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Unwinding Growth

“The unwinding began at countless times, in countless ways.”

-George Packer


Yep. After a wonderful weekend with my family on the East Coast, I figured I’d get up early this morning and cheer you up with that quote. It comes from George Packer’s recent bestseller – The Unwinding: An Inner History of The New America.


Under both the Bush and Obama central-econ-planning regimes, what’s really been unwinding for the last decade is the bull case for sustainable and real (i.e. inflation adjusted) US GDP growth. But both you and the bond market probably already know that.


Who seems to miss this roughly all-of-the-time are America’s Old Wall “economists.” In a Wall Street Journal poll on Friday, 43 economists agreed to agree that US GDP growth will magically be 3% in the back half of 2014. In today’s USA, that looks almost impossible.


Unwinding Growth - unwinding


Back to the Global Macro Grind


In stark contrast to what I loved about the ole-school 1980s/1990s USA breakouts in both #StrongDollar and #RatesRising in 2013, today we have a Dollar that has done, well, absolutely nothing year-over-year, and interest rates crashing.


Crashing? Yep. The 10yr US Treasury Yield crashed (again) last week, falling -20.2% from where it started the year (at 3.03%). At 2.43% this morning, the 10yr couldn’t care less about the emotional roller coaster that is 80% of hedge funds trading the spoos.


Spoos (pronounced, spoo-z – or boo-hoo-zzz) are making grown men cry in 2014 as the net long or short position that the herd takes in these emotionally abused securities manifests into one of the best weekly contrarian market indicators in my notebook.


Check out this directional indicator for the last 3 weeks (SPX Index + Emini net LONG or SHORT position in CFTC non-commercial contract terms):


  1. AUG 11th (today) = net LONG +10,716 contracts
  2. AUG 4th = net SHORT -41,210 contracts
  3. JUL 28th = net LONG +614 contracts


Short low, cover high? The context of these weekly moves is critical. Don’t forget that the all-time-bubble-high for the SP500 was established on July 23-24 at 1987. As of Friday’s no-volume rally (Total US Equity Volume -18% vs. its 3-mth avg), there have only been 2 up days in the last 12 trading days.


While buying “dips” in anything early-cycle growth slowing has been painful in August, being long #GrowthSlowing via TLT (Long-Bond) +13.8% YTD vs Russell 2000 (US Equity Growth bogey) -2.8% YTD has been nothing short of fantastic. So let’s keep doing  more of that.


From a risk management (and relative performance) perspective, what you don’t do in this game is often more important than what you are doing. You don’t have to buy early-cycle stocks that are slowing just because they look “cheap.” You need to avoid that temptation before “cheap” gets cheaper.


If we’re right on #Q3Slowing, two major places to avoid on “valuation” are:


  1. US listed Industrials (which are really multi-nationals) = XLI
  2. European Equities = EZU, EWG, EWI, etc.


Last week in Europe was ugly:


  1. Greece led losers at -9.9% on the week (and is “bouncing” +2% this morning #hooray)
  2. Portugal was down another -6.7% to -17.5% YTD
  3. Germany was down another -2.2% to -5.7% YTD


No, Germany is not Greece. But my aunt’s sister is my Mom. And #interconnectedness matters.


Not only do my intermediate-term TREND signals continue to signal bearish for European Equities, but our proprietary GIP (Growth, Inflation, Policy) model is probability weighing the same for the next 1-3 quarters of European growth. #Q3Slowing


That’s probably why a lot of single stock setups are bearish TREND too (DEO, KO, GE, etc.). If your two main markets are USA and Europe, you want to be paying attention to this bullish-to-bearish TREND reversal @Hedgeye very closely. We haven’t had a coordinated unwinding of growth expectations since 2011.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.40-2.50%


RUT 1107-1143


VIX 13.89-18.43  

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Unwinding Growth - Chart of the Day

Process & Spot

This note was originally published at 8am on July 28, 2014 for Hedgeye subscribers.

“Very simple. It’s going to be a big letdown for everyone. It was process and spot.”

-Rory Mcilroy


I don’t know about yours, but my multi-factor, multi-duration analysis this summer has revealed that my golf game needs some serious work. The hottest hand on the Hedgeye Research Tour, Howard Penney, reminded me that I need to get Rory’s #process.


