CHART OF THE DAY: US Personal Savings Rate vs. Asset Price Inflation

CHART OF THE DAY: US Personal Savings Rate vs. Asset Price Inflation - Savings


As you can see in the Chart of The Day (pg 30 in our current Macro Themes slide deck – if you’d like a copy, ping, the US Personal Savings Rate (% of Disposable Income) has been falling for the past 3 years (as the stock market makes new highs).

Bloody Highs

“The perpetuation of debt has drenched the earth with blood.”

-Thomas Jefferson


No volume, no worries. We’re at the all-time bloody SPY highs, baby. Didn’t you hear? This time is different. Ask the guys who said bond yields would rise as US growth accelerated (our call in 2013) throughout 2014, who are now saying that US growth will rip, as bond yields fall?


Since I started playing this game in the late 1990s, most of the time was supposed to be “different” (newsflash: it wasn’t). While the stock, bond, and commodity market bubbles have all had different narratives, one thing is not different – prices go up, then down, a lot.


Another thing that has not changed, for literally 200 years, is the bull/bear debate on US government debt, central planning, and easy money. It’s ole school Jefferson vs. Hamilton. And, until the next stock market bubble pops, to some Hamilton will appear to be right.


Bloody Highs - Bull goes... 07.11.2014


Back to the Global Macro Grind


The stock market is not the economy. Drawing down US National Savings in order to A) keep up with the Policy To Inflate USA’s cost of living to all-time highs and B) perpetuate a levered slow-to-no-growth real economy is not the path towards long-term prosperity.


But, Keith, the stock market is up. Indeed. So is Argentina’s.


Argentina is basically in default, but its stock market was up another +1.5% yesterday to +78.4% YTD. If only CNBC could do an inversion from New Jersey to Buenos Aires, they could bounce their ratings off all-time lows trumpeting Argentina’s big government success.


Alexander Hamilton would have been the darling of big debtor, money printing, and taxing TV too. He did, after all, promote a US National Debt as a “public blessing.” Whereas the more libertarian minded Thomas Jefferson said:


“I consider the fortunes of our republic as depending on the extinguishment of the public debt.”

-Hamilton’s Curse (pg 38)


So which one is it that drives your family or country’s fortunes – debt or savings?


As you can see in the Chart of The Day (pg 30 in our current Macro Themes slide deck – if you’d like a copy, ping ), the US Personal Savings Rate (% of Disposable Income) has been falling for the past 3 years (as the stock market makes new highs).


How do you solve for sustainable Investment Growth in America if you can’t solve for S (Savings) = I (Investment)?


I’m pretty sure that the answer to that is you get everyone to borrow (lever up) to either buy growth or, in Kinder Morgan’s (KMI) case, to pay the dividend.  Oh, those juicy dividends. Gotta have them - especially if the risk free rate of return on American Savings is centrally planned at 0%.


Who is dumb enough to put money into a savings account that earns 0%? Throughout this summer I have taken my Cash position in the Hedgeye Asset Allocation Model from 10% to 56%. “So”, evidently me. Why?


  1. Raising cash in both 2000 and 2007 worked for me (they were cycle calls)
  2. I’m not a big fan of drawing down my net worth 30-60% every 7 years and telling my family everyone else missed it too


After an economic cycle plays out (we’re going on 63 months into a US economic expansion), if I’ve raised cash at a measured pace, I’ll have it to re-invest it in my business when the proverbial poop hits the fan (see 2008-2009 Hedgeye Risk Management ROIC for details).


But that’s just me. I like to save (raise cash) so that I can invest counter-cyclically.


What does being counter-cyclical mean? It means the opposite of what the Old Wall pressures companies and investors to do, which is chase returns and invest in inventories, capex, etc. at the end (instead of the beginning) of a cycle. In public co. CYA speak, most CFO’s are pro-cyclical.


Which brings up the most important part of my decision making process – the bloody cycle!


