prev

February 9, 2015

February 9, 2015 - Slide1

 

BULLISH TRENDS

February 9, 2015 - Slide2

February 9, 2015 - Slide3

February 9, 2015 - Slide4

February 9, 2015 - Slide5

February 9, 2015 - Slide6

 

BEARISH TRENDS

February 9, 2015 - Slide7

February 9, 2015 - Slide8

February 9, 2015 - Slide9

February 9, 2015 - Slide10

February 9, 2015 - Slide11
February 9, 2015 - Slide12

February 9, 2015 - Slide13


Will The Macro Mean Revert Back to TREND?

Client Talking Points

FX

The main reason for the whip around, counter-TREND, moves in macro last week was the USD whipping around – down hard mid-week, then up on the jobs report = -0.1% on the week! The USD is down this morning as the Yen couldn’t hold its Friday losses and the Euro’s risk range has tightened up (on the low-end) to 1.12-1.15.

EUROPE

Stocks in Europe don’t like Euro up and Greece down – Greek stocks failed @Hedgeye resistance for the umpteenth time last week and are -4.6% this morning to -7.2% year-to-date; German stocks -1.9% having their biggest down day since Mario Draghi’s central planning week – does he have another one pending?

UST 10YR

It was a terrible day for our rates call on Friday, but we’ve seen plenty of rate hike head-fakes in the last year, and we’ve been paid to buy long-duration bonds on every one of them. Less terrible to see the USt 10YR drop 7 basis points this morning to 1.89%, down from 2.17% where it started 2015, and still bearish TREND yield signal.

Asset Allocation

CASH 53% US EQUITIES 6%
INTL EQUITIES 4% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.

TLT

As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.

HOLX

Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road

TWEET OF THE DAY

OIL: +0.4% to $51.91 w/ a wicked wide risk range of $42.89-54.02

@KeithMcCullough

QUOTE OF THE DAY

When you catch a glimpse of your potential, that’s when passion is born.

 -Zig Ziglar

STAT OF THE DAY

51% of millennials believe they will receive no benefits from Social Security, and 39% think they will get benefits at reduced levels (according to a Pew Research Center survey of 1,821 young men and women 18 to 33 years old in February 2014).


CHART OF THE DAY: Consensus Macro Storytelling Time 10YR UST $TLT

CHART OF THE DAY: Consensus Macro Storytelling Time 10YR UST $TLT - 02.09.15 chart

 

Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough.

 

To be balanced, the other side of the storytelling remains that US GDP growth is going to magically accelerate to +3-4% year-over-year, and that we’re going to get rainbows and puppy dogs delivered in every late-cycle employment report, throughout…

 

To a degree, Consensus Macro bets still agree with that – here’s the updated CFTC Futures/Options net positioning:

 

  1. SP500 (Index + Emini) net LONG position = +66,335 contracts (vs. the 1 yr avg of -10,119)
  2. Treasuries (10yr) net SHORT position = -145,402 contracts (vs. the 1yr avg of -65,444)
  3. Crude Oil net LONG position = +324,181 contracts (vs the 1yr avg of +365,957)

 

For 2015, unless you bought the lows, being long SP500 and commodity related beta has been painful, but consensus has worn it the whole way down inasmuch as it has suffered the under-performance pain of not being bullish on the Long Bond.

 


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.

Storytelling Time

“Storytelling is probably the single most popular recreational activity after sex and shopping.”

-Tham Kai Meng

 

Do you agree with that? Would your grandmother? How about Wall Street?

 

Interesting questions from a book I’m reading called The Ape, the Adman, and the Astronaut, by Ogilvy & Mather’s Chief Creativity Officer who claims that “the neuroscientists are saying your grandmother may have been right all along.” (pg 11)

 

Since I got crushed on Friday thinking that the US jobs report could be bad, I’m wide open to any story you’d like to tell me this morning. While I still think interest rates are going lower – storytellers make a market, after all.

Storytelling Time - 55

 

Back to the Global Macro Grind

 

To be, or not to be crushed (by counter-TREND moves) … remains the question. With the front-runner on big macro moves (the US Dollar Index) whipping around last week (down, then up), here’s what drove macro storytellers right batty:

 

  1. USD Down – during the front-end of the week, drove Oil, Russia, and Energy Stocks Up
  2. USD Up – on Friday’s jobs report, drove Rates, Utilities, and REITS down

 

These two story lines are not one and the same thing. And to have been properly positioned for both of them (while not getting your rear-end handed to you for 3-6 months prior) was next to impossible.

