CHART OF THE DAY: Consumption Growth In Long-Term Secular Decline


CHART OF THE DAY: Consumption Growth In Long-Term Secular Decline - Consumption Growth

The Last 1%?

“The distribution of wealth is one of today’s most widely discussed controversial issues.”

-Thomas Piketty


Roger that Tommy. And thanks for giving the world’s big central planning bureaucrats some Marxist 2.0. They needed a French Keynesian economist to inspire them.


Who is Karl Marx? According to Picketty, “In 1848… he published the Communist Manifesto, a short, hard hitting text…” (Capital In The Twenty First Century, pg 8). “Hard hitting?” #cool


The Last 1%? - Karl Marx 007


Instead of calling this NY Times fan fav book “Capital”, it should have been titled “Class Warfare.” This is going to be a painful read for me, but I will endure. The last 1% of economists who think socialism is the best path to prosperity still need to be studied.


Back to the Global Macro Grind


What is the last 1%?


  1. The last 1% rally in the Russell 2000 (IWM) on no-volume to lower-highs?
  2. The last 1% rally in US Consumer Discretionary (XLY)  stocks to lower-highs?
  3. The last 1% of McDonald’s (MCD) customers slowing in May due to the February “weather”?


That last one was a beauty of a headline that the US government dudes perpetuating American Inequality via their Policy To Inflate had a tough time explaining yesterday. McDonald’s same-store US Sales for May were down -1% year-over-year with some of the best weather we’ve had in years.


After spending on primitive things like food and shelter (Food prices +21% YTD; US Rents at all-time highs), evidently America’s Median Consumer can’t afford to fill her car up with gas to go buy the new “family pack” (for $14.99) at Mickey D’s!


I was in Chicago seeing Institutional Investors all day yesterday and today I’ll be in Kansas City. The core of the bear case for US consumption growth is what is hitting the heart of America right now – it’s called #InflationAccellerating USA’s cost of living to all-time highs.


As you can see in today’s Chart of the Day, US Consumption Growth (1) is in what we call a long-term secular decline. That’s mainly because the 50yr chart overlaying that called cost of living (inflation) is in a secular bull market.


The Last 1%? - Consumption Growth


But whatever you do when debating people like Piketty on inequality, don’t talk about central planning policies that A) devalue the purchasing power of the people and B) inflate the cost of living.


In case you want to run against Hillary for President of the United States, just ask her the questions we answer in slides 12-15 in our current Hedgeye Macro Slide deck:


  1. Who Is The Median Consumer in this country?
  2. How Does the Consumer Make Money?
  3. Where Do They Spend it?


The answer for the Median Consumer in America on the spending side is this:


  1. Housing (34% of the country rents) = 29.2% of spending
  2. Transportation = 17.8% of spending
  3. Food = 12.5% of spending


“So”, if you tax that spending basket with an un-elected and un-legislated Policy To Inflate (read: print money), you get the answer to the inequality equation Krugmanites have been longing for:




Yep. The top quintile of Americans (read: us) gets paid 66.4% of the benefits of money printing (interest, dividends, property related income, etc.). The median quintile gets 1.4%.


Inequality is only a “controversial issue” because, like in the 1970s, both the Democrat and Republican parties (Nixon/Carter then Bush/Obama) have supported Policies to Inflate, without calling them that.


Our immediate-term risk ranges (with bullish or bearish intermediate-term TREND signals in brackets) are as follows:


UST 10yr Yield 2.41-2.64% (bearish)

SPX 1 (bullish)

RUT 1133-1177 (bearish)

Nikkei 141 (bearish)

VIX 10.77-13.35 (bearish)

USD 80.23-80.89 (bearish)

EUR/USD 1.35-1.37 (bullish)

Pound 1.67-1.69 (bullish)

WTIC Oil 102.62-105.27 (bullish)

NatGas 4.53-4.76 (bullish)

Gold 1 (bullish)

Copper 3.01-3.11 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

It Never Gets Old

This note was originally published at 8am on May 27, 2014 for Hedgeye subscribers.

“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%
SPX 1878-1906

RUT 1089-1135

Nikkei 13885-14658

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


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June 10, 2014

June 10, 2014 - Slide1



June 10, 2014 - Slide2

June 10, 2014 - Slide3

June 10, 2014 - Slide4

June 10, 2014 - Slide5

June 10, 2014 - Slide6

June 10, 2014 - Slide7




June 10, 2014 - Slide8

June 10, 2014 - Slide9

June 10, 2014 - Slide10

June 10, 2014 - Slide11
June 10, 2014 - Slide12

June 10, 2014 - Slide13

Refreshed, China Property Market Monitor

Takeaway: To quote Hedgeye senior macro analyst and Asia wizard Darius Dale, “lots of red indeed.”

Click to enlarge image below.

