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MACAU: EARLY JANUARY COLOR

CALL TO ACTION


Four days is not enough to call a trend but January started off better than December finished, but still down 16% YoY. With the easiest comp in some time, January should fare better than recent months, optically. However,  February could rival December as the worst month ever in terms of YoY performance.

 

Please see our detailed note:  http://docs.hedgeye.com/HE_Macau_1.6.15.pdf



Who Is The Author?

This note was originally published at 8am on December 23, 2014 for Hedgeye subscribers.

“And who is the author of all this?”

-Napoleon Bonaparte

 

While it’s getting difficult to pin down who, specifically, nailed the narrative of worldwide #deflation, crashing long-term bond yields, and flattening yield curves as the driver of the all-time high in the SP500… that’s what makes a market!

 

The aforementioned quote comes from a section in The Theory That Would Not Die titled “Enlightenment and the Anti-Bayesian Reaction” (page 30) where Napoleon realizes that Pierre-Simon Laplace wasn’t as full of it as those who weren’t yet enlightened.

 

Much unlike the perma bulls, bears, and partisan hacks in our profession, Laplace was a math, stats, and probability guy. In forecasting terms, he didn’t cling to religion or failed academic dogmas. As the facts changed, he did – or at least he had a framework (Bayes Rule) to try.

Who Is The Author? - Crazy bull cartoon 08.19.2014

 

Back to the Global Macro Grind

 

While I can try to explain why the SP500 can drop 103 points in a straight line (in 7 days), then ramp 106 points in 4 days, I don’t think that’s where I add value. There are legions of pundits on the #OldWall that use 1-factor moving averages than can help you with that.

 

Using my #waterfall metaphor for multi-factor, multi-duration risk management, I’m much more comfortable trying to explain market moves in terms of what is happening beneath the headline US stock market index price.

 

What’s interesting, but not surprising, is that some of the big Global Macro factors that concerned consensus on December 16th (when the SP500 closed -5.1% lower at 1972) are actually worse today than they were then.

 

No, I’m not talking about where Russia is trading (-41% YTD). I’m talking about really big US economic risk indicators like:

 

  1. #Deflation Expectations Accelerating
  2. Yield Spread Compression
  3. Risk Ranges Widening

 

“So”, now that I am in the holiday cheer spirit, allow me to knock those pins down, one by one:

  1. #DEFLATION – with Oil reversing intraday and Gold dropping -1.7%, the CRB Commodities Index (19 commodities) dropped another -1.5% yesterday to a fresh YTD low of 237 (that’s -15.4% YTD, crashing -25% since June)
  2. YIELD SPREAD – the belly of the curve is even flatter, but the big one almost every objective strategist monitors (10s/2s spread) has compressed another 7bps this morning to a fresh YTD low of +146bps wide (-38% YTD)
  3. RISK RANGES – for the SP500 and her inverse brother (VIX), immediate-term risk ranges are as wide as they have been in almost 3 years (SPX = 1958-2084, VIX 14.28-23.87)

But #NoWorries, “the market is up”…

 

Not clear what that means, but if the “market” includes things like global bond markets, international equity markets, commodities, currencies, etc., that CNBC type statement would make a 16th century dude who called the world “flat” look smart.

 

Asia (ex-Japan, which we’re actually net long for now via the DXJ) continues to trade much more in line with global #GrowthSlowing than the Dow does. Dr. KOSPI (South Korea) was down another -0.3% overnight to -3.5% YTD. Australia (struggling alongside Canada, Brazil, etc. with #deflation expectations) was -1.1%, and both the Hang Seng and Thailand failed @Hedgeye TREND resistances too.

 

All the while, High Yield and Junk started going down again yesterday. Remember that part of the December 16th #Deflation Dominoes? I do. Down Yen and Euro à Up Dollar à Down Oil, Commodities, etc. (#deflation) à Down High Yield Energy Bonds.

 

In other words:

 

  1. Don’t be levered long Commodities, Energy Stocks/Bonds, Russia, etc.
  2. Stay with #StrongDollar, but don’t confuse that with US growth accelerating in Q4 vs Q3
  3. As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT)

 

After the 2000 and 2008 crashes, who is the author of all this risk management speak?

