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


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)




  • New Lows for FX: Our Tactical Asset Class Rotation Model (TACRM) is generating a lowly 2% Passive Trend Follower Asset Allocation for FX as a primary asset class, which represents a delta of -45% and -81% from its trailing 3M and 12M averages, respectively. Furthermore, that 2% reading is only in the 1st percentile of readings since the start of 2008. Only two of the 14 ETFs comprising the FX asset class in TACRM have positive Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings; a whopping 57% of them have VAMDMI readings below -1x (i.e. exhibiting a clear trend of negative volume-weighted price momentum on a multi-duration basis). Our #Quad4 theme continues to remain appropriately on the right side of this move in Foreign Exchange
  • #StrongDollar Likely to Continue: Obviously the BoJ has gone all-in with money-printing and our proprietary G3 Monetary Policy Model continues to portend further easing out of the ECB as well. To the extent they are able to act as aggressively as what is being demanded by the markets remains to be seen, however. All told, the USD is clearly broadly overbought, but until our quantitative  signals suggest otherwise, we think it pays to be short of foreign currency exposure. Don’t get caught myopically naval gazing at the U.S. economy; RoW monetary policy is as big a factor in determining FX rates as the Fed! 








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



#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,




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.


November 17, 2014

November 17, 2014 - Slide1



November 17, 2014 - Slide2

November 17, 2014 - Slide3

November 17, 2014 - Slide4




November 17, 2014 - Slide5

November 17, 2014 - Slide6

November 17, 2014 - Slide7

November 17, 2014 - Slide8

November 17, 2014 - Slide9

November 17, 2014 - Slide10

November 17, 2014 - Slide11
November 17, 2014 - Slide12


Bootlegging & Banking

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

“I don’t mind going back to daylight saving time.  With inflation, the hour will be the only thing I’ve saved all year.”

-Victor Borge


During daylight savings time, in the fall and winter months, the U.S. Virgin Islands are one hour ahead of East Coast time. 


Instead of getting up at 4am everyday, I could get up at 5am…and, you know… on an island. 


Keith’s in Cali this week.  When he gets back, I’ll try to leverage the jet-lag + daylight savings  brain fog combo and float the “Hedgeye Caribbean” proposal, again….


“you miss 100% of the shots you don’t take”


Bootlegging & Banking - st1


Back to the Global Macro Grind...


In our 4Q Macro Investment themes call we profiled a series of bubbles which, among others, included:


  • Complacency Bubble: Daily moves of >1% vs. Average VIX level (by year)
  • Inequality Bubble: Labors Share of National Income vs. Congressional Disapproval vs. Gini Coefficient
  • Hedge Fund Correlation To Beta Bubble:  Hedge fund trailing correlation to the SPX vs. Average Relative Monthly Performance
  • Leverage Performance Chase Bubble:  Margin Debt (inflation Adjusted), % of SPX Mkt Cap
  • Expensive Small Cap Illiquidity Bubble:  Russell 2000 Trailing PE vs Average Market Cap Traded (by year)
  • Basement Dwelling Bubble: Real Median Household Income vs. 18-34YOA Homeownership Rate vs. Housing Expense as % of Median Income
  • Spread Risk Bubble:  IG & High Yield Spreads over Treasuries vs. Bond Volatility vs. Total Corporate Debt Outstanding


Our timing on the complacency bubble proved particularly prescient (substitute “lucky” if you’d like).  Prior to our themes call, the VIX was trading at its lowest average level in a decade and just 11% of trading days saw moves in excess of 1% in either direction.  Subsequent to our call, the VIX has been higher by ~33% on average and the SPX has had daily moves greater than +/- 1% over 50% of the time.    


We expect the Dramamine ride to continue. 


Taking a broader view, each of the aforementioned bubbles are, in some magnitude, outcroppings of the larger bubble that is Central Banking. 


With the explicit goal of QE initiatives being financial asset price inflation - and the hope for the ultimate trickle down and around effect - asymmetries and inequalities have become more pronounced in recent years.  Such policy manifestations, however, are more an extension of secular trends than neoteric phenomenon. 


The financial sector and those tied to it have benefited disproportionately since the turn of the interest rate cycle circa 1980.  From 1980 to its peak in 2006,  the finance industry grew from less than 5% of the economy to ~8.3%, taking share at a rate of ~13bps per annum while the financial sector weight in the S&P500 rose from less than 10% to greater than 20% over the same period. 


