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Welcome to September

Client Talking Points


Another solid move for our two favorite macro equity markets overnight (China and India) with the Shanghai Comp +1.4% to a new year-to-date high of +10.4% and India at a new year-to-date high of +29.7%.


Hope springs eternal that QE (quantitative easing) will once again save the day (ECB decision Thursday) – not the bull case European growth bulls were looking for 9 months ago, but who cares! DAX and CAC @Hedgeye TREND resistance lines = 9642 and 4452, respectively.


Total U.S. Equity Volume was -40% vs its year-to-date average last week but it was interesting to see the weekly divergence between Industrials (XLI) which were down -0.2% on the week vs slow-growth #YieldChasing Utilities (XLU) which were +2.0% to +14% year-to-date #EarlyCycleSlowdown.

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 month. 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


FX: Yen testing fresh 3mth lows vs USD at $104.89 with whispers of incremental Japanese easing



If it doesn’t challenge you, it won’t change you.

-Fred Devito


AAA Travel projected 34.7 million Americans would journey 50 miles or more from home during the Labor Day holiday weekend, the highest volume for the holiday since 2008 and a 1.3% increase over 2013.

CHART OF THE DAY: #ConsumerSlowing (look a little closer)


CHART OF THE DAY: #ConsumerSlowing (look a little closer) - Chart of the Day

Ongoing Conversations

“There is an ongoing conversation among the different factions in your brain…”

-Dr. David Eagleman


That’s an important quote from neuroscientist , David Eagleman, that was cited by Brene Brown in a new #behavioral book I finished this long weekend called Daring Greatly. If you’re looking for some introspection into both your investment process and life, this one will make you think.


Thinking is good. So is reading/writing. These basic brain exercises help you debate yourself in that ongoing conversation “among the different factions in your brain, each competing to control the single output channel of your behavior.” (Daring Greatly, pg 76)


Eagleman calls your brain a “team of rivals” within the two-party system of “reason and emotion.” Brown contextualizes the back and forth conversations you have with yourself with feelings like vulnerability and shame. These are perfect things to read about right before you take your kids to a pancake breakfast!


Ongoing Conversations - br5


Back to the Global Macro Grind


The market is at its 2014 highs, baby! How does that make you feel? Oh, and what “market” are you thinking about when you read the word market? The long end of the US bond market has had a much better year than the US stock market (TLT = +19%, with dividends).


While it didn’t shame me to see the broad measure of US growth expectations (Russell 2000) rise +1.2% on no volume last week, it certainly didn’t please me to see consensus chasing a misplaced expectation that it’s had all year (for US GDP to be +3-4% and bonds to fall).


It evidently didn’t shame the European growth bulls to beg for a new round of Quantitative Pleasing either. If being long European stocks was always based on Europe slowing to the point that it needed moarrr money printing, my hat is off to whoever nailed that.


For equities-only fans, in addition to European stocks (Europe’s Stoxx 600) and the Russell 2000 being +1.2% last week, here’s what else happened:


  1. US Industrial Stocks (XLI) were down -0.2% to +3.4% YTD
  2. Emerging Markets (MSCI) were down -1.4% to -1.0% YTD
  3. US Utilities (XLU) were +2.0% to +14%YTD
  4. Russian stocks were -5.5% to -17.5% YTD
  5. Argentine stocks were +7% to +82.1% YTD


In other words:


  1. Slow-growth #YieldChasing (long XLU vs XLI) remains alive and well as a US Equity Sector strategy
  2. Emerging Market equities still do not like a stronger Dollar
  3. The more screwed up your country gets, the higher the stock market goes?


Oh, yeah. Definitely.


Doesn’t this all make you feel good? Like this time is different or something? With Japanese, European, and American central planning committees going all in on Policies To Inflate, even that crazy critter called commodity #InflationAccelerating came back online last week:


  1. CRB Commodities Index +1.4% on the week to +4.5% YTD
  2. Coffee prices up another +7.4% on the week to +67.5% YTD
  3. Cattle prices up another +3.5% on the week to +28.0% YTD


I know. Eat a hot dog or something. Steak is overrated. Ask the government people about the “substitution effect” on your barbeques, eh! (PS: if you bought the sausage instead of the ribeye, hog prices were up another +5.7% last week too = +17.2% YTD).


Now the reasoning side of the veggies and water brain couldn’t care less about this stuff. It’s we emotional guys pounding the caffeine and burgers who need to deal with ourselves. Because the US equity consumption growth bulls don’t want to talk about real things, like inflation.


To be clear, even the CRB Index is beating both the Russell 2000 and Euro Stoxx 600 by +360 basis points for 2014 YTD (both the Russell and Euro Stoxx 600 moved back into the black to +0.9% for 2014 last week – raging bull in emotions there!).


