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Moving Macro Markets

“Moving things around is hard – really hard.”

-Peter Zeihan


In an excellent book that I just cracked open, The Accidental Superpower, Peter Zeihan wasn’t talking about Global Macro markets – he was referring to moving real stuff. And our centrally-muppeteered markets are getting less real, by the day.


Moving macro markets around is easy – really easy. And those with un-elected-central-planning-powers know that. So prepare for more, not less, of this. As their economy continues to slow, the Chinese were the latest to issue the almighty “stimulus” word to markets this weekend. The Shanghai Composite closed up +2.3% overnight on that to +6.6% YTD.


With the US stock market down -0.3% YTD, all Janet has to do at the Fed’s gravity-smoothing meeting this week is say that she is going to keep the word “patient” and she can fix those lousy relative and absolute US stock market returns. I mean, seriously, Yellen – Lithuania’s stock market is +65% YTD with Draghi burning the Euro – get with the market moving program!

Moving Macro Markets - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Do we have $100 on the US Dollar Index? Indeed, we do, fellow green-card holding Americans! With the US Dollar Index up another +2.8% last week, those of us paid in US Dollars have seen the purchasing power of our hard-earned currency rise +19.1% in the last 6 months.


Oh, dearest Janet, you must stop those of us who have large cash positions in America from getting paid…


Most people who are in the business of telling me that my being in some cash isn’t cool don’t look as cool as our YTD return in US Cash does. At +11.1% YTD and the US stock market down for 3 straight weeks, US Cash is king!


For those same people who didn’t know that a rip-roaring ramp in the US Dollar was going to crash both Foreign Currency and Commodity markets, worldwide – now they know. Here’s what that “stuff” has done in the last 6 months:


  1. Euros have crashed, losing -19% of their value for the European people who earned them
  2. Japanese Yens and Canadian Loonies have been devalued by -11.6% and -13.2%, respectively
  3. Brazilian Reals have crashed -28%
  4. Russian Rubles have collapsed by -39%
  5. Commodities (CRB Index, 19 commodities) have also crashed, -25.3% in 6 months
  6. Oil (WTI) has been bludgeoned, losing -50.3% of its “value”, over the same time period


In other non-stock-market news (i.e. economic data), Switzerland reported accelerated #Deflation of -3.6% year-over-year in producer prices this morning. No, that’s not good for the dude who is selling in whatever that is which is hard to move and produce…


And that currency-adjusted risk management thought has to be what is on the mind of many investors who have foreign currency risk to both revenues and earnings these days. That’s probably why the 15-day inverse correlations to USD currently look like this:


  1. SP500 -0.94
  2. CRB Index -0.75
  3. Gold -0.94


That, “folks”, is called #deflation - when the US Dollar goes parabolic as both US and global bond yields fall. Last week, the US 10yr Yield dropped -13 basis points to 2.11% taking it to down -6 basis points for the YTD.


Sovereign Bond Yields down was good for what really works during what we call #Quad4 Deflation:


  1. US Healthcare Stocks (XLV) up another +0.6% last week to +5.0% YTD
  2. REITS (MSCI Index) +2.4% last week to +1.1% YTD


And not so good for what doesn’t work during #Quad4 Deflation:


  1. Energy Stocks (XLE) down another -2.8% last week to -5.7% YTD
  2. Emerging Market Stocks (MSCI Index) -3.3% last week to -1.8% YTD


The sneaky thing is that as the world’s economy remains in #Quad4 (both growth and inflation, slowing, at the same time), the USA is in #Quad1 for another month (real consumption growth accelerating on real FX adjusted purchasing power, as inflation slows).


That’s the main reason why I’ve liked the Russell 2000 over the SP500 so far in 2015. It’s a purer play on the domestic economy, so it didn’t surprise me whatsoever that the Russell (IWM) was +1.2% last week to +2.3% YTD in a down tape for the Dow and SP500.


Moving asset allocations around isn’t easy. But if you get both the US Dollar and rates right, it gets less hard.