 

Summarizing the Down Dollar (then up fast on Friday) week:

 

  1. The US Dollar Index finished the week -0.1% at $94.70 (still +4.9% YTD)
  2. Oil (WTI) ramped +7.2% wk-over-wk to $51.69 (still -3.7% YTD)
  3. CRB Commodities Index had its 2nd up wk in a row, +2.7% to -2.2% YTD
  4. SP500 had its 2nd up wk in the last 6, closing +3.0% to -0.2% YTD
  5. Energy Stocks (XLE) led SP500 gainers, +5.7% wk-over-wk to +0.8% YTD
  6. Utilities (XLU) led SP500 losers, -3.6% on the wk (falling to -1.4% YTD)

 

That last part (Utilities Down) all happened on Friday with the #RateRising move where:

 

  1. UST 2yr Yields ripped to +0.64% (+19 bps on the wk, but -2 bps YTD)
  2. UST 10yr Yields shot up to 1.96% (+32 bps on the wk, but -21 bps YTD)

 

And it wasn’t just Utilities that flashed an immediate-term TRADE oversold signal on that. So did REITS (VNQ) and pretty much everything that I’ve liked on the long side of Fixed Income for the last year (TLT, EDV, MUB, ZROZ, BND).

 

The MSCI REITS Index was -1.6% on the week, but is still up +4.9% YTD and my story-line is that looks a lot like the P&L of the Long Bond bull. One down week does not a new intermediate-term TREND make.

 

To be balanced, the other side of the storytelling remains that US GDP growth is going to magically accelerate to +3-4% year-over-year, and that we’re going to get rainbows and puppy dogs delivered in every late-cycle employment report, throughout…

 

To a degree, Consensus Macro bets still agree with that – here’s the updated CFTC Futures/Options net positioning:

 

  1. SP500 (Index + Emini) net LONG position = +66,335 contracts (vs. the 1 yr avg of -10,119)
  2. Treasuries (10yr) net SHORT position = -145,402 contracts (vs. the 1yr avg of -65,444)
  3. Crude Oil net LONG position = +324,181 contracts (vs the 1yr avg of +365,957)

 

For 2015, unless you bought the lows, being long SP500 and commodity related beta has been painful, but consensus has worn it the whole way down inasmuch as it has suffered the under-performance pain of not being bullish on the Long Bond.

 

But maybe the story is different this time? Could rates finally be ready to rocket to the upside? After oil and its related equities have had their counter-TREND bounce, could they continue higher and be the inflation catalyst big equity beta chasers need?

 

I don’t think so. If I did, on Friday I wouldn’t have signaled (in Real-Time Alerts) to:

 

  1. Buy Utilities (XLU)
  2. Buy Municipal Bonds (MUB)
  3. Short Banks (BAC)

 

Opportunities to go shopping for bonds and/or stocks that look like bonds have been few and far between for the last 6 weeks. So I want to signal that you take advantage of one of the two “popular recreational activities” that grandma would sign off on!

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.64-1.95%

SPX 1
VIX 15.67-21.44
USD 93.52-95.44

WTI Oil 42.89-54.02
Gold 1

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Storytelling Time - 02.09.15 chart


REGIONAL GAMING: SNOWING BUT NOT SLOWING

Takeaway: Momentum in regional gaming stocks should continue - Jan numbers coming out strong and Feb should conclude the best 3 mths stretch in 6 yrs

CALL TO ACTION

 

PENN, BYD, and PNK

The trade in regional gaming stocks still looks higher. Even after some big snowstorms, January regional revenue is on track for mid-single digit growth or better.  We’re projecting +7% same store revenue growth, best in a long time.  On top of a few more likely strong Q4 earnings releases, solid January State gaming revenue releases this week and next, and another solid month for February, recent share price momentum should be maintained by fundamental catalysts.  

 

Please see our detailed note: 

http://docs.hedgeye.com/HE_Not_Snowing_Down_2.9.15.pdf


Important People

This note was originally published at 8am on January 26, 2015 for Hedgeye subscribers.

“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,

KM

 

Keith R. McCullough

Chief Executive Officer

 

Important People - 01.26.15 Chart


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next