Refreshed, China Property Market Monitor - q1


Copper Inventories

Inventories of copper and iron ore have moved in different directions. Chinese metal-for-credit schemes may be complicating the data. The expected copper supply growth in coming years appears significant, although prices have firmed since March, in part due to inventory trends.


Refreshed, China Property Market Monitor - q2


Iron Ore Inventories

Seaborne iron ore prices continue to decline, reaching the lowest levels since 3Q 2012.


Refreshed, China Property Market Monitor - q3


Chinese Construction Materials

Nominal China Rebar prices have hit a 5-year low, which is likely not a positive sign for construction activity.  


Refreshed, China Property Market Monitor - q4


TODAY’S S&P 500 SET-UP – June 10, 2014

As we look at today's setup for the S&P 500, the range is 26 points or 1.09% downside to 1930 and 0.24% upside to 1956.                                                       













  • YIELD CURVE: 2.20 from 2.18
  • VIX closed at 11.15 1 day percent change of 3.91%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Business Optimism, May, est. 95.8 (prior 95.2)
  • 7:45am: ICSC weekly sales
  • 8:55am: Redbook weekly sales
  • 10am: JOLTs Job Openings, April, est. 4.05m (prior 4.014m)
  • 10am: Wholesale Inventories, April, est. 0.5% (prior 1.1%)
  • Wholesale Trade Sales, April, est. 0.9% (prior 1.4%)
  • 4:30pm: API weekly oil inventories



    • Primaries held in Va., Nev., Maine, S.C.
    • President Obama hosts Tumblr Q&A on college affordability
    • 8:45am: House Approps. energy, water spending bill markup
    • 9:30am: House Appropriations Cmte marks up defense spending bill
    • 10am: Senate Armed Services Cmte gets briefing on prisoner exchange for Army Sgt Bowe Bergdahl
    • 10am: World Bank issues Global Economic Prospects report
    • 10:30am: Senate Banking Cmte receives semi-annual report on CFPB from Director Richard Cordray
    • 10:30am: PCAOB  open meeting to consider auditing standard
    • 1:25pm: Vice President Joe Biden delivers keynote remarks at the National Association of Manufacturing 2014 summi



  • ICE says Euronext IPO values exchange at up to $2.4b
  • PPL to spin off some U.S. power plants into new firm w/fund
  • Merkley urges Fed to restrict bank ownership of commodities
  • High-speed trading to be examined by Levin at hearing next wk
  • Apollo Global said to raise $1.5b CLO fund with JPMorgan
  • Time Warner said to be in talks for stake in Vice Media
  • GM faces punitive damages over switch defect, lawyers warned
  • Berkshire to expand energy wager as far as ’eye can see’
  • China inflation quickens to fastest pace since Jan. on food
  • U.K. industrial output posts biggest annual increase since ’11
  • LG Display said in talks to supply OLED TV panels to Panasonic
  • Sony says PS4 users will get early look at Destiny video game
  • China auto sales climb 13% as Ford surges, Great Wall slumps
  • Hillary Clinton’s book, “Hard Choices,” released
  • CFPB delivers semi-annual report to Senate Banking Cmte
  • MSCI index classification review announced ~5pm



    • Burlington Stores (BURL) 6:12am, $0.22
    • Francesca’s Holdings (FRAN) 7:30am, $0.22
    • HD Supply Holdings (HDS) 6am, $0.17
    • NCI Building Systems (NCS) 4:01pm, ($0.03)
    • Oxford Industries (OXM) 4pm, $0.87
    • RadioShack (RSH) 7am, ($0.51)
    • Science Applications Int’l (SAIC) 4:05pm, $0.67
    • Ulta Salon Cosmetics (ULTA) 4pm, $0.74
    • United Natural Foods (UNFI) 4:05pm, $0.73



  • Palladium Reaches 3-Year High as South Africa Strike Talks Fail
  • Brent Oil Premium to WTI Narrows to Two-Month Low on Inventories
  • Soy Farmers See Rally Ending on Record U.S. Harvest: Commodities
  • Copper Falls Amid Concern Banks Might Further Restrict Financing
  • Wheat Rebounds on Speculation Slump May Spur Demand; Corn Drops
  • Rubber Climbs by Most in 3 Weeks as Thailand May Support Prices
  • China’s Commodity Financing Seen Unwinding by Goldman Amid Probe
  • Platinum Jobs Threat Seen Rising by Minister as Strike Persists
  • Coffee Harvest in Vietnam Set to Drop From Record as Yields Fall
  • Port Hedland Engineers Join Tugboat Workers in Approving Strikes
  • China’s Clean-Fuel Focus Tests U.S. Coal-Export Lifeline: Energy
  • USDA’s Glauber Says China Grain Trade Disruption Seen Temporary
  • LNG Imports Drop 45%, Risking Future Utility Returns: Bear Case
  • Some Chinese Banks Said to Limit Credit for Iron Ore Financing


























The Hedgeye Macro Team














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