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Gunning For Tepper

This note was originally published at 8am on September 05, 2014 for Hedgeye subscribers.

“Too close for missiles, I’m switching to guns.”

-Top Gun

 

As a Thunder Bay boy with a lot of testosterone growing up in the 80’s, there weren’t many movies that beat Top Gun. Admittedly, I’m a little competitive, so pardon my passion this morning – “Goose, it’s time to buzz the tower.”

 

“The son of a bitch cut me off!” in telling the world my call on the Long Bond (TLT) is wrong yesterday.  I don’t know the guy, so it’s not personal. I just flat out disagree. That guy, you know – the New Jersey Consensus TV folks love him. His name is Tepper.

 

Tweeters say that David Tepper A) has a lot more money than me and B) has killed it on the levered long side since 2009. He also flamed out in 2008 (down -29.61%), so on his rising rates call, I think he’s beatable. “I think I’ll go embarrass myself with Goose now.”

 

Gunning For Tepper - tg1

 

Back to the Global Macro Grind

 

What we need in this game is more head to head debate. Pro to pro. When someone flips me off with the other side of my position, I want to crush him. I don’t care how much he’s worth or what he’s wearing. I wear a $29.99 watch from WalMart, and I like it.

 

While I’d love to debate Tepper live on interest rate risk (which I still think is to the downside), the reality is that probably won’t happen. (if you know him and he’s game however, I have a nice little 2.0 studio in Stamford called @HedgeyeTV).

 

Debating big macro topics isn’t personal. It’s what those of us who want to be the Top Gun wake up thirsting for at the top of every risk management morning. Last year I was making the call that rates would rise alongside both US growth expectations and the Fed being forced to taper. This year I reversed the call saying that rates would fall as y/y #inflationAccelerating slowed real US growth.

 

Yeah, sweet call Mucker. “Take me to bed or lose me forever.”

 

Seriously?

 

God didn’t call me with the rates call. My team and I made this call the old fashioned way, using our own models and process. When it comes to what other players out there think, we respect their airspace, but when we get in tight in a dog fight like this, we aren’t going to back down.

 

Here are 10 things to think about in terms of why rates are going lower (bonds higher) from here:

 

  1. US GDP growth slowing sequentially in Q3 vs Q2 of 2014
  2. US GDP growth continuing to slow, year-over-year, in 2014 versus the Q3 2013 #GrowthAccelerating top
  3. US GDP entering an early cycle slowdown (bearish on Housing, Consumer, Regional Banks)
  4. US Housing demand not responding to the downside surprise in interest rates
  5. All of Europe slowing in 2H 2014
  6. Japan slowing Q4 2014
  7. Japanese and German 10yr yields of 0.53% and 0.96%, respectively
  8. Institutional Fund Flows reverting back to their slow-growth mean (into bonds, out of stocks)
  9. US 10yr Yield immediate-term TRADE resistance = 2.51%
  10. US 10yr Yield intermediate-term TREND resistance = 2.81%

 

The biggest differentiator in our models versus those who were bearish on rates in 2013 (and bullish on them in 2014) is our rate of change forecasts on both growth and inflation.

 

I have stopped calling it our Growth, Inflation, Policy Model and renamed it our PIG model (same factors, in reverse). Why? Because un-elected central planners are pigs when it comes to devaluing the purchasing power of The People in exchange for asset inflation.

 

To review how all 3 (Fed, ECB, BOJ) of these central planning committees think:

 

  1. When growth slows, they get easier (print money, or threaten to do “whatever it takes”)
  2. As they get easier, their currencies fall, and the real cost of living in their countries rises
  3. As cost of living rises, real consumption growth falls faster, and they ease again

 

Sound familiar?

