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Tizzle In The System

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

“Each time the system is recalculated, the posterior becomes the prior.”

-Sharon Bertsch McGrayne

 

Simple is as simple does, within a non-linear and dynamic system like the Global Macro market, that is…

 

“Conceptually, Bayes’ system was simple. We modify our opinions with objective information. Initial Beliefs (our guess where the cue ball landed) + Recent Objective Data (most recent ball left or right of the prior) = A New and Improved Belief.”

-The Theory That Would Not Die, pg 8

 

What do you believe? Is what you believed in late September consistent with what you believe after the October and December corrections? How about from January to June (when late-cycle inflation was accelerating) vs. today’s global #deflation? The best way to manage risk is by constantly recalculating your system.

Tizzle In The System - Falling cartoon 12.10.2014

 

Back to the Global Macro Grind

 

What does the system say this morning?

 

With the Russell 2000 down YTD and both inflation expectations and 10yr bond yields #crashing, initial 2014 consensus beliefs of worldwide growth accelerating and rates rising are no longer believed.

 

Since so many Old Wall dudes still use the “Dow” as some sort of proxy for the global economy, here’s what the broader global equity system is saying:

 

1. Weimar Nikkei (Japan) only goes up when the economy is so bad that they need to hit the CTRL+Panic (print) button

2. The liquid side of the “China” trade (Hang Seng) continued to signal bearish TREND @Hedgeye overnight (-0.9%)

3. The former Global Growth “signal” (known as Dr. KOSPI in South Korea) -1.5% overnight to -4.7% YTD #bearish

4. The UK’s FTSE failed @Hedgeye TREND resistance and is back to DOWN for 2014 YTD

5. Germany’s DAX is holding on to TREND support of 9688 at +3.2% YTD

6. Greece, Portugal, and Russia continue to crash (down more than 20% respectively, YTD)

 

Oh, and Argentina dropped -14% in the last 2 trading days… but #NoWorries there – centrally planned currency devaluation has had fantastic economic results for the Argentines! Watch the LEGO movie this weekend with your kids – “everything is awesome.”

 

Yep, everything other than this other Big Macro thing that is correlating with #CommoditiesCrashing called 10yr Bond Yields:

 

1. Japan 10yr = 0.40%

2. Germany = 0.67%

3. France = 0.94%

 

“So” I guess my growth-and-inflation-slowing bull case for the USA Long Bond (TLT) with the US 10yr Treasury Yield crashing (-28% YTD) to 2.16% has plenty of room to run.

 

The only thing that is awesome (i.e. you don’t have to make things up about global growth accelerating and #deflation not being a globally interconnected risk) is actually being long something, in size, with very low-volatility (Long-Term Treasuries).

 

One of our hard core customers called it “TLT tizzling” at our Hedgeye NYC Holiday Party on Tuesday… so I looked that up in the Urban Dictionary: “A fat party. This word is derived from the word partizzle, shortened to tizzle…”

 

LOL

 

Yes, it’s ok to laugh at this game. If you don’t, it might just make you cry. And so will what’s most causal to the pain you are seeing in inflation expectations globally right now – central planners losing Mr. Macro Market’s confidence that they can re-flate asset prices.

 

In case you didn’t know, that’s how this central planning game of expectations ends – in #deflation.

 

It’s one thing to run around telling yourself that the Dow and DAX are up because you just knew that markets can’t go down. It’s entirely another to be doing that over and over again when the global macro system starts to signal that the party’s music is stopping.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets, which you can find in our Daily Trading Range product) are as follows:

 

UST 10yr Yield 2.14-2.24% (bearish)

SPX 2018-2042 (bullish)

RUT 1151-1172 (bearish)

KOSPI 1901-1965 (bearish)

VIX 14.43-19.59 (bullish)

USD 87.67-88.79 (bullish)

EUR/USD 1.22-1.25 (bearish)

Yen 116.79-121.65 (bearish)

