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Force Rapid Learning

“There is nothing quite like ignorance combined with a driving need to succeed to force rapid learning.”

-Ed Catmull


With three kids, I’d say that quote pretty much sums up my life right now. It’s also the opening line to chapter 3 of the book I have my nose in these days – Creativity Inc., by one of the founders and leaders at Pixar Animation Studios, Ed Catmull.


When it comes to the market side of my life, it isn’t what it used to be. I have the dubious task of running both my mouth and a company. On the latter, I can assure you that there is no driving force greater than owning it. If Hedgeye isn’t constantly evolving, we’re failing. And that’s not an option.


We’ve built both the risk management process and firm on the same principles. We wake up every morning with our eyes wide open to the reality that we do not know what is going to happen next. Embracing uncertainty forces rapid learning. And we like that.


Back to the Global Macro Grind


If all you did at the start of last week was get rid of the most consensus short position on the planet (short SPX Index + E-minis),  and focused on expressing slow-growth #YieldChasing where at least 66% of hedge funds out there haven’t yet, you’d have liked that too.


With the net SHORT position (CFTC non-commercial futures and options contracts) in the SP500 dropping week-over-week from -114,248 contracts (1yr high) to a net SHORT position of -57,737 this morning, I still wouldn’t be using that consensus “hedge.” Use the Russell.


What is the Russell?


  1. The Russell 2000 is a much purer read-through on US domestic growth than the multinational Dow or SP500
  2. The Russell 2000 (IWM) was down -0.5% in an “up tape” on Friday (SPX closed +0.18% at an all-time bubble high)
  3. The Russell 2000 is down -6.1% from its March 2014 high and -2.5% YTD


The alternative to being levered long US growth and/or social bubble stocks (i.e. the alternative to being down YTD) is:


  1. Being long #InflationAccelerating (CRB Commodities and Food Indexes are +9% and +22% YTD, respectively)
  2. Being long slow-growth via the long bond (10yr yield down another -6bps last wk and -55bps YTD at 2.48%)
  3. Being long anything US Equity #YieldChasing that looks like a bond (Utilities up another +2.3% last wk = +12.6% YTD)


“So” why bang your head against the #OldWall shorting spooos and trying to pick no-volume-v-bottoms in bubble stocks that blew up in March-April, when you can just keep doing more of what’s been a relatively low volatility position to keep?


A: it’s not consensus (yet)


No worries though, as time, price, and economic data change, consensus futures/options positioning changes:


  1. SPX Index + E-mini net SHORT position of -57,737 contracts today (vs. -19,488 net SHORT 3 month avg)
  2. 10YR US Treasury bond net LONG position of +22,876 contracts (vs. -59,080 net SHORT 3 month avg)
  3. Gold net LONG position of 68,393 contracts (vs. +103,404 net LONG 3 months ago)


In other words, 3 months ago (on March 1st):


  1. Hedge funds started getting short the consensus SPX hedge  (after the JAN-FEB drawdown in the SP500)
  2. Consensus still didn’t think bond yields could go down in 2014 (so the 10yr yield crashed)
  3. And consensus momentum players chased being long Gold at $1350




Nothing forces rapid learning faster than doing precisely the same thing (at the same time) as thousands of other money managers and getting plugged.


But please don’t confuse consensus getting whipped around in an oversupplied asset management industry with the US or global economy. They are nowhere in the area code of the same thing.


And I suspect there will be nothing normal about the next three months in global macro risk management either. So have another coffee. It’s Monday June 2nd (Happy Birthday Dad!). Prepare to embrace the uncertainty of what tomorrow will inevitably bring.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.42-2.51%


RUT 1090-1154

EUR/USD 1.35-1.37

WTIC Oil 102.19-104.95

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Force Rapid Learning - Chart of the Day

June 2, 2014

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TODAY’S S&P 500 SET-UP – June 2, 2014

As we look at today's setup for the S&P 500, the range is 44 points or 1.85% downside to 1888 and 0.44% upside to 1932.                                             














  • YIELD CURVE: 2.11 from 2.10
  • VIX closed at 11.4 1 day percent change of -1.47%


MACRO DATA POINTS (Bloomberg Estimates):


