Important People

“Learn not to be intimidated by important people.”

-Orit Gadiesh


For those of you who don’t know her (I don’t), when it comes to the Private Equity business, Orit Gadiesh (Chairman of Bain & Company) is a very important person.


“Gadiesh is known as the person whose leadership brought Bain out of financial difficulties in the early 1990s… her reputation and mystique are well known in the consulting world. So is her history. She spent two years in the Israeli intelligence unit” learning the aformentioned life lesson in today’s quote. (The Medici Effect, pg 75)


Important People - gadiesh orit


Do “important” people intimidate you? If your house was burning down, my Dad could definitely impress you with a plan. But how about assessing the torching of what used to be your free-markets? Are you just going to stand idle and let these “important” people experiment on the job? Or are you going to let Mr. Macro Market lead you out of the blaze?


Back to the Global Macro Grind…


I won’t be intimidated by people by the name of Draghi, Kuroda, and Yellen. Instead, I’ll do my best to stand here on the front-lines of this foreign currency and market volatility fire and risk manage what’s born out of the expectations they are trying to create.


If I haven’t been, allow me to be crystal clear on how expectations are tracking:


1. Central planners are perpetually trying to create asset inflation expectations…

2. And after they’ve failed to create economic growth, cut to zeros, then tried to redefine “zero”…

3. Global #Deflation of all Policies To Inflate becomes the most paramount to risk manage


Sure, in Burning Euros, they got European stock markets to rip last wk (EuroStoxx600 +5.1% on the wk) – but what else did they get?


1. Euro burnt to a crisp, -3.1% week-over-week, to -7.4% YTD

2. US Dollar +2.7% on the week to +5.2% YTD

3. Commodity #Deflation (CRB Index) -3.4% on the wk to multi-yr lows

4. Oil continuing its epic crash, -7.2% wk-over-wk to -15.1% YTD

5. Dr. Copper -4.4% on the wk to -11.5% YTD

6. Long-Term Bond Yields (10yr UST Yield) down another -4bps to -37bps YTD (1.80%)


Oh, right, and the US stock market had its 1st up week in 4, closing:


1. Dow +0.9% wk-over-wk to -0.8% YTD

2. SP500 +1.6% wk-over-wk to -0.3% YTD

3. Russell 2000 +1% wk-over-wk to -1.3% YTD


Yep, all of the CNBC cheer-leading and storytelling aside, being long a broad measure of the US stock market (2000 stocks in the Russell) for the last year, instead of something that’s low-volatility-high-return like the Long Bond, has sucked.


Back to the 1st paragraph point where I characterized what all of this panic-central-planning has done as a “foreign currency and market volatility fire” (yes, when you’re an unimportant person like me, you can quote yourself!):


1. Last 6 months, European central planners have devalued the Euro by an epic -16.8%

2. Last 6 months, Japanese central planners have devalued the Yen by an epic -13.8%

3. Last 6 months, Canadian central planners have joined, cut, and now devalued by -13.7%


And while it’ll be a national embarrassment to both me and my countrymen if Canada overtakes the Japanese in rate of change terms, the point is that they are trying to smooth the un-smoothable right now – it’s called (drumroll) #volatility:


1. Last 6 months, via FX Burnings > Strong Dollar > Oil Volatility (VIX) is +244%


So I guess managing US equity volatility being +45% in the last 6 months is no problem, right? #Wrong. If you look at most of the performance problems out there in money management land, this time wasn’t different – they all started with volatility breaking out from what Bernanke’s Fed called the new “normal” (10 VIX). In reality, that’s the most asymmetric risk level in US history.


Market #history and positioning doesn’t lie; people do. Here’s the latest look at Consensus Macro in net CFTC non-Commercial futures/options terms:


1. Crude Oil +324,642 net LONG position (vs. +307,819, 6 month avg)

2. Gold +145,742 net LONG position (vs. +82,472, 6 month avg)

3. SP500 (Index + Emini) +71,224 net LONG position (vs. +22,987, 6 month avg)


In other words, when it comes to asset price inflation expectations, the truth is that Wall Street is still betting on the “important” people and their central plans delivering them higher-prices…


In everything other than the Long Bond, that is… where the net SHORT position in the 10yr Treasury is -138,230 (vs. an avg net short position for the last 6 months of -84,336).


