Takeaway: In today's Hedgeye Macro Playbook, we reiterate our bullish bias on long duration bonds and our bearish bias on small-to-mid cap stocks.


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)




  • Reiterating Our Long TLT View: With Consensus Macro going “all-in” on U.S. equities at the all-time highs in the SPX, we’re not surprised to see speculators add to their [large] net SHORT position in the 10Y Treasury futures and options markets WoW. Specifically, the net combined position of -128k contracts is the largest net SHORT position since the week ended January 7th; the z-score (TTM) of -1.4x indicates the most crowded lean since the week ended December 31st. Since we all know the 10Y Treasury yield peaked [on a closing price basis] on 12/31, what investors should infer from this data is that Consensus Macro has gotten rates horribly wrong in 2014 and, to the extent our call for lower rates continues to play out, mass capitulation on the short side of bonds is a probable immediate-to-intermediate-term event.
  • Reiterating Our Short IWM View: Looking to the other side of the trade, the small-to-mid cap style factor remains in the bottom-10 of the 45 U.S. equity sectors and style factors we track in our Tactical Asset Class Rotation Model (TACRM) from a Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) perspective. Recall that this indicator is the amalgamation of three independent z-scores of volume-weighted price data whose sample sizes (i.e. duration) accordion inversely to trending global macro volatility. Refer to our TACRM white paper (hyperlinked below) for more details on why this is a more useful way to track momentum than traditional SMAs, EMAs, RSIs, etc.






***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: 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,




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.

CHART OF THE DAY: Breakevens (Breaking Bad)

CHART OF THE DAY: Breakevens (Breaking Bad) - 11.25.14 EL Chart


"What you also know is that at this stage of the central planning war, equity markets going up really has nothing to do with real-growth anyway," CEO Keith McCullough wrote in today's Morning Newsletter. "It has everything to do with Japan, Europe, USA, China, etc. trying to resuscitate drowning inflation expectations.


On that real-time score, as you can see in today’s Chart of The Day (US TIPS, 5 year Breakevens), so far… no good.


While the 2 day China rate cut “pop” in everything inflation expectations that’s been dropping was fun to watch, it didn’t change #Quad4 Deflation expectations. Both global growth and inflation expectations are still slowing, at the same time."


Burn The Wagons

“We should burn what wagons we have, on order that our cattle not be our generals.”



According to ancient Greek #history, that’s what an emerging Athenian leader, Xenophon, told his men they should do as they marched against their Persian King. “Moreover, let us also abandon other superfluous baggage, except what we have for war or for food.” (Xenophon: The Anabasis of Cyrus, pg 108)


Yep. That’s the stuff I am reading these days. If you want to call it my confirmation bias in being bearish against central planning overlords (i.e. that this will not end well), I’m cool with that.


Buying the Long Bond (TLT) is as close as I am going to get to war with US and global growth bulls. And I probably won’t stop riding this bearish growth view, until the US elects to burn the yield chasing wagons – letting rates rise.

Burn The Wagons - growth cartoon 10.08.2014


Back to the Global Macro Grind


In case you didn’t know that one of the only ways out of this centrally planned Liquidity Trap (Total US Equity Market Volume was -29% versus its YTD avg yesterday) is to stop doing what didn’t work, now you know. Or at least the bond market does…


BREAKING (updated growth “survey” from Hedgeye): US 10yr Treasury Yield is ticking down to a fresh November low of 2.29% this morning and the Yield Spread (10yr minus 2yr yield) has compressed towards its 2014 YTD lows of 176 basis points this morning.


These are clean cut #GrowthSlowing signals. But you already know that.


What you also know is that at this stage of the central planning war, equity markets going up really has nothing to do with real-growth anyway. It has everything to do with Japan, Europe, USA, China, etc. trying to resuscitate drowning inflation expectations.


On that real-time score, as you can see in today’s Chart of The Day (US TIPS, 5 year Breakevens), so far… no good.


While the 2 day China rate cut “pop” in everything inflation expectations that’s been dropping was fun to watch, it didn’t change #Quad4 Deflation expectations. Both global growth and inflation expectations are still slowing, at the same time.