You either agree with me or not here, but at SPX 2,000, you do have to make a decision. You either invest up here, or you book gains and raise cash for a rainy day. Which means you have to have a view on where we are in the economic cycle:


  1. If you think it’s different this time, you buy early cycle stocks (Russell 2000 is only +0.8% YTD, gotta be “cheap”)
  2. If you think it’s not (falling bond yields and compressing yield spread = growth slowing), you sell early cycle stocks (and buy TLT)


If this time is different, you don’t have to ever worry about things like no-volume (Total US Equity Market Volume was -13% and -39% vs. its 3 month

and YTD averages yesterday), peak debt leverage ratios to peak cash flows, or the Russell 2000 trading at 55x trailing earnings.


All you have to do is wake up at 9AM every day and tweet me that we’re at the bloody highs.


Our immediate-term Global Macro Risk Ranges are now (all 12 big macro ranges, with intermediate-term TREND signals in brackets, are in our Daily Trading Range product, every day):


UST 10yr Yield 2.34-2.44% (bearish = bullish Long Bond)

SPX 1 (bullish)

RUT 1138-1178 (bearish)

BSE Sensex 256 (bullish)

VIX 11.06-13.15 (neutral)

USD 82.01-82.94 (bullish)

EUR/USD 1.31-1.33 (bearish)

Pound 1.65-1.67 (bullish)

WTI Oil 92.34-97.41 (bearish)

Natural Gas 3.81-3.99 (bearish)

Gold 1 (bullish)

Copper 3.16-3.25 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bloody Highs - Savings

Sympathizing With Q3 Slowing

This note was originally published at 8am on August 13, 2014 for Hedgeye subscribers.

“Year after year we have had to explain why the global growth rate has been lower than predicted.”

-Stanley Fischer


That’s a quote from earlier this week where the new vice chair of the un-elected-central-economic-planning-committee (Federal Reserve), Stanley Fischer, was way too honest about the Fed’s growth forecasting track record.


Since I was seeing Institutional investors in Boston for the last few days, I kept suggesting  that there was no irony in Fischer’s timing – with Q3 GDP Slowing in the USA, the Fed is getting ready to get more dovish.


Janet Yellen followed Fischer’s lead (Reuters article yesterday) saying that she is “resolved to not raising rates too soon.” That’s code for push out the dots (Hatzius). As an early-cycle slowdown manifests in the US, you’ll be looking at 2016 (or beyond) for a rate hike.


Sympathizing With Q3 Slowing - Yellen bubbles 07.29.2014


Back to the Global Macro Grind


Here’s an abbreviated summary of investor Q&A that the big man, Darius Dale, and I answered in Beantown for the last two days:


Q: If the rate of change in real US economic growth continues to slow, what are the odds of Yellen’s Fed getting more hawkish than the Bernanke Fed was forced to become in the face of 2013’s US #GrowthAccelerating?


A: low


If they did, wouldn’t that be interesting! There was this non-linear strategist by the name of Volcker who did that. Janet won’t.


Q: if the Fed eases (if only rhetorically), do you buy or sell long-term Treasuries?


A: buy


But, but, ‘I can’t buy the long bond (like I did during 2011 #GrowthSlowing when the 10yr went to 1.7% because it’s expensive…’ Right, right. And, as an alternative to “expensive” safety, the Russell is “cheap”…


Q: If the US goes into a recession, do you buy the Russell 2000 here?


A: no


After over 5 years (62 months) of US economic expansion, it’s pretty clear to us that Consensus Macro isn’t anywhere in the area code of being set up for an early cycle US consumer recession. The main reason for that, of course, is that after they missed calling the 2007 top and 2008 decline, most of consensus didn’t come out from under the Old Walls and realize the US was in an expansion until 2013!


Q: How dare gravity (the cycle) surprise both backward-looking-linear-economists who are looking for 3% GDP growth (every quarter for the next 6 quarters) and consensus all at the same time?


A: At first, slowly – then all at once


With bond yields at the long end of the curve falling, US Housing stocks (ITB) leading yesterday’s losers (-0.9% on the day to -9.5% YTD), and the Russell 2000 failing @Hedgeye intermediate-term TREND line of resistance again (-0.8% to -2.7% YTD), this early-cycle slowdown is starting to look, well, like a classic economic cycle.