“So”, I say cheers to you – for making your independent research thinking vs. a crowded consensus what the legendary Howard Marks would call, “the most important thing.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.75-1.86%

SPX 2020-2066

RUT 1155-1197

VIX 15.79-19.68

EUR/USD 1.12-1.15

WTI Oil 44.06-46.92


Best of luck out there this week,



Keith R. McCullough

Chief Executive Officer


Important People - 01.26.15 Chart

January 26, 2015

January 26, 2015 - Slide1



January 26, 2015 - Slide2

January 26, 2015 - Slide3

January 26, 2015 - Slide4

January 26, 2015 - Slide5

January 26, 2015 - Slide6



January 26, 2015 - Slide7

January 26, 2015 - Slide8

January 26, 2015 - Slide9

January 26, 2015 - Slide10

January 26, 2015 - Slide11
January 26, 2015 - Slide12

January 26, 2015 - Slide13

Cross-Disciplinary Macro

This note was originally published at 8am on January 12, 2015 for Hedgeye subscribers.

“Disciplinary science has died.”

-Alan Leshner


From a risk management perspective, if something embedded in your #process is dead or dying, you better come up with something better to replace it!


Since 2001, Alan Leshner has been the Executive Publisher of the journal Science. He was cited in a fantastic #behavioral book I just finished reading called The Medici Effect, where he added that “most major advancements involve multiple disciplines.”


George Cowan, from one of the birthplaces of Complexity Theory (the Sante Fe Institute), added that “you need to get scientists to think about things other than their specialty.” (pg 27) This is so obviously true in asset management today. And I think we are so early.

Cross-Disciplinary Macro - 77


Back to the Global Macro Grind


Since many US institutional investors still focus exclusively on the US Equity market, there is a lot of frustration out there when it comes to relative performance compared to their US stock market index bogeys.


While I’m obviously sympathetic to what people are paid to do, that doesn’t mean I have to put my head in my hands and capitulate alongside them. I can only re-explain that broadening one’s horizons beyond what the SPY is doing is going to help them win.


If you’ve evolved your process to Cross-Disciplinary Macro you should be killing it right now. There are major asset classes like Long Duration Sovereign Bonds (think TLT) that are going straight up at the same time that others (like Commodities) are going straight down.


If you’re a US Equity only investor (and you’ve expressed the aforementioned position in what we call Sector Style Factors), you should be crushing it too. Look at last week’s S&P Sector level returns:


  1. Healthcare Stocks (XLV) +2.3% week-over-week to start 2015 +2.7% YTD
  2. Consumer Staples (XLP) +1.6% on the week to start the year +1.3% YTD
  3. Energy Stocks (XLE) down another -4% last week to -3.5% YTD
  4. Industrial Stocks (XLI) -1.9% week-over-week to start 2015 -2.1%
  5. SP500 -0.7% last week to start the year -0.7%


In other words, instead of banging you head against the Old Wall trying to short SPY into a global #GrowthSlowing + #Deflation, all you had to do was be short both of those factors and long the 2 S&P Sectors that literally jump off the page in our Macro Playbook on the long side.


I can recap why Healthcare (XLV) and Consumer Staples (XLP) outperform in what we call #Quad4, but since I have been writing about this since September, there’s no need to be repetitive. Since October, our net asset allocation to Commodities has been 0%.


How about a US equity only “Income Fund”? Here’s the other very basic differential your portfolio should have capitalized on last week:


  1. US REIT Stocks (MSCI Index) +3.5% week-over-week to start the year +5.0% YTD
  2. US MLP Stocks (Alerian Index) down another -3.5% on the wk to start 2015 -2.5%


Again, when A) global growth is slowing, bond yields are falling… so you buy stocks that look like bonds… but B) you don’t buy the ones that have two-rocks tied together (Oil + Energy Leverage) like these widely owned and overvalued upstream E&P MLP stocks.


