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Cute NYC Rats

This note was originally published at 8am on May 15, 2014 for Hedgeye subscribers.

“A squirrel is just a rat with a cuter outfit.”

-Sarah Jessica Parker


“So”, Obama and I were in NYC yesterday talking about inequality (at separate events, using separate explanations on the why – a 1500 sq/ft apt in midtown going for $3.47M has nothing to do with his Policy To Inflate – eat your ripping rents, and like it)…


And I came across an exhibition of sorts from some of de Blasio’s new city tenants. These dudes had few teeth and stunk to high-heaven, but still appeared to have the American Capitalist spirit. They’d spray painted a shopping cart full of rats and were selling pics to tourists.


I thought the pink ones with the fluorescent blue were cute. And evidently the high school girl who was posing for her Mom (with two live ones on her shoulders), thought so too. Everyone smiles until someone gets bit.


Cute NYC Rats - rat


Back to the Global Macro Grind


With the Russell 2000 down another -1.6% yesterday, US Growth Style Factors got bit again yesterday. Bond yields crashed to fresh YTD lows too. It was a great day for risk management. The CNBC “we’re at all-time highs” thing is cute and all, but still reeks like a rat.


As Detroit’s very own Lily Tomlin once said, “the problem with the rat race is that you’re still a rat.” And having been called more than a few names of this nature on the ice, I can sympathize with those who are forced to chase Wall Street’s performance bogeys.


But that doesn’t mean we have to be brain dead about it…


To review a very basic if, if, then statement in the Hedgeye Macro Playbook:


  1. If inflation is accelerating (you buy inflation)
  2. If growth is slowing (you buy bonds and anything slow-growth-yield-chasing that looks like a bond)
  3. Then, you will win the relative performance rat race of 2014


So easy a Mucker can do it, eh?


Congrats to the Montreal Canadians for keeping all the Canadian rink rat hopes alive by knocking the Boston Bruins out of the Stanley Cup Playoffs last night. Canadian Olympic Gold medal winning goaltender Carey Price proved that the best offense is a great defense.


I’m not sure why some people I talk to get so defensive about being long the defensive slow-growth playbook. Maybe it’s because they are losing. Maybe because it just doesn’t make sense. But maybe it does, and consensus is simply not positioned for it.


When people ask me where the proof is of inflation slowing US consumption growth, at this point I simply refer to the data. Don’t forget that US GDP growth was 0.1% in Q1, Retail Sales for April (Q2) missed this week, and US inflation (PPI yesterday) “surprised” to the upside.


Looking ahead at the calendar:


  1. Post the+2.1% y/y Producer Price (PPI) report for April (versus +1.4% y/y in March)
  2. Today you’ll get another “surprise” to the upside in CPI (Consumer Prices)
  3. Then on Friday, you’ll get more data on US #HousingSlowdown


It wasn’t just the Russell Growth Index that got crushed yesterday. US Housing stocks (ITB) got sold to YTD lows too. For 2014 YTD:


  1. US Housing Stocks (ITB) are now -6.7% YTD
  2. US Consumer Discretionary stocks (XLY) are now -4.6% YTD
  3. Slow-growth #YieldChasing Utilities (XLU) was UP +0.5% yesterday to +11.1% YTD


But you already know that. And you know that I know that almost everyone I talk to says “well, I get it, but I can’t buy Utilities up here after this move.” Why not?  I’m not trying to be a Kenny Linesman rat about this. I’m just trying to make and/or save you money by calling out Sector and Style Factors for what they are – huge competitive advantages in a performance chasing rat race that eventually forces everyone to buy what’s working.


We all make mistakes. But the biggest ones I have ever made in this game were doubling and tripling down on losers that kept going down. The Russell 2000 and Bond Yields are going down because consensus US growth expectations are – not because it’s different this time.


Don’t let your daughters pose with live pink rats and a toothless guy in NYC. That’s not different this time either.


UST 10yr Yield 2.54-2.61%

RUT 1089-1121

USD 79.11-80.29

EUR/USD 1.36-1.38

Brent Oil 108.41-110.36

Gold 1283-1315


Best of luck out there today,



Cute NYC Rats - Chart of the Day

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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Sell #OldWall Polish

“Visual polish frequently doesn’t matter if you are getting the story right.”

-Ed Catmull (President of Pixar)


While it’s month-end-no-volume-markup time here in the US equity market, no matter where you go – and no matter how you have been positioned for the last 5 months, here we are. The score doesn’t lie; consensus expectations for #RatesRising in 2014 does.


