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CHART OF THE DAY: Consensus Macro Positioning $SPX $TLT

CHART OF THE DAY: Consensus Macro Positioning $SPX $TLT - 12.22.14 EL Chart


"I’ve used the net long/short positions of CFTC Non-Commercial positioning as a contrarian Global Macro indicator for years," wrote CEO Keith McCullough in today's Morning Newsletter.

Wow, Again!

“Wow, I get to wake up again?”

-Dave Grohl


The former drummer of Nirvana went on to say, “you have to make good with what you’ve got.” And that he did. After Kurt Cobain’s death in 1994, Dave Grohl went on to successfully found the Foo Fighters in Seattle, Washington.


These were the bad boy bands that I grew up listening to in college. I even had the Cobain flow, earrings, and yes, much to my Dad’s chagrin, tattoo. But don’t tell anyone. I have such a politically correct image to uphold!


One of my favorite Foo Fighters tunes was one that Grohl wrote called Monkey Wrench (1997). For bears, in US equity market terms, there’s this thing called year-end that is something similar to that. And wow, did they just ramp it again!


Wow, Again! - d5


Back to the Global Macro Grind…


After going straight down for the 1st two weeks of December (like they did in the 1st two weeks of October), they v-bottomed the US equity futures again. And whoever “they” are – I must once again say, wow – congrats (for now).


One way to ramp the stock market is for a determined group of “they” to buy the living daylights out of SP500 futures in a compressed period of time (say, into options expiration day, for example).


When I say “ramp”, I mean ramp! Check out this ramp in the CFTC net LONG position of SP500 (Index + Emini) last week:


1. SPX net long position (futures and options contracts) was +104,196 week-over-week

2. That takes the total NET LONG positions to +153,107 contracts

3. Vs. the 3 and 6 month avg net positions of +19,661 and -10,751, respectively


#Wow, again!


Since I’ve used the net long/short positions of CFTC Non-Commercial positioning as a contrarian Global Macro indicator for years, this is easily the most interesting data point in my notebook this morning.


Especially for those of you who are uber bullish on #deflation and global #GrowthSlowing in Long Bond (TLT, EDV, etc.) terms, here’s another beauty:


1. 10yr Treasury net SHORT position climbed another -55,605 week-over-week

2. That takes the latest net SHORT position in Long-term Treasuries to a fresh YTD high of -270,383 contracts

3. Vs. the 3 and 6 months avg net short positions of -86,021 and -45,589, respectively


The only other major macro futures/options position I’d call out is that the short position in the Japanese Yen dropped 17,049 contracts to a net SHORT position of -86,805 last week (vs. the 3 and 6 month avg net short positions of -96,791 and -90,156, respectively).


In other words, if you’re fading Consensus Macro alongside us these sentiment moves mean that:


1. While we aren’t currently short SPY in Real-Time Alerts, putting that back on closer to 2090 makes sense

2. Staying with our favorite, low-volatility, absolute return Long Bond positions (TLT, EDV) definitely makes sense

3. Re-shorting Burning Yens (vs USD) on the bounce early last week is where we want to be


If you want to get right racy into year-end and buy some big central planning beta, the Weimar Nikkei is probably where the pin action is going to be at. These Japanese dudes are politically incentivized!


Unlike Asia ex-Japan (MSCI index) which was down another -1.7% last week, the Nikkei was up another +1.4% to +8.2% for 2014 YTD and has immediate-term upside to 17,921 (see our latest Japan deck for the why).


Top-down, while the agenda to mark-up US equity markets into year-end is fun to consider, it’ll be critical to monitor mounting #deflation and #GrowthSlowing risks in the global economy.


Amidst the v-bottoms, Emerging Markets did not. EM Equities (MSCI Index) fell another -0.4% last week to -6.7% YTD. Someone needs to show me some wow there soon, or I’ll just keep waking you up to what we’ve got…


And that’s both growth and inflation expectations slowing, big time.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.03-2.23%


Nikkei 17162-17921

VIX 14.34-24.16

YEN 118.42-120.63

Oil (WTI) 52.06-57.94


Best of luck out there this week,



Keith R. McCullough

Chief Executive Officer


Wow, Again! - 12.22.14 EL Chart

Party Hard?

This note was originally published at 8am on December 08, 2014 for Hedgeye subscribers.

“I’m the fellow who takes away the punch bowl just when the party is getting good.”

