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CHART OF THE DAY: How Is Your Favorite Macro Strategist Performing?

CHART OF THE DAY: How Is Your Favorite Macro Strategist Performing? - Chart of the Day

Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye macro analyst Darius Dale.

 

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Keeping with the theme of consistent production, has your favorite macro strategist(s) consistently produced for you over time?

 

While I have no frame of reference on how to answer that question, the following chart can be used as a rough proxy to reasonably conclude that there is a possibility you have been overpaying for macro research and should strongly consider narrowing your list of service providers to those that consistently add value:



Knowledge, Experience and Ability

“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability.”

-Henry Ford

 

For those of you that are currently employed on the buy-side, replace “money” with “performance” and “independence” with “job security” and re-read that quote.

 

Thought-provoking, isn’t it?

 

I borrowed that quote from the late Henry Ford to help make the following point: the buy-side and, to a large extent, the sell-side (via commission dollars) can be an ultra-competitive environment.

 

Specifically, it can be argued that no other industry has such an overt focus on consistently producing favorable outcomes as the financial services industry – well, maybe with the exception of NFL head coaching. Moreover, we can all agree that consistent production is integral to remaining gainfully employed in such a competitive industry.

 

That’s certainly not to say anyone who’s ever been let go was incapable of producing; in fact, I’ve seen some really sharp, incredibly outgoing people let go, and if you’ve been in the industry long enough, you have as well. The good news is that the good ones always land on their feet.

 

Back to the Global Macro Grind

 

Keeping with the theme of consistent production, has your favorite macro strategist(s) consistently produced for you over time?

 

While I have no frame of reference on how to answer that question, the following chart can be used as a rough proxy to reasonably conclude that there is a possibility you have been overpaying for macro research and should strongly consider narrowing your list of service providers to those that consistently add value:

 

Knowledge, Experience and Ability - Chart of the Day

 

Contrast that performance data that with the following sampling of key research calls our macro team has made since inception:

 

  • July ’08: moving to 85% cash in our model asset allocation (CLICK HERE to review)
  • March ’09: bullish on the S&P 500 (CLICK HERE and HERE to review)
  • May ’10: bearish on Eurozone periphery sovereign debt (CLICK HERE to review)
  • June ’11: bullish on long-term Treasury bonds (CLICK HERE to review)
  • November ’12: bearish the Japanese yen/bullish on the Nikkei (CLICK HERE to review)
  • December ’12: bearish on Gold (CLICK HERE to review)
  • January ’13: bullish on the S&P 500 (CLICK HERE and HERE to review)
  • April ’13: bearish on Emerging Market assets (CLICK HERE and to review)
  • May ’13: bearish on U.S. Treasury bonds (CLICK HERE and HERE to review)
  • February ’14: bullish on  U.S. Treasury bonds (CLICK HERE to review)
  • August ’14: bullish on the U.S. dollar and defensive large-cap U.S. equities/bearish on commodities and commodity-linked assets (CLICK HERE to review)

 

That’s certainly not to say that our performance would have been any good (or bad) if we were running a fund instead of our mouths over the past five-plus years!

 

In fact, we tip our hats to anyone who’s performed even modestly well throughout this era of centrally-planned markets. Moreover, we would tend to agree with the general assertion that the post-crisis era has provided investors with a difficult macro environment to consistently produce positive absolute returns and/or generate alpha in.

 

Rather, we highlight these calls to showcase that no matter the setting – i.e. buy or sell side – we’d employ the same top-down quantitative + bottom-up fundamental framework that led us to each of the aforementioned research conclusions.

 

If Henry Ford were alive today, he’d likely agree with our paraphrasing of his “knowledge, experience and ability” clause as the most important possession anyone in our industry can have – i.e. a #RepeatableProcess.

 

Will we always be on the right side of such integral macro market moves? Absolutely not! Just as in years past, there will be plenty of things that we completely miss or are flat-out wrong on.

 

The only thing we can promise you is that our six-person macro team will work tirelessly on your behalf. And in terms of manpower, analytical depth and #RepeatableProcess, we’ve come a very long way over the years; for example, please note the following juxtaposition:

 

 

To the extent you have not yet reviewed our 1Q15 Macro Themes, which we introduced yesterday afternoon, we encourage you to do so. As always the presentation is jam-packed with cutting edge data analysis and thoughtful, well-researched assertions.

 

The thematic investment conclusions of that presentation are as follows:

 

  • LONG U.S. Treasury Bonds (TLT)
  • LONG U.S. Dollar (UUP)
  • LONG large-cap Consumer Staples (XLP)
  • LONG large-cap Health Care (XLV)
  • LONG Homebuilders (ITB)
  • SHORT TIPS (TIP)
  • SHORT Japanese yen (FXY)
  • SHORT Emerging Markets (EEM)
  • SHORT High-Yield Credit (JNK)
  • SHORT large-cap Industrials (XLI)

 

Email us if you’d like to discuss these views further. As always, we encourage thoughtful pushback and appreciate a healthy debate. That’s what makes a market.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.89-2.11% (bearish = bullish Long Bond)

SPX 1 (bullish)

EUR/USD 1.17-1.19 (bearish)

YEN 118.10-121.01 (bearish)

WTI Oil 46.43-51.86 (bearish)

Gold 1175-1225 (bearish)

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Associate: Macro Team


Shadow Boxing

This note was originally published at 8am on December 26, 2014 for Hedgeye subscribers.

“I’ve seen George Foreman shadow boxing, and the shadow won.”

-Muhammad Ali

 

Traditionally observed by Commonwealth Nations like my homeland, today is Boxing Day.

 

Much to Muhhamad Ali’s chagrin, today has nothing to do with him beating up on Foreman or Frazier. It used to be the day when British servants received gifts from their overlords in a “Christmas Box.”