Our immediate-term Global Macro risk ranges are now:


UST 10yr Yield 2.01-2.22%
SPX 2025-2075

DAX 114
VIX 13.28-17.45

USD 97.99-100.87
EUR/USD 1.03-1.07

Oil (WTI) 43.26-49.03


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Moving Macro Markets - Chart of the Day

March 16, 2015

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REPLAY: The Macro Show, Live With Keith McCullough 3/16/15

Hedgeye presents The Macro Show for Monday March 16, 2015. Hedgeye CEO Keith McCullough breaks down what's happening in global macro this morning and takes your questions.  


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Jim Rickards Reveals What He Does Differently in Exclusive Interview With Keith McCullough


James Rickards, best-selling author of Currency Wars, spoke with Hedgeye CEO Keith McCullough about how he finds the truth, the continuation of the currency wars, what the Fed gets wrong and much more in this exclusive interview.

Jim’s first appearance on Hedgeye TV in May 2014 was met with wide acclaim, and he did not disappoint in his return to Stamford for Hedgeye’s first ever live “Market Marathon” held in January. After 45 minutes of raw & unfiltered commentary on markets and the people that move them, Rickards and McCullough turned it over to the viewers, offering an extended viewer Q&A session powered by user-submitted questions.

The Week Ahead

The Economic Data calendar for the week of the 16th of March through the 20th of March is full of critical releases and events.  Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead  - 03.13.15 Week Ahead

Investing Ideas Newsletter

Takeaway: Current Investing Ideas: ITB, TLT, OC, MTW, MUB, PENN, RH

Below are Hedgeye analysts’ latest updates on our seven current high-conviction long investing ideas and CEO Keith McCullough’s updated levels for each.


*Please note we removed Vanguard Extended Duration ETF (EDV) this week.


We also feature two additional pieces of content at the bottom.

Investing Ideas Newsletter      - mattmoran 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less


Investing Ideas Newsletter      - Dollar cartoon 03.11.2015

A generational ramp for #StrongDollar.



March-ing Forward


This week’s housing data was headlined by Wednesday’s Mortgage Purchase Application figures which showed purchase demand rising 2% sequentially and +2.5% year-over-year.   The positive growth recorded in the current quarter to-date represents the first quarter of positive year-over-year growth in 18-months. 


We expect demand to pick-up a bit from here as the weather drag moderates and a supportive macro backdrop asserts itself against easy comps.  With the improvement in the broader domestic labor market ongoing, employment growth in the key housing demographic of 20-34 year-olds accelerating  alongside accelerating residential construction employment and rising real income growth, the rate of change in reported housing demand should continue to rise. 


Elsewhere across the industry, Fannie Mae’s monthly survey on consumer sentiment around housing showed that the percentage of consumers who believe it would be easy to get a mortgage increased to a record high 54% in February.  Further, the share of consumers who think the economy is on the right track exceeded the share who believe it’s on the wrong track for the 1st time in 5 years as the ongoing improvement in the labor market continues to drive the broader rise in consumer sentiment. 


Next week will be a more data intensive one for housing as we’ll get NAHB builder confidence numbers for March on Monday, February Housing Starts data on Tuesday and Purchase Applications figures from the MBA on Wednesday.  

Investing Ideas Newsletter      - 7y 


We keep a close eye on internet traffic to gauge the both the trends in a company's e-commerce visitation and customer demand for product.  It’s especially important for a brand like Restoration Hardware where e-commerce sales account for about 50% of the consolidated revenue. Below is a chart showing the year over year improvement in indexed traffic rank for restorationhardware.com and a Retail Composite.  The traffic rank metric looks at the respective e-commerce site(s) and ranks it against all other sites on the internet on a trailing 3 month basis.


Investing Ideas Newsletter      - RH

Retail as a whole had a strong holiday season measured by the visitation statistics. RH was no different. The notable takeaway here is the divergence seen in the past few weeks as retail is starting to roll which is what we would expect following the peak volume Holiday selling period. RH’s traffic rank remains strong yoy.


