Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
We have been signaling the probability of the Japanese stock market to go up. Yen down = Japanese equities up. Japanese equities signaled immediate term trade over bought up, Weimar Nikkei (which we have people long of) up another +1.2% last night to +11.2% year-to-date. Yen is testing the low end of the immediate term risk range.
You saw the bounce in oil yesterday and then it fails to show follow through (again). WTI oil is down -1.5% to $56.25, the risk range immediate term risk range is 52.87 to 59.23. Look at oil as the epicenter of the risk of deflation.
The immediate term risk range on the VIX (volatility index) is wacky wide at 13.17 to 24.35. At the low end of the range you sell and at the high end of the range you buy. The II Bull/Bear Spread is +3770 basis points to the Bull side - not an all-time high, but close. People just believe they can’t make fundamentally make money on the short side, that’s not true because we have.
|FIXED INCOME||30%||INTL CURRENCIES||7%|
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.
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).
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.
Serious Lack of Momentum in the Momentum Stocks | $GPRO $LOCO https://app.hedgeye.com/insights/41390-mccullough-serious-lack-of-momentum-in-the-momentum-stocks-gpro-l … via @hedgeye
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Keurig Green Mountain has announced a recall affecting roughly 7 million of its K10 Mini Plus Brewing Systems manufactured between 2009 and 2014.
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Takeaway: Growth in net new medical practices held steady at 27% CAGR since 12/10. Sequential q/q growth is tracking 6.1%.
Editor's note: This unlocked research note was originally published by Hedgeye Healthcare Sector Head Tom Tobin and analyst Andrew Freeman on December 23, 2014 at 09:43.
Update through 12/22 places the annual growth rate of new medical practices on athenaNet at 27%. In terms of attrition, net adds since 12/10 were 34, with 46 practices won and 12 lost. Sequential q/q growth is tracking 6.1%.
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Takeaway: In today's edition of the Macro Playbook, we circle the wagons on the domestic economy just the way you like it – in chart form.
THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
Short Ideas/Underweight Recommendations
QUANT SIGNALS & RESEARCH CONTEXT
Quick Check-In With the U.S. Economy: It’s been a few weeks since we circled the wagons on the state of the domestic economy so we thought we’d bequeath to you today’s visual summary – presented without spin or further commentary, effectively allowing you be the judge of the state of the U.S. economy (let us know what you think; as always, we’d love to hear your thoughts!).
Markit Composite PMI: slowing on both a sequential and trending basis (CLICK HERE to learn why the trend in this data series is a very important economic indicator):
Markit Services PMI: slowing on both a sequential and trending basis:
Markit Manufacturing PMI: slowing on both a sequential and trending basis:
Industrial Production: accelerating on a both a sequential and trending basis:
Real PCE: accelerating on a both a sequential and trending basis:
Nominal Retail Sales: accelerating on a both a sequential and trending basis:
Conference Board Consumer Confidence: slowing on a sequential and ever-so-slightly on a trending basis:
NFIB Small Business Confidence: accelerating on a both a sequential and trending basis:
Exports: slowing on both a sequential and trending basis:
Imports: accelerating on a sequential basis and slowing on a trending basis:
Nonfarm Payrolls: accelerating on a both a sequential and trending basis:
Jobless Claims (4-week rolling average, NSA, YoY): slowing on both a sequential and trending basis:
U-6 Underemployment Rate: slowing on both a sequential and trending basis:
Real Wages: accelerating on a both a sequential and trending basis:
Durable Goods New Orders: slowing on both a sequential and trending basis:
Headline CPI: slowing on both a sequential and trending basis:
Core CPI: slowing on both a sequential and trending basis:
Merry Christmas, Happy Hanukkah and Joyful Kwanzaa to all!
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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.
#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.
Moscow, We Have a Problem (12/16)
#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.
Best of luck out there,
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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.
Editor's note: Below is an excerpt from today's Morning Newsletter which was written by Hedgeye Director of Research Daryl Jones.
Staying on the theme of consumption as a big driver of Q3 GDP, our Retail Sector Head Brian McGough circulated a chart of “ICSC (International Council of Shopping Centers) YTD Comp Sales Trends,” which is in the Chart of the Day, and according to McGough:
“A big rebound in sales for the week, but this follows two big weekly declines in the context of an intermediate term downtrend. The point there is that with sales trending down so much into the biggest holiday week, it makes sense that retailers would really turn the discounting machine into overdrive to have any shot at hitting numbers and prevent a glut of inventory in January. Online sales trends per Channel Advisor are downright sobering.”
Certainly, this data doesn’t guarantee that Q4 GDP will slow from Q3, because it is still possible that old St. Nicholas has some last minute shopping to do!
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