January 5, 2015


In the first RTA Live session of 2015, Keith discusses the positions in Real Time Alerts as of 10:30AM ET on January 5, 2015 and answers subscriber questions live on the air.


Takeaway: December under the hood: no relief in sight


While December was partially a throw away month, the details behind the headline 30% decline were not uplifting.  Adjusting for the reclassification of some premium mass tables to direct VIP to circumvent the smoking ban, mass revenues still likely declined at least high single digits. VIP hold percentage approximated normal so bad luck could not be blamed. And while the Chinese President’s visit certainly had a negative impact, it wasn’t as clear cut as universally expected. GGR fell by a similar percentage in the 1st and 2nd halves of the month and there wasn’t much of a pick up after he left.


Following the relief rally in the stocks immediately after the President’s visit, we’re back on the negative side of the trade/trend. Our forecast calls for 9 more months of negative growth with February as the nadir.  Unfortunately, forward EBITDA estimates remain stubbornly high, substantial risk remains and no positive catalysts are apparent.


Please see our detailed note:

Keith's Macro Notebook 1/5: Euro | Oil | UST 10YR


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

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European Banking Monitor: Grexit Fears Priced Into Financials Swaps

Takeaway: International risk remains high as Greece's elections later this month and Russia's ongoing woes couple with steady far-East press

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




European Financial CDS - Swaps mostly widened in Europe last week.  Investors continue to focus on the uncertainty of upcoming Greek elections; Greek banks' CDS widened between 159 and 229 bps last week.


European Banking Monitor: Grexit Fears Priced Into Financials Swaps - chart1 FInancials CDS


Sovereign CDS – European Sovereign Swaps mostly tightened over last week. German sovereign swaps tightened by -21.3% (-4 bps to 14 ) and Portuguese sovereign swaps widened by 7.8% (14 bps to 187).


European Banking Monitor: Grexit Fears Priced Into Financials Swaps - chart2 sovereign CDS


European Banking Monitor: Grexit Fears Priced Into Financials Swaps - chart3 sovereingn CDS


European Banking Monitor: Grexit Fears Priced Into Financials Swaps - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 10 bps.


European Banking Monitor: Grexit Fears Priced Into Financials Swaps - chart5 euribor ois


Matthew Hedrick



Ben Ryan





Takeaway: Today we highlight the new "INCREASE Exposure" signal TACRM is generating for DM Equities and how that is likely to impact capital flows.


Long Ideas/Overweight Recommendations

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

Short Ideas/Underweight Recommendations

  1. iShares Russell 2000 ETF (IWM)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
  4. iShares MSCI European Monetary Union ETF (EZU)
  5. iShares MSCI France ETF (EWQ)



TACRM Generates an “INCREASE Exposure” Signal for DM Equities: For the first time since the week ended May 2nd, our Tactical Asset Class Rotation Model (TACRM) is NOT generating a “DECREASE Exposure” signal for DM Equities. This is because the quantitative model is now generating an “INCREASE Exposure” signal for the primary asset class, which is noteworthy for the following three reasons:


  1. It is now the only primary asset class with the aforementioned bullish notation, having wrestled away the reins from Cash, which is comprised simply of U.S. dollars (UUP) and the VIX (VXX).
  2. Its Passive Trend Follower Asset Allocation reading of 23% is “only” in the 57th percentile of readings on a TTM basis, which implies beta chasers have ample room to crowd back into this asset class, at the margins. 
  3. From a backtesting perspective, the MSCI World Index has returned a cumulative +32.6% on a one-week forward basis since the start of 2008 during periods when TACRM is generating an “INCREASE Exposure” signal for DM Equities. That compares to an actual buy-and-hold return of +7.3% for the index over that same time period.








Why should you care about TACRM’s signaling capabilities at the primary asset class level? At a bare minimum, the model is better than bad at front-running phase transitions across the global macro landscape; at a bare maximum, it’s pretty darn good at doing just that.


Here are the most recent rotation-based signals TACRM has generated for each of the other five primary asset classes:


  • Fixed Income & Yield Chasing: TACRM generated a “DECREASE Exposure” signal in the week-ended September 26th… terrible signal for Treasuries and bond-like equities; outstanding signal for high-yield bonds, EM debt and foreign currency-denominated bonds from the perspective of a U.S. investor (CLICK HERE to review our #Quad4 thesis)
  • EM Equities: TACRM generated a “DECREASE Exposure” signal in the week-ended September 26th… outstanding signal (CLICK HERE and HERE to review our #EmergingOutflows thesis)
  • Foreign Exchange: TACRM generated a “DECREASE Exposure” signal in the week-ended September 5th… outstanding signal (CLICK HERE to review our #Quad4 thesis)
  • Commodities: TACRM generated a “DECREASE Exposure” signal in the week-ended August 8th… outstanding signal (CLICK HERE to review our #Quad4 thesis)
  • Cash: TACRM generated an “INCREASE Exposure” signal in the week-ended September 5th… outstanding signal (CLICK HERE to review our #VolatilityAsymmetry thesis)




















*charts sourced via Bloomberg L.P.


In the spirit of not arguing with basic arithmetic, both the historical backtest data and recent performance support heeding the “INCREASE Exposure” signal TACRM is now generating for DM Equities. To the extent you are looking to increase your allocation to said asset class:


  • At the international level, we continue to like Japanese equities and anticipate material upside for the DXJ in the context of our structural bearish bias on the Japanese yen (FXY). CLICK HERE to review that thesis in full.
  • At the domestic level, sector and style factor leadership is no longer as clear cut as it once was. Specifically, both #Quad4 (i.e. VNQ, XLU) and #Quad1 (i.e. XRT, ITB, IAI, XLY, IWM, IWO, XLF) are dominating the leader board from a Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) reading perspective. The relative supremacy of pro-#Quad1 sectors and style factors among the top-10 is fairly new as of the past few weeks and is something we will address on our Q1 Macro Themes call (1/8/15 at 1pm EST) as it relates to altering our thematic investment conclusions as listed above.




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



#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.


Early Look: 2015 Predictions (1/2)


#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.


Draghi Jawboning and EURO Falling, Again (1/2)


#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,




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.          

Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    



1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


 **NOTE** Due to the shortened holiday week last week, the data below represents positioning reported by the CFTC on Friday, December 26th (reflecting data through Tuesday, December 23rd)

  • The COTTON, WHEAT, AND COCOA markets experienced the most BULLISH relative positioning changes week-over-week
  • The ORANGE JUICE, LIVE CATTLE, AND LEAN HOGS markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The LEAN HOGS, SUGAR, AND RBOB GASOLINE markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND NATURAL GAS markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis


3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.


**Note** While the spread between front month prices and contracts expiring 1-year down the road in Brent and WTI crude oil continues widening, we believe the contango in the futures curve is at minimum in part to the fact that markets aren’t being made, and are not nearly as liquid 1-year out. Liquid, more active front-month contracts can respond to the heightened amount of volatility in a shorter time period. The pattern of the back end of the futures curve adjusting more slowly to cash market prices is common at the big inflection points. When oil prices were up ~+12% in the middle of the year 2014, the curve was in backwardation.    

  • The BRENT CRUDE OIL, WTI CRUDE OIL, AND NATURAL GAS markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - spot 1 Yr basis differential


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest


Ben Ryan


Early Look

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