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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.

HEDGEYE TV

Contributor Call: Get Long $CTO Says Harvard Financial Analysts Club "Stock Pitch" Winners


Hedgeye CEO Keith McCullough talks with two members of the Harvard Financial Analysts Club (HFAC) who had the winning idea in a Stock Pitch Contest co-hosted by Harvard University and Seeking Alpha.

Hedgeye CEO Keith McCullough talks with two members of the Harvard Financial Analysts Club (HFAC) who had the winning idea in a Stock Pitch Contest co-hosted by Harvard University and Seeking Alpha. Kevin Li and David Reading walk through their long thesis on Consolidated-Tomoka Land Co. (CTO) and field questions from Keith.

Contributor Call is a video partnership between Hedgeye and Seeking Alpha.

Subscribe to Hedgeye TV on YouTube for more exclusive video content.

This is the opinion of Kevin Li, David Reading, Carlos Xu and Elaine Dai (HFAC team) and does not necessarily reflect the opinion of Hedgeye Risk Management. Investors should always form their own opinions as to the credibility of any company's forward financial guidance. The contributors make no representation or warranties that their forward-looking statements or opinions on forward earnings is correct, and their view should not be deemed more reliable than CTO's own guidance.

 

Hedgeye's Morning Macro Call with CEO Keith McCullough 12/8

CEO Keith McCullough takes a look at global markets and the economy and explains why he remains concerned.

***This is a complimentary peek behind-the-macro-scenes of our daily Morning Macro Call for institutional subscribers.***

 

HEDGEYE IN THE MEDIA

 McCullough on Fox Business: U.S. Becoming a "Gigantic Centrally Planned Project"

 

Hedgeye CEO Keith McCullough appeared on Opening Bell with Maria Bartiromo Thursday morning.

 

In the segment below, he talks about the better than expected retail sales numbers, where the economy is now, and what to expect from the Fed moving into 2015. 

Regarding cost of living, Keith reiterates that despite some savings at the gas pump, two thirds of the U.S. is not feeling the economic recovery thanks to central planning.

Speaking of central planning, Keith talks about the impact of ECB President Mario Draghi's behavior on U.S. equities and what's next for European markets.

Lastly, Keith discusses the regulation of the financials sector, and why it's important to stay long the long bond:

CARTOON

(Not So) Happy Meal

The Best of This Week From Hedgeye - MCD sad 12.8.14

McDonald's takes it on the chin as the fast-food giant posts its biggest domestic same-store sales drop in over a decade.

 

Fallen

The Best of This Week From Hedgeye - Oil fallen 12.7.14

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

CHART

U-G-L-Y

The Best of This Week From Hedgeye - COD 12.10.14

 

Tizzle In The System

The Best of This Week From Hedgeye - COD 12.11.14

POLL OF THE DAY

 Poll of the Day: Will Oil Prices Fall Below $50 in 2015?

Oil prices have plunged 40% in the last six months. Is the steep decline over or will the sell-off continue? We wanted to know what you think.

 

 



Tales of the Long Bond Pain Trade

Takeaway: The buy-side is far from having capitulated on the short side of the long bond. We think they most likely will in the coming weeks & months.

Consider the following return figures:

 

  • iShares 20+ Year Treasury Bond ETF (TLT): +2.9% WTD, +3.1% MTD, +8.6% QTD and +24% YTD
  • Vanguard Extended Duration Treasury ETF (EDV): +3.9% WTD, +5.1% MTD, +14.2% QTD and +40.8% YTD
  • iShares National AMT-Free Muni Bond ETF (MUB): +0.3% WTD, +0.3% MTD, +0.5% QTD and +6.3% YTD

 

Now consider the most recently reported net speculative position of -214.8k futures and options contracts on 10Y Treasury notes. On a TTM Z-Score basis, that’s the most net SHORT the buy-side has been of the long bond since the week ended March 23rd, 2012.

 

Tales of the Long Bond Pain Trade - 1

Source: Bloomberg L.P.

 

It’s worth mentioning that the long bond rallied hard on that signal; from late-March of 2012 through late-July of that same year, the 10Y Treasury yield plunged -86bps to its all-time closing low of 1.38%.

 

Tales of the Long Bond Pain Trade - 2

Source: Bloomberg L.P.

 

That current setup in the bond market rhymes with investors broadly continuing to anticipate “escape velocity” and a rate “lift-off” over the NTM – even if only a modest tightening: DEC ’15 Fed Funds Futures are pricing in a mere +25bps rate hike by the end of next year.

