Takeaway: Our Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and proprietary quantitative market context.

CLICK HERE to view the document. In today’s edition, we highlight:


  1. Why EM Equities are at risk of further forced selling
  2. Why we continue to like South Africa on the short/underweight side of emerging markets


Best of luck out there,


Darius Dale

Associate: Macro Team

Moving Onward

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

“I move onward, the only direction – can’t be scared to fail in search of perfection.”



If that isn’t a great thought for someone running their own business, fund, or money, I don’t know what is. You are going to make mistakes out there. The way to win in business, over time, is to not let your big mistakes ride. Moving on matters.


I’ve been writing a lot more about demographics and generations  this year. And I think I’m onto something #behavioral with that. Many of the problems you see in the political economy today are being perpetuated by the policies of one generation (Baby Boomers) trying to maintain its indebtedness to another (GI generation). If we don’t learn from these mistakes, we’ll fail.


Shawn Carter (Jay-Z) isn’t a boomer. He’s a 44 year old GenX guy who built himself up from nothing and absolutely crushed it. That’s why another successful GenX guy, Ben Horowitz, cites Jay-Z in The Hard Thing About Hard Things (pg 39). That’s how a lot of guys my age think. For the first 15-25 years of our adult lives, we’ve seen a lot of mainstream thinking fail.


Moving Onward - j1


Back to the Global Macro Grind


Thinking from another generation’s perspective is not easy. That’s why I read so many #history books. It helps me at least try to walk in other people’s shoes, and learn from their collective experience.


Writing about markets and economies is relatively easy when I compare it to my day job (running a company). That’s where I have to constantly remind myself to not react emotionally to other people’s perspectives. Empathizing with them matters.


Looking at the world through such different prisms helped me separate facts from perception… I learned to look at alternative narratives and explanations coming from radically different perspectives to inform my outlook.” –Ben Horowitz


Hopefully our Q4 Macro Themes call yesterday helped inform your outlook too.


Since we’d been working on the content side of the slide deck for the last few weeks (which is really just a cumulative update on what we’ve been writing about every day), the investor feedback to yesterday’s call is what mattered most to me.


The most contested points of the presentation were:


  1. US Dollar – if the Dollar is strong and commodities are deflating, why not buy consumer stocks?
  2. #Quad4 - how can you say the setup is like Q3 of 2008? that was a once in a lifetime event.
  3. #Bubbles – a series of questions that basically implied it’s different this time.


(We will have video of the Q&A portion of the call available later today.)


My answers graze the surface on what I am thinking right here and now. Obviously with time and price, my answers should and will change. But, in summary, the main takeaways are as follows:


  1. Dollar Up, Rates Down = #Quad4, and that’s deflationary for both Energy (XLE) and Consumer Discretionary (XLY) stocks
  2. #Quad4 happens. In rate of change terms, that is. Because it’s 1 of 4 places you eventually traverse during a cycle.
  3. And on #Bubbles, I don’t think it’s different this time.


In other news, Yodlee (a financial apps company) is going to raise $75M in an IPO today. Love #apps. But seriously.


Back to the real world, both the market reaction and economic news has apparently “frustrated” another one of these un-elected men (Draghi) that God put on earth to centrally plan the business cycle.


Put another way, Mario Draghi’s Drugs proved to be impotent in yesterday’s real-time market voting session. Germany’s DAX closed down -2% on the day. That puts every major European Equity market index in bearish TREND signal mode @Hedgeye.


Not surprisingly, our #EuropeSlowing Theme was not contested. That’s the thing about markets. Sometimes they move downward, fast. And when they do, the search for research perfection in explaining the alternative narrative gets a lot easier.


Our immediate-term Global Macro Risk Ranges are now (my Top 12 daily risk range callouts (with intermediate-term TREND overlay) are in my Daily Trading Range product – just math – ask to trial it):


UST 10yr Yield 2.39-2.51%

SPX 1938-1963

RUT 1081-1134

France (CAC) 4232-4377

USD 84.47-86.39

Gold 1206-1240


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Moving Onward - Chart of the Day

Another Selling Opportunity

Client Talking Points


Our non-Demark count had Total U.S. Equity Market Volume up a whopping +2% vs. its 1 month average yesterday; if they don’t bounce them, we crash – so that’s the good news; bad news is most are still levered to the #bubble in U.S. equity beta.


And the +3.5% bounce in the Russell 2000 (after 6 straight down weeks and a -13% draw-down since the all-time #Bubble peak); don’t forget you have to “bounce” +15% just to break-even! We have shorting the open and scaling that hedge up to 1105 as the playbook, especially if you covered some at the low end of the current 1041-1105 risk range.