Other than one of the Fed’s preferred ways to monitor #deflation expectations (Breakevens), here’s what else I’m looking at:


1. US Dollar Index vs both Burning Yens and Euros = +10% YTD

2. CRB Commodities Index -0.7% yesterday to -4.6% YTD

3. WTI Oil flattish this morning at $76.01, down -17% YTD

4. Copper flat this morning at $3.01/lb, down -10% YTD

5. Russian Stocks (RTSI) -1.2% this morning to -23.3% YTD

6. Energy Stocks (XLE) down (again) -0.8% yesterday to -0.8% YTD


Then, of course, you can look at some late-cycle stuff like US wage Inflation… where 2/3 of the country has seen real wages deflate since the Fed undertook their unprecedented Policy To Inflate (see Federal Reserve’s own papers on the matter for details).


Or you can just find a “survey” that tells you something that has been the complete opposite of the wage deflation and no-capex cycle data. And say that the “market is up” on something like that.


But when you say “market” don’t forget that my preferred risk adjusted market to be long in 2014 (Long Term Treasuries) has had a much higher absolute return on much lower realized volatility than US small/mid cap stocks have.


Even if the July to October +160% ramp in the VIX is forgotten (for now), that doesn’t mean that the non-linear and interconnected economic risks associated with #Deflation Expectations Rising cease to exist.


What also exists as of this week is non-survey computed options positioning in Global Macro (non-commercial CFTC futures and options consensus positioning):


1. SP500 (Index + Emini) has moved to its biggest net LONG position since late SEP at +29,110 contracts

2. Long Bond (10yr Treasury) hit its biggest net SHORT position of 2014 at -128,032 contracts

3. Oil still has a net LONG position of +276,213 contracts, only down -12,971 week-over-week


“So”, what does that tell us?


1. After shorting the OCT lows, hedge funds have covered their shorts and are chasing the bull run in SPY (again)

2. Consensus Macro continues to think the risk in interest rates is to the upside (we reiterate downside!)

3. Perpetual expectations for another central plan (OPEC) remain for a non $65 oil price


Since Consensus Macro is not my expectations general, I say you burn the groupthink wagons and do the exact opposite of where those options are positioned: BUY Long Bond (TLT, EDV, etc.), and SHORT SP500 (SPY), Oil, and its related stocks and bonds.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.28-2.34%

SPX 2018-2072

RUT 1154-1190

EUR/USD 1.23-1.25

Yen 117.03-119.16

WTI Oil 73.04-77.51


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer


Burn The Wagons - 11.25.14 EL Chart

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.

November 25, 2014

November 25, 2014 - 1



November 25, 2014 - Slide2

November 25, 2014 - Slide3

November 25, 2014 - Slide4

November 25, 2014 - Slide5




November 25, 2014 - Slide6

November 25, 2014 - Slide7

November 25, 2014 - Slide8

November 25, 2014 - Slide9

November 25, 2014 - Slide10

November 25, 2014 - Slide11
November 25, 2014 - Slide12

November 25, 2014 - Slide13


TODAY’S S&P 500 SET-UP – November 25, 2014

As we look at today's setup for the S&P 500, the range is 54 points or 2.48% downside to 2018 and 0.13% upside to 2072.                                                                       













  • YIELD CURVE: 1.81 from 1.81
  • VIX closed at 12.62 1 day percent change of -2.17%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: GDP, 3Q, est. 3.3% (prior 3.5%)
  • 8:55am: Redbook weekly sales
  • 9am: FHFA House Price Index, Sept., est. 0.4% (prior 0.5%)
  • 9am: S&P/Case-Shiller 20 City Comp y/y Sept, est. 4.6% (prior 5.6%)
  • 10am: Consumer Confidence Index, Nov., est. 96.0 (prior 94.5)
  • 10am: Richmond Fed Mfg Index, Nov., est. 16 (prior 20)
  • 11:30am: U.S. to sell $13b 2Y FRN in reopening, $40b 4W bills
  • 1pm: U.S. to sell $35b 5Y notes
  • 4:30pm: API weekly oil inventories



