sellers to Chase Japan, South Korea on China-Russia Gas Deal
  • Australian About-Face Bodes Ill for Global Warming Talks: Energy
  • Sale of Kurdish Oil to European Nations Angers Iraqi Government
  • Gold’s Character Is Fundamentally Changing From West to Asia
  • Soybeans Extend Gains on Signs of Rising Demand for U.S. Exports


























The Hedgeye Macro Team














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Poll of the Day Recap: 72% Think E-Cigarettes are Here to Stay

Takeaway: 72% said HERE TO STAY; 28% said FAD.

Hedgeye analyst Matt Hedrick covers consumer staples and one area of focus is electronic cigarettes within the tobacco industry. Hedrick added Lorillard (LO) as a high-conviction long to Investing Ideas on 3/7/14 (it’s up 20% since then). Included in his thesis is the longer-term earnings power from blu, its e-cigarette brand.  

Today’s poll question was: Are electronic cigarettes a fad or here to stay?


Poll of the Day Recap: 72% Think E-Cigarettes are Here to Stay - ecig

At the time of this post, 72% said electronic cigarettes are HERE TO STAY; 28% said it’s a FAD.

Of those who voted that e-cigarettes are HERE TO STAY, they explained:

  •  “Vaporizing is the future of smoking anything, herbs, nicotine related products. There is no tar, extra filler products, and harmful second hand smoke. All of my friends that used to smoke now vape, because they also do not feel short of breath. I also know multiple people that used e-cigs to quit smoking all together. It is time to move on from traditional methods of smoking and embrace this new technology."
  • “They are at least a long term fad.  Here for 10-20 years and vaporizing marijuana will be the preferred delivery as legalization spreads.”
  • “Not only here to stay as smoking replacement, and as a new addiction of its own, but will also become the delivery technology of choice for legal marijuana.  this will be multi billion $ industry.”
  • “For people who have struggled to quit smoking or always on the verge of starting to smoke again, they offer a great compromise as they replace the nicotine and the physical habit of smoking.  As always, better not to start in the first place...  cost and smell are just 2 huge additional benefits.”


  • “4-7% of smokers have success in quitting. Smoking as a practice is obviously here to stay. The question is whether the electronic cigarettes ‘take the edge off.’ Seems likely.”


Conversely, one voter who believes it’s a FAD said, “Stick with the patch, I did. Most doctors are adamantly against them and are claiming that there are unhealthy elements within the vapor. Look for the FDA to pooh pooh the idea.”


Another agreed: “Someone will come up with a more natural version of an alternative cigarette (different than American Spirits) and potentially wipe out the e-cig category.”


Hedgeye Retail: Adidas Can’t Afford to Sell Everything but Shoes | $ADDYY

Takeaway: Adidas Chief Executive Herbert Hainer makes a pretty damning admission.

 Hedgeye Retail: Adidas Can’t Afford to Sell Everything but Shoes | $ADDYY - alansmith 2755508c


Adidas sees boost to sales from World Cup


• "German sportswear company Adidas has given a more precise sales growth target for 2014, amounting to a rise of up to 8 percent, as it gets a lift from the soccer World Cup that starts in Brazil next month."


• "'This year we will add 1-1.2 billion euros ($1.4-1.6 billion) to operational revenue, with the World Cup playing an important role,' Chief Executive Herbert Hainer told journalists at a briefing in Munich in remarks released for publication on Thursday."


• "That increase represents a rise of 7-8 percent from the 14.492 billion euros of sales Adidas recorded in 2013. Previously, Adidas had guided for a 'high single-digit' increase in currency-neutral sales in 2014."


• "'Football is the DNA of our company. We want to clearly show that we are number one in football,' Hainer said, adding Adidas expected to sell significantly more balls than at the last World Cup in South Africa four years ago and about as many shirts."


• "Hainer acknowledged, however, that Adidas faced a 'head-to-head' race with Nike in the business for football boots, including in Germany, predicting Adidas would sell 2 million pairs of special boots designed for the World Cup."

Takeaway From Hedgeye’s Brian McGough:

Pretty damning admission by Hainer. Adidas is 'head-to-head' with Nike in the football boots arms race? We would have guessed as much, but Nike is just starting to gain traction in the soccer market. Add Under Armour to the mix and it’s a pretty bleak outlook for Adidas. When soccer balls and t-shirts are the key pillar of growth for a footwear company, we get concerned.


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Editor's Note: This is a complimentary research excerpt from Hedgeye Retail sector head Brian McGough. Follow Brian on Twitter @HedgeyeRetail.

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