Oil (WTI) 60.48-65.38 (bearish)

NatGas 3.49-3.81 (bearish)

Gold 1205-1242 (neutral)

Copper 2.84-2.95 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough

Chief Executive Officer

 

Tizzle In The System - 12.11.14 TLT vs. CRB


Keith's Macro Notebook 12/24: Japan | Oil | Sentiment

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Cartoon of the Day: Naughty List

Cartoon of the Day: Naughty List - Lump of coal cartoon 12.25.2014

The only thing worse than getting coal in your stocking this year? Getting oil. It remains the epicenter of the risk of deflation with WTI falling from $101 six months ago to $55.98 today.


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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.

Japan, Oil and Sentiment

Client Talking Points

JAPAN

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.

OIL

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.

SENTIMENT

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.

Asset Allocation

CASH 57% US EQUITIES 4%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 7%

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

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

@KeithMcCullough

QUOTE OF THE DAY

The Revolution transformed science from a popular hobby into a full-fledged profession.

-Sharon Bertsch McGrayne

STAT OF THE DAY

Keurig Green Mountain has announced a recall affecting roughly 7 million of its K10 Mini Plus Brewing Systems manufactured between 2009 and 2014. 


athenahealth $ATHN | Practice Count Updated

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.

athenahealth $ATHN | Practice Count Updated - 2014 12 23 Medical Practice Growth

 

Tracker update

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%.

 

Please call or e-mail with any questions.

 

---

APPENDIX

 

athenahealth $ATHN | Practice Count Updated - 2014 12 23 Attrittion

athenahealth $ATHN | Practice Count Updated - 2014 12 23 Medical Practice Count

 

Andrew Freedman

Analyst

203-562-6500

afreedman@hedgeye.com

@HedgeyeHIT 

 

Thomas Tobin
Managing Director 

203-562-6500

ttobin@hedgeye.com

@HedgeyeHC

 


THE HEDGEYE MACRO PLAYBOOK

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

  1. Health Care Select Sector SPDR Fund (XLV)
  2. iShares National AMT-Free Muni Bond ETF (MUB)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. iShares 20+ Year Treasury Bond ETF (TLT)
  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)

 

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):

 

THE HEDGEYE MACRO PLAYBOOK - COMPOSITE PMI

 

Markit Services PMI: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - SERVICES PMI

 

Markit Manufacturing PMI: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - MANUFACTURING PMI

 

Industrial Production: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - INDUSTRIAL PRODUCTION

 

Real PCE: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - REAL PCE

 

Nominal Retail Sales: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - RETAIL SALES

 

Conference Board Consumer Confidence: slowing on a sequential and ever-so-slightly on a trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - CONSUMER CONFIDENCE

 

NFIB Small Business Confidence: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - BUSINESS CONFIDENCE

 

Exports: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - EXPORTS

 

Imports: accelerating on a sequential basis and slowing on a trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - IMPORTS

 

Nonfarm Payrolls: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - PAYROLLS

 

Jobless Claims (4-week rolling average, NSA, YoY): slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - JOBLESS CLAIMS

 

U-6 Underemployment Rate: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - U 6 UNEMPLOYMENT

 

Real Wages: accelerating on a both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - REAL WAGES

 

Durable Goods New Orders: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - DURABLE GOODS

 

Headline CPI: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - CPI

 

Core CPI: slowing on both a sequential and trending basis:

 

THE HEDGEYE MACRO PLAYBOOK - CORE CPI

 

Merry Christmas, Happy Hanukkah and Joyful Kwanzaa to all!

 

***CLICK HERE to download the full TACRM presentation.***

 

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.

 

Does Your View on Rates Include the Risk of a “Reflexive Deflationary Spiral”? (12/19)

 

#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.

 

#Bubbles: “Hedge Fund Hotel” Edition (Part II) (12/8)

 

Best of luck out there,

 

DD

 

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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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