CHART OF THE DAY: Did You Nail This?

CHART OF THE DAY: Did You Nail This? - COD 09.17


On August 15th, the 10-year yield hit a 2.30% low.  Within a month, by September 15th, the 10-year yield had tacked on 30 basis points and reached basically a three month high.  This morning the 10-year yield is trading off the recent highs from a couple of days ago, albeit only marginally.  Even if you didn’t nail the move, or did so in hindsight, the fact remains having a view on rates, and thus the U.S. dollar, is critical in global macro positioning.

What Is Your Vision?

“Leadership is the capacity to translate vision into reality.”

 -Warren Bennis


We held our inaugural Hedgeye Cares Charity Golf Challenge at Great River Golf Club in Milford, CT yesterday.  The group of my colleagues that banded together to form the Hedgeye Cares committee did an outstanding job translating a vision into a reality.


Like most charity events, it wouldn’t have been a success without the support of myriad sponsors.  On the corporate side, we were pleased to get support from The Lincoln Motor Company,, Bloomberg, D.B. Root, MBIA, Better ITS, the Arizona Coyotes, and Firefly Space Systems just to name a few. In addition, many individuals like you were kind enough to lend a helping hand by either buying a foursome or providing items for the silent auction.

What Is Your Vision? - 44

Aside from being a very enjoyable day, we also raised close to $100,000 for Bridgeport Caribe Youth Leaders, which is an all-volunteer program based in Bridgeport, CT that provides “children with diverse educational, sports and community awareness programs that foster physical, intellectual and social development, while instilling pride and helping them build character and self-esteem, so that they can reach their full potential and value their role in society.” 


Certainly a group more than worthy of our support. Again, we thank you.


Back to the Global Macro Grind...


Even as many of my Hedgeye colleagues were away from their screens yesterday, the global macro news flow continued.  The most relevant global market over the next 24 hours is of course likely to be the Treasury market with the Federal Reserve policy meeting occurring later today.   Regardless of what the Fed says today, it is likely that very few investors have “nailed” the last month of interest rate moves, except in hindsight.


As shown in the Chart of the Day below, on August 15th, the 10-year yield hit a 2.30% low.  Within a month, by September 15th, the 10-year yield had tacked on 30 basis points and reached basically a three month high.  This morning the 10-year yield is trading off the recent highs from a couple of days ago, albeit only marginally.  Even if you didn’t nail the move, or did so in hindsight, the fact remains having a view on rates, and thus the U.S. dollar, is critical in global macro positioning.


So, what is the Fed going to say and how are we positioned? 


Despite the lack of a crystal ball, we are sticking with our house view that Fed will be more dovish than expected.  With reported inflation relatively benign, the housing sector seeing some cracks (arguably a lot!), and the most recent employment data points softer than expected, there seems to be little incentive for the Fed to ramp up the hawkish rhetoric.


According to his Wall Street Journal podcast from yesterday, the mighty Fed visionary Jon Hilsenrath appears to agree with us. As he noted:


“Given the economic backdrop, they don’t want to send a signal right now that rate increases are imminent.”


Indeed Mr. Hilsenreth, indeed.


So, interestingly, as we head into the main Fed event, the 10-year yield didn’t even make it into the top three things that Keith sends out to subscribers in his “Direct from KM” email every morning at 6:00am, which were as follows (if you aren’t on "Direct" from KM please email to get details on being added) :

  1. ASIA – w/ the Russell 2000 -1.2% YTD, it’s been a lot easier for small/mid cap growth investors to stay with long China, India, and Indonesia – all up again overnight to +12.5%, +27.6%, and +23.5% YTD, respectively – that’s where the real perf is and also why you’ll see a higher “International Equities” allocation in our asset allocation model than USA
  2. USD – one of the biggest overbought exhaustion signals in 15 years remains, but you saw what a downtick in USD can do yesterday; huge 1-day move in both Oil and Energy (XLE) stocks – I still think the Fed gets easier throughout Q3/Q4 as the rate of change in US economic growth data slows – consensus is hawkish
  3. UTILITIES – the Down Dollar, Down Rates move yesterday paid the slow-growth #YieldChasers – that was the 1st SPX Sector we signaled buy on alongside the SPX oversold signal at 1977; XLU +1.2% on the day yesterday to +13.1% YTD – we’ve stayed with that all year and I’m not changing my mind on it into the Fed statement either


