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THE HEDGEYE MACRO PLAYBOOK

Takeaway: In today's Macro Playbook, we chart the domestic growth slowdown across a variety of indicators. Defensives > cyclicals in the stock market.

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. iShares Russell 2000 ETF (IWM)
  2. SPDR S&P Regional Banking ETF (KRE)
  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

 

  • Global Growth Slowdown Continues: With Japan in a deep recession and both the ECB (Eurozone) and PBoC (China) confirming what the recent economic data has been suggesting (i.e. marked slowing), it’s a trivial matter to proclaim that global growth is slowing. What is less trivial to anyone who anchors on [outrageously incongruent] Consensus Macro and/or regional Fed surveys is that growth is slowing fairly markedly in the U.S. as well. In the spirit of not cherry-picking #GrowthSlowing data, we thought we’d take this opportunity to highlight a broad swath of U.S. economic data below. As it is plain to see, the vast majority of the key economic indicators are slowing quite ardently.
  • In Equities, We Still Like Defensives > Cyclicals: In the spirit of our #Quad4 theme – which is continues to be confirmed by both the data and the market [leadership] – we continue to favor the slow-growth, yield-chasing sectors and style factors that have worked for us all year in conjunction with our call for lower long-term interest rates. Such defensive equity exposures continue to sit atop the YTD performance table, trouncing the cyclical exposure which continues to be favored by the Consensus Macro community by a wide margin. One could drive the proverbial “truck” through the 1835bps spread between the YTD performance of Healthcare (XLV) and Consumer Discretionary (XLY)!

 

THE HEDGEYE MACRO PLAYBOOK - SERVICES PMI

 

THE HEDGEYE MACRO PLAYBOOK - MANUFACTURING PMI

 

THE HEDGEYE MACRO PLAYBOOK - INDUSTRIAL PRODUCTION

 

THE HEDGEYE MACRO PLAYBOOK - BUSINESS CONFIDENCE

 

THE HEDGEYE MACRO PLAYBOOK - CONSUMER CONFIDENCE

 

THE HEDGEYE MACRO PLAYBOOK - RETAIL SALES

 

THE HEDGEYE MACRO PLAYBOOK - REAL PCE

 

THE HEDGEYE MACRO PLAYBOOK - DURABLE GOODS

 

THE HEDGEYE MACRO PLAYBOOK - JOBLESS CLAIMS

 

THE HEDGEYE MACRO PLAYBOOK - PAYROLLS

 

THE HEDGEYE MACRO PLAYBOOK - EXPORTS

 

THE HEDGEYE MACRO PLAYBOOK - IMPORTS

 

THE HEDGEYE MACRO PLAYBOOK - YTD PERFORMANCE

 

***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: Building Expectations (11/20)

 

#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.


November 24, 2014

November 24, 2014 - Slide1

 

BULLISH TRENDS

November 24, 2014 - Slide2

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November 24, 2014 - Slide5

November 24, 2014 - Slide6

 

BEARISH TRENDS

November 24, 2014 - Slide7

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November 24, 2014 - Slide10

November 24, 2014 - Slide11
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November 24, 2014 - Slide13


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 24, 2014


As we look at today's setup for the S&P 500, the range is 55 points or 2.54% downside to 2011 and 0.12% upside to 2066.                   

                                                                                                            

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: 1.81 from 1.81
  • VIX closed at 12.9 1 day percent change of -5.01%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Nat Activity, Oct., est. 0.40 (prior 0.47)
  • 9:45am: Markit US Services PMI, Nov. prelim, est 57.3 (pr 57.1)
  • 10:30am: Dallas Fed Mfg Activity, Nov., est. 9 (prior 10.5)
  • 11am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $24b 3M bills, $28b 6M bills
  • 1pm: U.S. to sell $28b 2Y notes

 

GOVERNMENT:

    • Deadline for pact limiting Iran’s nuclear program in exchange for relief from economic sanctions
    • House, Senate out of session
    • USTR Michael Froman delivers speech at Federation of Indian Chmabers of Commerce and Industry

 

WHAT TO WATCH:

  • Onex to Acquire Packaging Maker SIG for Maximum $4.7b
  • Iran Nuclear Talks May Be Extended If Final Push Falls Short
  • Carlyle Said to Seek $5b for Buyout Fund With Longer Life
  • German Business Confidence Unexpectedly Rises 1st Time in 7 Mos.
  • Iran May Seek OPEC Cut of 1 Million Barrels in Saudi Talks
  • Aviva Falls on 5.4 Billion-Pound Friends Life Takeover Offer
  • ‘Hunger Games’ Debut Trails Predecessors Amid Tepid Reviews
  • U.S. Gasoline Falls to $2.8416 a Gallon in Lundberg Survey
  • Yik Yak Said to Get $62m Investment Led by Sequoia Capital: WSJ

 

AM EARNS:

    • Navios Maritime (NM) 7am, ($0.15)

 

PM EARNS:

    • Brocade Communications (BRCD) 4pm, $0.23
    • Nuance Communications (NUAN) 4:01pm, $0.28
    • Workday (WDAY) 4:02pm, ($0.10)
    • Palo Alto Networks (PANW) 4:03pm, $0.12
    • Aegean Marine Petroleum (ANW) 4:15pm, $0.21
    • Qihoo 360 (QIHU) 5pm, $0.62
    • Post (POST) 5pm, $0.07

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • OPEC Easy-Decision Days Seen Over by Former Qatari Minister
  • Iran May Propose 1 Million-Barrel OPEC Cut in Talks With Saudis
  • Brent Crude Trades Near Highest in Seven Days as Iran Seeks Cut
  • Soybeans Drop Amid Outlook for Record U.S. Crop and Brazil Rains
  • World’s Oldest Spice Bears Vietnam Modern Riches: Southeast Asia
  • Copper Falls on Concern China Rate Cut Signals Economic Slowdown
  • Barclays Survey Shows 30% Investors See Gold Below $1,150 By 1Q
  • CME Will Lower Rates for Wheat Storage as Futures Spread Narrows
  • Enterprise Said to Offer U.S. Condensate to Asia Buyers for 2015
  • Gold May Drop 5% in First Three Months of Lower Oil, SocGen Says
  • CME Group to Start New Iron-Ore Futures Contract From December
  • U.K. Gas Rises in Longest Streak in Year on Cold, Norway Outages
  • Robusta Coffee Futures Climb on Vietnam Outlook; Sugar Declines
  • Iran Won’t Cede Market Share by One Barrel: OPEC Reality Check

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 - 9A

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Blinking Red

This note was originally published at 8am on November 10, 2014 for Hedgeye subscribers.

“The system was blinking red.”

-George Tenet

 

That’s what the 9/11 Commission Report told us, after the fact. That’s what I’ll tell you after the next “risk on” move happens in markets like it did in early October. It’s all part of a signaling process I use to identify phase transitions in markets.

 

This is also the #process that my friend Jim Rickards applied to tracking terror related events in markets. As Rickards writes in The Death Of Money, “no one trades in isolation.” And there is plenty of market wisdom in that.

 

Jim says he’s “careful to document and time-stamp the signals and analysis in real-time… it would not be credible to look at the tape in hindsight… we wanted to see things in advance.” (Rickards, pg 36). That’s what I do, every market day.

 

Blinking Red - 47

 

Back to the Global Macro Grind

 

But, but… the “market won’t go down on that anymore. What is the next catalyst? How do we know it’s going to go down?” I get some version of those questions all of the time. The answer is that the “market” isn’t just some naval gazing US equity index.

 

To review the #process:

 

  1. I write down and document (#notebook) every timestamp and market signal that matters to the “market” every morning
  2. I contextualize time/price within a multi-factor (global equities, FX, etc.) and multi-duration picture (TRADE, TREND, TAIL)
  3. I always assume market dynamism, duration mismatch, and non-linearity – the macro market is a complex ecosystem

 

Within a dynamic ecosystem of colliding, non-linear factors, I’ll almost always register #divergences. In your natural ecosystem of life, a divergence would be that it’s snowing 10 miles from where you see no precipitation.

