Takeaway: In today's Macro Playbook, we revisit our bullish bias on the U.S. dollar through the lens of our rigorous quantitative analyses.


Long Ideas/Overweight Recommendations

  1. Consumer Staples Select Sector SPDR Fund (XLP)
  2. Health Care Select Sector SPDR Fund (XLV)
  3. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
  4. iShares U.S. Home Construction ETF (ITB)
  5. iShares 20+ Year Treasury Bond ETF (TLT)
  6. LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV)

Short Ideas/Underweight Recommendations

  1. iShares TIPS Bond ETF (TIP)
  2. CurrencyShares Japanese Yen Trust (FXY)
  3. Industrial Select Sector SPDR Fund (XLI)
  4. SPDR Barclays High Yield Bond ETF (JNK)
  5. iShares MSCI Emerging Markets ETF (EEM)
  6. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



#Quad4 Continues to Support a Stronger USD: For those of you who enjoy the occasional game show:



Source: Twitter


The correct answer is, “What is a chart of the U.S. Dollar Index (DXY)?”, which continues on one of its largest intermediate-term melt-ups ever.  In fact, its +16.7% return from its TTM closing low of 79.09 on May 6th, 2014 is good for the steepest 179-day return since April ’09.



Source: Bloomberg L.P.


This rapid appreciation of the U.S. currency has coincided with an equally – if not more dramatic – rise in the net LONG position in DXY futures and options. Specifically, the non-commercial net length in this asset class has rotated all the way from a net SHORT position as recently as late-May to an all-time wide net LONG position of +69.2k contracts per the most recently reported weekly data (through 1/6).



Source: Bloomberg L.P.


This material ramp in positioning has facilitated the emergence of a crowded LONG-dollar trade. Specifically, that +69.2k net LONG position is good for a +2.2 SIGMA move vs. its TTM average net length. Recall that we are typically inclined to fade beta in the immediate-term when the net length exceeds two SIGMA.




That would likely coincide with a pullback to 91.58 on the DXY. A more material pullback to 87.95 is a key risk in the context of a likely continuation of #Quad4-confirming reported U.S. growth and inflation data for the next ~3 weeks.




That being said, however, the EUR and JPY net SHORT positions aren’t nearly as crowded so that would seem to suggest the positioning in the DXY is more a function of investor hedging than it is a function of absolute belief in secular dollar appreciation.


Moreover, we continue to think the USD is likely to trade materially higher vs. its peers over the intermediate-to-long term as market participants increasingly price in a sustained policy divergence among the G-3 economies.


Our Tactical Asset Class Rotation Model (TACRM) continues to signal this from a quantitative perspective. At the primary asset class level, TACRM continues to generate a “DECREASE Exposure” signal for Foreign Exchange, which it has maintained since the week ended September 5th, 2014. Its Passive Trend Follower Asset Allocation of 1% is down -88% from its TTM average and in the 0th percentile of all readings over both the TTM and since the start of 2008.








Very rarely in the history of global macro do you have such impactful moves in the currency market as it pertains to knock-on effects such as #EmergingOutflows, #Quad4 commodity price deflation and global capital flows into liquid dollar-denominated financial assets (think: SPY and TLT).


To the extent you are not already, we continue to implore you to get on the right side of this trade because we think it has serious legs.


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



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven 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: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US 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.


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.          

European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade

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 




Key Takeaways:

The big call-out this week remains the ongoing drop in yield spreads and commodity prices. The former puts pressure on the domestic banking market while the latter pressures the economies of select international economies like Russia. Sberbank saw swaps move out another 117 bps w/w as Fitch cut the sovereign rating to near junk. There's little indication thus far that the domestic banking market is pricing in rising international risk, but we think the risk/reward setup there remains unfavorable.


European Financial CDS - Fitch cut Russia's credit ratings to near junk territory. In response, Sberbank CDS swaps widened by a further 117 bps on the week to 726 bps. Greece saw its banks' swaps tightene w/w by an average 60 bps to the low-to-mid 800s. Elsewhere in Europe there was relatively little movement in swaps.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart1 euro financials CDS


Sovereign CDS – Sovereign swaps mostly widened over last week. Italian, Spanish and Portuguese swaps rose 17, 14 and 20 bps, respectively on the week, though they are still down nominally on a month-over-month basis. The main event in the near term remains the Greek vote on January 25th.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart2 sovereign CDS


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart3 sovereign CDS


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - 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 11 bps.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart5 euribor OIS Spread


Matthew Hedrick



Ben Ryan



Monday Mashup: Changes to Our Investment Ideas List

Monday Mashup: Changes to Our Investment Ideas List - 11



We made several changes to our Investment Ideas this week.  In the coming weeks, we will be outlining these changes in more detail.


Perhaps the two most notable moves are the relegation of JACK and PLKI from the Long List to the Long Bench.  We like both names longer-term, but believe the impressive recent outperformance means the street is beginning to understand the long thesis and incremental good news is likely baked-in.