If you run a diversified macro fund, making lower-volatility (and higher absolute) returns was so easy a Mucker could do it last week:


  1. Long Bond Bulls got paid bank with the UST 10yr Yield down -16 basis points on the wk to -10% already for the YTD!
  2. Commodities (CRB Index) deflated another -1.2% on the week to start 2015 -1.9% YTD
  3. Oil (WTI) got slammed another -8.4% week-over-week to -9.4% already for 2015
  4. US and German 5yr Breakevens (#deflation risk proxies) both dropped to 1.18% and -0.19%, respectively
  5. European Stocks (EuroStoxx600) dropped -1.0% week-over-week to start 2015 -1.3%


No, there’s nowhere in our playbook that says “buy European stocks on valuation.” And thank god for that as country equity indexes like Italy and Spain dropped -5% and -6% (on the week!), respectively.


If you’re a Global Macro hedge fund, you should be slaying the alpha beast right now. Imagine just being Short Euros, European Stocks, Oil, US Energy and Industrials… with the Long Bond and some Healthcare/Staples/REITs action on the long side?


Sadly, Consensus Macro funds can’t. Here’s where they were position from an options perspective going into the end of last week (CFTC Non-Commercial futures/options positioning):


  1. SPX (Index + Emini) net LONG position got +31,658 LONGER last week to +170,240 (vs the 6mth avg of +14,575)
  2. 10yr Treasury Bond net SHORT position got +17,379 smaller last week to -250,163 (vs the 6mth avg of -72,383)


Forget generating alpha, having those levered (options) positions on issued some seriously negative beta. And we’re quite happy you made money on the other side of that, fading the crowd, doing Cross-Disciplinary Macro, Hedgeye-style!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.88-2.07%

SPX 1995-2090

FTSE 6321-6579

VIX 15.69-21.89

EUR/USD 1.17-1.19
Oil (WTI) 46.01-50.99


Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer


Cross-Disciplinary Macro - 01.12.15 chart

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Time Change | HIBB - Short Hibbett Sports BLACK BOOK Call

Takeaway: New time for Hibbett Sports Black Book. Friday, February 6th at 11:00am ET.

Please join us on Friday, February 6th at 11:00 am ET where we'll be hosting a call to review our next Black Book on Hibbett Sports. Please note the change in time.


Since we launched our 90-page Athletic Black book in late December and our 60-page Short Foot Locker Black Book on Thursday of last week, Foot Locker has been something of a lightning rod, accounting for a disproportionate amount of our call volume. But we don't think that people are as focused as they should be on HIBB, which has major downside in the model.


Like in our Foot Locker Black Book, we’ll be doing a thorough deep dive into every line item and business driver for HIBB. 


Here’s Just a Few of the Topics We’ll Hit On

1) Store footprint potential vs what we see today.

  • HIBB overlap analysis with Dick’s, Academy, and Sports Authority – how much quality growth is left?

2) Productivity

  • Opportunity to take productivity higher via mix, with all else equal.
  • Trends in pricing vs mix, and why it leaves little upside in the model from here.
  • Productivity and profitability if ‘Nike ratio’ shrinks – either by design or by misfortune.
  • Impact of category trends on productivity.

3) e-commerce.  One of our key points is that store sales (barring 6% industry growth) will never grow again. In that regard…

  • What is the company’s installed investment base to facilitate e-commerce growth going forward.
  • How do consumers use the retail site as opposed to going to the Brand directly.
  • What are ‘free shipping’ trends in the Athletic space, and what are the ensuing margin implications.
  • Which retailers have the greatest risk as Nike goes more direct? When and where should we see it?

4) What SG&A levers can HIBB pull if the gross profit algorithm rolls. 



HIBB Call Info (Friday 2/6, 11:00 am ET)

Participant Dialing Instructions

Toll Free Number:

Toll Number:

Conference Code: 38877775

Materials: CLICK HERE

The Week Ahead

The Economic Data calendar for the week of the 26th of January through the 30th of January is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 01.23.15 Week Ahead



Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 divergences

Commodities: Weekly Quant - chart2 deltas

Commodities: Weekly Quant - chart3 usd correls

Commodities: Weekly Quant - chart4 volume

Commodities: Weekly Quant - chart5 open interest

Commodities: Weekly Quant - chart6 volatility

Commodities: Weekly Quant - chart7 sentiment


Ben Ryan


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.