-William McChesney Martin


Economic #history fans will remember McChesney Martin as the Chairman of the Federal Reserve when central planners didn’t decide the fate of every market day (1951-1970). Sadly, Richard Nixon and Arthur Burns changed that by Burning The Buck in 1971.


Today, if you want to light up your country’s currency and party hard, you need a Ph.D. in economic storytelling. Devaluation has plenty of stock market pop, but “the trouble is...” according to Ken Rogoff, “a lot of people have not had any punch yet.”


In contrast, the two aforementioned quotes are what Jim Rickards used to introduce Chapter 10 (pg 243 in The Death of Money) – “Crossroads.” And, oh are we at a crossroad for both growth and inflation expectations, globally, this morning.


Back to the Global Macro Grind


Before I replay what happened last week, here’s what the Japanese just restated (revised lower) about the results of burning their currency – Q3 GDP dropped -1.9% (year-over-year) in 2014. “So”, they definitely need to triple down on that!

Party Hard? - Abenomics cartoon 11.17.2014 

I know, that is so Q3. How about China’s November trade data? Imports dropped -7% year-over-year (from +5% in October, which was a bad number to begin with); exports slowed to +5% NOV vs. +12% in OCT. #TrainWreck = Chinese stocks straight up.


In other central planning news, here’s what the world’s Big 3 (currencies) did last week:


  1. Japanese Yens burned another -2.3% last week and have lost -15.6% of their value in the last 6 months
  2. Europe crashed the Euro another -1.3% wk-over-wk (-10.1% in the last 6 months)
  3. US Dollar Index rose another +1.1% on the week (+11.2% in the last 6 months)


With the exception of a counter-TREND move in US jobs data (the 1st pseudo good rate of change report in months), most of the strength in the US Dollar can be attributed to the currency war (i.e. where the BOJ and ECB burn theirs).


To review, why does an un-elected central planner burn the currency?


A)     In response to #GrowthSlowing and/or

B)      In reaction to #deflation


In Hedgeye-speak (i.e. in Bayesian rate of change terms), when both of these core factors (GROWTH and INFLATION) are slowing, we call that the 4th Quadrant. That’s why our Q4 Macro Theme is called #Quad4 Deflation. That’s where we think the USA is too.


But, but… “it’s different this time” (says the cover of Barron’s, who will be charging 2 & 20 for that investment thesis starting in 2015 due to #deflationary forces in Old Wall media print advertising).


And… at the end of a cycle (66 consecutive months of US economic expansion), the other 2/3 of Americans who have only been punched (negative real wages for the last 5 years) are going to magically get wage growth and a capex cycle…


Roger that.


Simple Global Macro risk manager question: with global #GrowthSlowing and #Quad4 Deflation, how are global capex cycles and wages going to inflate? A: I don’t know.


While the fanfare surrounding Nikkei and “Dow 18,000 Bro” has been fantastic, the following stock markets have not been:


  1. Emerging Markets (MSCI Equity Index) down -1.8% on the week to -1.6% YTD
  2. Latin American Equities (MSCI Index) down another -5.1% week-over-week to -10.8% YTD
  3. Asia ex-Japan (MSCI Index) down -0.9% on the week to +3.7% YTD
  4. Brazil’s stock market -5.0% on the week to +0.9% YTD
  5. Canada’s stock market down -1.8% week-over-week (+6.3% YTD)
  6. Russia’s stock market continued to crash, -6.7% last week to -37% YTD


These stock markets have been undergoing what we call a phase transition in inflation expectations becoming deflationary ones. You can see that in the following real-time read-throughs:


  1. US 5yr Breakevens dropped another -4 basis pts on the wk to 1.36% (crashing -26%, or -47bps, YTD)
  2. West Texas Crude Oil down another -0.8% to -28.6% YTD
  3. CRB Commodities Index deflating another -0.8% last week to -9.9% YTD


Even the strongest commodities in 2014 (Coffee and Cattle) were down -3.9% and -2.6% last week, respectively.


From here, I think the debate really boils down to what’s more important: A) the impact of #deflation on stocks, bonds, and workers who have been compensated (in size) by the last 5 years of inflation expectations, or B) Ph.D. hopes for US wage growth?