 

Now, barring any central plan you might receive from upon high, it’s just another day off for Canadians to drink beers and watch the World Junior Hockey tournament (which is being held in Toronto and Montreal this year).

 

Shadow Boxing - a5

 

Back to the Global Macro Grind…

 

Although its economy is getting speed-bagged, Japan doesn’t do Boxing Day. That said, their bureaucrats love central planning. In a holiday message to the people he is plundering via currency debasement, this is what the Prime Minister, Shinzo Abe, had to say:

 

“I want companies with high profits that are benefiting from the weak yen to raise wages, investment, and on top of that, consider the prices they pay their suppliers…”

 

Isn’t that just great – thanks for the pep talk, Shinzo.

 

In other news, the people of Japan don’t want to do what Abe is telling them to do. Not to be confused with the Policy To Inflate the Weimar Nikkei’s last price, here’s what’s cooking in Japan, economically:

 

1. As the Yen burns, Japanese Consumer Prices (CPI) are +2.7% year-over-year

2. But Japanese Household Spending (in Burning Yen Terms) is down -2.5% year-over-year

3. And the Savings Rate of the Japanese people just went negative alongside real wage growth

 

I know, this is all progressing so very well…

 

But as long as the Nikkei (which, by the way, we’ve been suggesting you be long, while short Yens vs USD) is up, the financial media that panders to central-planning-access is going to tell you that this Abenomics thing could actually work.

 

In other Global Macro news, other than getting to play Denmark in the 1st round of the 2015 IIHF World Junior Hockey Championship today, things for Russia still suck.

 

Despite “bouncing” off its lows, the Russian Trading System Index is:

 

1. Down -38.4% for 2014 YTD

2. And would only have to be +63% (from here) to get whoever “allocated assets” to it a year ago back to breakeven

3. With an immediate-term risk range of 642-875

 

In other words, with the RTSI (Russian Stock Market) currently trading at 847:

 

1. It has immediate-term upside of +3%

2. And immediate-term downside of -24%

 

#sweet

 

And so is worldwide #GrowthSlowing + #deflation risk, right? Maybe if you’re shadow boxing USA style with year-end performance chasing, or something like that. But I wouldn’t confuse that with trending global macroeconomic gravity.

 

Our immediate-term Global Macro Risk Ranges are now (I’ve added the our intermediate-term TREND view in brackets – you can get our Top 12 macro ranges and TREND views in our Daily Trading Range product):

 

UST 10yr 2.03-2.30% (bearish = bullish Long Bond)

SPX 1956-2110 (bullish)

RUT 1125-1220 (neutral)

Nikkei 17261-17995 (bullish)

VIX 12.95-24.11 (bullish)

USD 89.26-90.89 (bullish)

EUR/USD 1.21-1.23 (bearish)

YEN 118.23-121.11 (bearish)

Oil (WTI) 54.08-57.99 (bearish)

Nat Gas 2.91-3.47 (bearish)

Gold 1161-1197 (bearish)

Copper 2.83-2.93 (bearish)

 

Happy Holidays – best of luck and health to you and your families,

KM

 

Keith R. McCullough

Chief Executive Officer

 

Shadow Boxing - EL 12.26.14


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Gabelli Unplugged: Finding Hidden Value, Secrets to Long-Term Success and Why the Knicks Will Win

 

Billionaire value investor Mario Gabelli of Gamco Investors sat down with Hedgeye CEO Keith McCullough in a granular, wide-ranging “Real Conversations” interview to discuss his investment strategy, process and where he sees opportunity right now.

 

1:51 The Evolution of Gabelli’s Daily Process
3:18 How Do You Look For Value?
4:43 Gabelli’s Simple Approach (we think long-term and function daily)
6:20 Gabelli: We Don’t Do Commodities
8:04 Gabelli: We Had to Go Global
9:15 New Dynamic for Media Companies
11:50 The Knicks and The Rangers are Terrific Content
13:33 Gabelli: Money is Money
14:20 Asset Value of Professional Sports Teams
15:36 Steve Ballmer Buying the Clippers…Not So Nuts?
17:45 How Do You Find Value in a Stock Market that Won’t Go Down?
19:32 Looking At Companies With Wacky Revenue Multiples
21:05 Gabelli: Value Goes Out of Cycle
21:40 Don’t Confuse Bull Markets With Brains


CCL/NCLH/RCL: SUMMARY FROM MANAGEMENT MEETINGS

Takeaway: Came away from cruise management meetings less optimistic on CCL despite the fuel tailwind

CALL TO ACTION

 

This week, we met with RCL, CCL, and NCLH managements in Miami. The tone was quite varied among the 3 companies with CCL the most cautious and NCLH the most optimistic. All operators were quite bullish on the long-term outlook for the industry.  Falling fuel costs are a major tailwind in 2015 for CCL, RCL, and NCLH in that order.  However, the operators, particularly CCL, corroborated our assertion that Europe pricing is under pressure in the face of a weakening economic backdrop and accelerating supply growth (+5%) in 2015. 

 

CCL is the most exposed to European sourced customers and indeed we are most concerned with that stock as it sits at a 52 week high.  Management didn’t exactly bolster the long thesis that yields should outperform the industry (furthest from peak theory) as brand building costs abate (they probably won’t).  On the other hand, NCLH seems the best positioned for 2015.

 

Please see our detailed note: 

http://docs.hedgeye.com/HE_CCL_NCL_RCL_1.8.15.pdf


REPLAY: 1Q15 MACRO INVESTMENT THEMES CALL

On January 8th we hosted our quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 1Q15 and the associated investment implications.

 

We encourage you to check out the Video Replays for each theme below:

 

Global #Deflation

 

#Quad414

 

Long #Housing?


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