    • House, Senate out of session
    • Obama travels to Chicago to talk with community leaders
    • 10am: FDIC Chairman Martin Gruenberg holds briefing on bank, thrift industry earnings for Q3 of 2014, followed by Q&A



  • Ferguson Explodes in Protests After Officer Avoids Charges
  • Honda May Face Record Fine for Underreporting U.S. Claims
  • Bayer Said to Weigh Diabetes Unit Sale for Up to $2.5 Billion
  • Lew Says Tax-Break Extension Plan in Congress Is Irresponsible
  • Caesars Lenders Said to Agree on Making Unit a Real Estate Firm
  • Glencore-Rio Merger Will Happen, Banker Hannam Tells Funds
  • FDA to Release More Labeling Rules on Calorie Counts
  • Universal Pictures Picks Up Steve Jobs Film Project From Sony
  • CME’s Market Surveillance Found Lacking by Its Chief Regulator
  • ‘Frozen’ Overtakes Barbie as Holiday Season’s Most Popular Toy
  • U.S. Prosecutors to Interview London FX Traders: Reuters
  • Wal-Mart Chief Merchandising Officer Set to Leave, WSJ Reports



    • Alimentation Couche-Tard (ATD/B CN) 8:42am, $0.56 - Preview
    • Beacon Roofing (BECN) 8am, $0.61
    • Brown Shoe (BWS) 7am, $0.68
    • Campbell Soup (CPB) 7:15am, $0.72 - Preview
    • Chico’s (CHS) 7:31am, $0.17
    • Cracker Barrel (CBRL) 7am, $1.29
    • DSW (DSW) 7am, $0.52
    • Eaton Vance (EV) 9am, $0.64
    • Hormel (HRL) 6:30am, $0.64
    • Movado (MOV) 7am, $0.86
    • Pall (PLL) 7am, $0.80
    • Signet Jewelers (SIG) 7am, $0.18
    • Tech Data (TECD) 6am, $1.02
    • Tiffany (TIF) 7am, $0.77 - Preview
    • Valspar (VAL) 7:30am, $1.15
    • Yingli Green Energy (YGE) 7am, ($0.14)



    • Analog Devices (ADI) 4pm, $0.68
    • Cubic (CUB) 4pm, $1.14
    • Hewlett-Packard (HPQ) 4:04pm, $1.06 - Preview
    • Infoblox (BLOX) 4:05pm, $0.02
    • Nimble Storage (NMBL) 4:01pm, ($0.16)
    • Perfect World (PWRD) 5pm, $2.77
    • TiVo (TIVO) 4:15pm, $0.07
    • Veeva Systems (VEEV) 4:02pm, $0.08



  • Talk of Russian Oil Cuts to Help OPEC Likely to Stay Just That
  • Brent Crude Gains on Speculation of OPEC Output Cut; WTI Rises
  • Oil Boom Triggering Cowboy Shortage Across Canada: Commodities
  • China’s Gold Imports Rise for a Third Month on Jewelry Sales
  • Codelco Said to Trim 2015 Copper Premium to Japan Buyers by 2.5%
  • Iron Ore Drops Below $70 for First Time Since ’09 as Glut Widens
  • Palm Oil Exports From Indonesia Seen Dropping From Six-Year High
  • OPEC Said to Mull Sparing Iraq, Iran and Libya From Oil Cuts
  • Steel Rebar Rises From Record Low on Restocking Demand Optimism
  • Soybeans Rebound on Signs of Rising Demand for Record U.S. Crop
  • China Cotton Imports in 2014-15 Seen at 1.3M Tons, Butler Says
  • Venezuela Turmoil Signals End of Oil-for-Jeans Giveaway: Energy
  • EU Parliament Unlikely to Propose Early Carbon Reserve: Sikorski
  • Plunging Cotton Prices Spurring Farmers to Reduce Planting


























The Hedgeye Macro Team



The Battlefield's Vortex

This note was originally published at 8am on November 11, 2014 for Hedgeye subscribers.