 

Tales of the Long Bond Pain Trade - 3

Source: Bloomberg L.P.

 

All told, the buy-side hasn’t capitulated on the short side of bonds yet.

 

They most likely will.

 

And when they do, you’ll be able to book some nice gains by selling into their mass short-covering – that is, of course, to the extent you’ve been following our recommendation to be long of long-term Treasuries and munis [and defensive equities that resemble this long duration exposure].

 

Happy holidays!

 

DD

 

Darius Dale

Associate: Macro Team


Cartoon of the Day: The Real One-Percenter?

Cartoon of the Day: The Real One-Percenter? - 1  cartoon 12.12.2014

The epic crash in bond yields continues ... 10-year Treasury yield down over -30% YTD as #GrowthAndInflationSlowing bulls get paid, in $TLT terms. On a related note, this was one of the biggest, most non-consensus calls of the year. And we made it.

 

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RTA Rewind: 12/12/14

 

ICYMI: Hedgeye CEO Keith McCullough hosted an RTA LIVE session today at 11:00AM. He and Macro Analyst Ben Ryan ran through the Real Time Alerts signals, talked about today's market activity, and fielded questions from subscribers.


Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH

Takeaway: Here are SIGMAs for the 11 retailers that reported earnings this week.

Here are SIGMAs for the 11 retailers that reported earnings this week. 

 

If there's any takeaway, it's that 8 of the 11 companies improved inventory position on the margin, but only 3 improved margins. No other major callouts.

 

ZQK - 4Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart1

 

RH - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart2

 

LULU - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart3

 

COST - 1Q15 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart4

 

VRA - 3Q15 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart5

 

FRAN - 2Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart6

 

MW - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart7

 

RSH - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart8

 

CASY - 2Q15 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart9

 

OXM - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart10

 

WTSL - 3Q14 Earnings

Retail Callouts (12/12): 11 SIGMAS, LULU, RH, ZQK, COST, COH + LVMH - 12 12 chart11

 

COH, LVMH - Coach targeted by LVMH

(http://primeretailer.com/2014/12/11/coach-targeted-by-lvmh/)

 

Takeaway: This is why we covered our long-standing short on COH in the low 30s.

 

 

OTHER NEWS

 

KERING - Creative Director Frida Giannini and CEO Patrizio di Marco to step down from Gucci

(http://www.kering.com/en/press-releases/creative_director_frida_giannini_and_ceo_patrizio_di_marco_to_step_down_from_gucci_)

 

Advent Bids for Stuart Weitzman

(http://www.wwd.com/business-news/mergers-acquisitions/advent-bids-for-stuart-weitzman-8072425?module=hp-topstories)

 

KR - David Dillon to Retire as Kroger Chairman

(http://ir.kroger.com/file.aspx?IID=4004136&FID=26516658)

 

"Rodney McMullen Elected Chairman Starting Jan. 1"

 

Tag Heuer CEO Resigns

(http://www.wwd.com/business-news/human-resources/tag-heuer-ceo-resigns-8073263?module=hp-topstories)

 

BABA - Report – Alibaba security flaw potentially exposes user info to hackers

(http://www.chainstoreage.com/article/report-%E2%80%93-alibaba-security-flaw-potentially-exposes-user-info-hackers)


Got Deflation?

Client Talking Points

Oil

A lot people trying to pick bottoms. You shouldn’t do that when something’s crashing like oil. Deflation. Deflation. Deflation.

Oil is down 44% since June with lower highs and lower lows. Not good.

10-Year Yield

The 10-Year bond yield trading with what? Deflation expectations because deflation expectations are price in what? Oil. It’s a clean cut correlation. The crash in bond yields continue with the yield on the 10-Year down 30% YTD. 

Vix

Volatility went up 80% in three days. #NoWorries. We’ve been bullish on volatility since July. We’ve remained bullish on volatility since July. We’ve been bearish on things like growth and junk bonds since July. These things are interconnected and correlated.

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 5%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

Yield Spread pounded to YTD lows; Spread risk in low-quality bonds at YTD highs #NoWorries

--@KeithMcCullough

QUOTE OF THE DAY

“If winning isn’t everything, why do they keep score?”

--Vince Lombardi

STAT OF THE DAY

$1.1 trillion, the amount of the spending bill passed by Congress last night. 


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