Counter-TREND Macro Moves

Client Talking Points


Greek stocks were +11.3% last week, but giving up 5% in a hurry, whereas German stocks tapped immediate-term TRADE overbought into the weekend and are down -1.3% this morning. The DAX remains bullish TREND with a risk range of 10572-11031.


WTI was up +1.9% last week to +8.9% for FEB, and up another +0.5% this morning to $53.05, but closing in on the top-end of its immediate-term risk range = $48.01-53.90. It won’t take much of a USD up move to shake both Oil and the CRB Index.


The UST 10YR Yield was up +8 basis points last week to 2.04%, and -2 basis points to start the week at 2.02% (started the year at 2.17%). The U.S. PPI data tomorrow will bring back the #deflation theme, then you get CPI next week and plenty of yield expectations into the FEB jobs report after that.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.


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


Merrill’s FEB Fund Manager Survey: allocations to European equities are the highest since 2007 (2nd highest since survey inception)



To talk goodness is not good. Only to do it is.

-Chinese Proverb


The CRB Commodities Index currently has a -0.97 correlation to the USD on a 90-day duration, it is up +1.9% on the week.

CHART OF THE DAY: #Consensus Macro Following the Counter-Trend Move

CHART OF THE DAY: #Consensus Macro Following the Counter-Trend Move - 02.17.15 chart


"Can they keep the counter-TREND macro moves from FEB to-date up?" Hedgeye CEO Keith McCullough wrote in today's Morning Newsletter.


Mortal and Unsure

“Exposing what is mortal and unsure…”



That’s from Act IV, Scene 4 of Hamlet, where Shakespeare goes on to question the motives of Norwegian crown prince, Fortinbras, who was marching his army into Poland to conquer an “eggshell.”


Rightly to be great, is not to stir without great argument,

But greatly to find quarrel in a straw

When honor’s at the stake.”


That’s also a passage Peter Thiel effectively cites in chapter 4 of Zero To One, titled “The Ideology of Competition.” And I’m reminded of it this morning, after getting beat up by Mr. Macro Market last week.


Back to the Global Macro Grind

To be beaten, or not to be beaten (by the market): that is the question. What makes me mortal certainly makes me unsure. And when the market goes against my preferred position, my mind stirs with great argument!


What happened in Global Macro last week was more of the same for the month of February to-date – a counter-TREND move. If you did the opposite of what worked in January, you’ve killed it in the last two weeks.


After Retail Sales, Jobless Claims, and Consumer Confidence (University of Michigan reading) missed, the US Dollar Index declined, and everything inversely correlated with Down Dollar ripped. Here’s how that looked, in rate of change terms, week-over-week:


  1. US Dollar Index -0.6% on the week (-0.7% for FEB to-date) to $94.16
  2. EUR/USD +0.6% week-over-week (still -5.9% YTD)
  3. CRB Commodities Index (-0.97 correlation to USD on a 90-day duration) = +1.9% on the wk
  4. Oil (WTI) was +1.7% wk-over-wk to $52.55 (90-day inverse correlation -0.89)
  5. SP500 +2.0% wk-over-wk, erasing its negative YTD return to +1.9% for 2015
  6. Argentina’s stock market +6.1% on the wk


Don’t cry for me Mucker? Or is that Argentina? You’re telling me you weren’t levered long Argentine inflation expectations and/or the Brazilian stock market last week? What is wrong with you?


Setting aside what would have been violently wrong with your returns for the last 3-6 months if you were long inflation instead of hedged vs. Global #Deflation, being long commodity levered and debt ridden nations last week was mint:


  1. Brazil’s stock market was +3.8% on the wk, erasing 2015 losses, taking it to +1.3% YTD
  2. Greek stocks were +11.3% on wk-over-wk, putting them back in the black at +8.3% YTD
  3. And the Ruskies crushed it, seeing the Russian Trading System Index +10.6% on the wk to +15.6% YTD


And, by the looks of it, Consensus Macro positioning (in CFTC non-commercial futures/options terms) got that right too:


  1. Crude Oil net LONG positioning was +7,938 contracts last wk to a total net LONG position of +335,998
  2. SP500 (Index + Emini) net LONG position was +7,396 contracts to a total net LONG position of +96,734
  3. Treasuries (10yr) net SHORT position dropped -66,223 contracts to a net SHORT position of -83,800


That’s the other thing I got wrong last week – long-term rates went up another 8 basis points wk-over-wk on the 10yr UST Yield to 2.04%. The short-end of the curve (2yr UST Yield) was flat wk-over-wk at 0.64%.


But, with the 10yr Yield down -13 basis points YTD, Oil -2.1% YTD, and Dr. Copper -7.9% YTD, what is the #truth about the Global #Deflation TREND vs. the shorter-term FEB to-date TRADE?