  • 9:45am: Markit US Mfg PMI, May final, est. 56.2 (prior 56.2)
  • 10am: ISM Manufacturing, May, est. 55.5 (prior 54.9)
  • 10am: Construction Spending, April, est. 0.7% (prior 0.2%)
  • 11:00am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $25b 3M, $23b 6M bills



    • Obama’s deputies defend deal with Taliban that freed soldier
    • Obama in Europe this week, with talks in Poland about Russia and Ukraine
    • Supreme Court may issue orders
    • 8:40am: Treasury Sec. Jack Lew, Undersecretary David Cohen speak at CSIS on department’s role in national security
    • Washington Week Ahead
    • U.S. ELECTION WRAP: GOP Obamacare Retreat; Romney in Iowa



  • Det Norske buys Marathon’s Norwegian assets for $2.7b
  • Dai-ichi Life said in talks on $4.9b Protective Life deal
  • Obama said to propose deep cuts to power-plant emissions
  • KKR liquidates equity hedge fund led by Ex-Goldman’s Howard
  • ASCO winners & losers: Roche, Merck, Lilly, Clovis, AstraZeneca
  • Icahn denies giving inside info in probe involving Mickelson
  • "Malificent" casts spell, wins N.A. box office with $70m
  • Europe manufacturing cools more than estimated
  • Japan’s 1Q capital spending rises most since 2Q 2012
  • China manufacturing gauge rises to highest in 5 months
  • U.K. May manufacturing PMI 57 vs. 57.3 in April; est. 57
  • Lewis Katz, co-owner of Philadelphia Inquirer, dies in crash
  • New York Woolworth tower penthouse priced at record $110m
  • Airline profit surge led by U.S. masks thin margins, IATA says
  • Companies must file conflict mineral disclosures with SEC
  • Apple Worldwide Developers Conf. begins, keynote 1pm
  • China trades barbs with U.S., Japan on islands at forum
  • Google said to spend $1b on satellites for Internet access: WSJ
  • Shire lines up $5b in funding for NPS Pharma bid: Times
  • Pacific Equity Partners may pull $1b SAI Global offer: Reuters



    • Conn’s (CONN) 7am, $0.73
    • Guidewire Software (GWRE) 4:05pm, $0.03
    • Krispy Kreme Doughnuts (KKD) 4:02pm, $0.23
    • Quiksilver (ZQK) 4:01pm, $(0.02)




  • Obama Said to Seek Power-Plant Emissions Cuts Republicans Oppose
  • WTI Rises From One-Week Low on China Factory Data; Brent Steady
  • Hedge Funds Cut Bullish Gold Wagers Most This Year: Commodities
  • Gold Falls to Four-Month Low as Advance in Stocks Curbs Demand
  • Copper Advances Most in Two Weeks on China Factory Expansion
  • Wheat Slides to Three-Month Low as U.S. Crop Prospects Improve
  • Sugar Rises as Brazil Dryness Seen Cutting Surplus; Cocoa Drops
  • Europe’s Gas Power Capacity Seen at Risk as Utilities Burn Coal
  • Gas Speculators Least Bullish of ’14 as Prices Retreat: Energy
  • Global Rubber Market Seen in Balance in 3-4 Years: Sri Trang
  • Indian Steelmakers Restart Iron Ore Mines on New Permits
  • Russia Gives Ukraine Leeway on Gas as Five Rebels Die in Luhansk
  • EC Shale Gas Endorsement Diversifies EU Energy Supply: Bull Case
  • KRG Crude Destined for U.S. Now Heads to Morocco: JBC, Tracking


























The Hedgeye Macro Team














investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.


Euro Pacific Capital CEO Peter Schiff pulls no punches with Hedgeye CEO Keith McCullough on this latest edition of HedgeyeTV’s "Real Conversations.” Schiff minces no words on his ongoing feud with NYU economics professor Nouriel Roubini, reckless Fed monetary policy, inflation, the beleaguered U.S. middle class, gold prices and much more. (Interview recorded Wednesday May 28th)


Here’s the question-and-answer portion from our daily institutional Morning Call hosted by Hedgeye CEO Keith McCullough and macro analyst Christian Drake.


Click here to subscribe to Cartoon of the Day. 

Inflation is a real drag on the American consumer.