 

Top 2 headlines on Bloomberg (Economy Go!):

 

  1. “Draghi Sees Almost 1 Trillion in Stimulus”
  2. “Aso Signals Japan Prepared To Boost Stimulus”

 

Aso, as in the one who tore the Japanese people a new one via the Abenomics Policy To Inflate that took Japanese Real Wages to -4-5% year-over-year. Then they blamed the weather. #Nice

 

If the USA shows as much as a sniffle in this morning’s jobs report, what do you think Yellen’s response is going to be? Tighter or easier? We’re one or two bad labor headlines away from the US doing exactly what Draghi just did.

 

Unlike Tepper, I fly commercial. But I can still change my position whenever I want. For now, if I am right on growth slowing and the Fed’s proactively predictable reaction to it, Janet is going to be my Japanese wing-woman on bonds.

 

Out immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.32-2.46%

SPX 1977-2006

RUT 1151-1181

VIX 11.34-13.65

EUR/USD 1.29-1.32

Gold 1261-1289

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gunning For Tepper - Chart of the Day


CHART OF THE DAY: Cracks Remain Across Europe

CHART OF THE DAY: Cracks Remain Across Europe - d cod

 

As the ugly equation of declining growth + high unemployment + low and deflating inflation comes home to roost, the ECB’s newest response is to lever up its balance sheet (ECB President Mario Draghi has indicated the willingness to increase it by €1Trillion) and extend QE as the “elixir” to inflect weak and declining fundamentals across the region. 


Scottish Independence Squashed

“Every human has four endowments - self awareness, conscience, independent will, and creative imagination. These give us the ultimate human freedom... The power to choose, to respond, to change.”

-Stephen Covey

 

As of early this morning the vote is in:  the Scots squashed independence and with it the 307 year old union with England remains intact… at least for now.  The vote was 55% NO to 45% YES.

 

And did Pound Sterling ever bounce on the outcome, rising as high as $1.65, and currently is settling in at $1.64!   We were positioned long the GBP/USD (via the etf FXB) ahead of the event (we added it on 9/8 to our Real-Time Alerts) with a succinct thesis:

 

A NO vote leads to a relief rally (see the chart below) and a YES vote leads currency traders to assess the United Kingdom’s fiscal health without Scotland as much improved, which leads to a long term tail wind for the Pound.

 

 In effect, a win-win situation. And we didn’t even have to use our crystal ball!

 

Scottish Independence Squashed - hed

 

Back to the Global Macro Grind

 

In some sense the Scottish independence vote felt like another Greece moment during the thralls of the Eurozone crisis. There were many ways to interpret what was the “best” outcome.: Greece in or out of the union?   And what prevailed was politicians fear mongering on the consequences of a breakup and impressing how the whole is stronger than the sum of its parts – and so Eurocrats quelled the Greek urge for self-determination outside of the Eurozone.

 

It appears that in Scotland, like Greece, the more rational perception of economic wellbeing (along with the fear of myriad uncertainties associated with independence) won over the emotion of nationalism.

 

But is economic wellbeing in Scotland, like Europe, a myth?

 

Our macro team has been making a call for growth slowing in Europe these last months (we’ve recommended shorting Eurozone equities (EZU), France (EWQ), and the EUR/USD (FXE) throughout the quarter), as Eurozone GDP rolled over in Q2 and everything from confidence figures to industrial production and retail sales fell across most European countries over the last 3-6 months.

 

In recent weeks, and in classic lagging fashion, we’ve seen confirmation of this descent in the form of numerous European central banks, countries, and economic organizations revising down their economic expectations for the year:

  • The ECB revised down its 2014 Eurozone GDP projections to 0.9% vs 1.0% in June
  • The Swiss National Bank cut its 2014 GDP projection to 1.5% vs 2% previously forecast
  • Italy’s 2014 GDP projection was cut to 0.4% by the OECD vs the government forecast of 0.8%
  • France’s Finance Minister cut 2014 GDP projection to  0.4% vs 1.7% initially forecast
  • Sweden’s Riksbank cut 2014 GDP projection to 1.7% vs 2.2% forecast in July