Speaking of vision, it seems the Scottish vision of independence will be tested today.  According to the most recent three polls, the "No" for Independence voters are maintaining a narrow lead of some four points. 


As we have often written, polls in the aggregate matter and in the aggregate the polls continue to imply that the No votes will prevail.  Interestingly, as well, online betting site Betfair has already started paying out No votes as they consider the No majority win a foregone conclusion.  That all said, until the mighty Jon Hilsenreth opines nothing is truly a foregone conclusion! 


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.40-2.62%


Shanghai Comp 2 

VIX 11.34-14.09 

Pound 1.61-1.64

WTI Oil 91.37-95.12 

Gold 1


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


What Is Your Vision? - COD 09.17



TODAY’S S&P 500 SET-UP – September 17, 2014

As we look at today's setup for the S&P 500, the range is 30 points or 1.10% downside to 1977 and 0.40% upside to 2007.                                           













  • YIELD CURVE: 2.04 from 2.06
  • VIX closed at 12.73 1 day percent change of -9.84%


MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Sept. 12 (prior -7.2%)
  • 8:30am: CPI m/m, Aug., est. 0.0% (prior 0.1%)
  • 8:30am: Current Account Bal., 2Q, est. -$113.4b (pr -$111.2b)
  • 10am: NAHB Housing Market Index, Sept., est. 56 (prior 55)
  • 10:30am: DOE Energy Inventories
  • 2pm: Fed seen maintaining overnight bank lending rate target between 0% and 0.25%, reducing QE purchases by $10b
  • 2:30pm: Fed’s Yellen holds news conference on FOMC



    • President Obama in Tampa to attend briefings at Centcom
    • 10am: Benghazi Select Cmte hearing
    • 10:15am: Senate Finance Cmte hearing on energy tax incentives, revising the U.S. energy tax code
    • 10:30am: Senate Judiciary Cmte holds hearing on open Internet, net neutrality debate
    • 10:30am: Sen. Armed Services Cmte leaders to hold news briefing to release newly declassified report on yr-long investigation of cyber hacking into computer networks of some defense contractors
    • 1pm: Wells Fargo CEO John Stumpf talks about role of financial services in economy at National Press Club
    • 2pm: CFTC holds meeting to consider rule on margin requirements and final rule on utility special entities
    • 2pm: House Oversight panel holds hearing on IRS, missing e-mails
    • 2:30pm: Senate Foreign Relations Cmte hears from Sec. of State John Kerry on U.S. strategy to defeat Islamic State



  • Fed Decision Day Guide: considerable debate on forward guidance
  • China joins ECB in adding stimulus as Fed scales back
  • Microsoft’s Nadella raises dividend, changes 2 board members
  • Citigroup embraces derivatives risk as deals surge
  • Endo offers $2.2b for men’s health drugmaker Auxilium
  • Sony widens full-year net loss forecast to 230b yen vs 50b yen
  • Credit Suisse loans said to draw regulatory scrutiny: WSJ
  • Scots independence campaigns make final appeals ahead of vote
  • U.K. “bad bank” said to prefer JPMorgan as bidder: Telegraph
  • Barclays hid trader role after questions, Schneiderman says



