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At the all-time-high (Friday), total US Equity Market volume was down -23% and -41%, respectively, versus its one- and three-month averages. I still much prefer being short growth (Russell2000) than this crowded SPX short (-114,248 net short contracts as of Friday in the CFTC non-commercial data versus the six-month average net long position of +9,810 contracts).


US Dollar up (+) Rates up last week was good for anything growth, for a bounce. If we were to see USD and Rates up beyond Hedgeye TREND signals, I’d be getting ready to change my mind on the growth call – unfortunately they are not.


Big rip to higher-highs for the German stock market yesterday and this morning is seeing another positive +0.4% of follow through. Contrary to central planning ideology, European stocks need a stable/strong Euro, so we’ll see if EUR/USD can hold its long term TAIL line of $1.35 support.

Asset Allocation


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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 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


India -0.8%, S Korea -0.6%, Singapore -0.2%, Japan +0.2% @KeithMcCullough


"The important thing is not to stop questioning." - Albert Einstein


One in every four Americans is not saving for retirement at all, either because they are not thinking about it, do not really know how or, worse, do not feel they can afford to, according to a new report. (MSN)

Looney Tune Tape

This note was originally published at 8am on May 13, 2014 for Hedgeye subscribers.

“Mister Wabbit, before you die, you can have one wast wish.”

-Elmer Fudd


Was the wast wish to buy in May and pray? They dressed ole Elmer up in a Canadian Mountie uniform for that episode. When the US stock market won’t die, blame a Canadian. Must abandon risk management process and chase the performance wabbit, right?


Uh, no. Stay with what’s been working all year – #InflationAccelerating and slow-growth #YieldChasing assets (like commodities, bonds, and any stock that looks like a bond with low-beta and high-dividend-yield).


And on the short side, take your time and “be vewwy, vewwy quiet…” I’m hunting high-muwtipoh-momentum-bubbo wabbits that have popped back up out of their bombed out holes.


Looney Tune Tape - PeLooney8002


Back to the Global Macro Grind


“Wisten to the wippling wythm of the woodwinds…” and you’ll hear volume cwickets.


Yesterday’s total US Equity Volume reading was:


  1. -10% versus the 1 month average
  2. -31% versus the 3 month average


In other words, other than emotional hedge funds that shorted last week’s lows in almost every oversold momentum short (we sent out cover signals in IWM, ITB, YELP, last week #timestamped) there was no legitimate volume (read: conviction) behind yesterday’s rip.


In fact, going into the open yesterday:


  1. The net short position in SPX (Index + E-mini) was at a 6 month high of -54,587 contracts
  2. Three months ago (when you could have bought #MoBro top), the net short position was -30,429 contracts


“So”, many hedge funds were getting squeezed yesterday and those that still believe US GDP growth is going to be +3-4% in 2014 just kept averaging down into growth stocks, I guess.


While CNBC was nailing it with the Dow “at all-time-highs” yesterday, we sent out a short DIA (Dow ETF) signal in #RealTimeAlerts. But that’s not the best short idea we have – it’s waiting on the stocks that have been smoked to pop back up to our signal lines (YELP, TWTR, etc).


Don’t forget that the Nasdaq and Russell 2000 are still -4.9% and -6.2%, respectively, from where your broker could have plugged you buying the all-time-bubble-stock-high in early March. Most of these momentum, social, and housing stocks are still broken.


“Dwat that wabbit”


Yep, both the bond and currency market agree this morning:


  1. US Dollar Index is nowhere near overcoming its long-term TAIL risk line of $81.17 resistance
  2. US 10 year Treasury Yield of 2.65% couldn’t care less about people chasing performance wabbits in equities


“So”, if you have to buy something this morning, what do you buy?


  1. Utilities (XLU +10.3% YTD) have pulled back and are registering another buy signal
  2. Gold (GLD +7.3% YTD) has pulled back small and is a buy closer to TREND line support of $1271


And, what do you sell?


  1. Consumer Discretionary (XLY -3.3% YTD) has rallied on no volume to lower highs, so keep selling that
  2. US Dollar (UUP -0.2% YTD) has rallied sharply off its YTD lows, and remains bearish TREND


Yep, it’s really a macro call. Get the US Dollar and Rates right, and you’ll keep getting your Sector & Style Factors right. If you disagree with our view, you should be buying Dollars and growth stocks and shorting Bonds (like we did at this time last year) in size.


If you ask most consensus economists if they had the process to have you in the opposite this year as you were in last year (from an asset allocation perspective), they might go all-American-excuse-making Elmer on you too… “Yes! I mean NO, that is… I…. er… um…”


Looney Tune Tape, this has become. Chasing performance is not a repeatable risk management process. No worries though, I am sure the cartoon that this has all become will end willy willy well.