E-Commerce is a significant portion of business for RH as it makes up 50% of sales.  Yet a unique aspect compared to other retailers is that RH is channel agnostic.  Meaning unlike a typical retailer (the Kohl's and Macy’s of the world) who sells online at a gross margin about 1000bps below the Brick and Mortar business, RH gets the same margin whether they sell through their website or through a design gallery.  That’s because RH for the most part is not a cash and carry business. With +90% of all orders shipped directly from a DC regardless of where that order is placed.


All in the RH brand looks extremely healthy through the 1st month of 1Q15 and remains our favorite name in retail.


Shares of Manitowoc are likely to trade higher on the split, Board declassification and lack of problematic upstream oil & gas exposure.  Even with the post-announcement aftermarket rally, MTW shares are still down by about a third over the past year.  MTW is still trading below our low-end of sum of the parts valuation of $26 versus a high end SOTP valuation range of $39, suggesting a break-up would release value for shareholders. 


In fact, we think the valuation of the Foodservice segment exceeds the current firm value, providing the Crane business for free.


That said, it would be naïve to expect smooth sailing after the initial rally.  Splits like the one planned for MTW may create long-term value, but tend to do so with short-term costs.  There is still much to be determined. 


Investing Ideas Newsletter      - MTW 3 13 15



From a long-term perspective, new construction for both residential and nonresidential construction activity remains extremely depressed.  Measures such as floor space per worker and residential housing starts suggest that the eventual cyclical rebound will roughly double from new construction activity.  We expect the residential and nonresidential construction recoveries to be reasonably simultaneous in coming years, driving higher capacity utilization and pricing for Owens Corning.


OC’s Insulation business is impacted the most of its three businesses – the other two being Roofing and Composites – by nonresidential and residential activity. With a 45% market share of the US Fiberglass Insulation Market, Owens Corning offers attractive exposure in a well-structured market. 

Investing Ideas Newsletter      - OC   3 13 15


Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan reiterates his bullish call on Penn National Gaming and will provide a new update next week.


We’re staying long of TLT and MUB and removing EDV from the group of tickers to stay long of #GrowthSlowing and #Deflation this week.


Here’s why:


We want to remain less sensitive to interest rate movements in the short-term into next week’s FOMC meeting and ensuing rate hike rhetoric (And booking a +13% gain in EDV vs. +2% for the S&P 500 is something to feel good about).


Investing Ideas Newsletter      - zen1


While we don’t have a crystal ball, we do know that the Federal Reserve is “data dependent” and recent data has brought forward the market’s expectation for a rate hike. This week’s jobless claims release was a positive again, following last Friday’s Non-Farm Payrolls beat:


Meanwhile, the rolling data improved WoW by 4k to 302k.

  • Jobless Claims dropped  by 36K on a seasonally adjusted basis bringing the number back below 300K (See last weekend’s update for the significance of the 300K line)
  • Claims slowed to 8.3% on a Y/Y% change basis (non-seasonally adjusted)
  • The rolling data also improved W/W by 4k to 302k

Investing Ideas Newsletter      - zen2


All-in-all this week’s data coupled with last week’s non-farm payrolls print paints a similar picture:


The labor market looks to be improving which we peg as a major focal point for the Federal Reserve.

Just remember that the labor market always peaks in advance of a recession….


While we still expect Treasury yields to make all-time lows over the longer-term as growth and deflation trend lower, a hawkish turn will warrant the same market reaction that we saw last Friday post-NFP report (Hint: you don’t want to be overly-exposed to long-duration bonds or commodities):

  • Yields will move higher (Bad For Bonds)
  • The U.S. Dollar will continue its upward trajectory
  • Commodities and their related asset classes will move lower

* * * * * * * * * * 


weight watchers (wtw): chapter 11? (4q14)

Disaster guidance release + premature debt service talk = waning confidence in a name that will struggle to tread water moving forward.

Investing Ideas Newsletter      - w2

alibaba (BABA): The mobile debate

Mobile may be the most misunderstood part of the BABA story. What some see as an opportunity is actually its largest secular headwind.

Investing Ideas Newsletter      - w3

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