prev

Cut To Pieces

“Believe on this day that I will have been cut to pieces, and you not much later than I…”

-Cyrus

 

That’s a quote from the latest leadership, strategy, and #history book I have started to read. It’s one of the Greek classics that I’ve been wanting to study for a long time – Xenophon, The Anabasis of Cyrus.

 

It’s been a classic year of #divergences in Global Macro risk management (Long Bond TLT +18% vs Russell 2000 flat YTD). So ending it any other way than putting myself on the front line, willing to be cut to pieces by SP500 (SPY) bulls, is right where I want to be.

 

The SPY is the most widely shorted equity security in US history. In all of her manifestations you’ll find hedge fund victories and defeats. While I’ve been on the “short the Russell” road for most of this year, now I’m here, saying sell it. That is #timestamped.

Cut To Pieces - Crazy bull cartoon 08.19.2014

 

Back to the Global Macro Grind

 

I’ll get to the fundamental research view in a minute (both growth and inflation slowing, at the same time), but first I will draw my price, volume, and volatility sword on this matter:

 

  1. PRICE – SP500 signaled immediate-term TRADE overbought yesterday with no support to 2002
  2. VOLUME – Total US Equity Market Volume was -5% and -26% vs its 1-month and YTD averages yesterday
  3. VOLATILITY – front-month VIX closed at 13.86, well above my bullish TREND line of 11.34 support

 

In other words, even if I was a raging bull on US growth equity fundamentals (like I was in 2009 and 2013), I’d still have signaled sell into yesterday’s no-volume-short-covering-capitulation-overbought highs.

 

Back to the fundamentals – here are the Top 3 things confirming our bearish view on US domestic GROWTH:

 

  1. US GDP growth 2.3% (we model it year-over-year, not sequentially) continues to slow from Q413’s peak
  2. US 10yr Bond Yield = 2.32%, continues to crash (-23% YTD) alongside growth expectations
  3. Russell 2000 = 1170, still -3.1% from its all-time #bubble high (July 7th) and signaling bearish TREND

 

And here are the Top 3 things confirming our bearish view of INFLATION expectations:

 

  1. Oil continues to crash this morning, -31% since June
  2. CRB Commodities Index (19 commodities) down another -0.6% to 266 is -5% YTD now and making lower-lows
  3. Both TIPS (5Y Breakeven Rate) and Fed 5Y-5Y Forward Breakeven Rates are breaking down to fresh YTD lows

 

Then there’s sentiment (which I could give you a hocus pocus “survey” on) or use the only one that back-tests as a legitimate contrarian indicator in my 15 years of notebooks (the II Bull/Bear Spread):

 

  1. Bull’s ramped to 56.4% (from 55.5%) this morning
  2. Bear’s remain at 14.9% (just off their all-time lows)
  3. Bulls minus Bears = Bull/Bear Spread of +4160 basis pts, to the bullish side!

 

To put that Bull/Bear Spread in context:

 

A)     That’s +103% from where it was when perma equity bulls were in the fetal position on October 13th

B)      That’s just inside of the all-time wide to the bullish side

 

#Agreed. All-time is a long time. And that’s precisely why I’m willing to be cut to pieces by anyone who wants to put their own money (not other people’s) on the naked long side of SPY, from here until I say stop.

 

I’d be happy to publish your bull case to all readers of the Early Look. Remember though, your cost basis is going to be yesterday’s SPX close of 2051. This is the arena of accountability. My timing may prove to be fatal, but there’s no place I’d rather be.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr yield 2.28-2.35%
SPX 2002-2055

RUT 1151-1187

Yen 115.72-117.61

WTI Oil 73.34-76.62

Gold 1130-1205

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Cut To Pieces - SPX Levels refreshed


THE HEDGEYE DAILY OUTLOOK

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


As we look at today's setup for the S&P 500, the range is 53 points or 2.43% downside to 2002 and 0.16% upside to 2055.                                 

                                                                                              

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: 1.82 from 1.81
  • VIX closed at 13.86 1 day percent change of -0.93%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 14 (prior -0.9%)
  • 8:30am: Housing Starts, Oct., est. 1.025m (prior 1.017m)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC minutes released

 

GOVERNMENT:

    • 10am: Senate Banking Cmte hears from FHFA Director Mel Watt on balancing stability, growth, affordability in mortgage mkt
    • 10am: SEC open meeting on adopting Regulation SCI standards that would require exchanges to improve technology systems
    • 10am: Senate Homeland Security Cmte hears from CDC Director Tom Frieden on Ebola response
    • 10am: House Energy and Commerce Cmte hearing on development of medical products in wake of Ebola
    • 1pm: CFTC media briefing to unveil national consumer protection campaign
    • 5pm: Permanent Subcmte on Investigations releases information in advance of hearing on Wall St bank involvement with physical commodities               