In other news, what real cost of living ripping to all-time highs in the US does is slows real growth – so last week you also saw:


  1. Goldman cut its Q3 US Growth estimates for the 2nd time in 2 months
  2. US 10yr Treasury Yield drop another 6 basis points on the week to 2.34%
  3. US Treasury Yield Spread (10yr minus 2yr) continue to compress, -79 basis points YTD


Net of all my own performance issues, emotions, and reasoning, this is where I stand on September 2nd:


  1. Wanting to buy more long-dated bonds (High-grade Corporates or Treasuries) on dips
  2. Wanting to be longer of our two favorite Emerging Markets (China and India) on pullbacks
  3. Wanting to avoid anything US growth equity bubble like the bubonic plague


Plague? Yep. I really do not like to buy the all-time-bubble highs in anything.  But that’s just me. For better or worse (we’ll see), these factions of 1999 and 2007 in my brain just won’t go away.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.33-2.43%


RUT 1151-1179

Shanghai Comp 2199-2278

EUR/USD 1.31-1.33

Pound 1.65-1.67

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Ongoing Conversations - Chart of the Day

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real edge in real-time

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.

September 2, 2014

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TODAY’S S&P 500 SET-UP – September 2, 2014

As we look at today's setup for the S&P 500, the range is 29 points or 1.17% downside to 1980 and 0.28% upside to 2009.                                                        













  • YIELD CURVE: 1.88 from 1.86
  • VIX closed at 11.98 1 day percent change of -0.58%


MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: Markit US Manufacturing PMI, Aug. final (prior 58)
  • 10am: ISM Manufacturing, Aug., est. 57 (prior 57.1)
  • ISM Prices Paid, Aug., est. 58.8 (prior 59.5)
  • 10am: Construction Spending, July, est. 0.8% (prior -1.8%)
  • 10am: IBD/TIPP Economic Optimism, Sept., est. 45.5 (prior 44.5)
  • 11am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $28b 3M bills, $24b 6M bills, $15b 11-day cash management bills



    • Senate, House out on final week of summer recess
    • Presdident Obama leaves for a trip to Europe; in Estonia tomorrow to meet with Baltic state presidents
    • Moelis names Eric Cantor as vice chairman, member of board




  • Iliad said in talks w/buyout firms on new T-Mobile US bid
  • Apple said to partner with Visa, MasterCard on iPhone wallet
  • Norwegian Cruise said near $3b buy of Prestige Cruises: Rtrs
  • AT&T to buy America Movil Mexico assets, Financiero reports
  • America Movil said to hire BofA to sell assets
  • BofA asks judge to dismiss Countrywide fraud verdict
  • Apollo said to mull $2b offer for Kloeckner Pentaplast
  • Compuware said to be near deal to sell itself: WSJ
  • J&J’s Pinnacle hips face first trial over poisoned patients
  • Goldman Sachs loaned Banco Espirito Santo $835m in July
  • Apple probes report iCloud hacked to gain stars’ nude photos
  • Cipla targets U.S. w/Glaxo’s Advair, anti-AIDS medicines
  • Symantec said to narrow CEO picks, with Brown leading list
  • Fiat plans to sell withdrawal shares with New York listing
  • Sanofi-Regeneron drug cuts cholesterol, has prevention promise
  • Heineken to sell Mexican packaging unit to Crown Holdings
  • Aluminum warehousing antitrust suits dismissed by U.S. judge
  • Mozilo sees no villainy at Countrywide as govt. closes in
  • Facebook purchase of WhatsApp gets review by EU regulators
  • Kellogg seeks stake in Egyptian sweets-maker Bisco Misr
  • Exelis to cut 70% of jobs; COMET-1 trial fails to meet endpt
  • Calif. lawmakers set to adjourn without incentives for Tesla
  • NBA’s Durant to sign $300m Nike deal, besting Under Armour
  • Microchip says any offer for CSR likely to be in cash
  • Akzo’s cost-cutting CEO said to be solicited for $7b deal
  • Russia said to plan sovereign fund move over sanctions
  • Macau casino rev. falls for 3rd month on China graft probes
  • France urges ECB action to weaken euro on deflation threat
  • Swiss economy unexpectedly stalls as euro area takes toll



    • Conn’s Inc. (CONN) 7am, $0.75
    • Guidewire Software (GWRE) 4:05pm, $0.28
    • TerraForm Power (TERP) Post-mkt, $0.07