And the bounce in Europe… within the crash for Greece and Portugal (both still down -21-22% year-to-date), but a bounce on more money printing hopes nevertheless. Oil bouncing (after crashing 25% since June) too. #Fun, but fade it.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road


GOLD: still the only commodity we care on (long side); risk range = $1205-1251



Without ambition one starts nothing.  Without work one finished nothing.  The prize will not be sent to you.  You have to win it.

-Ralph Waldo Emerson


The Executive Director of the IEA reported this week that 98% of crude oil and condensates from the U.S. have a breakeven oil price below $80/barrel. She followed up with the estimation that 82% of these companies have a breakeven at $60 or less.

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 80.46%
  • SHORT SIGNALS 78.35%

Bumbles Bounce!

“Didn’t I ever tell you? Bumbles Bounce!”

-Yukon Cornelius


Bounce that bumble! Oh yeah. I am going to go all Cornelius Yukon on you this morning! “The greatest stock picker (prospector) in the world!” VIDEO:


GenX kids like me loved this guy (so did our baby booming parents – just stick us in front of the TV and they were all set). For those of you who didn’t see Rudolph The Red Nosed Reindeer (initially released in 1964), Cornelius is a beauty.


After a rough week of dancing with the bear, here are some “high-conviction” Cornelius “picks”, I mean quotes:


“Terrible weather we’re havin’!”

“Open up! It isn’t a fit night out for man or beast”

“This is my land. And you know it’s rich with gold. Gooooollldddd!”


Bumbles Bounce! - EL chart 2


Back to the Global Macro Grind


Ok. Maybe Captain Stock Picker didn’t think that was funny. Getting caught long in “the land” of levered bullish market beta wasn’t funny either. “So”, on this Bumble Bounce, do me a favor and recognize that the oncoming red light isn’t Rudolph – it’s a train.


Yep, open it up! Let this bounce rip to the high heavens of hope and sell-the-bumble-bounce #STBB. Because hope (that “everyone is bearish now”) is not a risk management process.


Neither is calling tops and bottoms. Remember, both are processes, not points. We’ll review the #process that got us bearish on both growth and inflation in the first place (before October’s “terrible weather”), on a Flash Call today at 1PM EST (email if you’d like access).


I’ll keep the call to 15 mins, then take the most important part of the call (your questions). Here are some levels to consider selling into as you “observe the bumbles one weakness (the bumble sinks! Ha ha!)”:


  1. UST 10yr Yield – immediate-term TRADE resistance zone of 2.22-2.31%
  2. Russell 2000 – immediate-term TRADE resistance = 1105
  3. SP500 – immediate-term TRADE resistance = 1889


*Note: I am not using the 200-day moving monkey as “resistance” – our #process is built to front-run that.


Don’t worry, I get it. You get it too. We are both allowed to change our minds in real-time. This is a dynamic and non-linear system of risk we are dealing with. Being wed to a chart, ice pick, and a moving monkey isn’t the answer.


While yesterday’s gap down open in both the Russell and SP500 recovered faster than I would have thought it could. Who cares what I thought? Mr. Market certainly doesn’t.


What we need to care about is where marked-to-market risk is right here and now. Then make the best risk management decisions we can make on the bounce. Chase or sell?


That’s why I show every move I’d be making if I was back in your seat (Real-Time Alerts). If you can think of a better way for me to show what I really think in the moment, let me know. But I’m thinking the #timestamp is the best I can do.


No, that doesn’t mean my #timestamps are always right. They’re not always wrong either. But I have been arguably dumber than Cornelius in showing you, literally, every move I’d have made (over 2,800 of them, long and short) since 2008.


Back to risk managing the bounce – some of the more interesting ones will come within risk ranges that are #crashing:


  1. Including this morning’s bounce to 2.18%, the 10yr UST Yield is still crashing, -28% YTD
  2. Including this morning’s whopping +0.5% bounce to $82.89, WTI Crude Oil is still crashing, -25% since June
  3. Including Europe’s bounce, both Greek and Portguese stocks are still crashing, -21-22% YTD


And why are these ex-ebola items #crashing?


  1. Bond Yields crash when growth expectations do
  2. Oil crashes in #Quad4, when both global growth and inflation expectations do
  3. Illiquid European stocks crash, well, every time they remind you the central plan didn’t work


Oh, then there’s the crash within the Russell itself. Over 62% of stocks in the Russell 2000 have crashed (-20% peak to trough drawdowns). By my math, that is a lot of pain that was not proactively prepared for.


But everyone is going to strike it rich with their small cap peppermint stock “picks”, on the bounce, right? “Peppermint! What I’ve been searching for all my life! I’ve struck it rich! I’ve got peppermint! Wahooooo!” (Cornelius again, sorry – couldn’t resist).