 

Here are some of last week’s most notable equity market #divergences in my notebook:

 

  1. Hong Kong’s Hang Seng Index down -1.9% vs. Japan’s Nikkei stock market index +2.8%
  2. The Dow +1.1% vs. Italy’s MIB Index down -3.5% week-over-week
  3. Brazil’s Bovespa Index down -2.8% vs. the Russell 2000 flat on the wk

 

Meanwhile you saw big time bearish divergences in Emerging Market Equities versus something like the SP500 which closed +0.7% on the week at its all-time high:

 

  1. MSCI Emerging Markets Index down -2.4% on the week to -1.1% YTD
  2. MSCI Latin American Index -4.5% on the week to -5.8% YTD

 

Emerging Markets have looked a lot like the Russell 2000 (a US growth index) and the 10yr Treasury Yield (another US economic #GrowthSlowing proxy) as of late – and that shouldn’t surprise anyone who realizes that global growth continues to slow.

 

But but, if your “market” is simply what the SP500 is doing, I can show you #GrowthSlowing divergences there too:

 

  1. Consumer Discretionary (XLY) stocks were down -0.1% in an “up SP500 market” last week
  2. Slower growth, Consumer Staples (XLP) stocks beat “the market”, closing up another +2.2% on the week

 

Since our #Quad4 deflation playbook says you buy Consumer Staples (XLP) and Healthcare (XLV), last week’s divergences at the sector level certainly made a lot more sense to us than the consensus “gas prices are down, so buy the consumer” meme.

 

Growth and inflation expectations are obviously causal to market prices. But so are central planners burning their respective currencies at the stake.

 

While many US only “market” people think the US Dollar’s rise is a sign of their savior, it’s not (if you had #RatesRising it might be, but they fell again last week to 2.30% on the UST 10yr Yield). It’s a sign of global economic duress.

 

Last week had both the Japanese and European central planners devaluing their currencies, at the same time:

 

  1. Euro (vs USD) down another -0.6% on the week to -9.4% YTD
  2. Yen (vs USD) down another -2.0% on the week to -8.1% YTD

 

By any long-term measure, these are massive annualized currency moves.

 

And since the market I look at is coming off all-time lows in cross asset class volatility (FX, Equities, Commodities, Fixed Income – see our #VolatilityAssymetry slide deck from July of 2014), I see the FX market as the biggest blinking red light of all.

 

It’s warning the world that this grand central planning experiment is failing where it matters most, in economic growth terms.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.26-2.38%

SPX 1967-2046

RUT 1134-1181

EUR/USD 1.23-1.25

Yen 111.16-117.24

Gold 1132-1205

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Blinking Red - 11.10.14 Chart


Investing Ideas - Levels

Takeaway: Here are Hedgeye CEO Keith McCullough's refreshed levels for our high-conviction investing ideas.

Investing Ideas - Levels - 777

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

Anything longer than 3 years is unpredictable.


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.

 

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

 

*Note: We will send CEO Keith McCullough’s updated levels for each investing idea at the beginning of this coming week.

CARTOON OF THE WEEK

Investing Ideas Newsletter - Monetary policy cartoon 11.07.2014

IDEAS UPDATES

TLT | EDV | XLP | MUB

 

With the exception of a few noteworthy [bullish] housing data points and [outrageously incongruent] regional surveys, the critical economic releases from this week continue to support our view that both growth and inflation are slowing simultaneously:

 

  • Industrial Production: +4% YoY in OCT vs. +4.2% in SEP; down -0.1% MoM vs. Bloomberg consensus expectations of a +0.2% increase
  • Headline PPI: +1.5% YoY in OCT vs. +1.6% in SEP
  • Headline CPI: unchanged at +1.7% YoY in OCT; for the quarter-to-date, CPI is tracking down -10bps from the 3Q average
  • Markit Manufacturing PMI: 54.7 in NOV vs. 55.9 in OCT; this marks the lowest reading since JAN and down for the third consecutive month

 

Calling for continued disinflation is a trivial matter at this point (CLICK HERE to review why).