Additionally, when we evaluate “health” at the country level based on unemployment rates, it appears that the crisis in Europe has hardly passed. The Eurozone unemployment rate is elevated at a sticky 11.5%, almost double the U.S. at 6.1%. Moreover, when you look at unemployment for people under the age of 25 the numbers are staggering:

  • Spain 53.8%
  • Greece 51.5%
  • Italy 42.9%
  • Ireland 25.1%
  • France 22.5%

Now while it’s plenty easy to push back on these figures and say we’ve mostly cherry-picked the weakest countries (well, France is the 2nd largest economy of the Eurozone), or that there’s no merit in the way unemployment rates are calculated (possibly fair, but the European figures here all come from Eurostat), the point we’re making is that there will be generational TAILs from what some have call this “lost” generation of youth that cannot or will not find a job/establish a career and will rely even more heavily on state support throughout their lives.

 

As the ugly equation of declining growth + high unemployment + low and deflating inflation comes home to roost, the ECB’s newest response is to lever up its balance sheet (ECB President Mario Draghi has indicated the willingness to increase it by €1Trillion) and extend QE as the “elixir” to inflect weak and declining fundamentals across the region. 

 

As Keith mentioned in yesterday’s Early Look:

 

“When it comes to central planning limits, there are none (yet). And that’s making your job as a Risk Manager all the more challenging. No matter what you think the Fed, ECB, and BOJ should do, you have to operate within the paradox of what they will do.”

 

Our view on the impact of ECB policy and the direction of Eurozone fundamentals remains decidedly bearish; here’s a look at how we’ve sized up the latest actions since the ECB’s last meeting on Sept 4th:

  • While QE has proven to put a floor in equities in the past, QE is far from the elixir to inflect weak and declining fundamentals across the region.  Witness Japan’s failed efforts with QE!
  • While on the margin Draghi’s credit easing programs should help to encourage lending and therefore growth to the real economy, the failure of past LTROs to improve lending conditions are fresh in memory. This time the TLTROs may in fact not be different. Interestingly, the first TLTRO tranche yesterday saw take-up by the banks of only €82.6B, well below consensus estimates of €150B
  • We reiterate that inflation (via currency debasement) is not growth, even if Draghi showers us with QE
  • From here our proprietary GIP model (growth, inflation and policy) for assessing economies suggests the Eurozone economy will land in the ugly quads #3 and #4 in 2H, representing growth slowing as inflation decelerates/accelerates (see the chart of the day below)

 

Don’t forget that a full 45% wanted Scottish independence. Certainly some significant percentage of this group’s thinking also anchored on the hope that a vote for independence would benefit their personal stead. But interestingly it appears that this camp was not favored by a youth presence (today’s vote included age 16 and above). In fact, a poll by TubeMogel ahead of the vote asked 16-18 year olds their preference and 57% selected NO.

 

And this actually makes some sense: the life of this group has been so influenced by the global recession and impacts from the Eurozone crisis on slower growth and joblessness (if not for them directly, then their parents and others around them) that their highest priority for this vote was limiting future economic uncertainty.

 

While Scotland is not Catalonia and France is not Greece, there remain many cracks across Europe, economic and cultural alike. We suspect these cracks are here to stay and that even the mighty Draghi QE wand can’t fix them. 

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.36-2.63%

SPX 1

FTSE 6

USD 83.78-84.69

EUR/USD 1.28-1.30

Pound 1.62-1.65

 

Have a great weekend!

