The Last 1%?

This note was originally published at 8am on June 10, 2014 for Hedgeye subscribers.

“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 (1960-2014) 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 1930-1956 (bullish)

RUT 1133-1177 (bearish)

Nikkei 14662-15301 (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 1239-1273 (bullish)

Copper 3.01-3.11 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

June 24, 2014

June 24, 2014 - Slide1



June 24, 2014 - Slide2

June 24, 2014 - Slide3

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June 24, 2014 - Slide6

June 24, 2014 - Slide7

June 24, 2014 - Slide8




June 24, 2014 - Slide9

June 24, 2014 - Slide10

June 24, 2014 - Slide11


TODAY’S S&P 500 SET-UP – June 24, 2014

As we look at today's setup for the S&P 500, the range is 47 points or 1.97% downside to 1924 and 0.43% upside to 1971.                                                    













  • YIELD CURVE: 2.15 from 2.16
  • VIX closed at 10.98 1 day percent change of 1.20%


MACRO DATA POINTS (Bloomberg Estimates):      

  • 7:45am: ICSC weekly sales
  • 8:05am: Fed’s Plosser speaks in New York
  • 8:55am: Redbook weekly sales
  • 9am: FHFA House Price Index, April, est. 0.5% (prior 0.7%)
  • 9am: S&P/Case-Shiller 20 City m/m, April, est. 0.8% (prior 1.24%)
  • 10am: Consumer Confidence Index, June, est. 83.5 (prior 83)
  • 10am: Richmond Fed Manufacturing Index, June, est. 7 (prior 7)
  • 10am: New Home Sales, May, est. 439k (prior 433k)
  • New Home Sales, m/m, May, est. 1.4% (prior 6.4%)
  • 2pm: Fed’s Dudley speaks in New York
  • 4:30pm: API weekly oil inventories
  • 6:30pm: Fed’s Williams speaks in Stanford, Calif.



    • Primaries held in N.Y., Colo., Md., Okla., Utah; Miss. GOP runoff between Sen. Thad Cochran, state Sen. Chris McDaniel
    • 9:30am: House Oversight Cmte hearing on IRS’s missing e-mails
    • 10am: Senate Appros subcmte marks FY15 Homeland Security bill, then at 11am FY15 fin svcs, general govt spending bill
    • 10am: Senate Finance Cmte examines how tax code can be leveraged to reduce student debt
    • 2pm: Senate-House conf. cmte on veterans’ health-care bill
    • *U.S. ELECTION WRAP: Primaries to Watch; Sen. Warren for Tennant



  • German IFO business confidence drops more than est.
  • Iraq forces regain control of Baiji refinery
  • Kerry lands in Erbil to urge Iraqi Kurds to help form govt
  • AT&T CEO to tell Congress DirecTV takeover means lower prices
  • Merkel expects tough sanctions on Russia from EU summit: Bild
  • Gazprom says Europe gas shipments via Ukraine uninterrupted
  • Targa said to abandon sale to Energy Transfer after share spike
  • Apple’s larger iPhones said to start mass output next month
  • Lew defends council’s work to guard against U.S. financial risk
  • KKR pays $567m for stake in Acciona’s foreign renewables
  • NYC rent board sets 1% apartment-rate rise as freeze rejected
  • Ex-Goldman currency trader Cho said to start macro hedge fund



    • AGF Management (AGF/B CN) 8:00am, C$0.18
    • Apogee Enterprises (APOG) 4:30pm, $0.26
    • Carnival (CCL) 9:15am, $0.02
    • Walgreen (WAG) 7:30am, $0.94 - Preview