After his British Open win, Mcilroy explained “with my long shots, I just wanted to stick to my process and stick to making good decisions… I just wanted to roll that ball over that spot. If it went in, then great. If it didn’t, then I’d try it the next hole.”


Process & Spot - #love that. If we can execute it, consistently, on the Global Macro course of interconnected risk, we’ll make less double bogeys. Remember, it’s those of you who don’t have a lot of blow-up holes that have the best performance track records.


Process & Spot - golf


Back to the Global Macro Grind


In Hedgeye-speak, making our tee-to-fairway swing (process) repeatable means embracing the uncertainty of Mr. Macro Market’s intermediate-term TREND signals:


  1. If something like Chinese Stocks or Copper signal a bearish to bullish TREND reversal, we buy/cover
  2. If something like the Russell 2000 or Bond Yields signal a bullish to bearish TREND reversal, we sell/short


In long-bond speak, when we sell bond yields, we buy bonds. And we like it.


When it comes to our shorter-term duration game (putting), we try to manage what we call the immediate-term TRADE risk of the range. In other words, we respect the breaks and try to take the highest probability line of the proverbial putt by:


  1. Selling if the price is at the high end of the range
  2. Buying if the price is at the low-end of the range


Yep. So easy a Mucker can do it. What’s differentiated in this process is that I’m consistent in being inconsistent:


  1. My long shots are playing with the wind (bullish or bearish TREND)
  2. My putts are playing the breaks (fading last price)


Consensus Macro tends to do the opposite:


  1. Longer-term – consensus tends to be late in acknowledging bullish and bearish TREND reversals
  2. Shorter-term – consensus tends to chase, rather than fade, last price


Across both short and longer-term durations, you can see this on the most emotional strokes the Consensus Macro takes (net long or short futures and options bets in Big Macro positioning):


  1. LONG BOND (10r Treasury) saw a +26,023 wk/wk swing to a net LONG position in bonds now of +5,282 contracts last wk
  2. SPX (Index + Emini) saw a +37,728 wk/wk swing to a net LONG position in SP500 of +614 contracts last wk


Now, if you only look at these putts in isolation, you’d say that week over week, these were the right lines to take. But if you look at all the swings it took to get to the green, this was the score:


  1. LONG BOND – consensus net SHORT bet on average of -21,204 and -43,289 contracts for the last 3 and 6 months, respectively
  2. SPX – consensus net SHORT bet on average of -65,318 and -44,327 contracts for the last 3 and 6 months, respectively


In other words, for the last 3-6 months, Consensus Macro was A) shorting 10yr Treasuries and B) shorting SPY (and C) making double bogeys). You don’t want to be doing that.


And now you don’t want to be getting net long US Equity beta A) after consensus hedge funds have covered SPX shorts, B) Russell 2000 continues to signal bearish TREND, and C) front-month VIX is testing an intermediate-term TREND bearish to bullish reversal.


Or at least my process says you wouldn’t…


With the CRB Food Index and Energy Stocks (XLE) both up another +0.9% last week to +19.7% and +12.8%, respectively (Coffee and Cattle prices are +52.9% and +28.2% YTD), you probably want to stay net LONG our 2014 #InflationAccelerating Theme and short US Consumers (discretionary and housing stocks) too.


In golf sometimes it’s the shots you don’t take that make all the difference. #Process, spot, #process. Rinse and repeat.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.44-2.54%

SPX 1966-1987

RUT 1133-1161  

VIX 11.94-14.29

Gold 1299-1323

Copper 3.20-3.28  


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Process & Spot - Chart of the Day


TODAY’S S&P 500 SET-UP – August 11, 2014

As we look at today's setup for the S&P 500, the range is 57 points or 2.00% downside to 1893 and 0.95% upside to 1950.                                         













  • YIELD CURVE: 1.99 from 1.98
  • VIX closed at 15.77 1 day percent change of -5.34%


MACRO DATA POINTS (Bloomberg Estimates):

  • No major economic data expected
  • U.S. Rates Weekly Agenda
  • FX Weekly Agenda



    • Senate, House on Aug. recess
    • Fed Vice Chairman Stanley Fischer delivers speech on “The Great Recession: Moving Ahead” at conference in Stockholm; 3:15am
    • Washington Week Ahead



