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Our Process Is Different

This note was originally published at 8am on June 05, 2014 for Hedgeye subscribers.

“Because our process was so different… we felt it had real power.”

-Ed Catmull

 

As I grind through the end of it, Creativity Inc. is turning out to be one of the best business books I’ve read in a long time. Chapter 4, “Establishing Pixar’s Identity”, is all about process – “trust the process.”

 

For my team, that’s going to sound very familiar. As real-time market prices, volumes, and volatilities change, we feel that our process is better than our #OldWall competition’s, if only because we change.

 

Our Process Is Different - Busines


“What is the nature of honesty? If everyone agrees about its importance, why do we find it hard to be frank? How do we think about our own failures and fears? Is there a way to make our managers more comfortable with unexpected results?” (Catmull, pg 82)

 

Back to the Global Macro Grind

 

This is going to be one of the shortest Early Looks of the year because a European Central Planner can change my decision making process by doing something drastic to the Global Currency Market in the next few hours.

 

While I’d only have to work 6 hours a day if I had the inside information that Mario Draghi may have whispered to his favorite cronies, I still wouldn’t know how to position until I saw the reaction to this version of “whatever it takes.”

 

That’s the main point about my process. I react to what Mr. Macro Market tells me to do – I don’t tell him what to do. It’s taken me a long time to embrace the reality of not only information surprises, but how the market scores them.

 

Just to set the manic media’s volume on this ECB decision right:

 

  1. “Euro, stocks, hostage to ECB’s ability to surprise” –Reuters
  2. “Draghi’s rate tonic seen piquing taste for the stronger stuff” –Bloomberg
  3. “Live Blog: ECB’s Draghi poised to unveil stimulus” –CNBC

 

In other words, no one needs moarrr central-planning-cowbell moarrr than those trying to sell advertising. And everyone in the financial media is leading every lemming who will trade alongside the implied trend of the headline, until the market goes the other way.

 

That’s why contextualizing the #behavioral side of markets across multiple factors and durations is as critical as it has ever been. I’ve been doing this for almost 17 years now and I have never seen macro consensus positioning get run-over so consistently.

 

That’s not to say that Draghi can’t do something wacky this morning and burn the Euro through my $1.35 EUR/USD long-term TAIL risk line of support. It’s simply to remind you that everyone and their brother is worried that he will, at the same time.

 

“So”, deal with it. How do I deal?

 

  1. Have a process
  2. Have a plan
  3. Plan to change the plan, if the market tells you to do so

 

On the process, I’m constantly vetting, evolving, and hopefully improving ours by stress testing it with the best buy-side minds in the world. Yesterday I was in Boston. Coming out of every meeting I was told that our “macro calls” for 2014 have been different.

 

Being different can also mean being wrong. “So”, what’s the plan if I am wrong this morning and the EUR/USD doesn’t hold $1.35?

 

  1. If it snaps $1.35 in the moment, I won’t freak-out – I’ll wait and watch for confirmation
  2. A sustained breakdown in the Euro would probably mean a breakout in the US Dollar
  3. A breakout in the US Dollar would probably mean a breakdown in commodity #InflationAccelerating

 

In other words, the plan is that the plan could change. If I take myself out of the emotion of what will be this morning’s moment, there are other big time macro events that could then change the plan yet again:

 

  1. US Employment Report is on Friday
  2. US Federal Reserve June meeting (where I think Yellen will get incrementally dovish)
  3. Stanley Cup Finals

 

Yes, the process of printing moneys, destroying currencies, and compromising the trust of The People who have to eat the cost of living born out of that has real power too. Our job is to help you risk manage it.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.41-2.61%

SPX 1894-1938

RUT 1104-1151

USD 80.16-80.79

EUR/USD 1.35-1.37   

Gold 1233-1293

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Our Process Is Different - Chart of the Day


June 19, 2014

June 19, 2014 - HE DTR JAN14

 

BULLISH TRENDS

June 19, 2014 - Slide2

June 19, 2014 - Slide3

June 19, 2014 - Slide4

June 19, 2014 - Slide5

June 19, 2014 - Slide6

June 19, 2014 - Slide7  

June 19, 2014 - Slide8

 

BEARISH TRENDS

 

June 19, 2014 - Slide9

June 19, 2014 - Slide10

June 19, 2014 - Slide11
June 19, 2014 - Slide12


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 19, 2014


As we look at today's setup for the S&P 500, the range is 32 points or 1.48% downside to 1928 and 0.15% upside to 1960.                                                   

                                                                            

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: 2.14 from 2.14
  • VIX  closed at 10.61 1 day percent change of -12.02%

 

MACRO DATA POINTS (Bloomberg Estimates)               

  • 8:30am: Initial Jobless Claims, June 14, est. 313k (prior 317k)
  • Continuing Claims, June 7, est. 2.6m (prior 2.614m)
  • 9:45am: Bloomberg Economic Expectations, June (prior 42.5)
  • Bloomberg Consumer Comfort, June 15 (prior 35.5)
  • 10am: Philadelphia Fed Business Outlook, June., est. 14 (prior 15.4)
  • 10am: Leading Index, May, est. 0.6% (prior 0.4%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change