Q: When does Consensus Macro fold on growth expectations?


A: By year-end


The real smart money (the macro money that’s actually been making money) gets that economic cycles are always testing us to hear Mr. Macro Market’s message – and, as Ray Dalio would say, they are not that sympathetic.


This morning I’ve outlined our immediate-term TRADE risk ranges with @Hedgeye’s proprietary intermediate-term TREND signal in brackets (you can get all 12 relevant macro ranges in this format in our popular Daily Trading Ranges product):


UST 10yr Yield 2.39-2.48% (bearish)

SPX 1889-1946 (bearish)

RUT 1107-1148 (bearish)

DAX 8922-9366 (bearish)

VIX 13.82-18.18 (bullish)

USD 81.17-81.66 (neutral)

EUR/USD 1.33-1.34 (bearish)

Pound 1.67-1.69 (bullish)

Brent Oil 102.32-104.95 (bearish)

Natural Gas 3.74-4.03 (bearish)

Gold 1300-1323 (bullish)

Copper 3.12-3.20 (neutral)


Best of luck out there today,


Keith R. McCullough
Chief Executive Officer


Sympathizing With Q3 Slowing - 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.


TODAY’S S&P 500 SET-UP – August 27, 2014

As we look at today's setup for the S&P 500, the range is 31 points or 1.00% downside to 1980 and 0.55% upside to 2011.                                                                













  • YIELD CURVE: 1.86 from 1.90
  • VIX closed at 11.63 1 day percent change of -0.60%


MACRO DATA POINTS (Bloomberg Estimates):            

  • 7am: MBA Mortgage Applications, Aug. 22 (prior 1.4%)
  • 10:30am: DOE Energy Inventories
  • 11:30am: U.S. to sell $13b 2Y FRN reopening
  • 1pm: U.S. to sell $35b 5Y notes



    • Senate, House out on August recess
    • 10am: SEC meeting on whether to adopt rules revising disclosure, reporting and offering process for asset-backed securities
    • 10am: CBO to update 10-year budget outlook, followed by 11am news conference with CBO officials
    • U.S. ELECTION WRAP: Hagan and Obama; Parties’ Digital Strategies



  • Apple said to prepare new 12.9-inch iPad for early next year
  • Covidien holder sues to block $42.9b Medtronic deal
  • Repsol said stalled in Talisman energy assets buy talks: WSJ
  • Credit raters to face new conflict restictions under SEC rules
  • Snapchat said near funding with Kleiner at $10b valuation
  • Fyffes, Chiquita target additional cost savings from deal
  • NYSE promotes Arca chief amid broader management changes
  • Apollo’s Momentive gets conditional bankruptcy plan approval
  • Heartbleed hack still threat to big cos. 6 months later
  • FreedomPop gets ‘acquisition interest’ from 2 mobile carriers
  • Weyerhaeuser to move headquarters to Seattle’s Pioneer Square
  • Putin calls Ukraine summit positive as political talks start
  • Dubai World said to agree on $10b deal with creditors



    • Brown Shoe (BWS) 7am, $0.35
    • Brown-Forman (BF/B) 7:30am, $0.72
    • Canadian Western Bank (CWB CN) 8:30am, C$0.70 - Preview
    • Chico’s (CHS) 7:31am, $0.26
    • Donaldson (DCI) 6am, $0.47
    • Express (EXPR) 7am, $0.00
    • Natl Bank of Canada (NA CN) 7:15am, C$1.11 - Preview
    • Tiffany & Co (TIF) 6:59am, $0.85 - Preview
    • Yingli Green Energy (YGE) 6am, $(0.16)



    • Bally Technologies (BYI) 4:01pm, $1.20
    • Greif (GEF) 4:06pm, $0.81
    • Guess (GES) 4:03pm, $0.29
    • Lannett (LCI) 4:04pm, $0.58
    • Williams-Sonoma (WSM) 4:05pm, $0.53
    • Workday (WDAY) 4:02pm, $(0.14)