  • Kinder Morgan buys KMP, KMR, EPB in $44b deal
  • TPG said to match KKR’s $3.2b offer for Treasury Wine
  • Wall St. said to seek clarity on regulators’ loan guidelines
  • GM loses bid to throw out ignition suit that spurred recalls
  • Sanofi to pay MannKind as much as $925m for insulin
  • Amazon takes on Disney’s superheroes in online pricing fight
  • Lions Gate wins injunction over ‘Expendables 3’ Web downloads
  • Microsoft introduces Nokia 130 mobile phone at EU19
  • Putin praises alliance w/Exxon as Arctic drilling starts
  • LinkedIn sees marketing solutions as $1b business by 2017
  • Maliki deploys troops in Baghdad as govt talks fail
  • Israel, Palestinians observe new truce as longer accord sought
  • China monetary loosening tests effectiveness of credit



    • Dean Foods (DF) 8am, $(0.06)
    • Gogo (GOGO) 7:30am, $(0.23)
    • Hawaiian Electric (HE) 6am, $0.38
    • Opko Health (OPK) 9:02am, $(0.09)
    • Priceline (PCLN) 7am, $12.02 - Preview
    • Sysco (SYY) 8am, $0.50
    • Ventas (VTR) 7:37am, $0.45



    • Caesars Entertainment (CZR) 4:01pm, $(1.27)
    • Forest Oil (FST) 5:02pm, $(0.02)
    • Globalstar (GSAT) 4:05pm, $(0.04)
    • Halozyme Therapeutics (HALO) 4:15pm, $(0.16)
    • Inter Parfums (IPAR) 4:05pm, $0.22
    • Legacy Oil + Gas (LEG CN) Aft-Mkt, C$0.09
    • MannKind (MNKD) 4pm, $(0.11)
    • MasTec (MTZ) 4:58pm, $0.40
    • Mindray Medical Intl (MR) 5pm, $0.55
    • Nuance Communications (NUAN) 4:01pm, $0.27
    • ParkerVision (PRKR) 4:01pm, $(0.03)
    • PDL BioPharma (PDLI) 4:02pm, $0.52
    • Rackspace Hosting (RAX) 4:01pm, $0.16
    • Resolute Energy (REN) 5:51pm, $0.01
    • Towerstream (TWER) 4pm, $(0.10)



  • Brent Trades Near 9-Month Low After U.S. Iraq Strike; WTI Steady
  • Gold Falls in London as Investors Weigh Signs Tensions Easing
  • Wheat Bears Retreat as Black Sea Supply Risks Mount: Commodities
  • Hedge Funds Snub Natural-Gas Rally as Supply Gains Loom: Energy
  • Rubber in Tokyo Extends Drop on Concern Supply Outpacing Demand
  • Palm Oil Inventories Climb From One-Year Low as Output Increases
  • Nonghyup Feed Tenders to Buy as Much as 140,000 Tons of Corn
  • Aluminum Advances to Two-Week High as Stockpiles Shrink Further
  • U.S. Steel Rebound Undermined by China Exports: Chart of the Day
  • Australia Seeks Clarity on Goods Heading to Russia After Ban
  • U.S. Gasoline Declines to $3.5206 a Gallon in Lundberg Survey
  • California Drought Transforms Markets as Growers See Dry Future
  • JPMorgan Skeptical as CSN Pledge Spurs Bond Surge: Brazil Credit
  • Copper Good Buy on Limited Aluminum Substitution: Morgan Stanley


























The Hedgeye Macro Team
















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August 11, 2014

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Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 divergences


Commodities: Weekly Quant - chart 2 wow delta


Commodities: Weekly Quant - chart 3 USD correls


Commodities: Weekly Quant - chart 4 S P correls


Commodities: Weekly Quant - chart 5 volume metrics


Commodities: Weekly Quant - chart 6 implied vols


Commodities: Weekly Quant - chart 7 sentiment


Commodities: Weekly Quant - chart 8 1 mth correls


Commodities: Weekly Quant - chart 9 3 mth correls


Commodities: Weekly Quant - chart 10 6 mth correls


Commodities: Weekly Quant - chart 11 1 yr correls


Commodities: Weekly Quant - chart 12 3 yr correls


The Week Ahead

The Economic Data calendar for the week of the 11th of August through the 15th of August is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 08.08.14 Week Ahead