UST 10yr yield 2.57-2.67%

SPX 1871-1899

RUT 1094-1144

VIX 12.14-14.52

USD 79.11-80.01

EUR/USD 1.37-1.39

Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Looney Tune Tape - Chart of the Day

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It Never Gets Old

“Although I’ve made this walk thousands of times, it never gets old.”

-Ed Catmull


That’s how the President of Pixar Animation Studios, Ed Catmull, describes his life in the introduction to an excellent book I started reading this weekend called Creativity Inc. Catmull is a computer scientist who was hired in the late 1970s by a 32 year old by the name of George Lucas.


Catmull went on to run Pixar alongside another American capitalist by the name of Steve Jobs. He is 69 now and his book isn’t as much a memoir as it is a lesson in learning how to be creatively destructive, as a team.


The book’s early chapters will sound quite familiar to those of you who embrace the principles of transparency and trust alongside practical applications of  #math and #behavioral economics: “Honesty and Candor”, “Fear and Failure”, and “Change and Randomness.” #Solid summer time read.


Back to the Global Macro Grind


Walking onto the independent research platform we built 6 years ago never gets old. It gets more interesting and exciting the more we empower new players on our team to be the change. All the while, as my hair gets greyer, I’m still banging out this Early Look note just trying to keep up!


Trying to keep up with no-volume rallies in the preferred hedging instrument of thousands of hedge funds (SPX and E-minis) never gets old either. “Why are we up?”, “Why can’t we go higher?”, “Why can’t I beat beta?” – the underlying whine to this whole thing can make a man want to go on vacation.


Setting aside that we have not been recommending short SPY (we’ve been making the call to short US Growth – i.e. the Russell 2000) here’s what’s going on with the emotion of it all:


  1. Friday’s no-volume-ramp to an all-time closing SPY high of 1900 came on one of the lowest volume days of the year
  2. Total US Equity Market Volume was -23% and -41%, respectively, versus its 1 and 3 month averages
  3. CFTC futures and options contracts in SPX (Index + E-mini) ended with a net SHORT position of -114,248 contracts


In other words, with almost 9,000 hedge funds trying to manage an all-time high in AUM (assets under management) of $2.7 TRILLION in a no-volume market that goes straight up after they shorted it in April-May, the short-term game gets tougher.


Putting the -114,248 net short contract position (SPX Index + E-mini) in context is critical:


  1. That’s -73,347 contracts week-over-week (almost 60% shorter)
  2. Versus the 6 month average of +9,810 net LONG position, that’s bearish positioning
  3. Versus the 1 year average of +62,224 net LONG position, that’s really really bearish

Where time, price, and positioning is relative to where it was, across multiple-durations, is how we analyze things here @Hedgeye. It’s all about the rate of change. And it changes, both fast and slow.


Why would consensus be getting bearish on US Growth?


  1. 10yr US Treasury Yield was only up 1 basis pt last wk to 2.53% = down -50bps YTD and signaling US #GrowthSlowing
  2. Despite its no-volume +2.1% bounce to lower-highs last wk, the Russell2000 is still -6.8% since March and -3.2% YTD
  3. US GDP for Q114 could be revised to NEGATIVE (from its preliminary +0.11%) when it’s reported this Thursday


I know. Everyone nailed it. Everyone you read every morning made the call that US GDP would be negative in the first quarter (it would have been -2% btw if the US government used MIT’s Billion Prices Project measurement of +3.9% inflation) and the 10yr yield would be -17% YTD.


But that doesn’t matter this morning, because the name of the game isn’t intermediate-term TREND investing – it’s short-term performance chasing, baby! So what would get me to saddle up and ride the spooo-hoo bull?


  1. US Dollar Up
  2. Interest Rates Up
  3. Commodity and Cost of Living Inflation Down


Ex #3 (US rents hit an all-time high last week and the CRB Commodities Index was up another +0.8% to +10% YTD), we actually got some of that last week:


  1. US Dollar Index +0.4% last week to back in the black (of +0.4%) YTD
  2. 10yr Yield up a beep (1 basis point) to 2.53%


Buying the all-time-high price in anything just isn’t how I roll. But if that’s the sort of thing you are into from a “long-term investing” perspective, here’s some short-term positivity that Mr. Macro Market looks like he might chase – on a 15-day duration, the SPX and USD have POSITIVE correlation of +0.60.


Yep, that was last year’s risk management call on being long growth (Dollar Up, Rates Up, Equity Growth Multiples Up – Bond Bulls smoked). The 2014 call is much more aligned with the 90-day INVERSE correlation between SPX and USD of -0.62.


