Crossing The Bubble

“First there is a mountain – then there is no mountain. Then there is.”

-Zen Proverb


Replace the word #bubble for mountain and you’ll be right where I think the US stock market is right about now. While April-May of 2014 (when social-cloud-bubble stocks were imploding) may seem so 4-5 months ago, if you want to review the risks, there they were.


The aforementioned quote comes from the beginning of chapter 2 in a Tech #bubble book I’ve been re-reading for the last week, Crossing The Chasm, by Geoffrey Moore. The chapter is called High Tech Marketing Enlightenment.


Originally written in 1991 and re-published in 1999, it was one of the first books that the Quatrone boys in the bubble department at CS First Boston told me that I had to read. So I did. And within 6 months, the entire thing went poof…

Crossing The Bubble - Hindenburg


Back to the Global Macro Grind


What we called the internet back then is now called the “cloud.” And my former employer (CS First Boston) is now called Credit Suisse. Their new head of investment banking ran the Alibaba #bubble road-show at the Waldorf yesterday. If you were there, congratulations – you were crossing the 3rd US stock market bubble I have seen in my career.




On our research desk yesterday I was using the term freely. Not having any conflicts of interest (banking, brokerage, advertising, etc. fees), it was kind of fun – you know, being honest and stuff…


“But Keith, Alibaba is a big company that makes money.”


At 27-30x revenues, imagine they didn’t? (Amazon came public at 10x revs in 1997)


BREAKING: Facebook’s Value Tops $200B –Bloomberg


Oh and today Apple (AAPL) is going to host an Obama-like rock star concert (U2, who I love, will be there!) today at the Flint Center (where Steve Jobs introduced the Macintosh in 1984) with larger screens, wearables, and stuff… #cool.


That stock is “cheap” though. Its market cap is only $600B. That’s with a B, as in bubble or beelion dollars, bros.


Since we’re throwing around billions in one hundred dollar clips right now, why shouldn’t Alibaba be worth $200B? Exxon (XOM) is only worth $400B (and they make money too!).


*PS. If you think I am nuts. Please re-read this 1 year from today.


In yesterday’s Early Look, for some reason this sentence got a lot of attention/feedback: “I haven’t been this bearish since the fall of 2007.” So I’ll reiterate that this morning with one caveat – I haven’t been this bearish on US stocks since yesterday.


In other news, the #bubble formerly known as Bitcoin dropped to $469 today.


And everyone and their brother seems to think that bonds are finally going to prove them right (going down). So I’ll reiterate the bullish on US #Q3Slowing call (bullish on the Long Bond, in TLT, EDV, and BND terms) too this morning.


Since no one on consensus TV will be watching anything but AAPL today, here are some Bond Market levels to monitor:


  1. Immediate-term TRADE risk range of the 10yr UST Yield has widened to 2.31%-2.51% (widening ranges are bearish)
  2. Intermediate-term TREND resistance line for the 10yr Yield = 2.81%
  3. Immediate-term TRADE risk range for the 30yr UST Yield has widened to 3.03-3.29%
  4. Intermediate-term TREND resistance for the 30yr Yield = 3.46%


That’s why I am taking our allocation to Fixed Income (Hedgeye Asset Allocation Model) to 91% of its max this morning. My “max” allocation to any asset class is one-third of total assets.


If I was running my hedge fund, what the 0% US Equity allocation implies is a net neutral (fully hedged on a beta-adjusted basis) book. And my net long position to International Equities would be 16% (and rising) on pullbacks to the low-end of my risk range.


If you’re at CS telling people it’s different this time – best of luck. Crossing the bubble is a big business, so make sure to get either a big allocation or commission! Forget 2007, the drawdown risk in billions of #bubble market cap terms is more epic than it was in 2000.


My immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.31-2.51%


RUT 1154-1179

VIX 11.34-13.56

EUR/USD 1.28-1.30

Pound 1.61-1.64

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crossing The Bubble - Chart of the Day

BNNY: Closing Best Idea Short

We added short BNNY to the Best Ideas list on 4/7/2014 at $37.16/share.  Since this time, FY15 EPS estimates have been revised down from $1.13 to $0.90.  However, we knew the biggest risk to our thesis was a potential takeout by a much bigger player in the food space.  Last night, this happened.


Yesterday, GIS agreed to buy BNNY for $820 million or 3.3x NTM sales and 24x NTM EBITDA.  We understand why GIS would be inclined to acquire BNNY.  Annie's is a strong brand that will benefit from being a part of the GIS distribution machine.