  • Copper Advances in London With U.S. Manufacturing Seen Expanding
  • China Banks Boost Precious Metals Hoard Amid Gold-Leasing Demand
  • Agriculture ETPs Losing Investors on Record Harvest: Commodities
  • Gold Falls to 1-Week Low as Palladium Trades Below 13-Year High
  • Arabica Coffee Rises to 1-Month High on Brazil; Raw Sugar Gains
  • Corn Climbs as Ukraine Escalation Spurs Black Sea Export Concern
  • Ebola Putting West Africa Harvests at ‘Serious Risk’, FAO Says
  • BullionVault’s Gauge of Client Buying Falls Toward Four-Year Low
  • Palm Rebounds From 2009 Low on Demand Recovery, Weaker Ringgit
  • Heraeus Joins Shanghai Gold Exchange’s Free-Trade Zone Bourse
  • Keystone Redux Haunts Trans Mountain as Fight Shifts to Climate
  • Japan Seeks to Buy 110,146 Tons of Milling Wheat in Tender
  • A Mile Below Paris Drillers Hit Hot Pools to Warm Houses: Energy
  • Palm Oil Seen Rebounding by Sime’s Dass as Demand Recovers


























The Hedgeye Macro Team
















TV Markets

This note was originally published at 8am on August 18, 2014 for Hedgeye subscribers.

“They got their politics on TV and were not persuaded by policy descriptions or rational arguments.”

-George Packer


I showered, shaved, and slapped on a suit to do Fox News in NYC yesterday (yep, just what I wanted to do on a summer Sunday). On my way out, my son Jack was riding his bike in the driveway and said to me “Dad, good luck.” I thought to myself, man isn’t this country going to need it.


The aforementioned quote comes from a book I’m reading right now that I highly recommend: The UnwindingAn Inner History of The New America. It cuts through many of the threads I’ve been trying to weave in 2014 (history, behavioral, demographics).


From Jay Z to Newt to Oprah and Sam Walton, this collection of histories contextualizes why so much of what this country has become is made for TV. Sound bites, quick fixes and bling. “Yes We…” … uh… maybe No We Can’t, from here…


TV Markets - f3


Back to the Global Macro Grind


No we can’t get back to 3-4% US GDP growth. Not this year. And probably not next year either. Never mind what you hear on TV. The real US economy is slowing in Q3. The bond market reiterated that last week, big time.


The 10 yr US Treasury Yield dropped another -7 basis points last week to 2.34%. In case you are keeping context’s score, that’s:


  1. A fresh YTD low for the leading indicator for the rate of change in US growth
  2. Down -23% (69 basis points) from where the 10yr started 2014 (3.03%)
  3. And isn’t in the area code of Consensus Macro’s 3.25-3.5% “forecast” for the 10yr in 2014


Alongside falling bond yields and the Russell 2000 (a proxy for US growth expectations) being -1.9% YTD what’s interesting now is that some of the more cyclically sensitive (read: LATE CYCLE) stuff like inflation and employment growth is starting to wane:


  1. CRB Commodities Index was down another -0.9% last week to +3.5% YTD and is now bearish TREND @Hedgeye
  2. CRB Food Index was flat last week (still +17% YTD) and is now bearish TRADE (losing momentum) within a bullish TREND
  3. Oil prices continued to fall last week (Brent -2%) and remain a bearish intermediate-term TREND @Hedgeye


Let me write that one more time – inflation and employment gains are late, not early, cycle indicators. “So”, as both the European and US economies slow in Q3 of 2014, why can’t we see both inflation and employment rates of change deteriorate from their 1H 2014 peaks?


One way to play this from a US stock market investors perspective is:


  1. Rotating out of Energy (XLE) stocks (which led losers last week at -0.2%)
  2. Rotating into more Healthcare (XLV) exposure (which led gainers at +2.4% last wk)


That’s a later cycle portfolio move than the early cycle ones we have been signaling since the beginning of the year (which we’d stay with and include):


  1. Short Housing (ITB)
  2. Short Consumer Discretionary (XLY)
  3. Short Regional Banks (KRE)


Getting out of late-cycle commodity inflation is also very defensive in the sense that you can’t be as “invested” as we thought you should be in #inflationAccelerating for the first 6 months of the year. You won’t hear this on TV either, but in risk management speak that means RAISE CASH.


At 52% Cash in the Hedgeye Asset Allocation model this morning, that’s the highest Cash position we have had in at least 2 years. On the 48% “invested”, my Top 3 positions (rank ordered in terms of size) would be:


  1. Long the Long Bond (TLT)
  2. Long Emerging Market Equities (India, China, Indonesia)
  3. Long Gold (GLD)


In other words, if I was running my old hedge fund, I’d still be running net long Bonds and International Equities in Global Macro, but scaling into net short positions in both US growth and European Equities.


While we haven’t re-signaled the short calls in places like Portugal (PGAL), Italy (EWI), or the SP500 (SPY) yet, the best way to see me do that in real-time is in our Real-Time Alerts product. From a short seller’s perspective, you won’t get that trying to learn market timing on TV either.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.34-2.43%

SPX 1934-1965

RUT 1115-1151

BSE Sensex 25689-26391

VIX 11.84-14.92

WTIC Oil 95.41-98.46

Gold 1291-1321


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


TV Markets - Chart of the Day

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 80.48%
  • SHORT SIGNALS 78.35%