We’ve also expanded our Short Bench with the addition of several casual dining names.  We’re looking to get aggressive on the short side, after we roll easy comps, as we head into the spring.


recent notes

01/05/15 Monday Mashup: BWLD, SBUX and More

01/08/15 SBUX: Why We Think It’s a Short

01/08/15 Knapp Headlines Strong, But…

01/09/15 SBUX: Part of the Story is Going Untold

Events This Week

Monday, January 12th


Tuesday, January 13th


Wednesday, January 14th

  • DPZ Investor Day


Chart of the Day

Monday Mashup: Changes to Our Investment Ideas List - chart2


Recent News Flow

Monday, January 5th

  • BOBE upgraded to buy at Janney Capital with a $60 PT.
  • DPZ upgraded to buy at Janney Capital with a $110 PT.
  • LOCO upgraded to outperform at RW Baird with a $34 PT.
  • PBPB upgraded to outperform at RW Baird with a $17 PT.
  • BWLD PT increased to $205 from $180 at UBS.
  • BWLD downgraded to neutral at RW Baird with a $180 PT.
  • SBUX downgraded to neutral at Janney Capital with an $85 PT.
  • LOCO announced an extension of its Under 500 line with four new menu items, each under 500 calories.  The new offerings include the Chicken & Shrimp Grilled Tostada, Double Chicken Wet Burrito, Grilled Chicken & Kale Salad, and Skinny Chicken Quesadilla.
  • DFRG opened its newest Del Frisco’s Grille in Pasadena, CA.  The restaurant spans more than 7,000 square feet and can entertain about 200 people between both indoor and outdoor seating.

Tuesday, January 6th

  • LOCO announced the opening of three new franchised locations in California (Victorvile, Stockton, and Santa Paula) and one new franchised location in Nevada (Reno).
  • DIN Applebee’s introduced its new Pub Diet menu which features fiber and protein rich dishes with less than 600 calories.  The menu includes four dishes starting at $9.99: Pepper-Crusted Sirloin & Whole Grains, Cedar Grilled Lemon Chicken, Shrimp & Broccoli Cavatappi, and Savory Cedar Salmon.
  • DNKN announced its intention to replace its senior secured credit facility with a new securitized financing facility, expected to be comprised of $2.3 billion of senior fixed-rate term notes and $100 million of variable funding notes.

Wednesday, January 7th

  • FRGI announced the promotion of three of its top executives.  CFO Lynn Schweinfurth was promoted to senior vice president, Chief Counsel Joseph Zirkman was promoted to senior vice president, and Chief Development Officer John Todd was promoted to vice president.

Thursday, January 8th

  • DNKN announced expansion plans in China with the signing of a development agreement that calls for the development of more than 1,400 restaurants across China over the next 20 years as part of a joint venture between Jollibee Worldwide Pte Ltd. and Jasmine Asset Holding Ltd.
  • LOCO celebrated the grand opening of its newest location in Goodyear, Arizona – its 19th restaurant in the state.  The 3,000 square foot restaurant has room for 62 guests.
  • SBUX announced COO Troy Alstead will take a leave from the company, effective March 1st.  The company will provide detail on transition plans during the company Q1 earnings call on January 22, 2015.


Sector Performance

Monday Mashup: Changes to Our Investment Ideas List - 3


Monday Mashup: Changes to Our Investment Ideas List - 4

XLY Quantitative Setup

Monday Mashup: Changes to Our Investment Ideas List - 5

Casual Dining Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 6


Monday Mashup: Changes to Our Investment Ideas List - 7

Quick Service Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 8


Monday Mashup: Changes to Our Investment Ideas List - 9

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

EVENT: P Best Idea SHORT call

Takeaway: Join us for our call Thursday, January 15th at 1:00pm EST. Call details will be posted Thursday morning.

We will be hosting a call outlining their Best Idea Short thesis on Pandora Media (P).  P’s user retention issues and waning TAM create a precarious setup into 2015.  Further, its monetization strategy will only make this worse.


Join us for our call Thursday, January 15th at 1:00pm EST.




  • Users to Decline in 2015: P’s waning TAM isn’t large enough to compensate for its heightened attrition issues.
  • Tug of War: P will need to continue increasing ad load to drive much of its revenue growth, which will exacerbate its attrition issues.
  • Lofty Consensus Revenue: P would require a considerable acceleration in ARPU growth to hit 2015 estimates.  If P falls short in 2015, 2016 would be unattainable.



We will be posting call details Thursday mornings.  Ping us or email  for more information.




Hesham Shaaban, CFA



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.

  • The SUGAR, HEATING OIL, AND SILVER markets experienced the most BULLISH relative positioning changes week-over-week
  • The WHEAT, COTTON, AND ORANGE JUICE 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 RBOB GASOLINE, BRENT CRUDE, AND CORN markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND COCOA 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.

  • The BRENT CRUDE, NATURAL GAS, AND WTI CRUDE 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 - chart3 spot 1 yr basis


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



Takeaway: The bottom isn’t in – bad 2nd week of January


Week #2 in January was a weak one for table revenues in Macau. Feedback from the ground indicates widespread weakness with Union Pay scrutiny adding to the long list of issues. Analysts making the “bottom is in” call last week may want to rethink their thesis. While estimates are finally getting cut ahead of the Q4 earnings season, it may not be enough. The near and intermediate risks continue to mount and the numbers are worsening. 


Please see our detailed note:

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