    • Clarcor (CLC) 5:08pm, $0.79
    • Cracker Barrel (CBRL) 7am, $1.56
    • FedEx (FDX) 7:30am, $1.96 - Preview
    • General Mills (GIS) 6:55am, $0.69 - Preview
    • Herman Miller (MLHR) 4pm, $0.47
    • Lennar (LEN) 6am, $0.67 - Preview
    • Pier 1 Imports (PIR) Aft-Mkt, $0.13
    • United Natural Foods (UNFI) 4:05pm, $0.65



  • Iron Ore Seen Stabilizing by Australia as High-Cost Mines Close
  • Cattle Viewed as Last Bull After Herds Dwindled: Riskless Return
  • Brent Crude Rebounds as Libya’s Sharara Field Shut; WTI Steady
  • Copper Trades Near One-Week High as Top User China Adds Stimulus
  • France’s Panic Over Wheat Supplies Seen Easing as Harvest Ends
  • Record Corn Fills Silos While Eroding Farmer Prices: Commodities
  • Gold Is Little Changed Near Eight-Month Low as Fed Ends Meeting
  • Rubber Gains for 3rd Day on Bets China Stimulus May Boost Demand
  • Nigeria Seeks to Avert Oil Terminal Halt Amid Strike Action
  • U.S. LNG No Panacea as Asia and Europe to Boost Imports, BG Says
  • NOREXECO Gets License for Forestry to Paper Derivatives Exchange
  • Russian Grain Demand Seen by Grain Union Rising on Refugees
  • Fracking Study Spurs Call for Rules to Leakproof U.S. Gas Wells
  • Steel Rebar in Shanghai Halts Decline as China Boosts Stimulus

























The Hedgeye Macro Team

















Bear Truce?

This note was originally published at 8am on September 03, 2014 for Hedgeye subscribers.

“Reconciliation, n. A suspension of hostilities. An armed truce for the purpose of digging up the dead.”

-Ambrose Bierce


In what will undoubtedly be my worst two macro market days to start a month since the first week of July, I am the man in the arena this morning whose face is marred with blood and mud.


Bear Truce? - g5


Back to the Global Macro Grind


I can’t for the life of me find the sell-side note that explained 6-9 months ago that the bull case for both European and US growth equities was that Draghi was going to save Europe from slowing and that Putin was going to declare a truce. #ThesisDrift


But macro markets drift, and whether you like its message or not, the score is the score – and I’ll be held accountable to it. Responsibility in recommendation starts with answering questions in the moment. What do we do next?


I’ll summarize the questions I’ve been getting from Institutional Investors and give you where I stand this morning:


Q: Do you think the UST 10yr Yield has bottomed?


A: No. While yesterday’s ISM print was impressive, it’s not the consumption economy – I think it partly reflects the late-cycle pricing and hope you’ll see at the end of most economic expansions. Risk to Q3 GDP consensus estimates remains to the downside. 10yr yield has immediate-term downside to 2.33% and this makes Friday’s jobs report all the more important now.


Q: Do you cover the Russell 2000 short?


A: No. Much like when bond yields had a head fake (to the upside) in early July and the Russell rallied, IWM has been doing the same for the last few weeks on even less volume. To put yesterday’s move to 1179 in context, Total US Equity Market Volume was -32% vs. its YTD avg, and the Russell would still need to rally +3% (from here) to get back to the July 7th breakeven.


Q: Doesn’t the price of Oil falling get you more bullish on the US Consumer?


A: No. I never was bullish on the median consumer or US housing to begin with! If Brent breaks $95, it might get me less bearish, but not flat out bullish. While the rate of change always matters (WTI crude was -3.2% yesterday as Putin leaked the truce to his boys), the overall consumption tax on US consumers is broad based (Rents at all-time highs, Food prices +16% YTD, Real Wages flat to negative, etc.).


Q: Don’t you think the US stock market looks good on up days?


A: Kidding. No one actually asked it that way. But if you are me and see the reams of questions I get in the heat of the moment (how “bearish” the market looked at the early AUG lows when the Russell 2000 was at 1114 and SPX = 1925), and how this market looks like its “gonna rip”, “never really go down”, etc. after 5 straight up weeks… you’d at least chuckle.