 

GOVERNMENT:

    • 8:50am: Dpty CMS Admin Cavanaugh at Accountable Care Summit
    • 9:30am: House Energy and Commerce panel meets on EPA’s proposed carbon dioxide rules for power plants
    • 10am: House Armed Services Cmte holds hearing on negotiations over Iran’s nuclear program
    • 12pm: FDIC Vice Chair Thomas Hoenig at Nat’l Economists Club
    • 2pm: House Republicans hold election to replace Majority Leader Eric Cantor; if House Majority Whip Kevin McCarthy wins that post, election will be held to replace him
    • U.S. ELECTION WRAP: Landrieu Touts Senate Panel’s Keystone Vote

               

WHAT TO WATCH:

  • GE’s Immelt in final push to sell France on Alstom bid
  • House Republicans hold leadership election to replace Cantor
  • Obama tells lawmakers he can act without Congress on Iraq
  • President distances U.S. from Maliki; see Iraq crisis wrap
  • Blackrock urging regulators to study risk of investor flight
  • Facebook working again after temporary site outage
  • Wal-Mart China to grow hypermarkets, e-commerce: China Daily
  • Markit raises $1.3b pricing increased IPO at $24 midpoint
  • T-Moble offers 7-day IPhone trial to tempt users to brand
  • Electronic Arts exec. says NCAA refused licensing rule change
  • Senators criticize marketing of e-cigarettes: Reuters
  • Ex-Goldman trader says bonus unfairly cut to $8.25m
  • FHLBs said to suspend admissions of insurers used by REITs

 

EARNINGS:

    • BlackBerry (BB CN) 7am, ($0.26) - Preview
    • IHS (IHS) 6am, $1.44
    • Kroger (KR) 8:45am, $1.05 - Preview
    • Oracle (ORCL) 4:01pm, $0.96
    • Rite Aid (RAD) 7am, $0.04
    • Smith & Wesson Holding (SWHC) 4:05pm, $0.40
    • TIBCO Software (TIBX) 4:05pm, $0.13

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Fleeing Migrant Workers in Thailand Seen Delaying Rice Shipments
  • Brent Trades Near Nine-Month High on Iraq Conflict; WTI Rises
  • New Silver Benchmark Seen Heralding Gold Fix Revamp: Commodities
  • Commodities Climb to Highest Since August as Oil Rallies on Iraq
  • Zinc Climbs to Highest in Almost 16 Months as Stockpiles Shrink
  • Silver Fix Benchmark Replacement Should Be Announced Early July
  • Wheat Extends Gains as Rain Threatens to Thwart U.S. Harvest
  • Raw Sugar Retreats From Three-Month High; Arabica Coffee Drops
  • Steel Rebar Near Record Low as Traders Weigh Output, Economy
  • Half-Price Kurd Oil Threatens Iraq Breakup With Turkish Help
  • Ukraine Wants U.S. and EU Companies to Hold Gas-Pipeline Stake
  • Modi’s Inflation-Curbing Drive Seen Failing by Onion Traders
  • Iraqi Violence Jeopardizes PetroChina, Petronas Oil Investments
  • Gold Trades Near Highest in Three Weeks on Fed’s Rate Outlook

 

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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Real Conversations: Chris Whalen On Housing, Banks, and Economic Risks

Chris Whalen, Senior Managing Director and Head of Research at Kroll Bond Rating Agency, explains why he's bearish on housing, how Washington is failing America, and opportunities he sees with Hedgeye Financials Sector Head Josh Steiner.


Cartoon of the Day: Pricey Beef!

The seasonally-adjusted price index for meats, poultry, fish, and eggs hit an all-time high in May, according to data from the Bureau of Labor Statistics (BLS).

In January 1967, when the BLS started tracking this measure, the index for meats, poultry, fish, and eggs was 38.1. As of last May, it was 234.572. This past May it climbed to a record 252.832.

 

Cartoon of the Day: Pricey Beef! - Beef cartoon 06.18.2014


Target to Canada: We're Sorry

Takeaway: At least Target (finally) recognizes that it has a brand problem in Canada.

Editor's note: This is an excerpt from retail sector head Brian McGough's morning research. Click here for more information on options available to Hedgeye subscribers.

 

TGT - Target trying to woo back Canadian consumers with video apology

 

  • "Target has taken to YouTube in order to apologize to Canadians, using the voices of its employees to take responsibility for a disappointing first year in the country. The two-and-a-half-minute video features interviews with Target employees reflecting on the problems the company has faced and promising improvement in the future."

 

Takeaway: At least Target finally recognizes that it has a brand problem in Canada. Whether or not this plea for forgiveness actually works is for the consumer to decide. But, we don't think execution is the only thing to blame for TGT's underwhelming results North of the border.The fact is that Canadian marketplace can't support the revenue projections the company set. In order the hit the $6bil revenue target in FY17, TGT Canada would have to eclipse the US store share of wallet in 4 years. Consensus estimates have come down about $1.3bil since we published our report in late April and are now under $4bil, but we think numbers are still too high. 

 

Target to Canada: We're Sorry - 445


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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