Sure, there’s a polish to the reports and a gravitas to once great names in finance that still remain on their doors. But, to be clear, there is no responsibility in recommendation from the Old Wall anymore. Instead, every time they are wrong, “it’s different this time.”


Sell #OldWall Polish - wa3


The right story in 2014 has been to be long slow-growth bonds and/or anything that looks like a bond (Utilities +11.5% YTD). The 10yr US Treasury yield has crashed to a fresh YTD low of 2.42% this morning. US Growth (Russell 2000) and US Consumer (XLY) stocks are down over -2% YTD. And, depending on what piece of inflation you are long (food and/or energy) you’re up +8-22% YTD.

Back to the Global Macro Grind


Yes, I hate losing. But I really hate it when people who are losing (including any of my teammates) try to say they really aren’t. This is a confirmation bias embedded in a society where no one is actually allowed to fail. Every lazy player in the league gets a trophy.


Instead of acknowledging what no Old Wall firm called (for US GDP Growth to be NEGATIVE) in Q114, all I hear are excuses instead of the most obvious call they don’t want to make – bond yields fall (and the yield curve compresses) when growth is slowing.


Sure, I have my own biases on leadership in action, transparency in process, and accountability in recommendation. And I am fully aware that on mornings like this that I can sound like the prickly coach. That’s who I am.


But who you or I are as flawed human beings doesn’t change the score. As the great Bobby Orr once said:


Forget about style; worry about results.”


Having worn a black silk dress shirt and a mauve screaming eagle tie to work on my first day on Wall Street, I’d be hard pressed to convince you that my style has been consensus over the years. What I really care about is #process.


Our #process has now signaled the biggest “surprises” to both the upside (2013) and downside (2014) in US Yields, and I’m not going to apologize for it. Unlike most macro research I used to pay for when I was in your seat, our #process goes both ways.


*Note: our process takes a full team effort – here’s what our Senior US macroeconomic analyst, Christian Drake, had to say about the 10yr bond yield crashing (-20% YTD) to 2.42% this morning:


The pro-growth panglossian contingent can take solace in the fact that after today’s negative GDP print, it can only really get better sequentially.  Q114 GDP probably wasn’t as bad as the headline and Q214 won’t be as good.” 


“Taking the average of the two quarters is the easiest smoothing adjustment and it will show we’re a high 1% economy – which is about right. #Hedgeye – we came here to drink the milk, not count the cows.”


It’s a 1-2% (at best), not a 3-4% US economy. And that’s why the 10yr is going closer to 2%, not 3%. Roger that, Dr. Drake.


Yes, I have fostered a culture of confidence. I don’t know one successful athlete who wakes up every morning not wanting to crush his or her competition. I’m not going to apologize for being that way either.


This is America – a country that I came to in the early 1990s when being a winner mattered more than being the whiner who wanted my winnings. We stand alongside you every day, committed to excellence. We refuse to accept mediocrity in big macro forecasting.


There is no I in Hedgeye and we reiterate our top non-groupthink Global Macro Themes for 2014 to-date:


  1. US #InflationAccelerating
  2. US #ConsumerSlowing
  3. US #HousingSlowdown


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now:


UST 10yr Yield 2.42-2.52% (bearish)

SPX 1 (bullish)

RUT 1089-1146 (bearish)

Nikkei 136 (bearish)


VIX 11.03-13.76 (bearish)

USD 79.89-80.61 (bearish)

EUR-USD 1.35-1.37 (bullish)

Pound 1.67-1.69 (bullish)


Brent Oil 109.06-110.97 (bullish)

Natural Gas 4.47-4.66 (bullish)

Gold 1 (bullish)

Copper 3.10-3.20 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Sell #OldWall Polish - Chart of the Day


TODAY’S S&P 500 SET-UP – May 29, 2014

As we look at today's setup for the S&P 500, the range is 29 points or 1.14% downside to 1888 and 0.38% upside to 1917.                                                                














  • YIELD CURVE: 2.07 from 2.08
  • VIX closed at 11.68 1 day percent change of 1.48%


MACRO DATA POINTS (Bloomberg Estimates):


