Takeaway: Home prices increases have decelerated by 490 bps in the last five months. The headwinds should persist for another ~6-8 months.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 




Today's Focus: July CoreLogic Home Price Report

CoreLogic released its monthly home price report for June/July earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index,CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller. 


CoreLogic estimates that home prices rose +7.0% YoY in July, a deceleration vs the +7.5% in June and +8.3% in May. We show this in the first chart below.


Interestingly, in the past few months we've seen material upward revisions to the preliminary estimates for the most recent month-ended. In the last two months, however, the revision was negative. The preliminary estimate for June was +7.7% and the final number came in at +7.5%. Meanwhile, May has been downwardly revised twice in the last two month. It began at +8.9%, was cut to 8.8% and is now 8.3%.


Its also worth noting that while sales comps begin to ease through 2H14, price comps don’t really begin to ease until Feb 2015 (hardest near-term comp is Oct which was +11.9% YoY). As such, we think the next 6-8 months of worsening pricing data will weigh on the housing complex.


Our main thesis on housing is that the rate of home price appreciation will slow meaningfully over the course of 2014 and into 2015. Historically, inflections in the rate of HPI or HPD have been major macro drivers of relative positive or negative performance.








About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

Cyclical Times

This note was originally published at 8am on July 22, 2014 for Hedgeye subscribers.

“In cyclical time, a society always evolves.”

-The Fourth Turning


Are you long Millenial evolution? “From the Arthurian Generation through today’s Millenial Generation, there have been twenty-four generations in the Anglo-American lineage. The first six were purely English. Millenials are the fourteenth in the American line.” (The Fourth Turning, pg 95)


So get in the burrito line. With +17% same store sales and +29% year-over-year revenue growth, evidently Millenials are eating lots of Chipotle (CMG). They are texting, tindering, and talking about things baby boomers don’t talk about too.


Being long new patterns of consumption and short old ones is a profitable way to look at the world. Having been on the long/short side of consumer stocks for almost my entire career, this is where I’ve seen some of the biggest moves – and they go both ways!


Cyclical Times - millenials


Back to the Global Macro Grind


BREAKING: US Orange Juice Sales Fall To Record Low –Wall Street Journal


Yep. Damn Millenials are drinking the fruitier and frumpier stuff that costs 10x more. But, no worries, there’s no inflation in food/beverages – ask the Fed. With Orange Juice prices up another +0.4% in a down US Equity tape yesterday to +12.3% YTD, there’s deflation in whoever is short OJ demand.


As we age in this business (I’m a 13th gen dude and will be 40 within the next 6 months) we learn that most things we learned early on were in some way, shape, or storytelling form, false.


Risk managing macro, for example, rarely has anything to do with “valuation” or even reported supply and demand metrics. Most of the big moves in macro happen on the margin when there is a phase transition in price momentum, volume, and volatility.


How about long Copper (JJC)?


  1. Worldwide supply is hitting all-time highs
  2. But prices are starting to breakout from a TREND signal perspective


Or are they?


I’m not wed to a Millenial or Copper. I am happily married with three children and a risk management process that will hopefully allow me to be less wrong than I have been over the course of the last 15 years.


But in Real-Time Alerts I issued a buy signal in Copper on last week’s pullback. This morning I am getting buy signals for both the Shanghai Composite Index (China) and the Hang Seng. Both broke out above my intermediate-term TREND signal. We don’t have a research call to support that signal (yet), but do you always need one? Or is Mr. Macro Market telling you that you are going to get one?


What is a phase transition?  


A phase transition is the transformation of a thermodynamic system from one phase or state of matter to another by heat transfer.” –Wikipedia


And, in modern macro times, the heat transfer of price, volume, and volatility is measurable.


So why don’t more investors care about multi-duration, multi-factor, risk analytics. Why do so many still hinge on some gospel like “valuation” for direction, when reality is that market multiples expand and contract much more on economic and/or market phase transitions than anything else?


If you can answer all these questions, let me know. Because I can’t.


What are the most interesting big macro time/price cycles (for asset classes) that have gone from bearish to bullish from 2013 to 2014?


  1. US Treasuries
  2. Commodities
  3. Gold
  4. Emerging Market Equities
  5. Chinese Equities?


That last one I won’t buy until Darius Dale gives me the green light. But there’s no reason to sit in 50% cash when very liquid asset classes like this are getting people paid. On the bear side, we’re all about shorting USA baby-boom #ConsumerSlowing patterns:


  1. US Housing
  2. US Casual Dining Stocks
  3. Broadline Retailers


In macro investing, it’s important to contextualize where you are in the cycle. Almost every single short idea we have that isn’t purely bottom-up is what we call an “early cycle” call. Plenty of the mid-to-late-cycle ideas out there (like being long inflation) will eventually run their course. It’s our job to always evolve our process and try to signal when they do.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.46-2.56%

SPX 1958-1985

RUT 1132-1155

VIX 11.94-14.99

Gold 1299-1324

Copper 3.18-3.24


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Cyclical Times - Chart of the Day

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.


Client Talking Points


Taiwan and the Nikkei led Asian losers overnight in what was an uncharacteristically weak relative session, but if the Nikkei can hold 15,062 TREND support we may be looking at a bearish to bullish TREND reversal in the making – stay tuned.


The front-month VIX corrected from overbought highs last week, but didn’t A) didn’t break 11.94 TREND support and B) has a wicked wide immediate-term risk range now of 13.84-17.82 (usually means more volatility pending).