Q: Doesn’t Draghi have credibility with markets?


A: Yes. We don’t doubt this guy means what he says and we don’t disrespect his impact on the currency market either (that’s why I covered the US Dollar short idea on the only pullback we’ve had since he decided to devalue again at Jackson Hole). But don’t confuse market credibility with economic stability. QE is simply a centrally planned policy to inflate asset prices.


Q: Do you buy European Equities on the Draghi put?


A: Not sure. I still need to see how markets respond to what he has to say on Thursday (ECB meeting). Buying European Equities today is a very different thesis than our bullish on European #GrowthAccelerating call was from 2013 until Q2 of 2014. Effectively, you’d be buying into a slowing economy with a broken idea that a renewed Policy To Inflate will “stimulate” real economic growth.


Q: Do you stay with long China and India?


A: Yes. Both the absolute and relative returns of these two stock markets (China +11.5% and India +30.1% YTD) are pulverizing something like the Russell 2000. More importantly, we think that’s happening for the right rate-of-change economic reasoning. In stark contrast to US and European GDP growth (which is slowing both sequentially and y/y), India is flat out accelerating, and China is finally stabilizing.


Q: What’s your sense on sentiment?


A: In the US stock market, I can assure you that many funds have been forced to chase this 4-5 week move off the August lows. In the US bond market, people are still fighting the down rates move too. Looking at the II Bull/Bear US Equity Sentiment Survey this morning, Bears have been blasted to fresh YTD lows of 13.3%, and the Bullish Spread is testing its early July highs of +4,280 (basis pts) wide to the bullish camp.


In other words, there will be no bear truce issued from Stamford, CT today. If you’d like to answer all of these questions differently, I’d be happy to post them to our entire subscriber base. It’s what makes a market.


When my face is bloodied, I love to get right back up, take a stance, and fight.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.33-2.46%

SPX 1985-2009

RUT 1151-1184

EUR/USD 1.31-1.33

Brent Oil 100.74-103.71

Gold 1264-1293


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bear Truce? - Chart of the Day

September 17, 2014

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Hedgeye's McGough: Restoration Hardware Shares Could Double in the Next 12-18 Months | $RH

Takeaway: Hedgeye's Brian McGough remains the bull on Restoration Hardware.

Despite last week’s revenues disappointment, Retail sector head Brian McGough sees Restoration Hardware (RH) as the one stock in his sector that might realistically double over the coming 12-18 months. In fact, McGough thinks revenues is one area where management have their hand firmly on the controls.


Last week, when the disappointing number was released, McGough wrote “if RH didn’t have a shift in source book timing, the stock would be up $10 at this point.” McGough is being bombarded with questions about this quarter’s revenues drop, but Wall Street’s microscopic quarter-by-quarter view shouldn’t blind us to the telescopic view. The company is pulling off one of the biggest real estate transformations the Retail landscape has seen in a decade. At the same time, it pares down reinvents its Source Book strategy, and doubles its product assortment from a year-ago (while simultaneously redesigning floorsets in all its stores).


Hedgeye's McGough: Restoration Hardware Shares Could Double in the Next 12-18 Months | $RH - restorationHardware


Guidance calls for a meaningful acceleration on the top line in the back half of the year – up 600bps from the first half of 2014. With inventory and deferred revenue (custom orders and orders in transit) up 35% year over year, we have confidence that RH will hit back half revenue estimates. Wall Street’s disappointment over the second quarter revenue miss is reflected in a stock price that dropped a few points since the print – closing yesterday at $77.05.


McGough has long-term confidence in RH management’s ability to manage the increasing complexity as the business grows and transforms. If he’s right, the stock could double in the next 12-18 months. And he thinks the stock could then double again over the following 12-18 months.


That would be worth the wait.

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.