  • Palm Seen by Mistry at Risk of Decline as Prices Drop to ’09 Low
  • Switzerland Combats Counterfeit Cheese With DNA Fingerprinting
  • Sugar Seen Needing Deeper Shortages to Ensure Recovery in Prices
  • WTI Trades Near Three-Day High Before Supply Data; Brent Steady
  • Philippines May Rerun Rice Tender After Prices in Sale Too High
  • Sugar Reserves in China May Climb to 9.4M Tons by Sept. 30: Liu
  • Cooking Oil Prices May Recover on Biofuel Demand, Oil World Says
  • Rubber in Tokyo Rebounds as Yen Weakens After U.S. Goods Data
  • Iron Ore May Recover Close to $100/T Toward Year-End, ANZ Says
  • Rusal Offering Japan Buyers $460 Aluminum Premium
  • Palm Oil Futures Trade Near Five-Year Low as Ringgit Strengthens
  • Rebar Falls to Record Low as Iron Ore Slumps on Port Inventory
  • Russia Poultry Prices Surge Amid Imported Meat Ban: Vedomosti
  • Steelmakers Hurting Profits by Chasing Sales, Roland Berger Says
  • Coffee Extends Gains on Brazil Dry Weather Concern; Sugar Rises


























The Hedgeye Macro Team
















Retail – Winners/Losers in One Visual

Takeaway: There’s so much noise from companies around e-commerce trends. Contrary to what they say, they’re not all winning. Here’s the scoreboard.

Retail – Winners/Losers in One Visual - 8 26 chart 1 ecom

Listening to a full quarter’s worth of conference calls might lead one to think that e-commerce is the savior to everyone’s business. It’s not. Here’s a visual that might help contextualize e-commerce trends by retailer. On the left axis we show e-commerce comp by retailer (columns). There all on there – except those that don’t disclose data (i.e. Macy’s). The right axis shows e-commerce sales as a percent of total for each company (represented as circles). A few takeaways…

1) E-commerce represents about 7% of sales for retailers in aggregate, and the group put up a collective 20% comp this quarter – or about 140bp in total growth. This accounts for about half of the 2.6% average revenue growth for the group.

2) It’s impossible to miss that 3 of the top 5 growth rates are Athletic brands. Yes, Nike and Adidas have an embarrassingly low e-commerce penetration rate of 3-4%, which is a third of what we see at brands like KATE and RL. But there’s no denying that these brands are stepping up efforts to go direct to consumer. Can’t be bullish for Foot Locker.

3) Who would have thunk that the highest e-commerce penetration rates among the more traditional retailers is GPS and SHLD, which are topping out at 14%. They also have among the lower growth rates in the quarter. GPS is particularly noteworthy at 11%.

4) Rounding out the bottom with e-commerce penetration – i.e. worst execution but biggest opportunity – are SKX, VFC, WMT and TGT.

EXPERT CALL | Analyzing the BKW/THI Merger

We are hosting an expert call tomorrow, August 27th @ 1pm EST to discuss the recent BKW/THI merger.  Dial-in information will be distributed tomorrow morning.


Our call will feature John Barker, former Senior VP and CCO of Wendy’s, who lived through the merger of Wendy’s and Tim Hortons.

Key Topics Will Include:

  • Why was the merger of Wendy’s and Tim Hortons a failure?
  • Why has Tim Hortons been slow to grow in the U.S.?
  • Can Tim Hortons leverage Burger King's infrastructure to accelerate growth in the U.S.?
  • What are some of the issues Tim Hortons will face in its attempt to grow globally?

About John Barker

John Barker joined Wendy's in 1996 as VP of Investor Relations when the company acquired Tim Hortons.   He worked closely with senior management of Tim Hortons and led IR for the IPO and spinoff of the chain 10 years later.  While at Wendy's through the end of June 2014, Barker was Chief Communications Officer and reported directly to the CEO. He led IR, Marketing PR, Government Relations, Crisis Management, Internal Communications, Corporate Services and other corporate functions.  He is currently at The Ohio State University's Fisher College of Business teaching strategy and marketing.  Previously he led IR at American Greetings and was a financial journalist. 


Howard Penney

Managing Director


Fred Masotta


Early Look

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