“Where is the battlefield? The answer would be, everywhere.”

-Colonel Qiao Liang


That was a quote from the People’s Liberation Army in China in 1999 that Jim Rickards cited at the beginning of a chapter titled The War God’s Face (The Death of Money, pg 42).


Since today is one of the most important days of the year to show our gratitude and respect (Veterans Day in the US, Remembrance Day in Canada, Armistice Day across Europe), I’d like to take a minute to do that this morning.


While the battlefield of economic and market risks continue to mount, we should never forget the sacred one where our bravest countrymen have fought for our liberty and freedom.


The Battlefield's Vortex - v4


Back to the Global Macro Grind


In the last few weeks I have been meeting with Institutional Investors in New York, Boston, Los Angeles, San Francisco, and Chicago. I need to get out of the Windy City this morning before this polar vortex thing rolls in!


The definition of a vortex: “a mass of whirling fluid or air.” That sounds like the feedback I’ve been getting on the bull case for US and global growth – oh, and the “it’s different this time” short covering we have seen in the US stock market in the last month.


But what happens after the vortex? Will there be massive volume buying at the all-time #bubble highs again, or not? How can we measure and monitor that? And what if all that comes after the v-bottom-vortex is crickets?


Crickets in the snow?


Yep. Anything can happen! Today the bond market is closed, so you’ll definitely hear crickets there. But you could also hear them in yesterday’s US stock market trading too. Here’s what happened in terms of Total Equity Market Volume (including dark pool):


  1. Volume was down -8% versus its 1-month average volume
  2. Volume was down -25% versus its YTD average volume


This is almost exactly what happened at the end of September (before the -10% drop in the SP500) when I’d write to you about explicit risk signals like decelerating-volume-on-up-days, and how big domestic #GrowthSlowing signals (like the Russell 2000 and UST 10yr Yields making lower-highs) were confirming that an immediate-term topping process was in motion.


While many still use point-and-click simple (one factor) moving averages to calibrate what they think is market risk (it’s above the 50-day bro, chart looks sweet!), the core Hedgeye quantitative signal has not changed – it has 3-factors:


  1. PRICE


The reason why we consider the battlefield of risk this way is that this is where you can find the market’s internal convictions. If PRICE and VOLUME are accelerating as trending VOLATILITY is falling (like it did in 2013), I’d be all bulled up on small cap growth.


However, if PRICE is rising with decelerating VOLUME and trending VOLATILITY is rising, that is called a Liquidity Trap. Those are not what you want to be buying at the high end of the risk range. You should consider them wonderful selling opportunities.


Again, we don’t want you shorting what almost every hedge fund on the planet is using as their perceived “hedge” (the SP500). We want you to short the Russell (IWM), and buy the Long Bond (TLT) on the other side of it.


Price, Volume, and Volatility provide a quantitative overlay to our fundamental research process. If there’s one fundamental factor that has mattered most in my investor debates, it’s the same one that has mattered all year – growth.


After 65 consecutive months of a US economic expansion, is the rate of change in US growth accelerating or slowing? That’s the battlefield debate – and, if you’re in our camp, there are plenty of ways to express our US #GrowthSlowing view:


  1. LONG: Healthcare stocks (XLV) led yesterday’s rally, +1% on the day, to +22.3% YTD
  2. SHORT: Consumer Discretionary (XLY) and Energy (XLE) stocks (which were both down, again, yesterday)


That’s right. While everybody and their thesis-drifting-brother on the Old Wall is now parroting that “you buy Consumer Discretionary stocks because of down oil prices”, that’s been one of the worst sectors of the market to be long in the last week.


Not only was it down with Energy deflating yesterday, Consumer Discretionary (XLY) was down on the week last week too. “So”, what does that tell you about late-cycle indicators like employment (and the lack of wage growth)?


Prepare for slowing’s vortex. Winter is coming.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.25-2.40%

SPX 1963-2050

RUT 1135-1182

Yen 111.99-117.87

WTI Oil 75.69-79.16

Gold 1121-1201


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Battlefield's Vortex - 11.11.14 Chart

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