 

Growth bulls, however, will accuse us of cherry-picking #GrowthSlowing data. In the spirit of pre-empting that (we play chess, not checkers @Hedgeye), we thought we’d take this moment to highlight the trending rate of change across the broad spectrum of key economic indicators:

 

Investing Ideas Newsletter - 5MANUFACTURING PMI

Investing Ideas Newsletter - 6SERVICES PMI

Investing Ideas Newsletter - 7INDUSTRIAL PRODUCTION

Investing Ideas Newsletter - 8BUSINESS CONFIDENCE

Investing Ideas Newsletter - 9CONSUMER CONFIDENCE

Investing Ideas Newsletter - 10RETAIL SALES

Investing Ideas Newsletter - 11REAL PCE

Investing Ideas Newsletter - 12DURABLE GOODS

Investing Ideas Newsletter - 13JOBLESS CLAIMS

Investing Ideas Newsletter - 14PAYROLLS

Investing Ideas Newsletter - 15EXPORTS

Investing Ideas Newsletter - 16IMPORTS

 

As you can see, the vast majority of the key economic indicators are slowing quite ardently.

 

When growth slows, we like the long bond (TLT, EDV, MUB) and equities that can give us a yield (i.e. XLP, XLU and XLV). With a likely [bullish] #Quad1 setup coming down the pike in 1Q15, this research recommendation of ours is admittedly long in the tooth.

 

Investing Ideas Newsletter - 17UNITED STATES

 

That being said, however, we see no reason to back off the thesis now. Anyone who’s followed our investment advice to be long of bonds and slow-growth, yield-chasing in the equity market is clearly having a great year:

 

Investing Ideas Newsletter - 18YTD PERFORMANCE

 

Specifically, we still expect to see the final crescendo of consensus capitulation on the short side of Treasuries in the coming weeks.

 

Furthermore, we think the worst thing you can do right now is sell these winners to rotate into the Consensus Macro playbook of buying early cycle stocks up here. We think you’ll get a much better opportunity to rotate in #Quad1 from lower prices in the coming weeks.

 

If we’re wrong on that, we’ll be wrong on that. But the process stays stick with the current playbook – especially when the data supports it!

HCA

The long position in HCA comes down to two assumptions: 1-2% volume and 3-4% price. If those are reasonable assumptions, HCA is going much higher. It would seem consensus is expecting much worse.

 

On volume, we’ve talked previously about the importance of maternity trends to hospitals, and HCA is no exception. We assume their strong volume growth in 3Q14 was driven largely by an increase in births as well as newly insured people coming on from Health Reform. We are slightly cautious in the short term as two data series reflecting recent maternity strength are sliding toward weakness in the last few updates. We’re also seeing good patient visit trends, and within two time series we began using recently, strong hiring and capital spending among providers, both of which reflect strong demand in our view. SO maybe if maternity slows, other trends will pick up the slack. If we see orthopedic cases continue to accelerate, and a higher mix of high priced ortho cases, the positive impact on our pricing assumption will be substantial, and 3-4% price will prove to be low.

 

Below is a chart that shows how many jobs in healthcare remain open versus HCA’s same store volume growth. It would seem 1-2% volume is not a stretch goal.

 

Investing Ideas Newsletter - jolts vs HCA

RH 

Restoration Hardware shares were up 6% this week for two reasons. 1) The bullish read-through we received this past week from the Williams-Sonoma print and 2) the RH Atlanta store opening.

 

1) Keep in mind that Williams-Sonoma turned out to be an excellent directional indicator for RH last quarter. WSM putting up great top line numbers augurs well for RH shares.

 

2) As far as Atlanta is concerned, the store opening there is more than your average store. Legacy stores are 8,000 sq ft. Design Galleries are 20,000. This one is a whopping 65,000 So, despite the fact that it's only one store on a base of 68, it's really the equivalent of adding 6 new stores.

 

And as it relates to size, our RH real estate deck specifically quantified why Atlanta is a market that could support a store as big as 90k ft. Translation = it's definitely not too big for this market.

 

 ADDITIONAL RESEARCH CONTENT BELOW

 

* * * * * * * * * * 

 

JAPAN: does THE "ABENOMICS TRADE" HAVE MORE ROOM TO RUN?

We’ve been dead wrong on Japan over the past month or so. With the exception of one MAJOR caveat, consensus probably has this trade right.

Investing Ideas Newsletter - ja

EMERGENT HOUSING MOJO

Existing Home Sales joins the bullish housing party, alongside NAHB (Tuesday) and Housing Starts & Mortgage Apps (Wednesday).

Investing Ideas Newsletter - h7


Early Look

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