The downside of having shorts in the market, and especially in the consumer staples space, is excess liquidity and large companies, such as GIS, starving for growth.  The question now is when will K or CPB make a transformation acquisition, if at all?  We wouldn’t view the BNNY acquisition by GIS as a transformation, but rather a slight act of desperation.  With $200 million in revenues and $28 million in EBITDA, BNNY is a rounding error to the financial performance of GIS.  The only way GIS can make this deal look good is by excluding transaction expenses associated with it – otherwise, the deal is dilutive to GIS shareholders.


GIS is looking to the convenient meals and snacks category to help diversify its product portfolio.  The acquisition does not help solve the issues the company is having with its core cereal business.


Obviously, the deal will highlight HAIN and BDBD as other potential targets in the organic space.  While BDBD is a company with a strong brand (Udi’s) in the organic space, HAIN is a conglomerate with an unconventional business model.  This makes HAIN, in our view, an unattractive and complicated potential acquisition.  At the very least, we know the GIS will not be buying HAIN anytime soon!


Howard Penney

Managing Director


Fred Masotta




TODAY’S S&P 500 SET-UP – September 9, 2014

As we look at today's setup for the S&P 500, the range is 25 points or 0.98% downside to 1982 and 0.27% upside to 2007.                         













  • YIELD CURVE: 1.95 from 1.94
  • VIX closed at 12.66 1 day percent change of 4.71%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Business Optimism, Aug., est. 96.0 (pr 95.7)
  • 7:45am: ICSC weekly sales
  • 8:55am: Redbook weekly sales
  • 10am: JOLTs Job Openings, July, est. 4.7m (prior 4.671m)
  • 10am: Fed’s Tarullo testifies to Senate Banking Cmte
  • 11:30am: U.S. to sell $35b 4W bills
  • 1pm: U.S. to sell $27b 3Y notes
  • 4:30pm: API weekly oil inventories



    • Primaries in states including Del., Mass., N.H., R.I.
    • President Obama, congressional leaders meet on foreign policy
    • Sec. of State Kerry travels to Jordan, Saudi Arabia
    • 8am: Blackstone President James speaks at Politico breakfast
    • Confirmation hearings:
    • 10am: NRLB nominee Sharon Block  at Senate Health, Education and Labor Cmte
    • 10am: NRC nominees Jeffrey Baran, Stephen Burns at Senate Environment and Public Works Cmte
    • 10am: Fed Gov. Tarullo, FDIC Chair Gruenberg, Comptroller of Currency Curry, CFPB Dir. Cordray, SEC Chairwoman  White, CFTC Chairman Massad at Sen. Banking Cmte on Wall St. reg. system
    • 10am: VA Sec. McDonald testifies before Senate Veterans’ Affairs Cmte on investigation findings from Phoenix medical ctr
    • 10am: IRS Commissioner Koskinen, CMS’s Slavitt at House Ways and Means Cmte on Affordable Care Act implementation status
    • 10:30am: Senate Homeland Security Cmte hearing on federal programs for equipping state and local law enforcement
    • 2pm: House Science panels hold hearing on oversight of Bakken petroleum
    • U.S. ELECTION WRAP: Primaries Tomorrow; Brown, Lessig Battle



  • Apple Event: Focus on Payments, Sapphire, Smartwatch
  • McDonald’s Aug. comps seen declining for third month
  • CFTC Said to Alert Justice Department of Criminal Rate Rigging
  • U.S. Planning Tougher-Than-Basel Capital Rules, Tarullo Says
  • U.K. industrial output exceeds forecast with 0.5% increase
  • EU slows new Russia sanctions as Ukraine cease-fire gauged
  • Rakuten to acquire Ebates in Japan’s biggest e-commerce deal
  • JAB’s Jimmy Choo said near IPO to value shoemaker at $1b
  • Telefonica Germany to raise $4.7b in stock for E-Plus
  • America Movil to weigh joint bid for Telecom Italia unit
  • ABB plans $4b buyback to return cash from disposals
  • FX traders said to be surprised by narrow scope of BOE probe
  • Trump Casinos plan bankruptcy in new blow to Atlantic City
  • Home Depot confirms computer data systems have been breached



    • Barnes & Noble (BKS) 8:30am, ($0.68)
    • Burlington Stores (BURL) 7am, ($0.08)
    • Francesca’s (FRAN) 7:30am, $0.26
    • HD Supply (HDS) 6am, $0.47 - Preview
    • John Wiley & Sons (JW/A) 8am, $0.53
    • Leidos (LDOS) 6am, $0.62



    • Krispy Kreme Doughnuts (KKD) 4:05pm, $0.16
    • Oxford Industries (OXM) 4pm, $0.90
    • Palo Alto Networks (PANW) 4:04pm, $0.11
    • Peregrine Pharmaceuticals (PPHM) 4:01pm, ($0.06)
    • Science Applications Intl (SAIC) 4:01pm, $0.68



