Cartoon of the Day: Yellen's Testimony

Cartoon of the Day: Yellen's Testimony - Yellen cartoon 02.27.2015

Be "patient." Spring is just around the corner...

Macro Minute: The Truth About Today’s GDP Report


Hedgeye CEO Keith McCullough takes a quick dive inside today’s GDP report and what the latest release means for the long bond. 


here is the real gdp data 

Click to Enlarge

Macro Minute: The Truth About Today’s GDP Report  - Screen Shot 2015 02 27 at 12.33.03 PM

Crickets From the “Economy Is Booming!” Crowd

Crickets From the “Economy Is Booming!” Crowd - tweet1


Year-over-year (that's how you measure growth) U.S. GDP is closer to 2% than 4-5%. This is the most basic information in America … and yet the Old Wall and its Media Apparatchiks obfuscate it.

Here's the data:

Click to enlarge.

Crickets From the “Economy Is Booming!” Crowd - whap


So, let’s get this straight:


They’re going to lie to us about the most basic economic number? Really?  Look, if your economic "sources" lie to you about this very basic fact, they'll spin just about anything. For the record, I don't associate with people who lie to me. And I certainly won’t pretend to respect them.


Don’t forget…there are a lot (and I mean a lot…) of "experts" out there who thought the US economy was growing 4-5%. And, sadly, you will hear nothing from them today. Zero accountability.




The reason why mainstream media is being de-rated is simple - you can't trust it anymore. Old Wall and its media failed you in 2000 and 2007.


This time is not different.


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Keith's Macro Notebook 2/27: Japan | UST 10YR | USD


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Retail Callouts (2/27): Dept Store Sigma, JCP, M, KSS, DDS, TGT, JWN

Takeaway: Entering year 7 of margin expansion cycle - inventories look healthy, but cost pressures accelerating. JCP takeaways.



Takeaway: Inventories look healthy coming out of 4Q. But, we think there is more margin headwinds facing this space than a clean balance sheet can solve for. The biggest factor on the gross margin line we're watching is shipping expense. KSS flat out said that a $25 free shipping threshold is unsustainable. TGT set the bar with a $25 minimum. And we think that has a ripple effect on the industry as retailers attempt to keep market share on the web.


Retail Callouts (2/27): Dept Store Sigma, JCP, M, KSS, DDS, TGT, JWN - 2 27 15 chart1

***JCP reduced by a factor of 4 and JWN reduced by a factor of 2


We've never gone more than 5 years without a meaningful correction in EBIT margins. We're now entering year 7 as 2 of the biggest players in the space are making big moves that we think are pretty telling. On the employment front - WMT shook up the employment paradigm, and M, considered the best in breed, goes into investing mode.

  Retail Callouts (2/27): Dept Store Sigma, JCP, M, KSS, DDS, TGT, JWN - 2 27 15 chart2


JCP - 4Q14 Earnings


 1. Mixed print, top line looked solid, but gross margins came in below expectations. The market is beating it up over that, but we’re more concerned about the comp. This is the 5th straight quarter where JCP has out comped KSS, and more importantly it lapped last year’s market share gains with another quarter of outperformance. Given what we’ve seen from a litany of retailers this holiday season on the comp line (BONT, BELK, DDS, JCP, ROST, etc.) and the fact that KSS had the most disastrous January last year – we think KSS’ big number is more a function of macro than it is the ‘Greatness Agenda’.

Retail Callouts (2/27): Dept Store Sigma, JCP, M, KSS, DDS, TGT, JWN - 2 27 15 chart3


2. Margins came in 60bps below consensus, but were still up 540 bps. Guidance on that front 50-100bps vs. consensus at 140bps. We’re 100% ok with that. A desperate JCP is much more bearish for a healthy KSS.


3. Brick and Mortar sales productivity was up 3% in 2014 at $100 even. That’s still $45 off pre-RonJon peaks. That’s not something we can get excited about. We think that JCP will step up to $115 over the next 4 years, but a) that's a really long time, and b) we’d need to see a runway to $130 to get more positive on this name. We’re not there.

Japan, USD and UST 10YR

Client Talking Points


Abenobics did not work. Japanese JAN retail sales are down -2% year-over-year, JAN household spending is down -5.1% year-over-year, and JAN housing starts are down -13% year-over-year. But if you bought the Nikkei on that you crushed it, the Nikkei is up 7.8%.  


The UST 10YR is oscillating between the current risk range of 1.84-2.08%, into the GDP missing which we have been calling for. On a quarter-over-quarter basis it was revised lower by -0.4 to 2.2%, slowing vs the 5.0% print for 3Q14. On a year-over-year basis it was revised lower by -0.10 to 2.4%, slowing vs. the 2.7% print for 3Q14. If you get the rate of change of U.S. growth right you tend to get bond yields right.


The USD had a huge move to the upside yesterday, it will be interesting to see what happens today. The trend is your friend in the USD, as you know we like the USD. The USD going up and rates going down = deflation. We are going to have more and more deflation going into May and June, you are going to continue to see slower global growth and we will continue to reiterate the long bond call as a result of that. 

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.


Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.

Three for the Road


Central Bankers Have Lost Control, Setting Stage For Market Crash  via @YouTube



Freedom lies in being bold.

-Robert Frost


Since 2008 the correlation between housing equities and the year-over-year rate of change in HPI (House Price Index) has been 0.90.

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