Right. Right. After very few prepared for the avalanche of small cap beta risk, everyone is going to triple-down on the bounce, and the bumbles will never sink again.


Roger that. And it really is different this time. It’s Rudolph, remember (not a train on globally interconnected #GrowthSlowing and deflation risk).


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.22%


RUT 1041-1105


VIX 20.74-28.92

Gold 1


Best of luck out there today,



Bumbles Bounce! - Chart of the Day


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

As we look at today's setup for the S&P 500, the range is 58 points or 1.70% downside to 1831 and 1.41% upside to 1889.                                                      













  • YIELD CURVE: 1.83 from 1.81
  • VIX  closed at 25.2 1 day percent change of -4.00%


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Fed Chairman Janet Yellen speaks at Boston Fed conf. on Inequality of Economic Opportunity in U.S.
  • 8:30am: Housing Starts, Sept., est. 1.008m (prior 956k)
  • 9:55am: UofMich Confidence, Oct. prelim, est. 84 (prior 84.6)
  • 1pm: Baker Hughes rig count



    • Senate, House out of session
    • Gov. Scott Walker, R-Wis., Democrat challenger Mary Burke debate in Milwaukee
    • 9am: HUD Secretary Julian Castro speaks in plenary session at National Assn of Housing and Redevelopment Officials conf.; Baltimore Convention Center
    • 9:30am: Sec. of State John Kerry meets with Jordanian Foreign Minister Nasser Judeh at State Dept
    • U.S. ELECTION WRAP: Megadonors; Good Signs for GOP; Debates



  • Google Profit Misses Estimates on Slower Advertising Growth
  • Credit Suisse Names Amine, O’Hara as Investment Bank Heads
  • Obama Says He’s Open to an Ebola Czar to Coordinate Response
  • Chiquita to Move on Fyffes Bid After Rejecting Sweetened Buyout
  • AMD to Cut 7% of Jobs, 4Q Rev. View Trails Est.
  • Apple Looks for Big Screen Boost as IPhone 6 Plus Hits China
  • Delta Brings Back Bare-Bones Fares to Compete With Cheap Rivals
  • Bullard Challenges Fed Colleagues to Thwart Weakening Inflation
  • U.S. Video-Game Sales Climbed 2% to $1.1b in September
  • Smaller China GDP Goal Seen Giving Room to Tackle Debt
  • Alibaba Adds Philips, Provincial Governments as Cloud Customers
  • Hong Kong Police Clear Mong Kok as Students Agree to Negotiate
  • U.S. Housing Data, U.K., China GDP, Apple, Amazon: Week Ahead



    • Bank of New York Mellon (BK) 6:30am, $0.61
    • Comerica (CMA) 6:40am, $0.79
    • First Horizon Natl (FHN) 7am, $0.17
    • General Electric (GE) 6:30am, $0.37 - Preview
    • Honeywell Intl (HON) 7am, $1.41 - Preview
    • Huntington Bancshares (HBAN) 5:55am, $0.19
    • Kansas City Southern (KSU) 8am, $1.26
    • M&T Bank (MTB) 8:01am, $1.97
    • Morgan Stanley (MS) 7:15am, $0.54 - Preview
    • SunTrust Banks (STI) 6am, $0.79
    • Synchrony Financial (SYF) Bef-mkt, $0.66
    • Textron (TXT) 6am, $0.52



  • Goldman Sees No Crude Glut as Price Slump Deemed Excessive
  • Codelco Seen Cutting China Copper Premium From Nine-Year High
  • Brazil’s China Fever Sticks Soy Farmers With Losses: Commodities
  • WTI Extends Rebound From Below $80 as Goldman Sees No Oil Glut
  • Gold Is Near Five-Week High as Investors Weigh Stocks to Economy
  • Nickel to Tin Rebound Amid Indications Prices Dropped Too Far
  • Corn Heads for Biggest Weekly Gain in 17 Months on Harvest Delay
  • Rubber Jumps Most Since March as Thailand to Buy for Reserve
  • Cocoa Rises in London on Concern of Ebola Spread; Coffee Drops
  • Cargill’s Black Sea Stop Is Booming 2,600-Year-Old Port: Freight
  • One Firm’s $2 Mine Is Another’s Start of Global Coal Empire
  • Hurricane Gonzalo Threatens Worst Bermuda Storm in 11 Years
  • Gold Traders Most Bullish in 10 Weeks on Economic Growth Concern
  • Steel Rebar Pares Weekly Advance on Weaker China Demand Concern


























The Hedgeye Macro Team


















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.