Was Oil Volatility (OVX) down -8.7% last week a new intermediate-term TREND, or does the +223% ramp in Oil’s emotional state (OVX) in the last 6 months have something to do with what may be pending if Russia doesn’t bailout Greece? Or something like that…


“And let all sleep?

The imminent death of twenty thousand men,

That, for a fantasy and trick of fame,

Go to their graves like beds, fight for a plot

Whereon the numbers cannot try the cause?”


Though this macro uncertainty may be madness, there is method in’t.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.69-2.09%
SPX 2063-2101
DAX 101
VIX 14.39-19.41
USD 93.45-95.44
Oil (WTI) 48.01-53.90


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Mortal and Unsure - 02.17.15 chart

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The Idea Generation Game

This note was originally published at 8am on February 03, 2015 for Hedgeye subscribers.

“It constipates the whole process.”

-Stephen King


While I am sure he has plenty of it, that’s what the King pin of American supernatural fiction had to say about cash. “Money is great stuff to have, but when it comes to the act of creation, the best thing is to not think of it too much.”


Sadly, that is not how some think about what they call their “dough.” On the independent research battle front, I can’t count how many people told me we’d be wrong on interest rates falling because guys with a lot more money than me thought otherwise.


Who raised these people to think that way? America was built on a meritocracy of new ideas replacing broken ones. The day we wake up thinking that only the people with money are “smart” is the day we start losing. Anyone can win the idea generation game.


The Idea Generation Game - 2 it


Back to the Global Macro Grind


Fast or slow, you probably can’t win this year’s game. Not with our July 2014 call for a breakout in cross asset class volatility in play. Just watch Greece go from -13% to -2% YTD on a floater headline that their “new” Finance Minister is “creative”, and you’ll get my point.


Don’t confuse moving slowly with moving patiently either. There’s a big difference. #Patient players can move both fast, and slow. That’s the point. There’s a time to risk manage your active portfolio – and there are times to wait and watch.


Risk manage your portfolio? Yes. It’s commonly called trading – and while you can feel really “smart” buying and holding stocks at 10 VIX, at VIX 15-25… not so much. Look what led yesterday’s v-bottom rally off the terrible January ISM report’s lows:


  1. US listed Oil & Gas Stocks (XOP) = +6.1%
  2. US listed Energy Stocks (XLE) = +3.1%
  3. US listed Financials (XLF) +1.6%


Yes, 2015’s biggest losers led yesterday’s gains. Unless you made some counter-TREND moves (i.e. booked gains in shorts that were working and went long some of the inversely correlated sectors and asset classes linked to a Down Dollar move), you lost ground yesterday.


While generating both absolute and relative returns, every day, would be nice – that only happens on either Twitter or in fictional novels about rainbows and puppy dogs. Real world risk management is far closer to Stephen King’s “It!”


What is it? What is that thing that helps Portfolio Managers and Self Directed Investors alike beat the market year-in and year-out? I’d say it has a lot do with having a more flexible #process than a constipated one.


Did consensus really think the US Dollar was going to go up, every day?


  1. Friday’s GDP miss/slowing was a clean cut negative for the US Dollar
  2. So was yesterday’s ISM slowdown from an already slowing 55.5 in DEC to 53.5 in JAN
  3. And so would be a bad jobs report on Friday…


But you already know that since the flexible and prepared player knows this USD correlation matrix is dominating:


  1. Inverse correlation between USD and the CRB Index (19 commodities) on a 90-day duration is -0.97
  2. Inverse correlation between USD and Oil on a 90-day duration is -0.95


In other words, if you got the rate of change in the USD right, you’ve gotten both the commodities and Oil crash right. Oh, and you played the counter-TREND reversal beautifully too!


Seriously. Getting that right is not that easy.


But not being Consensus Macro is easier than thinking it’s “smart.” Here’s where the “smart” hedge fund futures and options bets were (non-commercial CFTC net futures/options positioning) going into yesterday’s counter-TREND macro move:


  1. Peak multi-year net LONG position in US Dollars of +70,456 contracts (vs. the 1yr avg of +24,739)
  2. Peak multi-year net SHORT position in the Euro of -177,296 contracts (vs. the 1yr avg of -83,603)
  3. Net SHORT the Russell 2000 at its peak net short position of the year (-30,174 net short contracts)


That’s right, after all of these things have worked, big time, for 6 months – all of the “smart” money has crowded into them.


Sure, there was a net LONG position of +324,181 in Crude Oil going into yesterday’s rip, but don’t forget that Wall Street was been levered long Oil the entire way down too (the 1yr avg net LONG position in Crude is +366,487 contracts!).