The Best of This Week From Hedgeye - Consumer cartoon 5.30.2014


#GrowthSlowing, reiterated.

The Best of This Week From Hedgeye - T Note cartoon 5.29.2014 

What will the government revise its Q1 GDP estimates to after the dismal 0.1% it reported last month? It's just guesswork after all.

The Best of This Week From Hedgeye - GDP cartoon 5.28.2014


The Best of This Week From Hedgeye - Chart of the Day 


In the first minute of his conversation with Hedgeye CEO Keith McCullough, Euro Pacific Capital CEO Peter Schiff discussed the US being “halfway to a recession.” What do you think? Click here to view the poll and results.

 The Best of This Week From Hedgeye - economy finance words


Babies Back In Style?

The Best of This Week From Hedgeye - b5

The Great Recession triggered a steep decline in the U.S. birth rate, but signs show the downward trend may be slowing. Click here to continue reading.


Non-Traded REITS: A Fool and His Money

The Best of This Week From Hedgeye - Atlas cartoon

As the Fed continues sucking yield out of the marketplace, individual investors are desperate for return.  This has fueled a moon-shot in a host of dicey instruments sold only on the basis of percentage returns. Click here for more.


Jobless Claims: Strong Labor Means Falling Rates

 The Best of This Week From Hedgeye - how to get a better job

Expect a strong May labor market print next Friday. This should set the stage for more tapering and more downforce on long-term rates. Click here to read more.


Hedgeye Retail: $DSW, $BWS Earnings Wildly Out of Synch

The Best of This Week From Hedgeye - 1

One company missed by 13%, the other beat by 13%.  One comped down 3.7%, and the other comped up 1.3%. One guided up. The other guided down. One blamed weather. The other did not. One SIGMA improved, the other eroded. Click here to continue reading.



Takeaway: Current Investing Ideas: GLD, HCA, HOLX, LM, LO, OC, RH, and ZQK

Below are Hedgeye analysts' latest updates on our EIGHT current high-conviction investing ideas and CEO Keith McCullough's updated levels for each.


We also feature three research notes from earlier this week which offer valuable insight into the market and economy.




Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less




GLD  We continue to like Gold  on the long-side in the face of a downward GDP revision (-1.0% annualized in Q1 vs. expectations of -0.5%) and a yield spread that continues compressing (-9 bps w/w to 210 bps wide). Confirming our #GrowthSlowing theme, the 10-year yield decreased another 6 basis points week-over-week to 2.42% after breaking our 2.61% TAIL line of resistance two weeks ago. Reiterating our non-consensus call, we think the 10-year yield may test 2.2-2.3% before the route bottoms. The likelihood of Fed tapering shrinks relative to expectations as data surprises to the downside, and we prefer to be long GLD to hedge the dovish monetary response as the printing press operates overtime. As outlined in our Q2 macro themes call, rather than buying into underperforming, consumer-driven sectors like the Russell 2000 or Consumer Discretionary Stocks (both down -2% YTD), we like holding utilities (XLY +12% YTD), commodities (CRB  Index +9% YTD), and treasuries (TLT +12%) as growth slows and inflation accelerates.   

HCA –  Hedgeye Healthcare sector head Tom Tobin remains bullish on HCA Holdings, but has no new updates this week. 

HOLX ­­– We held a call with an expert this week who has been one of the few people we've found who has intimate knowledge of the process by which 3D tomosynthesis will receive a Medicare code and a reimbursement amount.  He confirmed our optimistic view, based on a significant amount of research, of the reimbursement level that will be announced this year.  

We will be updating our 3D facility tracking data next week.  As of this week there were 580 facilities in the United States who had at least one system out of a total of 8700 potential sites.  That's roughly 6.4% penetrated, leaving a lot of upside from here.  The reimbursement will be key to the penetration rising even faster.


LM – The pace of fixed income flow trends within the U.S. mutual fund complex quickened during the week with the latest trends from the Investment Company Institute (ICI) continuing to flash building momentum in bonds versus declining interest in equities. During the most recent week, $2.3 billion of new funds came into all U.S. bond funds according to the ICI versus just $670 million that was collected by equity funds last week. This trend is running into more important intermediate term trends with the second quarter of 2014 shaping up to be the first quarter in 9 months where fixed income is outpacing equities. Thus far in 2Q14, over $17.0 billion in total has moved into fixed income within mutual funds versus just the $8.7 billion that has moved into all stock funds. Leading bond fund managers including Legg Mason and Franklin Resources (BEN) stand to benefit from this emerging trend of which we prefer LM with still dour sell-side recommendations (only 5 Buy recommendations from 19 analysts) and still stubbornly high short interest in the stock (which will need to be covered) as bond trends improve.