Industry and activity chase price/profit and the broader reality of the great moderation – which, instead of promoting natural economic cycling, effectively propagated the accumulation of latent risk – is that 30+ years of lower highs and lower lows in interest rates supported a multi-decade run in financial asset price appreciation - a phenomenon exaggerated further by the twin peaks in both demographics and household & corporate leverage. 


Alongside that financialization, the gini coefficient in the U.S. increased almost a full decile and the share of total income earned by the top 1% of families more than doubled from less than 10% to greater than 20%.


The minority with financial assets and those tasked with managing them - which, coincidentally, became increasingly less mutually exclusive - benefited as bond prices had a historic bull run while the ongoing, incremental lowering of discount rates provided for a perma-juicing of asset values via the Present Value effect.  


Q: How much would the median home be worth today if rates were at 10% instead of 4%?

A:  About -45%, or -$110K, less. 


Quasi-relatedly, the policy perpetuated asset bubble rotation into housing destroyed a perfectly predictive housing model. 


Over the pre-1995 historical period, New Home Sales could be modeled as an almost perfect periodic function.  For the aspirant, part-time quants like myself, who would like to plot the function, here’s what I got on a 1st pass…..


f(x) = 241*sin(2Pi/82*x-20.5)+614   ….#CoolButUseless


Perhaps as the last of the cumulative displacement from trend burns off in the next few years we can return to a similarly predictable oscillation in new housing demand.     


Anyhow, a couple weeks back, Janet Yellen expressed concern over the ongoing rise in inequality that team FOMC itself helped perpetuate. 


Janet failed to explicitly address the role of central bank policy in that burgeoning divide but the Fed does hold an appreciation for the lag between Wall Street’s discounting of policy via prices and actual Main Street effects.  And with the normal policy transmission channel left mostly prostrate by the zero bound in rates,  the less potent and longer lagged trickle through of Wall Street wealth to the real Main Street economy has become the hoped for transmission channel detour route. 


Ironically, or unfortunately, the problem with that ideology is that the prescription for ineffectual QE becomes more dovishness in the belief that it’s the bottlenecked transmission of policy and not the policy itself that’s core to the problem.  From that perspective, more and/or longer ‘easiness’ remains the most favorable conduit for the (eventual) leak through of policy to the populace.   


“You keep going until you can’t turn back. That’s where there isn’t any choice. You don’t know where that is. You don’t know until you pass it. And then it’s too late.”


Nucky Thompson epitaphed the bubble in 1920’s Prohibition barbarism and capped the series finale of Boardwalk Empire with that quote.  


I suspect there’s some transferable insight in that Boardwalk epiphany. 


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.35%

SPX 1967-2023

VIX 13.31-17.79

USD 84.99-87.11

Yen 108.99-112.98

WTIC Oil 79.47-81.43 


To Bootlegging, Central Banking….and kindred spirits...


Christian B. Drake

U.S. Macro Analyst


Bootlegging & Banking - Inequality EL


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Investing Ideas Newsletter

Takeaway: Current Investing Ideas: EDV, HCA, MUB, RH, TLT and XLP.

Below are Hedgeye analysts’ latest updates on our six current high-conviction long investing ideas and CEO Keith McCullough’s updated levels for each.


*We also feature two pieces of content from our research team at the bottom.

Investing Ideas Newsletter  - InvestingIdeas11.14 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less


Investing Ideas Newsletter  - Moby Yen 11.13.2014




More #Quad4 Confirmation


  • #Deflation Risk, Revisited: 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 +4.4% YoY in SEP to +4.1% YoY in OCT! Retail Sales accounts for roughly 1/3rd of PCE, which is ~70% of GDP, so as U.S. consumption growth goes, U.S. economic growth goes – in this case, lower!


Investing Ideas Newsletter  - 3


Investing Ideas Newsletter  - 4


Investing Ideas Newsletter  - 5


All told, with both growth and inflation slowing, we reiterate our #Quad4 asset allocation of long TLT, MUB, EDV and XLP. We see downside to 1.7% on the 10Y Treasury bond yield over the intermediate term.