  • 8:30am: GDP Annualized q/q, 1Q (S), est. -0.5% (prior 0.1%)
  • 8:30am: Initial Jobless Claims, May 24, est. 318k (prior 326k)
  • 8:30am: Personal Consumption, 1Q (S), est. 3.1% (prior 3%)
  • 8:30am: Fed’s Pianalto gives opening remarks at conf. entitled, “Inflation, Monetary Policy and the Public”
  • 9:45am: Bloomberg Consumer Comfort, May 25 (prior 34.1)
  • 10am: Pending Home Sales m/m, Apr., est. 1% (prior 3.4%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: DOE Energy Inventories
  • 9:30pm: Fed’s George speaks at Stanford



    • Push grows for Shinseki to go as report cites veteran-care flaws
    • Senate out; House in session
    • U.S. Chamber of Commerce Pres. Thomas Donohue speaks at University of Havana; leads delegation of business leaders, including Cargill CFO Marcel Smits, on fact-finding trip
    • 11:05am: President Obama to announce public, private commitments to raise awareness about concussions at summit on youth sports injuries
    • 1pm: House Small Business Cmte holds hearing on EPA’s “Waters of the United States” rule
    • U.S. ELECTION WRAP: Democrats’ Local Strategy; GOP on VA Scandal



  • Microsoft, Salesforce said to be discussing cloud partnership
  • Apple agrees to buy Beats for $3b in biggest-ever deal
  • Ackman looks to raise money from fund listed in London: NYT
  • Costco quarterly profit trails estimates even as sales increase
  • Google vows to improve diversity after disclosing staffing data
  • AIG sees labor-cost arbitrage as jobs move to Philippines, TEX
  • Phillips 66 says tribunal supports Sweeny takeover from PDVSA
  • Man Group considering purchase of quant money manager Numeric
  • RBS said to sell stake in private-equity arm to Adams Street
  • Energy Capital hires banks to explore EquiPower sale, IPO: WSJ
  • GIC to sell Florida Golf property purchased from Paulson Group
  • U.S. states meld zero-emission car plans in drive to sales goal
  • Russia urges “emergency steps” on Ukraine after rebel losses



    • Abercrombie & Fitch (ANF) 7am, $(0.19) - Preview
    • CIBC (CM CN) 5:50am, C$2.02 - Preview
    • Fred’s (FRED) 7:45am, $0.20
    • Pall (PLL) 7am, $0.83
    • Sanderson Farms (SAFM) 6:30am, $1.70



    • Avago Technologies (AVGO) 4:05pm, $0.77
    • Express (EXPR) 4pm, $0.14
    • Guess (GES) 4:03pm, $(0.07)
    • Infoblox (BLOX) 4:05pm, $0.03
    • Lions Gate Entertainment (LGF) 4:01pm, $0.43
    • OmniVision Technologies (OVTI) 4:25pm, $0.26
    • Pacific Sunwear (PSUN) 4pm, $(0.13)
    • Splunk (SPLK) 4:02pm, $(0.06)
    • Veeva Systems (VEEV) 4:05pm, $0.05




  • WTI Trades Near One-Week Low After Stockpiles Grow; Brent Steady
  • Sugar Output in Thailand Seen Climbing to Record as Area Expands
  • Cocoa Shortage Looms as Growers Opt to Farm Rubber: Commodities
  • Gold Falls to 16-Week Low as Palladium Near Highest Since 2011
  • Copper Drops From 11-Week High as Investors Capitalize on Gains
  • Corn Heads for Biggest Monthly Drop Since June on Sowing in U.S.
  • Sugar Bounces With Newfound Demand After Losses; Coffee Advances
  • Scrap Copper Imports by China Seen Recovering With Refined Price
  • Nickel Pig Iron Output Costs in China Seen Surging as Ore Jumps
  • Blackstone Unit Foreshadows Google Path to Power Company: Energy
  • Minister’s Platinum Strike Plan Seen Unlikely to Bring Quick End
  • Birthplace of USS New Jersey Saved by Shale Production: Freight
  • London Bullion Market Gold Fix May Go the Way of Silver
  • Steel Rebar Falls as Iron Ore Price Drops to Lowest Since 2012


























The Hedgeye Macro Team














Video | Schiff to McCullough: 'Reckless' Government Behavior Leading to Currency Crisis, Will Boost Gold

This is a brief excerpt from a wide-ranging discussion Hedgeye CEO Keith McCullough had with Euro Pacific Capital CEO Peter Schiff as part of HedgeyeTV's "Real Conversations" series. While Schiff advocates policy that would actually be bad for gold, he has no faith that the government will do the right thing. The full interview runs Thursday.

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