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Real World Education

This note was originally published at 8am on May 23, 2014 for Hedgeye subscribers.

“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%

SPX 1865-1897

RUT 1086-1121

VIX 11.84-14.01

WTI Oil 102.45-104.36

Gold 1285-1305

Copper 3.10-3.20

 

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

KM

 

Keith R. McCullough
Chief Executive Officer

 

Real World Education - No Bounce


Call Today with Professor Charles Hill: Foreign Policy Risks & Market Impacts

Call Today with Professor Charles Hill: Foreign Policy Risks & Market Impacts - HE MAC fprisks charleshill

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 843981#

 

The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting an expert call featuring Professor Charles Hill TODAY, June 6th at 10:30am EDT.  Professor Hill is a diplomat in residence at Yale University where he teaches Grand Strategies. 

 

OBJECTIVE

To gain a better understanding of the key foreign policy risks on the horizon that may have an impact on global markets.

 

Professor Hill is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz.  He also served as a special advisor to U.N. Secretary General Boutros-Boutros Ghali.

 

KEY TOPICS WILL INCLUDE:

  • What's next for Vladimir Putin in Ukraine?
  • How will Putin's strategy evolve beyond Russia? Will there be a broader influence?
  • What is the most imminent threat facing the West?
  • How real is the nuclear threat from Iran, particularly for Israel?
  • The Arab Spring has come and gone, what's next?
  • What does the election of Bashar Hafez al-Assad in Syria mean for the West? 
  • How has U.S. foreign policy evolved under the Obama administration?

 

ABOUT PROFESSOR CHARLES HILL

Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. Dr. Hill has been a fellow at the Harvard University East Asia Research Center, a Clark fellow at Cornell University, and is currently a research fellow at the Hoover Institution.

 

He served as special consultant on policy to the secretary-general of the United Nations from 1992 to 1996. Dr. Hill has collaborated with former U.N. Secretary General Boutros Boutros-Ghali on Egypt's Road to Jerusalem, a memoir of the Middle East peace negotiations, and Unvanquished, about U.S. relations with the U.N. in the post-cold war period. He is also the editor of the three-volume Papers of U.N. Secretary-General Boutros-Ghali, published by Yale University Press.

 

His book "Grand Strategies: Literature, Statecraft and World Order" is published by Yale University Press. His "Trial of a Thousand Years: Islamism and World Order" is published by the Hoover Press, Stanford University. He received an A.B. degree from Brown University in 1957, a J.D. degree from the University of Pennsylvania in 1960, and an M.A. degree in American studies from the University of Pennsylvania in 1961. 

 



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In The Race!

“A horse never runs so fast as when he has other horses to catch up and outpace.”  

-Ovid

 

There are many great metaphors in life and business.  However, tomorrow we have the opportunity to witness a world-class achievement - the Triple Crown of Thoroughbred Racing - when California Chrome runs in the 146th Belmont Stakes.  If successful, California Chrome will become only the 12th winner of the Triple Crown. 

 

In The Race! - hedrick

 

The Triple Crown is a test of speed, strength, and stamina.  Winning the Triple Crown takes a special combination of horse, trainer, jockey, owner and veterinarian.  It is incredibly difficult to win the Triple Crown – win the Kentucky Derby at 1 ¼ miles, followed by winning the Preakness Stakes at 1 3/16 mile a mere two weeks later and then a massive 1 ½ miles (a distance not often run in horse racing) three weeks later at the Belmont.  The Belmont Stake will feature a field of 11 thoroughbreds with 10 challengers seeking to unseat the contender California Chrome. 

 

If you were jockey Victor Espinosa what would be your game plan – break away early and lead from the front, play it slow and keep something in the tank for the grueling one and one-half mile race, or simply let the race unfold as it happens, be flexible and nimble, taking advantage of number 2 post position near the rail, while keeping an open mind to anything that can and will happen – knowing all the while the other 10 jockeys are looking to run you down and spoil the party?

 

I am old enough to vaguely remember Secretariat win the Triple Crown in 1973. However, I more clearly remember Triple Crown winners Seattle Slew in 1977 and Affirmed in 1978.  My paternal grandmother loved to bet the ponies and she love to gamble as well.  Maybe that’s why I became an analyst covering the gaming industry.  My first horseracing experience occurred in the mid-1970s when I joined my parents and my grandmother for a day at the races on the Club Level Terrace at Arlington Park, now called Arlington International Racecourse.  Ever since then, I love to watch horseracing! 

 

Back to the Global Macro Grind...

 

A similar metaphor and strategy can be applied to managing money, and trust me I know, I’ve held the title “Portfolio Manager.” The one thing I learned as an equity analyst and I’ve carried through to my career as a PM is how to filter out the noise while also reading as much topical, salient and actionable literature, data, and related content.  More important than reading, I also spent as much time thinking about what I read – as such I remained flexible and adaptable to new information, new data and changed my outlook, strategy and holdings accordingly.  I did this while running as hard and fast as possible… Similar to Keith McCullough, Hedgeye’s CEO, and most of us on the Hedgeye team, I also hate to lose!

 

So here we are almost half-way through the race, mid-year 2014, Mr. PM what do you do?  Read more? Think more?  Are you open to new insights and a new strategy? 