Rather than partying hard with the planners, I’ll take B). Yep, call me names – I’m the fellow who doesn’t get paid to navel gaze at the Weimar Nikkei Dow and think that 55x earnings for the Russell 2000 in 2014 wasn’t a #bubble.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.34%

SPX 2040-2081

RUT 1149-1190

EUR/USD 1.22-1.24

Yen 119.04-121.31

WTI Oil 62.21-69.40


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Party Hard? - 12.08.14 Chart

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 deltas

Commodities: Weekly Quant - chart2 deltas 2

Commodities: Weekly Quant - chart3 usd correls

Commodities: Weekly Quant - chart4 volume

Commodities: Weekly Quant - chart5 open interest

Commodities: Weekly Quant - chart6 vol

Commodities: Weekly Quant - chart7 sentiment



Ben Ryan


Investing Ideas - Levels

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

Investing Ideas - Levels  - Investingideas12.19

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.


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.


 McCullough: I’ve Never Tried Heroin and Europe Looks Like Hell

In this excerpt from Wednesday’s Morning Macro Call for institutional subscribers, Hedgeye CEO Keith McCullough discusses the recent moves in European equities and questions whether ECB President Mario Draghi’s money printing (which we affectionately call the “Draghi Drugs”) can still deliver a high. If you’re hedged on the hope that central banks will save you, the fundamental issues in the major economies will hurt you.



McCullough: Why You Won't See Me In Barron's Any Time Soon

In this brief excerpt from Monday’s Institutional Morning Macro Call, Hedgeye CEO Keith McCullough discusses failed forecasts from Barron’s and the only catalyst for the long bond.



EXCLUSIVE: Keith McCullough’s 2015 Market Forecast

In this brief excerpt from Tuesday’s Morning Macro Call, Hedgeye CEO Keith McCullough finally offers his coveted 2015 market forecast in response to a viewer’s question. 



Q&A: What Deflation Means for Texas and Your Portfolio

The crash in oil is old news by now, so on Wednesday's Morning Macro Call Keith McCullough responds to a subscriber question with a breakdown of how deflation impacts the rest of your portfolio, from the MLP space to Healthcare.


McCullough on Fox Business: "The Most Contrarian Thing I've Ever Heard!"

Hedgeye CEO Keith McCullough appeared on Fox Business' Opening Bell with Maria Bartiromo Friday morning with Jeff Kleintop of Charles Schwab and Jones Trading Chief Market Strategist Mike O’Rourke. During a heated discussion on what will drive stocks in 2015, Kleintop claimed the new year will be brighter for global growth and Keith fired back that this is the most contrarian view he has ever heard.


Next, Keith and Mike O’Rourke sounded off on the state of the markets. Keith highlighted his view that the rest of the world is an ongoing "train wreck" and discussed risks associated with rising volatility. 


In this final clip, Keith and Mike O’Rourke discussed the economic implications of low oil prices. Keith reiterated his call to buy the long bond (TLT) as growth will surprise on the down side.


Everything Good?

The Best of This Week From Hedgeye - World Market No 12.16.14

"Nowhere to run to, baby ... Nowhere to hide." 

-Martha and the Vandellas


Red October...

The Best of This Week From Hedgeye - Russia ruble oil 12.15.14

 "The risk that was developing in Russia has been crystal clear," Hedgeye's Keith McCullough tweeted on Monday. "It's nothing new." On a related note, the Russian stock market crash continues unabated... down another -5.7% #NoWorries right?


Positioning for Fire $LNCO

The Best of This Week From Hedgeye - COD LNCO 12.19.14

Editor's note: Below is an excerpt from Friday's Morning Newsletter written by Hedgeye Energy Sector Head Kevin Kaiser. 


I don’t spend a lot of time trying to forecast what I’m ill-equipped to forecast with a high degree of confidence.  I don’t know when lightning will strike.  But I can put forth investment ideas that are based on sound data and reasoning, and are likely to work under various assumptions and scenarios.  And when the spark is set, I am prepared and well-positioned. 


I’ve written about no company more than LINN Energy (LINE, LNCO) over the past two years because I thought that the system was extremely unstable.  The basic story has always been the same – the company makes no real profit, but dividends out $1 billion per year, which it pays for via serial debt and equity issuance.  As I saw it, it was highly likely to end disastrously.  The pushback was consistent, “There’s no catalyst.”  This was not a good idea, I was told, because there wasn’t a lightning storm in sight…


Is It Really Different This Time? (Consensus U.S. GDP Forecast Edition)

The Best of This Week From Hedgeye - COD GDP 12.16.14

For more information on how you can become a subscriber to the fastest-growing independent research firm in America click here.


Poll of the Day: Will Vladimir Putin Take Major Military Action in 2015?


The crash in Russia continues as the ruble plunges to record lows, oil drops 50% since June, and the Russian stock market sinks over 50% YTD. We wanted to know what you thought.

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