  • Hedge Fund Merchant Advances 16% as Crude Declines With Iron Ore
  • Wheat Harvest Forecast Cut by Australia as Farms Need More Rain
  • Commodities Drop to Lowest Since January as Dollar Cuts Demand
  • Soy Yields Set for U.S. Record as Rains Fatten Pods: Commodities
  • Brent Crude Near 16-Month Low as Ukraine Truce Holds; WTI Rises
  • Lingering Ice This Year Delays Opening of Northern Sea Route
  • OIL DAYBOOK: Crude Inventory Draw Fcast; Buzzard Said Shut Again
  • Cold to Grip Northern U.S. Offers a Preview of Chills to Come
  • Corn Extends Decline as U.S. Yields Seen Topping USDA Forecast
  • Indonesia Palm Exports May Become Tax-Free as Prices Drop: Gapki
  • Chinese Hot-Pots Stir Imports of Beef, Mutton: Chart of the Day
  • Gold Is Little Changed Near Three-Month Low on Dollar to Ukraine
  • India July Coal Imports Rise 9% Y/Y to 17.95 Mln Mt: Interocean
  • Rubber Falls to 5-Year Low as China Supplies Compound Thai Glut


























The Hedgeye Macro Team

















the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

September 9, 2014

September 9, 2014 - Slide1



September 9, 2014 - Slide2

September 9, 2014 - Slide3

September 9, 2014 - Slide4

September 9, 2014 - Slide5




September 9, 2014 - Slide6

September 9, 2014 - Slide7

September 9, 2014 - Slide8

September 9, 2014 - 9

September 9, 2014 - 10

FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July

Takeaway: Consumer revolving credit accelerated to +3.2% YoY in July, marking a 5th consecutive month of positive growth.


Consumer Revolving Credit rose at a 7.3% annualized rate in july, the 2nd largest increase in 6.5 years behind the 13.2% rise reported for April. 


Inclusive of July, this marks the 5th consecutive month of positive MoM loan growth – the longest such streak since April of 2008.    


The monthly revolving consumer credit data continues to accord with the broader cross-category trends in the weekly Fed H.8 release where the slope of growth across total loans, C&I, CRE, and residential real estate all remain positive.   


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Revolving Credit MoM July


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Consumer Credit 090814


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Commercial Bank Loan Growth



Aggregate personal and disposable income growth is currently accelerating alongside an emergent breakout in salary and wage income growth. 


Indeed, aggregate private sector salary and wages grew +6% in July, the fastest rate of growth in over 3 years excluding the peri-fiscal cliff period (although wage income growth will likely slow in august given flat growth in hourly earnings and a modest deceleration in growth in the employment base).


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Salary   Wage Income


However, while capacity for consumption is rising, actual consumption is not.  Real consumer spending declined -0.2% MoM in July and decelerated on both a 1Y and 2Y basis as the savings rate hit an 18-month high at 5.7%.


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Real Spending July


The collective motivation underpinning the concomitant acceleration in both savings and revolving credit isn’t completely clear – it may be some combination of liquidity preference and income distributional effects, but we don’t have a clean explanation (yet).


Irrespective of the somewhat incongruous income-credit-saving dynamics, the reality of a modern, consumption economy, is that it's total spending that matters and accelerating credit growth + accelerating income growth is certainly supportive of consumption growth.


Whether the conflation of positive labor and credit market trends, the fledgling breakout in the dollar and the fledgling breakdown in commodity inflation can drive a sustainable, late-cycle acceleration in domestic consumerism in the face of negative real wage growth, a slowdown in housing, a discrete EU/Japan/ROW growth deceleration, and a nascent proclivity for saving remains to be seen, however.


We continue to like defensive yield and late-cycle exposure vs. consumer/housing/early-cycle leverage.   


FIVE-FECTA: Consumer Credit Growth Accelerates (Again) in July - Eco Summary



Christian B. Drake



European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




European Financial CDS - Swaps were mixed, though, on average, tighter across Europe's banking complex. Apparently, much of the QE-lite move was already priced in. Sberbank widened on the week by 12 bps to 321 bps.


European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB - chart 1 euro financials CDS


Sovereign CDS – Sovereign swaps mostly tightened over last week. The US was the exception, widening by 1 bp to 17 bps. European sovereign swaps were tighter across the board on the heels of the ECB's QE-Lite. Portuguese swaps tightened 17 bps to 145 bps while Spanish sovereign swaps tightened by -10.7% (-7 bps to 57 ).


European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB - chart 2 sovereign CDS

European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB - chart 3 sovereign CDS

European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB - chart 4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 17 bps.


European Banking Monitor: European Sovereign Swaps Tighter Out of QE-Lite From ECB - chart 5 euribor OIS Spread



Matthew Hedrick



Ben Ryan




real-time alerts

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.