The Hedgeye Macro and Industrials team will host a thought leader call today with foreign policy expert, Charles Hill.  Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz.

 

I am sure Victor Espinoza has a strategy in mind for running California Chrome in Saturday’s Belmont Stakes.  However, I am also sure he remains open to changing and adapting his strategy as the race unfolds.  Likewise, most PMs are suffering under the heavy hand of Mr. Market this year with the S&P 500 +5%, the NASDAQ +2.9% and the Dow Jones Industrials +1.6% –  by comparison nearly any asset class with above average yield are outperforming, namely:  REITs (IYR or VNQ) +15.6% (during my PM years I ran a REIT and Real Estate Fund), Utilities (XLU) +13.8% and Energy (XLE) +8.5%.

 

In The Race! - Mr Market

 

Did you know California Chrome’s dam is Love the Chase – a fitting name for our business! Personally, I remain bullish on REITs and I also like California Chrome to win the Belmont Stakes and thus become the 12th Triple Crown Winner because the colt has already outrun six ponies he faces on Saturday and others appear to simply be spoilers. 

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr yield 2.41-2.61%

SPX 1

RUT 1108-1155 

Nikkei 14

VIX 11.20-13.46 

USD 80.17-80.79 

EUR/USD 1.35-1.37

Pound 1.67-1.69 

Brent 108.13-110.87 

NatGas 4.58-4.78 

Gold 1 

Copper 3.04-3.12

 

Have a great weekend!

 

David Benz

Director - Gaming, Lodging & Leisure


 


 


June 6, 2014

June 6, 2014 - Slide1

 

BULLISH TRENDS

June 6, 2014 - Slide2

June 6, 2014 - Slide3

June 6, 2014 - Slide4

June 6, 2014 - Slide5

June 6, 2014 - Slide6

June 6, 2014 - Slide7 

BEARISH TRENDS

 

June 6, 2014 - Slide8

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June 6, 2014 - Slide13


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 6, 2014


As we look at today's setup for the S&P 500, the range is 45 points or 2.19% downside to 1898 and 0.13% upside to 1943.                                                         

                                                                      

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.19 from 2.20
  • VIX closed at 11.68 1 day percent change of -3.31%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Change in Nonfarm Payrolls, May, est. 215k (prior 288k)
  • Unemployment Rate, May, est. 6.4% (prior 6.3%)
  • 1pm: Baker Hughes rig count
  • 3pm: Consumer Credit, April, est. $15b (prior $17.529b)

 

GOVERNMENT:

    • House, Senate not in session
    • 8:45am: HUD Secretary Shaun Donovan speaks at American Association for the Advancement of Science climate change event
    • 11am: American Bankers Assn holds news conference to present monetary policy predictions, economic forecast
    • U.S. ELECTION WRAP: Cochran’s Voters; Cotton’s VAWA Record
    • WASHINGTON RECESS:‘Dirty Dancing,’ Oval Room, Summer Cocktails

 

WHAT TO WATCH:

  • May payrolls probably rose to surpass U.S. pre-recession peak
  • BNP executive firings sought by Lawsky amid sanctions talks
  • High-speed trading faces new SEC regulation White says
  • NOTE: High-speed traders face scrutiny by Levin’s Senate investigators
  • T-Mobile’s Legere said likely CEO after merger with Sprint
  • Wal-Mart holds its annual gen. mtg and investor day
  • Arista Networks raises $226m in cloud-networking IPO
  • Netflix-Verizon war of words on slow service escalates
  • Intel says mobile investment needed to ensure future
  • Republicans lack votes to block EPA’s air rules, Hoyer says
  • Fannie fees slated for review as Watt re-examines wind-down plan
  • KKR said to lead $270m stake purchase in Cofco Meat
  • Bank of America near $12b mortgage settlement, WSJ says
  • U.S. officials said planning HealthCare.gov makeover: WSJ
  • Tokyo governor says casino issue not his priority, Reuters says
  • U.S. Retail Sales, Japan GDP, World Cup: Week Ahead June 7-14

 

EARNINGS:

    • Jos A Bank Clothiers (JOSB) 6am, $0.40
    • Piedmont Natural Gas Co (PNY) 9:15am, $0.75

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Crude Swings Before Monthly U.S. Payrolls Data; Brent Steady
  • Virus Killing 8 Million Pigs Means Pricey Barbecues: Commodities
  • Palm Output in Malaysia Seen at Second Highest on Record for May
  • Mercuria’s Head of Non-Oil Trading Jones Said to Leave Company
  • Copper Reaches Four-Week Low Amid China Warehouse Investigation
  • Corn Trades Near 16-Week Low as U.S. Crop Seen Rising to Record
  • Arabica Coffee Rises as Farmers Put Off Selling; Cocoa Advances
  • Chinese Traders Seen Selling Copper Amid Qingdao Probe, SMM Says
  • Gail’s U.S.-Linked LNG Breaking From Traditional Ties to Oil
  • Chinese Consumers Sop Up Milk Once Foisted on American Taxpayers
  • Europe Poised for Hot Weather as Solar Power May Rise to Record
  • Codelco Asks CEO Keller to Resign After Clash Over Cost Cuts
  • Deep-Water Reserves May Be Key to Future Oil Supply: Primer
  • Gold Heads for Weekly Advance as Investors Await U.S. Jobs Data

 

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


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