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THE HEDGEYE MACRO PLAYBOOK

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

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

 

  • Short More Oil Exposure: With the CRB Commodities Index (19 commodities across energy, aggs and metals) down a full -1% yesterday, our quant models are now registering lower-lows of support over the immediate-to-intermediate term. For crude oil specifically, our immediate-term risk range for WTI is now $75.69-79.16. In the context of how markets actually function, we find Consensus Macro gobbledygook about Europe and Japan “exporting deflation” unsubstantiated at best. To wrap some math around their storytelling, the trailing 6M correlation between the U.S. Dollar Index and WTI Crude Oil is -0.90. What the market is very clearly telling you is that as bullish as you are on the spoos due to ECB/BoJ money printing is as bearish as you should be on the energy complex and the earnings (SPX multiple?) and CapEx (GDP, job growth) associated with it. Our Tactical Asset Class Rotation Model (TACRM) is telling a similar tale, continuing to register a “DECREASE Exposure” signal for the broader asset class. Since the start of 2008, the CRB Index has registered a cumulative -41.9% 1-week forward return during such commensurate signal periods. As such, we continue to anticipate more downside for “oily” equity exposure over the intermediate term. The phase transition in energy has only just begun...

 

***CLICK HERE to download the full TACRM presentation.***

 

TRACKING OUR ACTIVE MACRO THEMES

#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.

 

Oil: More Downside? (11/5)

 

#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.

 

Top Ten Reasons to Stay Short the Euro (11/5)

 

#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.

 

Early Look: My Bubble’s Birthday! (11/7)

 

Best of luck out there,

 

DD

 

Darius Dale

Associate: Macro Team

 

About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.


MACAU: BAD BUT LESS BAD NOV (REVISED HYPERLINK TO NOTE)

Takeaway: November should look better YoY than October but Macau is headed for another downturn in December

Analysis of November trends and our monthly forecast

 

 

Please see our note:   docs.hedgeye.com/HE_Macau_Less_Bad_11.11.14.pdf

 


Call Today 11am EST | Are Global Central Banks Out of Bullets?

Call Today 11am EST | Are Global Central Banks Out of Bullets? - HE M centralbanks

 

The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting a conference call TODAY, Tuesday November 11th  at 11:00am EST featuring Professor John B. Taylor of Stanford University.

 

Professor Taylor is a highly regarded scholar known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. In the call entitled, Are Global Central Banks Out of Bullets?, Professor Taylor will discuss his view of global monetary policy and where it goes from here.

 

KEY TOPICS WILL FOCUS ON

  • Assessment of monetary policy over the last five years.  What has worked and what hasn’t?
  • In light of recent moves by the ECB and BOJ, what will the Fed do next? And what can any of the central banks do if current policies remain ineffective?
  • While the Presidential election is two years away, will the nature of the Fed and its policy change under Republican leadership?
  • Where is the U.S. economy now and how will that impact Fed decision making?
  • An update on emerging market policy based on Professor Taylor’s recent visits to various emerging markets
  • Looking forward, what can the Fed due to regain its credibility over the long run?

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 855296#
  • Materials: CLICK HERE (The slides will be available approximately one hour prior to the start of the call)

Email for more information

 

 

ABOUT JOHN TAYLOR

  • Currently a Professor of Economics at Stanford University and a Senior Fellow in Economics at the Hoover Institution
  • Formerly served on the President's Council of Economic Advisers and as a member of the Congressional Budget Office's Panel of Economic Advisers
  • Served as Under Secretary of Treasury for International Affairs from 2001- 2005
  • Oversight of the International Monetary Fund and the World Bank
  • Responsible for coordinating financial policy with the G-7 countries
  • Accredited author, his latest the winner of the 2012 Hayek Prize, entitled: "First Principles: Five Keys to Restoring Americas' Prosperity"
  • Received numerous awards for his work as a researcher, public servant, and teacher

Awarded the Alexander Hamilton Award for his overall leadership at the U.S. Treasury, the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis   


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Reiterating #Quad4 Deflation

Client Talking Points

COMMODITIES

The CRB Index (19 commodities) deflated another full -1% yesterday and remains bearish TREND @Hedgeye. Energy stocks (XLE) were down another -0.9% on the day. Commodity risk ranges have mostly all opened up to the downside (signaling lower-lows for Oil, Copper, etc.) – immediate-term risk range for WTI crude is now 75.69-79.16.

XLY

Popular consensus is that Down Oil = Up Consumer Stocks, but that isn’t working; Consumer Discretionary (XLY) was both down on a market up week (last week) and down again on a market up day yesterday; by our math 2/3 of the country is in a spending recession (no wage growth and highest cost of living, all-time).

VOLUME

Very similar market dynamics to the SEP highs in the U.S. stock market (SPX made all-time highs, while Russell made lower-highs on decelerating volume); Total U.S. Equity Market Volume (including dark pool) was -8% and -25% vs. the 1 month and year-to-date averages yesterday.

Asset Allocation

CASH 69% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
EDV

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.

TLT

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).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

GOLD: widening risk range (not good) = $1121-1201/oz $GLD

@KeithMcCullough

QUOTE OF THE DAY

It's about work before glory, and what's inside of you.

-Michael Jordan

STAT OF THE DAY

According to Moody’s Analytics, adults under age 35 currently have a savings rate of negative 2%, that compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.



CHART OF THE DAY: Small Cap Liquidity Trap | $IWM

"If PRICE is rising with decelerating VOLUME and trending VOLATILITY is rising, that is called a Liquidity Trap," CEO Keith McCullough wrote in today's Morning Newsletter. "Those are not what you want to be buying at the high end of the risk range. You should consider them wonderful selling opportunities."

CHART OF THE DAY: Small Cap Liquidity Trap | $IWM - 11.11.14 Chart


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