 

WHAT TO WATCH:

  • Obama Said to Include Tech Visa Expansion in Immigration Plan
  • FOMC Minutes Guide: From Job Mkt Gains to ‘Considerable Time’
  • Ackman Said to See Need for Significant Cost Cuts at Zoetis
  • Paramount Raises $2.3b in Record IPO for U.S. REIT
  • KKR, CD&R Said Preparing PetSmart Bid of >$7.5b: Reuters
  • Wells Fargo, U.S. Said No Longer Hopeful About Mortgage Pact
  • Wells Fargo to Start Europe Infrastructure Fund: Reuters
  • Buffett Creates Company to Buy Homes in Spain: El Economista
  • FTC May Need Dollar General to Divest Over 4k Stores: NYP
  • New Takata Air-Bag Case Prompts U.S. Demand for Natl. Recall
  • Ford, GM Demand Seen Buoying Takata Amid Congress Probe
  • Apple Sticking With Arizona Jobs Plan After GT Advanced Falters
  • Amazon Warehouse Worker Forces Changes as Labor Board Settles
  • Darden Executives to Retire Amid Cost Savings and Job Cuts
  • Music Mogul Azoff Demands YouTube Drop Pharrell, Eagles Songs
  • Hilton Said to Seek A$400m From Sale of Sydney Hotel
  • Netflix to Expand in Australia, New Zealand From March 2015
  • Senate Rejection of Keystone XL Measure Sets Up 2015 Showdown
  • United, Orbitz Sue Travel Site Over ‘Hidden City’ Ticketing
  • CBS Says Dish May Black Out Network at Contract End Nov. 20
  • WhatsApp Encrypts User Messages, Following Google, Apple
  • Putin Said to Back War on Corruption as Sanctions Bite
  • India Quarantines Man Cured of Ebola as Semen Contains Virus

 

AM EARNS:

    • E-House China (EJ) 6:25am, $0.17
    • JM Smucker (SJM) 7am, $1.53
    • Lowe’s (LOW) 6am, $0.58 - Preview
    • Mallinckrodt (MNK) 7am, $1.41 - Preview
    • Metro (MRU CN) 7am, C$1.27
    • Stage Stores (SSI) 6am, ($0.21)
    • Staples (SPLS) 6am, $0.36 - Preview
    • Target (TGT) 8am, $0.47 - Preview

 

PM EARNS:

    • Copa (CPA) 4:43pm, $2.00
    • Hillenbrand (HI) 4:24pm, $0.61
    • Keurig Green Mountain (GMCR) 4pm, $0.77
    • L Brands (LB) 4:30pm, $0.40
    • Real Goods Solar (RGSE) 4:04pm, ($0.13)
    • Salesforce.com (CRM) 4:05pm, $0.13
    • Semtech (SMTC) 4:30pm, $0.44
    • Williams-Sonoma (WSM) 4:10pm, $0.63

                               

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Oil Rises Most in Three Days on Car Bomb in Kurdish City
  • Iron Ore’s Rout Seen Relentless by SocGen as Miners’ Stocks Drop
  • Brace for Thanksgiving Traffic as Car-to-Plane Gap Grows: Energy
  • Gold Trades Below 2-Week High as Dollar Gains Before Fed Minutes
  • Nickel Advances as Indonesia Adheres to Ban on Exports of Ore
  • Cocoa Seen Extending Drop on Signs of Ebbing Chocolate Demand
  • Copper Prices Seen Rising as Mining Costs Increase: Codelco CEO
  • Europe-U.S. Oil-Product Cargo Flow Rises 67% in Broker Survey
  • Arabica Coffee Futures Rise for Second Day; Cocoa Also Gains
  • ICAP in Talks to Combine Shipbroking Unit With Howe Robinson
  • EUROPE OIL PRODUCTS: Gasoline Crack at 7-Week High; Gasoil Gains
  • Six Feet of Snow Buries Upstate New York a Month Before Winter
  • Senate Rejection of Keystone XL Measure Sets Up 2015 Showdown
  • Corn Drops to One-Week Low as U.S. Farmers Harvest Record Crop

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


THE HEDGEYE MACRO PLAYBOOK

Takeaway: in today's edition of the Macro Playbook, we highlight the broad-based improvement across the domestic housing complex.