  • Gold Climbs to Two-Month High on Iraq to U.S. Economy Outlook
  • Brent Trades Near One-Week Low as Iraq Supply Stable; WTI Slips
  • Gold Euphoria Won’t Last With Yellen’s Rally Fading: Commodities
  • Copper Premium in Europe Said to Decline With Demand Slowing
  • Nickel Reaches One-Week Low as Speculators Cut Bullish Wagers
  • Raw Sugar Declines Before Brazil’s Unica Report; Cocoa Falls
  • MORE: CME Sees Asia as ‘Right Market’ to Invest in Gold Products
  • China Copper Bonded Stockpiles Seen by CRU Down to 775,000 Tons
  • Crop Futures Decline as Report Shows U.S. Fields in Good Shape
  • China Seen Bolstering Oil Security as Stockpiles Swell to Record
  • Indonesia Seeks Tin-Export Rules to Avoid Inaccurate Declaration
  • Rooftop Solar Leases Scaring Buyers When Homeowners Sell: Energy
  • Congo’s Gecamines Needs $160 Million to Cut 6,000 Mining Jobs
  • Platinum Union to Sign Deal With Producers to End 5-Month Strike


























The Hedgeye Macro Team















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Poll of the Day Recap: 56% Would Buy & Hold U.S. Stocks

Takeaway: 56% of voters would rather buy & hold U.S. stocks for one year over commodities.

"As Hemingway might have said, at first inflation happens slowly – then all at once,” CEO Keith McCullough wrote in today’s Morning Newsletter. “If you want to be a real baller, and be long the stuff in the U.S. stock market that’s crushing a low-single digit performance # for the YTD, you need to be long of both inflation and the slow-growth it drives into the consumption core of America.”


In the video below, Senior Analyst Darius Dale discusses dividends and style factors within the U.S. equity market and why he cast his vote to buy and hold U.S. Stocks.



What do you think?


In the poll this morning we asked: If you had to choose U.S. Stocks or Commodities, which would you buy and hold for a year?



At the time of this post, 56% would buy U.S. Stocks and 44% would choose to buy Commodities.

Those who view buying and holding U.S. Stocks as the better opportunity had this to say:

  • Stocks have dividends and commodities don't, so that has to be factored into any decision to buy and hold. Certain sectors and style factors within the equity market are responding to the same fundamental signals that commodities are -- i.e. inflation slowing growth and weighing on the Fed's outlook for tighter monetary policy. Buy XLU, XLE, VNQ and SMH. Long live late-cycle industrial pricing power!
  • There is so much liquidity around the globe from governments printing their monopoly money.  The money has to flow somewhere and it sure isn't to savings accounts.  This is the new normal until, if ever, the liquidity is removed from the financial system.
  • Though commodities will continue to rise, there are a few tech stocks I'd put my money into, including Twitter, Facebook, Apple and Google.  The bubble still has room in it; the trick, as always, is timing.


Those who voted for commodities reasoned:

  • Commodities have done well YTD.  As inflation accelerates and Q114 GDP estimate is even worse than originally estimated; precious metals and other commodities will continue to ramp.  This is stagflation and this could be just the beginning a US replay of something like the 1970s.
  • Commodities are looking nice right now, and there are really no unpredictable events that could not go in favor of commodities.  All the prices are on the rise across the board from uranium to beef.

Eurozone Growth is Down, But Not Out

Eurozone equities closed squarely in the red today following the release of weak preliminary June  figures for the Purchase Manager Index for the Eurozone, Germany, and France.  


Eurozone Services slipped to 51.9 (52.2 est.) and Eurozone Manufacturing dropped to 52.8 (53.3 est.) vs. 53.2 prior. Similar results were recorded for Germany and France:

  • Germany - Manufacturing PMI 52.4 JUN prelim. (52.5 est.) vs. 52.3 prior
  • Germany - Services PMI 54.8 JUN prelim. (55.8 est.) vs. 56.0 prior
  • France - Manufacturing PMI 47.8 JUN prelim. (49.5 est.) vs. 49.6 prior
  • France - Services PMI 48.2 JUN prelim. (49.4 est.) vs. 49.1 prior

June marks the second consecutive monthly decline in PMIs, however on the margin we continue to like European equities over U.S. Equities. In fact, today Keith issued a buy signal in Austrian equities (etf: EWO) on the pullback in the Real-Time Alerts.  