Gold is up +0.3% to $1291 and while it held $1271 TREND support, we don’t like how it or the commodity complex (CRB Index) acts as of late – could be QUAD 4 in our model (Inflation and Growth Slowing).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


RUSSIA: leads losers (again) -1.1% to new 2mth lows, -13.8% YTD



The quality of an individual is reflected in the standards they set for themselves.

-Ray Kroc


Toyota Motor Corp. surprised with record profits as U.S. SUV Sales surged, net income in the April-to-June period rose to 587.8 billion yen ($5.7 billion).

CHART OF THE DAY: Vanished Volume

Takeaway: Volume accelerates on DOWN days, and decelerates on UP ones for the Russell 2000.


CHART OF THE DAY: Vanished Volume - Chart of the Day

Long-Wave Rope

“When we hang the capitalists, they will sell us the rope.”

-Joseph Stalin


That wasn’t a very nice thing to say. But Stalin wasn’t nice; especially to economists! “In 1930, Stalin arrested Nikolai Kondratieff and shipped him off to Siberia. His crime: daring to defy the most linear of ideologies – Marxism – by suggesting that the long-term performance of market economies is cyclical.” (The Fourth Turning, pg 110)


Kondratieff died in the gulag, but his “long wave” cycles will live on for as long as gravity does (let’s hope someone isn’t empowered to centrally plan that away!). For longer-term risk managers, they are also called super-cycles (45-50 years). They are a tad longer than the monthly performance chasing thing you see your peers wrestling with in an oversupplied asset management industry today.


If you aren’t into the 45-50 year thing, how about 20-25 years? This is what demographer and economic historian Neil Howe calls a “turning” within your saeculum (lifetime). Like the Four Seasons, there are roughly four turnings in your life. I had a Real Conversation @HedgeyeTV with Neil about this recently that you can watch here:


Long-Wave Rope - EL chart 2 


Back to the Global Macro Grind


Now if you don’t want to think about a long-term US economic cycle (which is 62 months into an expansion) rolling over, you can always ditch the 25 yr demographic reading for a 50-day moving monkey (chart). When those break, oh baby do the emotions kick in!


Obviously, using a 1-factor point-and-click model that my 4 year old daughter could figure out isn’t a multi-duration, multi-factor, interconnected Global Macro risk management process, so let’s move on…


What I wake up trying to do every morning is identify the intermediate-term-cycles within longer-term ones. Trust me, I don’t read a non-fiction book every 10-days for kicks and giggles. I do it in order to make myself less dumb. And that’s not an easy thing to do!


Not to be confused with an economic cycle, when considering the shorter-term market cycle within the “long-wave”, a really basic 3-factor model I use is:


  1. PRICE


Therefore, if I am looking at something like the Russell 2000 (IWM)


  1. PRICE – is -7.0% in the last 2 months and below my intermediate-term TREND resistance line of 1175
  2. VOLUME – accelerates on the DOWN days and decelerates on the UP ones (yesterday’s was -18% vs its 3 mth avg)
  3. VOLATILITY – is breaking out on the front-month, undergoing what we call a bearish to bullish phase transition


And if I want to be long the upside down of that #GrowthSlowing message (long the Long Bond):


  1. US Treasury 10yr Yield of 2.49% this morning remains well below my intermediate-term TREND level of 2.81%
  2. Fund Flows have turned back to bullish on the “safe” side of Fixed Income (after being bearish in 2013)
  3. Implied volatility in being long TLT (+12.5% YTD) vs Russell 2000 (IWM) -3.4% YTD is as low-stress as it gets


If you want a proverbial rope to hang yourself with in this game, start calling your best performing long ideas (on a lag) “low-stress.” Before you know it, you’ll be having a nervous breakdown.


One thing that starts to stress me out is being bullish on something macro that the crowd starts to dog pile (50-day moving avg is intact, bro!). So one place I watch very closely on that sentiment score is futures and options positioning.


Yesterday I wrote about how there was a net SHORT position of -41,210 contracts SP500 (SPX Index + Emini) that consensus short sellers (those who cover high and short low) built into Friday’s close being a catalyst for a bullish no-volume “bounce.”


We got that. But how about in the things I like (like Gold, Pounds, and Bonds)?


  1. Gold = net LONG position of +122,092 contracts (vs. its 6 month avg of +100,747)
  2. British Pound = net LONG position of +31,046 contracts (vs. its 6 month avg of +34,681)
  3. UST 10yr = net LONG position of +7,090 contracts (vs. its 6 month avg of -40,094)


In other words, Consensus Macro is:


  1. Too long Gold (after it’s up +7.4% YTD) so I should sell some
  2. Too bullish on what’s been the best major FX position vs USD for the last year, but not wacky bullish
  3. No longer short, but not yet Bullish Enough on longer-term UST Bonds


So, provided that our longer-wave economic cycle call is giving us confirming evidence (both sequential data and market prices), we just say “buy more” long-term bonds on all pullbacks to @Hedgeye TRADE and TREND lines of support.


As far as the history of socialists vs. capitalists is concerned, Stalin’s followers can eat their own ropes. One of the few things I agree with him saying is that “print is the sharpest and strongest weapon of our party.” That’s why I like to print our #process, every day.


Our Immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.43-2.54%


RUT 1109-1139

VIX 13.84-17.82

Pound 1.68-1.70

Gold 1


Best of luck out there today (and Happy Anniversary, Laura),



Keith R. McCullough
Chief Executive Officer


Long-Wave Rope - Chart of the Day

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.