LO – To be or not to be taken out?  This is the question that remains square on many investors minds. 

We maintain Lorillard’s fair value long-term price is $80/share.  Should LO get taken out at that price (RAI is rumored to be interested) or appreciate to that level over time, we stand by our belief in the company’s earnings power on its advantaged tobacco and e-cigarette portfolio.

Bottom line: we do not think LO will be imminently purchased and are staying long the stock that we added to Investing Ideas on 3/7/14.


OC – While Owens Corning quietly approaches the end of 2Q, its sector is becoming louder about the upcoming quarter and the rest of 2014. Here are a couple of quick notes:

  • AWI, a floor and ceiling maker, called 2014 an inflection point for the commercial market at their Investor Day last week citing improving nonresidential data.
  • AWI expects the remodel and repair spending to grow in the mid-single digits.
  • Other building product names, Saint-Gobain and USG, expect a rebound in 2Q in both commercial and residential activity.
  • U.S. roofing volumes should snap back for 2Q according to Saint Gobain, a top 4 player in the U.S. roofing market
  • Headwaters and AWI both note the construction recovery is still in the early stages with sales bottoming in 2010 and volume bottoming in 2013.
  • In a recent Investor Presentation, Terex sees the repair and remodeling market increasing FY 2014.
  • The NAHB Remodeling Market Index improved ~10% YoY for April. 


*Special note from Hedgeye Retail team on RH and ZQK: 

Below we take a detailed look at sentiment for our two retail investing ideas. The primary tool we use is our Hedgeye Sentiment Monitor. What it does is uses a quantitative scale to combine Sell-Side Ratings, Buy Side Short Interest, and Insider Trading activity. We pretty much catch all angles.


We use this tool in two different ways; 1) First, we look at directional changes in sentiment for each stock. 2) Second, we analyze the absolute level for each security. A reading above 90 has statistically proven to signal that the market is overly bearish on a name, and that it’s often advantageous to go the other way. Conversely, a reading below 10 suggests that the market is overly bearish, at which time it is usually prudent to go long. 


RH – Restoration Hardware is near an all time low sentiment score. With short iterest accounting for 12.8% of the float. 2014 marks the first year of square footage growth in the past six. That coupled with new categories to fill the bigger footprint Design Galleries are the key pillars in our thesis that calls for a $200+ stock in 2018. It continues to be our favorite name in the retail space.




ZQK –  Quiksilver’s sentiment reading has held steady since the announcement that Andy Mooney would be replace founder Bob McKnight as CEO in January of 2013. The company reports earnings Monday (6/2) after the close and we are expecting an inline quarter. The company is still cycling through product discontinuations and brand divestitures this quarter, but the comps get much easier in the back half of the year. Plus, we continue to expect revenue reacceleration in 2H as the company’s new product design, sourcing, and marketing initiatives begin to take hold. That sets up 2015 for outsized revenue and earnings growth.



*   *   *   *   *   *   *

Click on each title below to unlock the institutional content.


Pending Home Sales Remain Sluggish

April pending home sales rose 40 basis points month-over-month, but are down 9% year-over-year, which is consistent with the trend over the last four months.


PLKI: Delivering the Goods

Restaurants sector head Howard Penney explains why Popeyes Louisiana Kitchen stock is up double-digits and rightfully so.

INVESTING IDEAS NEWSLETTER - popeyes wicked chicken


Mexican Standoff: Claims vs. GDP vs. Expectations

Initial Jobless Claims say the Labor Market continues to improve, 1Q14 GDP & April Pending Home Sales say “escape velocity” remains a Panglossian phantasm, and consensus growth expectations continue to sing a sirenic but delusional tune around 2014 growth.


The Week Ahead

The Economic Data calendar for the week of the 2nd of June through the 6th of June is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 05.30.14

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.