We expect interest rate policy from the ECB to remain “accommodative” and for ECB President Mario Draghi to keep the prospect of QE in his back pocket (forward expectations of its use should propel equities) and issue it only should a deterioration in fundamentals warrant its use.  Over the weekend Draghi said interest rates “will” remain low until the end of 2016. CPI for May printed at +0.5% annualized which was the lowest level in four years. The full-year forecasts are now +0.7%, +1.1%, and +1.4% for 2014, 2015, and 2016 respectively.    


Our quantitative outlook remains bullish:

  • the Stoxx50 and Stoxx600 remain bullish TRADE (immediate term) and bullish TREND (intermediate term)
  • the EUR/USD is holding our long-term TAIL support line of $1.35 versus an “ugly” U.S. Dollar in a bearish formation

Eurozone Growth is Down, But Not Out - z. PMIs

Eurozone Growth is Down, But Not Out - z. euro50

Eurozone Growth is Down, But Not Out - z.m euro


Matthew Hedrick


ALL-TIME HIGHS: Can Livestock and Poultry Prices Go Higher?

With the interest in protein in the food space (TSN-HSH) heating up, we thought a recent note from the Hedgeye Macro team on livestock and poultry prices is particularly applicable to the Consumer Staples sector. A copy of the work is included directly below.




We continue to field arguments against the inflationary read-through on the commodity squeeze. Sharp increases in livestock and poultry prices over the last ten years in the face of stagnant wage growth, a decline in savings rates, and a declining U.S. dollar illustrate this reality in staggering fashion.


If Janet Yellen’s commentary yesterday is any indication, the fed will continue to promote yield-chasing from financial intermediaries and those lucky enough to hold equities and fixed assets. The PCE survey from the BLS reports the top quintile of income earners takes 66% of the aggregate income in the basket from interest, dividends, and investment related income. Needless to say, a majority of Americans consume meat.


2013 Meat Consumption Per Capita (KG/Person):

  • United States: 106.9
  • China: 53.5
  • World Average: 34.9

The average consumer we have continuously highlighted is reaching insolvency. Median net income margins have consistently compressed over the last five years to about 1.38% with savings rates decreasing over the same period.


Last Ten Years:

  • USD Index: -9.8%
  • Trailing 1-year U.S. Personal Savings Rate: -9%
  •  S&P GSCI Livestock Index: +69%
  • U.S. Private Sector Avg. Hourly Earnings (Real): -43% 

 ALL-TIME HIGHS: Can Livestock and Poultry Prices Go Higher? - 1


survey from both the USDA and the University of Oklahoma’s Department of Agricultural Economics this week provide evidence that people are eating the higher price tags (adding to the pain, they drove to the store --> WTI and Brent hovering at 9-month highs).

  • “This month’s survey shows consumers are willing to pay 11-35% more for steak, pork chops, and chicken wings"

-       Food Demand Survey from the University of Oklahoma’s  Department of Agricultural Economics


  • The USDA’s Weekly Retail Beef Feature Activity Report highlighted a sharp decline in the number of food retail outlets featuring beef

ALL-TIME HIGHS: Can Livestock and Poultry Prices Go Higher? - 2


Last Ten Years:

  • Live Cattle: +71%
  • Lean Hogs: +65%
  • Chicken Breast: +40%

ALL-TIME HIGHS: Can Livestock and Poultry Prices Go Higher? - 3


Disease or not contributing to the advances YTD, this kind of headline inflation is tangibly relevant on the wallet. Unfortunately most people were not granted the opportunity to add to their inflation hedges out of the FOMC statement yesterday where the Fed provided a downward revision to its 2014 GDP estimate for the SEVENTH year in a row:

  • Headline CPI printed at +0.4% Tuesday vs. +0.2% expected (Inflation surprises)
  • Full-year growth estimates cut to 2.1-2.3% from 3% at the Fed (coincident response as growth misses)
  • 16 of 19 commodities in the CRB in positive territory on the year (prospect for future dollar devaluation increases; dollar down, cost of living up)

ALL-TIME HIGHS: Can Livestock and Poultry Prices Go Higher? - 4


Ben Ryan



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