 We sent out a report explaining our position on Friday. Click here to read.


There’s only one thing that matters right now with Restoration Hardware – and that is next week’s Grand Opening of the new Restoration Hardware Design Gallery in Atlanta.


The store, which is in the Buckhead section of Atlanta, was constructed in space formerly occupied by ESPN Zone. It is about 3x the size of existing design galleries, and 7x larger than legacy stores. While one store will not make or break this company, the anecdotes about productivity that come out in the ensuing weeks will be a major focal point for Wall Street.


The company reports earnings in the second week of December, and will have quantitative insight as to how the store is performing. They set expectations for $650/square foot once the store is up and running, but we think it will come in well ahead of that. 



* * * * * * * * * * 


mcdonald's: weak

We continue to stay on the sidelines here... with a bearish bias.

Investing Ideas Newsletter  - 14

oil: supply, supply, supply

After a heavy week of data, both the fundamental picture and behavioral market activity suggest continued downside pressure.

Investing Ideas Newsletter  - 57

Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 divergences

Commodities: Weekly Quant - chart2 deltas

Commodities: Weekly Quant - chart3 USD correls

Commodities: Weekly Quant - chart4 s P correls

Commodities: Weekly Quant - chart5 volume

Commodities: Weekly Quant - chart6 implied vol

Commodities: Weekly Quant - chart7 sentiment

Commodities: Weekly Quant - chart8 1 mth correls

Commodities: Weekly Quant - chart9 3 mth correls

Commodities: Weekly Quant - chart10 6 mth correls

Commodities: Weekly Quant - chart11 1yr correls

Commodities: Weekly Quant - chart12 3yr correls


Ben Ryan 


The Best of This Week From Hedgeye

Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.


Real Conversations: Crisis Coming? Stockman on ‘Likely Global Recession’ 

David Stockman, the outspoken former Reagan budget director and bestselling author of “The Great Deformation,” sits down with Hedgeye CEO Keith McCullough to discuss a number of important subjects in this wide-ranging interview including consequences of what the Fed is currently doing and why a global recession may be in store.


EXCERPT | Are Global Central Banks Running Out Of Bullets? A Call with John B. Taylor

This is an excerpt from the Q&A portion of the Hedgeye Macro Team's conference call with Stanford University Professor John B. Taylor. 

Contact for access to the full call. 


COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough 11/12/14

We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's daily Morning Macro Call for institutional subscribers. Watch for a special appearance by retail analyst Brian McGough during the Q&A.

While you're at it... 


Click here to subscribe to Hedgeye on YouTube. It takes one second (and it's free).



Hedgeye CEO Keith McCullough Warns About Bull on Fox Business: Beware of "Rainbows In Puppy Land"

Outspoken Hedgeye CEO Keith McCullough minced no words and pulled zero punches discussing the bull market run on Fox Business' "Opening Bell' Thursday morning, reminding viewers of the 'fetal position' many were in just a month ago.



Curious Aliens

The Best of This Week From Hedgeye - Monetarypolicy aliens 11.13.14

Gambling central bankers across the globe are torching their currencies, inflating dangerous bubbles, and threatening markets and economic stability around the world.


On The Other Hand

The Best of This Week From Hedgeye - GasPrices drop carsexpensive 11.12.14

On the one hand, gas prices have dropped for 46 straight days to their lowest level in four years.



How 'Bout That Weimar Nikkei!

The Best of This Week From Hedgeye - COD 11.13.14

"[T]hose who were long Japanese stocks for a centrally planned “economic recovery” (i.e. those who were down, in Nikkei terms -10-15% at one point this year before Abe/Kuroda devalued, again)," wrote CEO Keith McCullough in Thursday's Morning Newsletter, "have seen a +20% return from Japan’s October 17th low of 14,532 (as the economy continued to slow). 'So,' call being long Japan (or Germany’s stock market in 1924) for the wrong reasons, a win!"


Liquidity Traps = Bearish 

The Best of This Week From Hedgeye - COD liquiditytrap



Does Russia Pose a Threat to Stocks?

According to its top commander, NATO officials have seen Russian combat troops and military equipment entering Ukraine this week. This comes on the heels of increased tensions between Russia and the West over recent months, including a sharp uptick in Russian fighters and bombers flying missions over Europe. 

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.