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

 

  • Housing’s Bottoming Process Continues: In the Wednesday, November 5th 2014 edition of the Hedgeye Macro Playbook, we swapped out housing (ITB) for domestic E&Ps (XOP) on the short side of our core investment recommendations, citing 2nd derivative improvement in the broad compendium of housing data. Since then, the ITB ETF has rallied an additional +5.3%, which compares to a 0.0% return for the XOP ETF. We consider 529bps of alpha a good risk management decision. Moreover, it is indicative of our process in the sense that we’re not wed to any investment thesis; in fact, we find that helping our customers get OUT of positions is as critical as the process by which we help them get IN. Rewinding the tapes, recall that we had been bearish on the rate of change in house price appreciation and homebuilder stocks for the entirety of the year; the ITB was DOWN -3.7% YTD when we backed away from it on the short side. This compares to UP +9.6% YTD for the SPY on 11/5 and represents a material degree of alpha on the short side amid a raging bull market and consensus bullishness on housing. All told, with so much GREEN (i.e. 2nd derivative improvement) percolating throughout our Hedgeye Housing Compendium table, we are not surprised to see the ITB maintain its status among the top-20 Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings across the entire global macro complex (~200 ETFs in aggregate). Risk managing the reversal from a #Quad4 early-cycle slowdown to a likely [bullish] #Quad1 economic setup in 1Q15 remains our key focus. We are now short the SPY in Real-Time Alerts, so we are of the view that there'll be at least one more correction in between now and then.

 

THE HEDGEYE MACRO PLAYBOOK - HEDGEYE HOUSING COMPENDIUM

 

THE HEDGEYE MACRO PLAYBOOK - UNITED STATES

 

***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: November Rain (11/18)

 

#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.

 

#Bubbles: S&P500 Levels, Refreshed (11/18)

 

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.


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 80.28%
  • SHORT SIGNALS 78.51%

November 19, 2014

November 19, 2014 - Slide1

 

BULLISH TRENDS

November 19, 2014 - Slide2

November 19, 2014 - Slide3

November 19, 2014 - Slide4

November 19, 2014 - Slide5

 

 

BEARISH TRENDS

November 19, 2014 - Slide6

November 19, 2014 - Slide7

November 19, 2014 - Slide8

November 19, 2014 - Slide9

November 19, 2014 - Slide10

November 19, 2014 - Slide11
November 19, 2014 - Slide12

November 19, 2014 - Slide13


Something is Rotten in The District of Columbia

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

Horatio: He waxes desperate with imagination.

Marcellus: Let’s follow. Tis not fit thus to obey him.

Horatio: Have after. To what issue will this come?

Marcellus: Something is rotten in the state of Denmark.            

-From Shakespeare’s “Hamlet”

 

Undoubtedly in Republican circles there are a lot of celebrations going on today.  After all, according to the scoreboard, they handed President Obama and his party a decisive loss.

 

In the Senate, the Republicans have already won a confirmed +7 seats and the count currently stands at 52 seats for the Republicans, 43 seats for the Democrats, and 2 seats for Independents. There are still three races that are considered undecided.

 

In the undecided races, it appears that Democrat Mark Warner will ultimately prevail in Virginia as he has the edge (though the margin is less than 13,000 votes and Republican Ed Gillespie has the option of a recount.)  Meanwhile in Alaska, it appears that Republican Mark Begich will ultimately prevail as he has received 49% of the vote with 97% of votes having been counted.  Finally, Louisiana is headed to a December run-off between incumbent Senator Mary Landrieu and Republican Bill Cassidy.

 

So in the Senate, Republicans will gain a minimum of +7 seats and perhaps as many as +9 seats.  In the House, the Republicans have already gained a net +13 seats to solidify their majority with approximately 19 seats still considered undecided.   In Governor mansions across the nation (outlined in the map below courtesy of Politico) Republicans also solidified their hold on state capitols.

 

Something is Rotten in The District of Columbia - dj

 

According to Politico, “even optimistic Republican operatives didn’t anticipate this”, but to be fair, as we wrote yesterday in an intraday note, almost every major media outlet was predicting a decisive Republican victory.  And decisive it was.  In large part this victory can be attributed to the fact that exit polls showed President Obama’s approval rating at a dismal 41%.

 

In our view, the bigger story from the election is really how despondent Americans have become about the future of America.  According to the exit polls, 2/3s of voters think the country is on the wrong track, a mere 22% believe their children will be better off than them, and more than 72% worry about a terrorist attack on American soil.  That is just plain sad.

 

But, the fact that Americans are despondent about the future shouldn’t really be a surprise.  This election was characterized by negative attack ads.  In the 34 states with Senate seats up for grabs, there were 1 million TV ads shown and more than 46% of them were attack ads.  While on one hand those ads were seemingly successful in leading the Republicans to victory, on the other hand, what was the cost?

 

Heading into the election, Congressional job approval was a mere +12%, with more than 80% of voters disapproving of the job that Congress is doing.  As well, consistent with exit polling data above, heading into the election a mere 28% of voters believe that the country is headed in the wrong direction.

 

So, was this a resounding Republican victory? Perhaps, but the bigger issue we all have to deal with is that something is truly rotten in the District of Columbia.

 

Back to the Global Macro Grind...

