No Volume

Client Talking Points


As #InflationAcclerating slows US growth, confidence flows right back to slow-growth bonds – this week’s flows into Fixed was +$3.9B (versus the year-to-date weekly average of +$2.1B) whereas Equity fund outflows of -$1.0B (versus YTD average weekly inflow of +$3.1B) are starting to explain why there is no volume to chase the up days.


Yields don’t seem to care much about the US equity short-covering conniption consensus tends to have on up-days for spoos. A 2.55% 10 year is another lower-high and well below our TAIL risk yield line of 2.61% resistance. Buy bonds.


Just on time for the long weekend, WTI crude is higher again at $103.85, testing year-to-date highs – whatever we do, we shouldn’t call these real-world realities inflation, because the Fed said. so. Energy (XLE) stocks still look great. Buy inflation.

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


AUSTRALIA: +0.2% for the ASX to end the wk at +5.3% YTD and we continue to like that equity market @KeithMcCullough


"If you learn from defeat, you haven't really lost." - Zig Ziglar


Barclays Bank has been fined 26 million pounds ($43.8 million) by UK regulators after one of its traders was discovered attempting to fix the price of gold.  (BBC)

May 23, 2014

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Muscle Hamsters

This note was originally published at 8am on May 09, 2014 for Hedgeye subscribers.

“Your job is to coach the team I give you.”

-Sonny Weaver Jr.


That’s a Kevin Costner quote from the new NFL movie my wife and I went to see on date night a few weeks back called Draft Day. The movie is somewhat contrived but, at the same time, somewhat real. Sort of like a nickname.


Imagine your nickname was the Muscle Hamster? As I was watching the actual NFL Draft last night with some of Hedgeye’s former college football boys (Casey Flavin, Darius Dale, and Ryan Fodor), they were trying to explain to me why they call him the hamster.


Like most things in life, I don’t totally get it until I see it. One pic of #22 RB for the Tampa Bay Bucs, Doug Martin, says 1,000 words. The dude is 5’9 and weighs 215lbs. He might not like the nickname, but he definitely looks like it.


Muscle Hamsters - 55


Back to the Global Macro Grind


If you’re a levered long high-multiple-growth-momentum-chaser, you may not like the complexion of the US stock market this year, but that doesn’t change what it’s become – a slow-growth-yield-chaser.


If we’ve shown you this pic 100 times in 2014, it probably feels like 1,000:


  1. Utilities (XLU) are +13% YTD
  2. Consumer Discretionary (XLY) stocks are -5% YTD


If you don’t like the Sector Variance that’s developing out there, here’s another pic:


  1. Russell2000 is -9.1% from its all-time-bubble-peak in March…
  2. Whereas the SP500 is only -0.8% from her all-time-twitter-muscles-but-but-the-market-isn’t-down-yet peak


Or you can #SnapChat some of the dirtier growth pics:


  1. Twitter (TWTR) -49%
  2. FireEye (FEYE) -37%
  3. Amazon (AMZN) -28%
  4. Yelp (YELP) -23%
  5. Zulily (ZU) -20%


No one likes to be called dirty. I know. I am sorry. But the truth is that some of these charts are filthy.


In reviewing all the tapes, the Draft Day Hedgeye Playbook remains the same:


  1. A Down Dollar Policy To Inflate ultimately drives #InflationAccelerating
  2. As real-world inflation accelerates, real (inflation adjusted) consumption growth slows
  3. And, as 71% of GDP (consumption) slows, US growth slows


“So”, if you want to win this year, you’re chasing the muscle-hamster-wheel that the Fed has trained you on and praying that no one knocks the entire cage of interconnected risk over. That would suck; especially since we’re all in this #YieldChasing thing together.


Yep, we’re all out in the open doing things we naturally wouldn’t do (hamsters are crepuscular, which means that if they weren’t centrally planned to run around in a cage, they’d stay underground in order to avoid being eaten).


And since doing what you shouldn’t naturally do only works if you genuinely believe that this time is different (try buying the company with no earnings at 15x sales again), you just have to get on that damn performance chasing wheel and run!


Run, muscle hamsters, run!


Because, as long as you can outrun the 80% of funds that can’t beat a bloated SP500 beta anymore, you will live to pay peak cost of living in America for another day!


Our immediate-term Global Macro Risk Ranges are now (today, in brackets I have our intermediate-term TREND signal as well):


UST 10yr Yield 2.56-2.64% (bearish)

SPX 1861-1888 (bullish)

RUT 1087-1118 (bearish)

Nikkei 14004-14348 (bearish)


VIX 12.96-14.52 (neutral)

USD 79.01-79.74 (bearish)

EUR/USD 1.37-1.39 (bullish)

Pound 1.68-1.70 (bullish)


WTIC oil 98.99-102.27 (bullish)

NatGas 4.52-4.81 (bullish)

Gold 1280-1315 (bullish)

Corn 5.05-5.25 (bullish)


Best of luck out there today,



Muscle Hamsters - Chart of the Day

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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














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 80.52%
  • SHORT SIGNALS 78.67%