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 France ETF (EWQ)
  4. iShares MSCI European Monetary Union ETF (EZU)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

 

  • #Deflation Risk, Revisited: The topic of deflation risk is one that continues to permeate into the consensus narrative across the investment community; in light of this, we consider it our fiduciary duty to help steer the debate with analysis, as opposed to perma-bull storytelling. With respect to our CPI model (CLICK HERE to review that methodology), we continue to anticipate disinflation in headline CPI readings over the intermediate term. This would be the case even if commodity prices stopped going down today and remained flat, due to the comparative base effects of #InflationAccelerating in 1H14. Of course, additional commodity price deflation – which our TACRM model continues to imply – would only perpetuate downward concavity in reported inflation; sub-1% YoY CPI readings are very probable over the intermediate term. Since the start of 2008, the CRB Index has declined by a cumulative -43% on a 1-week forward basis when TACRM is generating a “DECREASE Exposure” signal for Commodities as a primary asset class like it is currently.
  • #ConsumerSlowing, Confirmed: Speaking of developing downward concavity, how about domestic consumption growth? Lost amid the perma-bull storytelling about lower gas prices is the fact that Retail Sales growth continues to slow on a trending basis, decelerating from a +4.4% YoY in SEP to +4.1% YoY in OCT! 
  • Wait for Perma-Bulls To Puke Up the "Lower Gas Prices Thesis" Before Buying Consumer Stocks: We have built a very sophisticated model to track the weighted average cost basis of non-discretionary items like rent, food, energy and utilities within the consumer’s PnL and this model is showing seven consecutive months of sequential deflation. That is the longest streak of consumer "tax cuts" since at least the start of 2007! At some point, this will benefit U.S. consumption growth, but with both the data (i.e. slowing Retail Sales and Real PCE growth) and the market (of the nine S&P sector SPDRs, the XLY has the third-lowest VAMDMI reading behind XLE and XLB) not confirming the disgustingly misguided perma-bull narrative, we find it prudent to wait for a meaningful pullback in the U.S. equity market before allocating capital to consumer growth stocks.

 

THE HEDGEYE MACRO PLAYBOOK - US CPI vs. HRM COMMODITY PRICE SAMPLE

 

THE HEDGEYE MACRO PLAYBOOK - US CPI vs. HRM COMMODITY PRICE SAMPLE 2013 14

 

THE HEDGEYE MACRO PLAYBOOK - RETAIL SALES

 

THE HEDGEYE MACRO PLAYBOOK - CONSUMER SQUEEZE INDEX

 

***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.

 

Early Look: Bad #Deflation (11/14)

Oil: Supply, Supply, Supply (11/13)

 

#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: Battlefield’s Vortex (11/11)

 

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.


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