 

As depressing as the state of U.S. politics may be this morning, there is always a bright side.  The bright side is that we all live in America and can, if we set our minds to it, fix some of the endemic problems, such as distrust in our politicians.  In countries like Russia, of course, the people have much, much less influence.

 

While certainly being a voter in Russia would be depressing, even more depressing would have to have been being invested in the Russian stock market this year.  Specifically, for the year-to-date the benchmark Russian equity index is down -25%. Coincidentally, or not, the price of Brent crude is down right around -25% for the year-to-date as well.

 

As many of you know, we are big fans of looking at stock prices as leading indicators, which begs the question: what is the Russian stock market signaling?  Since the market is in full on crash mode, it is truly fair to consider whether the market is signaling a somewhat imminent collapse of Putin’s Russia.  While raising interest rates to strengthen the Ruble is a cute trick, the fundamentals of Russia remain highly dependent on energy exports.

 

According to the Energy Information Administration, in 2013 a full 68% of Russian exports, or more than $350 billion dollars, came from energy, with more than half of that from crude oil.   For comparison, the United States exports no crude oil and petroleum products comprise a mere 8%.   Given this dependence, it is really no surprise that in 2009, after crude oil declined by 80% in 2008, that the Russian economy shrunk by 7.8% in 2009, the most of any G20 economy.

 

Tomorrow at 1pm eastern we are going to be hosting a conference call for our institutional macro clients with former U.S. Ambassador to Russia Michael McFaul.  (Email us at sales@hedgeye.com for details.)  Mr. McFaul has been called, “the leading scholar of his generation, maybe THE leading scholar, on post-Communist Russia.” He was President Obama’s chief advisor on Russia through his first term and was a main policy architect of “Reset” in U.S. - Russian relations.

 

 A high-profile figure during his time in Moscow, McFaul was harassed and accused of orchestrating a coup.  Perhaps in light of his considerable work and reputation as an expert on anti-dictator movements and revolutions, Putin reportedly stared at McFaul across a meeting table and remarked, “We know that your Embassy is working with the opposition to undermine me.” 

 

We hope you can join us for the call tomorrow, which will help illuminate exactly what is happening in Putin’s Russia.  And remember, as depressing as some of the election exits polls, things are still worse in Russia.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.21-2.38%

SPX 1967-2033

VIX 13.41-17.80

USD 86.31-87.65

Yen 109.11-114.91

WTI Oil 76.43-80.51 

 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Something is Rotten in The District of Columbia - chart of day 11 5


Jim Cramer's [Lack of] Integrity #Timestamped

FLASHBACK: Remember When Jim Cramer and His Minions Slandered Hedgeye and Our Short Call On Linn Energy? We Do. Here’s What Has Happened Since.

 

Jim Cramer's [Lack of] Integrity #Timestamped - 36

 

* * * * * * * 

We take great pride in the integrity of our work here at Hedgeye. We don’t like it when people like CNBC’s Jim Cramer falsely accuse us of orchestrating bear raids (an SEC violation), or when lackeys of his like a junior varsity reporter at Business Insider imply we are “breaking the law” simply because our research team makes a compelling and comprehensive call to short a particular company’s stock.

 

What we do like is when the dust settles and the scoreboard proves our investment call 100% right and our accusers wrong.

 

You may recall Hedgeye Energy Analyst Kevin Kaiser first began warning investors about accounting shenanigans at Linn Energy toward the end of March 2013. Kaiser argued the stock was worth about $15, when it was trading a little under $40.

 

Well, that clearly didn’t sit well with Cramer who was long the stock in his charitable trust and advised people to buy it in his Action Alerts product. A battle ultimately ensued between Hedgeye CEO Keith McCullough and Cramer on Twitter, TV and online/print.

 

Cramer actually called us “unscrupulous” and went so far as accusing Hedgeye of violating the 1934 Securities Exchange Act in an article on his website and Twitter. He also attacked Kaiser’s work, not based on anything having to do with his analysis, but because he was too young according to Cramer. He also had Linn Energy’s CEO come on his “Mad Money” show to defend his company. Here’s a taste.

 

Jim Cramer's [Lack of] Integrity #Timestamped - cramer1

 

Jim Cramer's [Lack of] Integrity #Timestamped - cramer3

 

So what’s happened since Cramer slandered Hedgeye and told investors to stay long Linn Energy?

 

Take a look below.

Click image to enlarge.

Jim Cramer's [Lack of] Integrity #Timestamped - linn energy

 

Bottom line? Shares of Linn Energy are down 39% since Kaiser made his call in March 2013, while shares of its sister company LNCO are down 47%.

 

*For the record, since Cramer penned his ridiculous (libelous) piece on June 19, 2013, shares of Linn Energy (LINE) have plunged 30%, while shares of LNCO have fallen even further, dropping 43%.

 

Nice work, Jim. #Booyah


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

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.

next