No Volume? No Worries?

Client Talking Points


This has never happened before, so I am sure this time is “different”, or something like that, but volumes are crashing as we melt up to all-time CNBC SPY highs – Total U.S. Equity Market Volume = down -13% and -39% vs. its 3 month and year-to-date averages yesterday.


Germany’s stock market has tested @Hedgeye TREND resistance of 9642 and so far failed – if the economic data in Europe continues to slow sequentially, and DAX, CAC, MIB, etc. remain bearish TREND, we will still say sell European Equities.


Bond yields falling and yield spread compressing is a clean cut #Q3Slowing signal for the U.S. economy. 2.37% 10yr yield hitting her lows for the week as 10s/2s spread compresses to a fresh year-to-date low of +186 basis points wide – Best Macro Idea is still Long TLT.

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. After almost a year of pushing for change at Bob Evans, activist investor Sandell Asset Management is claiming a big victory. Activist investor Sandell won at least five seats on the board of the restaurant operator and food processor, based on preliminary results from the company’s annual shareholder meeting last week. This is precisely the sort of bullish catalyst that was central to our high conviction on BOBE.


Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road


The $BKW/$THI deal is just so surreal having lived thru the first iteration…which was a disaster!



In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.

-Warren Buffett


The U.S. Personal Savings Rate (% of Disposable Income) has been falling for the past 3 years (as the stock market makes new highs).

August 27, 2014

August 27, 2014 - Slide1



August 27, 2014 - Slide2

August 27, 2014 - Slide3

August 27, 2014 - Slide4

August 27, 2014 - Slide5

August 27, 2014 - Slide6

August 27, 2014 - Slide7 



August 27, 2014 - Slide8

August 27, 2014 - Slide9

August 27, 2014 - Slide10

August 27, 2014 - Slide11
August 27, 2014 - Slide12

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).

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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.

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


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
















Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%