 

Matthew Hedrick

Associate

 

Scottish Independence Squashed - d cod


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September 19, 2014

September 19, 2014 - Slide1

 

BULLISH TRENDS

September 19, 2014 - Slide2

September 19, 2014 - Slide3

September 19, 2014 - Slide4

September 19, 2014 - Slide5

September 19, 2014 - Slide6

 

 

BEARISH TRENDS

September 19, 2014 - Slide7

September 19, 2014 - Slide8

September 19, 2014 - Slide9

September 19, 2014 - Slide10

September 19, 2014 - Slide11


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 19, 2014


As we look at today's setup for the S&P 500, the range is 20 points or 0.76% downside to 1996 and 0.23% upside to 2016.                                          

                                                                                     

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.05 from 2.05
  • VIX closed at 12.03 1 day percent change of -4.90%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Leading Economic Indicators, Aug., est. 0.4% (pr 0.9%)
  • 1pm: Baker Hughes rig count

 

GOVERNMENT:

    • 8am: House Intelligence Chairman Mike Rogers, R-Mich., delivers keynote Intelligence and National Security Summit
    • 9:30am: Sec. of State John Kerry remarks on importance of inclusive economic growth at New Frontiers in Development forum
    • 2pm: Kerry chairs UN Security Council Iraq ministerial debate
    • 10am, 1:30pm: FCC holds open Internet roundtable discussions
    • 1pm: CVS CEO Merlo speaks at Nat’l Press Club
    • U.S. ELECTION WRAP: La., Colo., Kan. Polls; Adelson Donations 

 

WHAT TO WATCH:

  • Scotland rejects independence 55% to 45%
  • Alibaba raises $21.8b in U.S. IPO
  • Ellison becomes Oracle chairman as Catz, Hurd split CEO job
  • SAP to buy Concur for $129/share or ~$7.4b
  • Home Depot says data breach affected 56m payment cards
  • Arkema bids $2.2b for Total’s Bostik adhesives business
  • Telefonica to buy Vivendi’s Brazil unit GVT for $9b
  • JetBlue names Hayes as CEO as Barger leaving at contract end
  • Clorox says executive Benno Dorer to succeed Knauss as CEO
  • AIG says Wintrob departs after being passed over for CEO job
  • Goldman Sachs faces SEC probe on internship for Libyan: WSJ
  • Regulators said to weigh delay for separating banks’ swaps units
  • Exxon said to halt Arctic well drilling on Russian sanctions
  • Congress clears spending bill with U.S. aid to Syrian rebels
  • Lockheed said close to $4b F-35 deal with Pentagon: Reuters
  • U.S. said to see chance for progress in nuclear talks with Iran
  • Apple IPhone 6 Plus contains Hynix, BRCM, QCOM: iFixit teardown
  • China fines Glaxo $489m, ending investigation of bribery
  • U.K. prosecutors said to ready more charges on Libor this year

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Oil Falls as Fed Outlook Counters Supply Risk; Brent Steady
  • Fortescue’s Forrest Lauds China City Push as Iron Ore Slumps
  • Natural Gas Supply Gain Hides Risk of Winter Price Shock: Energy
  • Gold Falls Toward 8-Month Low as Fed Outlook Strengthens Dollar
  • Copper Heads for a Fourth Weekly Decline on Slowdown in Housing
  • Cocoa Climbs to Three-Year High as Ebola Seen Risk to Production
  • Wheat Extends Drop to 4-Year Low as Demand Wanes Amid More Crops
  • EU Emissions Drop Seen Accelerating as Lawmakers Mull Supply Fix
  • Earth Baked in Record Fashion This Summer Even If You Were Cool
  • Soybean Traders Bearish for Sixth Week on U.S. Harvest Outlook
  • Oil Clogging U.S. Rail Seen Constricting Grain Exports: Freight
  • Libya Resumes Oil Flows to EU as Africa Exports Remain Subdued
  • Rebar Falls to Record Low as Weak Property Sector Hurts Demand
  • India Monsoon Food Grain Output Seen Falling 6.9% to 120.3m Tons

 

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Why We Removed BofA From Our Best Ideas List (Plus 3 New Ideas) | $BAC $COF $OZM $LM

Hedgeye Financials co-heads Josh Steiner and Jonathan Castelyn discuss why they took Bank of America off their Best Ideas list and offer up three other long ideas.


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 80.64%
  • SHORT SIGNALS 78.61%
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