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Important Truths

This note was originally published at 8am on February 13, 2015 for Hedgeye subscribers.

“What important truth do very few people agree with you on?”

-Peter Thiel


When Thiel interviews people, he asks them that question. It’s a good one. And while he doesn’t think everyone has good answers to it, if he asked me I’d go into something he knows nothing about (like being a lifelong Toronto Maple Leafs fan!)


This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon…


“… and it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.” (Zero To One)


Important Truths - th5


Back to the Global Macro Grind


BREAKING: US Retail Sales and Jobless Claims miss, US Stocks Rip To All-Time Highs


How many people agree with that summary of yesterday’s no-volume (Total US Equity Market Volume, including dark pool, -17% vs. its 1yr avg yesterday) ramp to 2088 in the SP500?


Follow the knuckle-puck (Peter, see the intellectual masterpiece that is Mighty Ducks 3 #brilliance):


  1. US Retail Sales slowed -0.8% month-over-month in JAN (after slowing -0.9% in DEC)
  2. US Jobless Claims popped back up over the important 300k line to 304,000
  3. US Treasury Yields dropped -5bps (on the 10yr from 2.03% to 1.98%) on the news
  4. US Dollar went straight down, -0.9%
  5. Oil (WTI) went straight up, +5%, and Energy Stocks (XLE) had a +1.3% day
  6. CRB Commodities Index (-0.95 correlation to USD) popped +1.9% on the day


Then, the counter-TREND knuckler weaved its way into the Global Macro Correlation trade:


  1. Australia’s stock market loved the commodity bounce, closing +2.3% leading everything in the East
  2. Russia’s stock market ramped another +3.3% on the Down Dollar, Up Oil news
  3. And the bloodied Euro is testing 3-week highs up at $1.14 vs USD


Is this the truth? Or is it a version of that which very few people were positioned for? If you nailed this iteration of the counter-TREND move, I sincerely salute you. Going top-shelf from the other team’s end, Mighty Ducks style, isn’t easy!


That last point on the Euro going up has another whole set of truths to consider this morning. There’s a boat load of European growth and inflation data on the tape:


  1. Germany’s Q4 GDP accelerated to +1.6% year-over-year
  2. Italy’s Q4 GDP slowed to -0.3% year-over-year #recesssion
  3. France’s Q4 GDP slowed to +0.2% y/y vs +0.4% last
  4. Swiss PPI (producer prices) deflated to new lows of -2.7% y/y in JAN
  5. Spain CPI (consumer prices) deflated -1.3% year-over-year


So mainstream media will focus on Germany today (the bullish news). They should because the divergence between good and bad balance sheet countries in Europe is glaring, but that doesn’t mean that Global #Deflation forces now cease to exist.


By the way, the truth is that if you are long the DAX you are killing it at +12% YTD. If I had to rank order which of the 3 major global equity indexes I’d buy on pullbacks from here, Germany would be in my Top 3 (so pullback already!):


  1. Nikkei
  2. DAX
  3. Russell 2000


Who, me? Buy stocks? Of course I like to buy stocks A) on pullbacks to the low-end of my immediate-term risk ranges and B) in the sub-sector style exposures of the markets that I like from a Macro Theme perspective.


Rank ordering the majors like that isn’t what I’m talking about – buying something that’s in our Top 3 Macro Themes for Q1 like #HousingAccelerating is. Both Housing (ITB) and Consumer Discretionary (XLY) are in our Top 5 Macro Ideas (last slide of our Macro Deck). We’ve been consistent in reiterating that.


My net asset allocation to US Equities bottomed on February 3rd at +2% (damn hedgie, I think of everything on a net longs minus shorts basis) and today it’s +9%. My max net asset allocation to any asset class is 1/3 of the total pie, and I’m close to max in Fixed Income at +31% (see pie chart).


My biggest mistake on the long side in February was staying with my biggest win from January (being long Long-term Bonds). And my biggest mistake on the short side was staying with the Financials (XLF).


Whether or not staying with my lower interest rate call (Long long-term Treasuries, Short Banks) is working in the moment or not, I am accountable to every day’s mistakes. That’s the truth that I built this firm on. And I think most people can agree with me on that.


Our immediate-term Global Macro Risk Ranges are:


UST 10yr Yield 1.65-2.09%
SPX 2054-2094

Nikkei 17608-17985
DAX 10803-11008

EUR/USD 1.12-1.15
Oil (WTI) 47.42-53.45


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Important Truths - 99

Macro Minute: What’s Causing the Dollar Melt Up?


Senior Macro Analyst Darius Dales gets granular on why the U.S. dollar is up so much today (hint: #deflation).

Cartoon of the Day: Missing the Mark

Cartoon of the Day: Missing the Mark - Inflation cartoon 02.26.2015

And the award for the worst forecasting record out there goes to...

Attention Students...

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(REVISED) MDSO: Removing Medidata Solutions from Investing Ideas

Takeaway: MDSO: Removing Medidata Solutions from Investing Ideas

Editor's note: An earlier email listed an incorrect return for the S&P 500.


We are removing Medidata Solutions (MDSO) from Investing Ideas today. Shares have risen +4% since it was added on January 5th.


According to Hedgeye CEO Keith McCullough:


My market view is getting less bullish and this one is tapping the top-end of my intermediate-term range, so I’d like to come back and signal buy again, lower  - like we did on the last short-term scare.


(REVISED) MDSO: Removing Medidata Solutions from Investing Ideas - mds1

MDSO: Removing Medidata Solutions from Investing Ideas

Takeaway: We are removing MDSO from Investing Ideas.

We are removing Medidata Solutions (MDSO) from Investing Ideas today. Shares have risen +4% since it was added on January 5th.


According to Hedgeye CEO Keith McCullough:


My market view is getting less bullish and this one is tapping the top-end of my intermediate-term range, so I’d like to come back and signal buy again, lower  - like we did on the last short-term scare.


MDSO: Removing Medidata Solutions from Investing Ideas - mds1


Takeaway: Labor market improvement slowed this week, and energy states continue to deteriorate versus the US as a whole.

Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 


This week's jobless claims show a slowdown in labor market improvement. Seasonally adjusted claims rose 31k week over week to 313k, exceeding consensus (290k) by 23k.  Additionally, the year-over-year change in NSA claims slowed for the first time in five weeks to -12.2% from -14.9%.  As a reminder, we would expect that the rate of change y/y will converge towards zero by the middle of this year as claims are at/near their frictional ~300k floor.  For more on this, see our note HERE.


The labor market in energy states, meanwhile, continues to deteriorate relative to the rest of the country.  Even as oil prices have bounced modestly off their recent $45 lows, their sustained low level inflicts pain on energy-heavy states. In the first chart below, the gap between our energy state basket and the US as a whole widened slightly from 26 to 27.  






The Data 

Prior to revision, initial jobless claims rose 30k to 313k from 283k WoW, as the prior week's number was revised down by -1k to 282k.


The headline (unrevised) number shows claims were higher by 31k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 11.5k WoW to 294.5k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -12.2% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -14.9%









Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


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