Keith's Macro Notebook 2/20: Nikkei | Greece | Euro


Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.

Keith's Daily Trading Ranges, Unlocked

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published February 20, 2015 at 08:36. Click here to learn more and subscribe.

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The Nikkei, Greece and The Euro

Client Talking Points


The Japanese Nikkei-225 is at roughly 15 year highs, up about 2.3% for the week. Bank of Japan Governor Haruhiko Kuroda came out and reiterated his call on the 2% inflation target, the reality is that it will be very difficult for the Japanese to hit this inflation target. They will need to implement more dovish policy. Kuroda however, believes he has lots of options. We will have to wait and see what kind of impact his actions have on the real economy. 



It is a relatively slow day in Global Macro but Greece is causing a lot of controversy. Eurozone Finance Ministers are meeting today in Brussels to discuss the Greek bailout; Greece has requested to have its loan agreements extended another 6 months. Some newspapers are reporting that Greece may exit the Eurozone, but the reality is that nobody seems to have a clear indication of what will really happen.


The Euro seems to be driven by the chaos surrounding Greece. It is down about 50 basis points today, down 650 basis year-to-date vs. the USD and down 1,752 basis point in the last year. That is a staggering move for a currency (despite PMIs coming in better than expected). 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

You want to own the Vanguard Extended Duration Treasury (EDV) in this current yield-chasing, growth slowing environment. The trend in domestic growth continues to signal growth slowing, and the counter-TREND moves we’ve seen over the last few weeks (@Hedgeye TREND is our view on a 3-Month or more duration) remain something to fade until we can see more follow-through that growth is trending more positively (second-derivative positive).


Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road


Real Conversations: How @Firefly_Space Founder Tom Markusic Is Changing the New Space Paradigm… w/ @KeithMcCullough



The man who does not read has no advantage over the man who cannot read.

-Mark Twain


3.3 million people in 2013 earned at or below the federal minimum wage, according to the Bureau of Labor Statistics. 

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Takeaway: Join us TODAY at 1:00pm EST for our YELP Short Best Ideas update call. Dialing Instructions below

We will be hosting an update call to our SHORT thesis on YELP.  In short, YELP's business model is broken; we're already seeing signs of deterioration, which will get progressively worse beginning 2015.


Join us on TODAY at 1:00pm EST as we update our bearish thesis, and why we see an additional 25%+ downside from here.




  • Extreme Attrition Rate: majority of customers are churning off annually.
  • Insufficient TAM: is not the low-hanging fruit, it's a pipe dream.
  • Model Breaking Down: YELP’s reported metrics flagging concerning trends.
  • 2015/2016 Consensus Estimates Unattainable: Barring another ill-advised acquisition.  



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Hesham Shaaban, CFA


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CHART OF THE DAY: Okun's Law (On An Annual Basis Over The 1948-2014 Period)

CHART OF THE DAY: Okun's Law (On An Annual Basis Over The 1948-2014 Period) - Okuns Law


Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye U.S. macro analyst Christian Drake. For more information on how you can subscribe click here.


Okun’s Law:  Okun’s Law – named for Kennedy economic advisor Arthur Okun -  links the growth rate of output to changes in the unemployment rate and says that short-run output needs to grow ~2.25% above trend to reduce unemployment by 1%. Historically, the relationship has been strong with ~70% of the annual change in unemployment explained by the change in GDP growth.  In the Chart of the Day below we show Okun’s Law on an annual basis over the 1948-2014 period.  We’ve highlighted the large dispersion/break from trend in the peri and post-crises period with unemployment spiking higher than predicted by the model in 2009/10 and subsequently falling faster than predicted over the 2011-14 period. 


Secular and structural changes in the economy and labor market have certainly shifted the relationship over the last 65 years and the Great Recession served to bring those changes further into focus.   But that’s also largely the point.  If the forecast error in a workhouse macro model such as Okun’s Law rises to such an extent that its practical utility is lost when it’s needed most, the conventionalist forecaster’s tackle box gets increasingly bare.    


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