 

Don’t blame me. It’s Mr. Macro Market’s message. And, at a bare minimum this morning, I wanted to remind you of it as those who are in the business of being willfully blind into year-end won’t.

 

Our Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.05-2.22%

SPX 1958-2084

VIX 14.28-23.87
USD 88.91-90.36

Oil (WTI) 52.05-56.99

Gold 1167-1199

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Who Is The Author? - 12.23.14 chart


MDSO: Adding Medidata Solutions to Investing Ideas

Takeaway: We are adding Medidata Solutions to Investing Ideas.

NoteThe excerpt below was written earlier today by Hedgeye CEO Keith McCullough. Stay tuned for further updates from our Healthcare sector head Tom Tobin.

 

MDSO: Adding Medidata Solutions to Investing Ideas - 45

 

Having not been the firm that told you to chase those "Dow Bro 18,000" highs...

 

Now we're in a position to signal buy on some of our Best Research Ideas. In addition to HOLX, Medidata (MDSO) is on Tom Tobin's Institutional Healthcare Team's Research list.

 

Medidata Solutions (MDSO) is a cloud-based provider of electronic data capture (EDC) and clinical trial management solutions to the Life Sciences industry.

 

Our screening process positions MDSO based on a composite ranking of under-performance, low sellside rating, and high short interest.  While we continue to hammer out the details of the tail thesis, on a trend duration, we expect revenue and earnings upside.

 

We have identified several Key Drivers that point to a material acceleration in application services revenue growth through 1Q15 (0.95 R^2).  

 

We believe the stock will trade above $65 versus the current price of $47 under our base case scenario, with the potential for higher prices over the next 12-18 months.

 

We will outline the details in a BlackBook presentation on 1/16 at 1 PM ET.

 

Buy red, at the low-end of the risk range - sell green, at the high.

 

KM 


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 80.64%
  • SHORT SIGNALS 78.61%

Cartoon of the Day: Free Fallin'

Cartoon of the Day: Free Fallin' - Oil cartoon 01.05.2015

The crash in crude continues with oil plummeting over 5% today, falling below $50 for the first time since the Great Recession in April 2009.


DON’T SHORT THE RUSSELL!!

Takeaway: We are removing the Russell 2000 (IWM) from the short side of our intermediate-term thematic investment conclusions.

Q: What is the most appropriate risk management decision for an investor to make when presented with a security that is bearish TREND, bullish TAIL and smack-dab in the middle of its immediate-term risk range?

 

A: Nothing.

 

Indeed, doing nothing is sometimes the most appropriate investment strategy – which is exactly what we’re doing with respect to the Russell 2000 here.

 

DON’T SHORT THE RUSSELL!! - R2K

 

DON’T SHORT THE RUSSELL!! - 1 5 2015 2 27 19 PM

 

CLICK HERE to view the ~2min video.

 

Moreover, we no longer anticipate meaningful enough downside in the small-cap style factor over the intermediate term to warrant keeping the IWM on our condensed list of shorts per the thematic investment conclusions listed in our daily Macro Playbook, instead opting to replace it with the iShares TIPS Bond ETF (TIP).

 

We have been telegraphing this change for a few weeks now, but to the extent you’re not yet familiar with our logic, please tune in to our Q1 Macro Themes call on Thursday, January 8th at 1pm EST for more details surrounding this change and changes to our other core asset allocation recommendations.

 

Best of luck out there,

 

DD

 

Darius Dale

Associate: Macro Team


Invite | Q1 2015 Macro Themes Conference Call

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, January 8th at 1:00pm EST. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.

 

Q1 2015 MACRO THEMES OVERVIEW:


  • Global #Deflation: Amid a backdrop of secular stagnation across developed economies, we continue to think cyclical forces - namely #StrongDollar commodity price deflation - will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds. 
  • #Quad414: In the first quarter of 2015, we think growth in the U.S. is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.
  • Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.   

Invite | Q1 2015 Macro Themes Conference Call - HE MT 1Q15

 

CALL DETAILS


  • Number:
  • Password: 13598477
  • Materials: CLICK HERE (slides will be available approximately one hour prior to the start of the call)

 

Contact for more information.


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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