“So”, don’t constipate yourself with consensus. Motivate yourself to open your mind and move aggressively when the big things moving macro markets move. That sure beats counting your moneys. “There’ll be time enough for countin’, then the dealing’s done.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.64-1.78%

SPX 1984-2032

VIX 18.25-21.92
USD 93.41-95.82
WTI Oil 42.84-51.31
Gold 1260-1290


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Idea Generation Game - 02.03.15 chart

GDP #Patriots

This note was originally published at 8am on February 02, 2015 for Hedgeye subscribers.

“The truth was incredible enough.”

-Glenn Beck


“It was so incredible, in fact, that a strange thing happened after it was reprinted in newspapers from coast to coast… The public didn’t believe it.” (Dreamers and Deceivers, pg 19)


In a riveting account of how former US President Grover Cleveland kept both his sickness and surgery a secret, in the aforementioned quote Beck describes America’s reception to investigative journalist, E.J. Edwards, discovering the #truth.


What was the #truth about US economic growth in both December and Q4 of 2014? It slowed. As growth slowed and #deflation expectations took hold, the #truth is that investing in the Long Bond (TLT) instead of late-cycle stocks got you paid.


GDP #Patriots - TLT cartoon 01.26.2015 normal


Back to the Global Macro Grind


In stark contrast to this historical metaphor of groupthink in trusting officialdom in the late 19th century, I’m thinking that if you told most Americans that year-over-year growth in US GDP is closer to 2% than it is 5% - they’d believe you.


Most upstanding humans believe in those who fight for the #truth every day too. While there used to be a lot more of them in the US financial media, they call them #Patriots – “a person who vigorously supports their country and is prepared to defend it.”


My congratulations to the New England Patriots for winning another Super Bowl. Whether you like the man or not, I think you have to respect Tom Brady’s team leadership. The man is all about the team and the system he plays for; not about himself.


I play for the team that likes the Long Bond more than the Dow in 2015 – here’s the breakdown of the YTD score:


1. Dow Jones Industrial Index down -2.9% last week to finish JAN -3.7%

2. SP500 down -2.8% last week to close JAN down -3.1%

3. S&P Financials (XLF) down another -3.2% last wk to finish JAN -7.1% (worst S&P Sector)

4. S&P Utilities (XLU) -1.7% wk-over-wk to close JAN up +2.3% (best S&P Sector)

5. Long-term Treasuries (TLT) +10% YTD (pre interest payment) #timestamped


Academics like to talk about what was “causal” in driving performance numbers. I like to write about what is. There is very little to no evidence to refute that a slowing in the rate of change in both growth and inflation isn’t bad for certain macro investing styles and exposures – and very good for others.


Since Long-term Bond Yields had been front-running this Q4 GDP #slowing news since December, last week was more of an exclamation point than it was a new sentence about what actually happened in the US economy:


1. US 2yr Yield was down -3 basis points on the week, but are already down -21bps (-31%) YTD

2. US 10yr Yield was down -15 basis points wk-over-wk, but are already down -52bps (-24%) YTD

3. Yield Spread (10yr minus 2yr) compressed another -12bps last wk to -31bps (-21%) YTD


This is why it should surprise no one who is bearish on bond yields that:


A) US Regional Bank Stocks (KRE) are even worse than XLF at -9.5% YTD

B) US REIT Stocks (VNQ) are crushing it at +6.8% YTD (pre dividends)


Yep. It’s all the same macro trade. If you got the direction of both growth and inflation right, you got bond yields right (and everything that correlates positively/negatively in either equity style factors and/or asset allocations right).


What’s next?


First, have a #process that allows you to embrace the uncertainty of each and every centrally planned market day. Second, be prepared for a short-term correction in what’s been nothing short of a parabolic move in the USD vs. other devalued currencies.


Yep, that’s the other thing that happened as the US Dollar stopped going up at an accelerating rate last week. Some of the extreme correlation trades (CRB Index and Oil vs USD) went the other way:


1. CRB Commodities Index +1% last wk to -4.8% YTD

2. WTI Oil +4.5% last wk to -11.3% YTD


So just take the time to observe Mr. Macro Market’s message (i.e. don’t try to force a pass at the goal line when you have time to run the ball). As #Patient GDP Patriots, I’m confident we can intercept hurriedness, and capitalize on the other team’s mistakes.


Our intermediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.65-1.79%

SPX 1973-2020

Dow 17,032-17,410

USD 94.51-95.98

Oil (WTI) 43.61-48.34

Gold 1262-1290


Best of luck out there this week,



Keith R. McCullough

Chief Executive Officer


GDP #Patriots - 02.02.15 chart



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