Right now, USD is overbought and the bond market couldn’t care less about no-volume stock market rallies. Get USD and Rates right, and you’ll probably get the TREND calls in long growth vs slow-growth right. Although I feel like I have written about this on 1,000 macro mornings – it never gets old.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.47-2.61%

RUT 1089-1135

Nikkei 138

USD 79.99-80.49

WTIC Oil 102.67-104.77


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


It Never Gets Old - Chart of the Day

May 27, 2014

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TODAY’S S&P 500 SET-UP – May 27, 2014

As we look at today's setup for the S&P 500, the range is 28 points or 1.19% downside to 1878 and 0.29% upside to 1906.                                                       














  • YIELD CURVE: 2.19 from 2.19
  • VIX closed at 11.36 1 day percent change of -5.57%


MACRO DATA POINTS (Bloomberg Estimates):


  • 8:30am: Durable Goods Orders, Apr., est. -0.7% (prior 2.9%, revised from 2.6%)
  • 9am: FHFA House Price Index m/m, Mar., est. 0.5% (prior 0.6%)
  • 9am: S&P/CS 20 City m/m SA, Mar., est. 0.7% (prior 0.76%)
  • 9:45am Markit US Composite PMI, May (P) (prior 55.6)
  • 9:45am: Markit US Services PMI, May (P), est. 54.5 (prior 55)
  • 10am: Consumer Confidence Index, May, est. 83 (prior 82.3)
  • 10am: Richmond Fed Manufact. Index, May, est. 5 (prior 7)
  • 10:30am: Dallas Fed Manf. Activity, May, est. 9.2 (prior 11.7)
  • 8:10pm: Fed’s Lockhart speaks in Baton Rouge, La.



    • Obama lands in Afghanistan for unannounced visit with troops
    • White House inadvertently exposes Afghan CIA Chief: WPost
    • Supreme Court may issue opinions
    • Senate, House not in session
    • Washington Week Ahead: Obama to deliver address at West Point



  • Pfizer weighs next move as $117b AstraZeneca bid ends
  • China said to push banks to remove IBM servers in spy dispute
  • GE seeks consent in pledge to keep Alstom nuclear ops in France
  • GE’s Immelt, Siemens’s de Maistre at hearing in France
  • Fox’s X-Men sequel topples Godzilla through holiday weekend
  • Sony forms China Playstation venture in Microsoft challenge
  • Twitter is getting bigger in Asia amid slowing U.S. user growth
  • InterContinental jumps after report co. spurned bid approach
  • ICE plans Euronext IPO, to list in Paris, Amsterdam, Brussels
  • China Hangzhou asks Lilly, AstraZeneca for self-checks: Herald
  • BofA said to find error after change in Fed wording: WSJ
  • Apple seeks order blocking sale of some Samsung smartphones
  • Germany plans Google entries’ mediation service: Handelsblatt
  • Google said to consider acquiring Dropcam: The Information
  • Russia, Ukraine draft gas debt plan as price dispute unresolved
  • Lloyds plans initial public offering for TSB banking division
  • EU austerity rethink demanded as leaders meet post protest vote
  • Poroshenko triumphs in Ukraine vote as Russia open to talks



    • Autozone (AZO) 7am, $8.45
    • National Bank of Canada (NA CN) 6pm, C$1.04 - Preview
    • Qihoo 360 (QIHU) 5pm, $0.35
    • Scotiabank (BNS CN) 6am, C$1.31 - Preview
    • Wet Seal (WTSL) 4:05pm, ($0.18)
    • Workday (WDAY) 4:02pm, ($0.15)




  • Brent Trades Near Four-Day Low After Ukraine Vote; WTI Steady
  • Russian Palladium Flows to Switzerland Jump on Sanction Concerns
  • Solar Farmers in Japan to Harvest Energy With Crops: Commodities
  • Copper Touches an 11-Week High on Outlook for Stimulus in China
  • Corn Slumps to 12-Week Low as U.S. Planting Progress Accelerates
  • Cocoa Climbs to Highest Since 2011 as Robusta Coffee Declines
  • Gold Falls to Two-Week Low in London as Ukraine Outlook Weighed
  • Cocoa Climbs 0.6% to $3,040/T, Highest Since September 2011
  • Rebar Rises to 2-Week High on Optimism China Economy Improving
  • Ukraine Drafts $2.5 Billion Russia Gas Debt Plan to Avoid Cutoff
  • Platinum Producers to Meet With Judge Mediating Strike Talks
  • Shakeout Threatens Shale Patch as Frackers Go for Broke: Energy
  • Russian Gas Reliance in European Union Skews Sanctions Debate
  • COMMODITIES DAYBOOK: Solar Farmers in Japan to Harvest Energy
  • China’s April Gold Imports Drop Amid Lower Investment Demand


























The Hedgeye Macro Team














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