Uber Bullish!

This note was originally published at 8am on November 26, 2014 for Hedgeye subscribers.

“If we can get you a car in 5 minutes, we can get you anything in 5 minutes.”

-Travis Kalanick


Travis, how about a massage? Or some turkey day beers and, bonds?


Everyone who has created an anti-consensus company likes how the CEO of Uber, Travis Kalanick, rolls. If this morning’s headlines about T Rowe’s investment are right, it looks like Uber is going to price its final private round at a $35-40B valuation too!


That’s almost as bullish as I am in 2014… on the Long Bond (TLT). In less than 3 minutes, I can get you anything you need to explain the bull case. As growth and inflation expectations slow, globally, bond yields go lower. Ok, maybe that was less than 1 minute.

Uber Bullish! - Fightin  Words 08.29.2014


Back to the Global Macro Grind


In less than 1 minute, I can get you a chart (see Chart of The Day) showing the Rate of Change in US growth versus the 10yr bond yield. Unless you are paid to navel gaze at the “Dow”, this macro relationship is obvious to all but the willfully blind.


To most of our “rate of change” fans,  the year-over-year rate of change in growth and inflation are pretty basic concepts. To Consensus Macro (and the financial media that dotes on it), not so much…


Yesterday’s Consensus Media headlines on US GDP were classic. Sadly, Bloomberg (who we pay a lot of money to for rate of change data), continued down the all-time-CNBC-ratings-lows-perma-SPY-bull-spin-path by writing:


BREAKING: “SP500 Little Changed Near Record On GDP, Consumer Confidence”


In other real-world news yesterday, “Consumer Confidence” actually tanked (falling to 88.7 in NOV from 94.5 in OCT), and the rate of change in year-over-year US GDP growth slowed (again) to 2.4% in Q3 versus 2.6% in Q2.


#PermaBull says pardon?


Yes. Evolve your process, just a little, and stop staring at a next to useless GDP quarter-over-quarter SAAR (sequentially/seasonally adjusted) report and look at it how you look at the companies you invest in (i.e. on a year-over-year basis).


This isn’t rocket science. I can get you these numbers (and a whole lot more of them) in less than 3 minutes!


Again, to review why US bond yields continue to crash (10yr yield -26% YTD to 2.25% this morning):


  1. After topping at +3.1% year-over-year growth in Q4 of 2013, Q314 US GDP growth slowed to +2.4% and…
  2. While the +1.9% year-over-year growth report for Q1 was much uglier than the +3-4% “expected”…
  3. You can look forward to a Q4 GDP growth print in 2014 that is closer to +1.9% than Q3’s 2.4% was


Put another way, we still have US GDP growth (year-over-year dammit!) tracking to +2.2% for 2014 – and, magically, that’s exactly where the 10yr US Treasury Yield is trading this morning.


#Tah-dah! Get growth’s rate of change right – and you get bond yields right.


My inbox is fun. I often get forwarded other people’s macro work and, most of the time, I can’t particularly understand what it means. Mostly, I think that’s because I only care about rates of change. And most of that work doesn’t.


It’s not personal. It’s simply my perspective. And it’s this anti-consensus process and perspective that had us as bearish on the Long Bond in 2013 (when the rate of change in US growth was #accelerating) as we are Uber Bullish now.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.22%-2.33%

SPX 2020-2074

RUT 1154-1190

VIX 12.16-15.62

Yen 117.20-119.16

WTI Oil 73.03-77.04

Copper 2.94-3.01


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Uber Bullish! - 11.26.14 EL Chart

YUM: Hiccup Aids the Bull Case

YUM continues to be on our Best Ideas list as a long.

YUM released updated FY14 guidance after the close today, estimating mid-single digit full-year EPS growth, below the 9% growth the street is currently projecting.  Perhaps the more disappointing guide, however, was FY15 EPS growth of at least 10%, well below the 17% the street is currently projecting.  Specific operating unit commentary was limited, although management noted an anticipated benefit from sales leverage as sales rebound in China.


This release doesn’t change much, in our view, and in fact strengthens our long thesis with what is yet another example of China dragging down the overall business.  We continue to believe there is a strong likelihood management either 1) induces significant change from within or 2) is influenced by a group of influential shareholders to make significant changes. 


All told, tomorrow’s anticipated sell-off could present a nice buying opportunity for investors, particularly when considering expectations are being reset to reasonable and, we’d argue, easily achievable levels.  YUM is a powerful, global brand that has many levers at its disposal in order to immediately drive shareholder value. 


We look forward to learning more at the company’s investor meeting on Thursday.


Howard Penney

Managing Director


Fred Masotta


S&P 500: Levels Refreshed

Ed. note: This content was originally published for Hedgeye subscribers on December 09, 2014 at 11:38AM.



If nothing else, watching 2014 macro markets (not just SPY!) and all of the storytelling embedded within their weekly moves is a crash course in #behavioral economics.


That said, with both growth and inflation expectations slowing (that’s why our Best Macro Idea remains long the Long Bond), the question remains as to when they attack the SP500’s intermediate-term TREND line (like they did in October).


My answer? Not yet.


The main reason for that answer isn’t some divine survey – it’s my #process. And, across all 3 of its core risk management durations, here are the levels that matter to me most:


  1. Immediate-term TRADE resistance = 2065
  2. Immediate-term TRADE support = 2040
  3. Intermediate-term TREND support = 1998


S&P 500: Levels Refreshed - 12 09 14 SP 500 Levels Refreshed


In other words, as they test and try that 2040 line, I expect volatility to get immediate-term TRADE overbought. If that line holds (on a closing basis) probability rises that SPY bounces. If that line breaks, probability rises that SPY retests 1998 TREND support.


As I outlined in my Early Look this morning, “Bayesian Answers”, that’s my probability-weighing #process and I’m sticking to it. I only know what the market tells me – beyond that I read every #history that I can find, just to remind me what very little I know.


Sell green, buy red.


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Cartoon of the Day: Fallen...

Cartoon of the Day: Fallen... - Oil cartoon 12.09.2014

The epic crash in oil continues with crude down over -40% since June.

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YUM: Adding Yum! Brands to Investing Ideas

Takeaway: We are adding YUM to Investing Ideas.

Note: The excerpt below was written earlier this morning by Hedgeye CEO Keith McCullough. Stay tuned for more details from our Restaurants sector head Howard Penney.


YUM: Adding Yum! Brands to Investing Ideas  - y7


In staying with the process, another Macro Exposure we want to be adding to (on down days, oversold signals, etc.) is Big Cap Liquidity (vs. Small Cap Illiquidity, in Russell 2000 #bubble terms, on the short side).


From a bottom-up perspective, one of our Research Team's Best Ideas (Institutional Research longs and shorts) on the LONG side right now is Howard Penney's bullish view of Yum Brands. And, from a top-down factoring perspective, the other thing I like (at a price) are consumer companies whose cost structure will be the recipient of commodity #deflation.


On YUM specifically, Howard thinks there are three ways you can win on the long side:

  1. The Company is vulnerable to activism
  2. Opportunity for a transformational transaction (for the better part of the past two years, management has been asked about a potential spinoff of the China business).
  3. We also believe there is an opportunity to increase leverage (to repurchase stock or pay a special dividend), cut excess SG&A, refranchise additional restaurants and command a premium valuation.

Buy red, sell green.


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