Dollar Down Move – Lasted A Day

Client Talking Points


One of the sneaky ways to be long #StrongDollar is being long the Russell 2000 vs the S&P 500 – that’s because the Russell gives you domestic revenues, whereas SPX gets you the wrong kind of foreign currency exposure to the USD. The Russell was up another +0.4% yesterday to an all-time closing high of 1254 (+4.2% year-to-date) vs SPX down -0.5% on the day (+1.5% year-to-date) #divergences.


The Japanese Nikkei loves that smell of Burning Yens, up another +0.4% overnight to fresh 15 year highs = +12.2% year-to-date as Bank of Japan Governor Haruhiko Kuroda made a bunch of stuff up about his inflation hopes and said he was going to get “innovative with monetary policy” – thanks buddy (in English that means he’ll go from 90 Trillion Yen in money printings to > 100 Trillion).


It was a good week for longer-term investors who get #Deflation and global #GrowthSlowing. The UST 10YR was down -14 basis points on the week to 1.97% this morning, with next support at 1.91% and resistance at 2.05% - lower for longer remains our call on rates.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Manitowoc  (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. The low-end of our sum of the parts valuation is $26, and the low-end is not based on a MIDD comp (not that there is anything wrong with a MIDD comp).  In theory, spin-offs and break-ups unlock shareholder value while increasing operating potential of the formerly smothered units. 


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.


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


VIDEO (1min) Trade the Market Using Math, Not Magic



It's not necessarily the amount of time you spend at practice that counts; it's what you put into the practice.

-Eric Lindros     


In 2014 the average price of brisket increased 47% from 2013, this year it is up 14%.

CHART OF THE DAY: How Are Those "Talks" Going In Europe? (Greek Equities - ASE Index)

CHART OF THE DAY: How Are Those "Talks" Going In Europe? (Greek Equities - ASE Index) - 03.20.15 chart


Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to subscribe. 


Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:


  1. After hitting fresh YTD lows (see Chart of The Day), Greek stocks bounced +3% on that and…     

Giant Macro River

“It was the transformation of the ocean from a death sentence to a sort of giant river.”

-Peter Zeihan


After a mentally exhausting month on the road where I was debating investors on what the Fed could and should do, now we have the proverbial giant macro river card priced into the marketplace, and I can go back to reading my books and brackets.


Since my NCAA brackets are basically an uneducated guess from a 5’9 right-hand-only-dribble-Canadian who doesn’t know the difference between the SEC and whatever division UAB played in this year, my picks did well yesterday.


Go figure. Guessing works some of the time – but it gets you run over in macro markets most of the time. So let’s go back to analyzing the transformation of an interconnected, but non-linear, global currency, commodity, fixed income, and equity market.

Giant Macro River - z9


Back to the Global Macro Grind


The transformation of the oceans (across the last six centuries) is a fantastic metaphor for macro markets to consider as you watch your basketball brackets this weekend. If you’re not into doing either – let me save you the required reading and give you the history point:


The most lasting impact of the deep water revolution, wasn’t the shifting of the spice trade, the fall of the Ottomans, or even the rise of the British Empire… Deepwater navigation cracked the world open, launching the Age of Discovery, which in turn condensed the world both culturally and economically.” (The Accidental Superpower, pg 31)


Never mind not having a modern day #process to contextualize and risk manage the oceans. Trading macro used to be a death sentence for people who A) didn’t have live quotes and/or B) liquid macro securities that helped them express their macro themes.


Today, all of that has changed. Currency markets are some of the deepest and most liquid in the world – and most central planners wake up every morning looking for ways to manipulate them.


Last night, BOJ (Bank of Japan) overlord Kuroda was trying to jawbone the Yen lower by suggesting he could come up with some moarrr “innovative monetary policy.” What he meant by that is he can do moarr and moarrr of what has not worked, and take Japan’s annual money printing from 80-90T Yen to something greater than 100 TRILLION Yens…


Awesome, eh?


Yeah, these guys are totally awesome. As they are blowing up the purchasing power of The People, they are providing us an excellent map of how to navigate the River Alpha of Global Macro returns.


How did Kuroda impact macro markets?


  1. Yen Down (Dollar Up) = Nikkei Up
  2. With Burning Yens testing YTD lows, Weimar Nikkei ramped to a 15yr high at +12.2% YTD
  3. Janet’s attempts to devalue the US Dollar past 1-day were foiled


Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:


  1. After hitting fresh YTD lows (see Chart of The Day), Greek stocks bounced +3% on that and…    
  2. The Euro (vs. USD) bounced to another lower-highs too at $1.06…
  3. So Janet doesn’t have to intervene just yet –until Euros and Yens are both on their lows again, I guess


This is, of course, the problem with trying to centrally plan your own domestic waterways as the rest of the world is trying to boil the currency ocean. If your “policy” is linear and local in its design, it’s going to get wiped out by non-linear global macro risks.


“So”, Janet, while I’m a fan of the no policy mistake move this week… and I think that the move you made on the non-impatience vs. “patient” was cute… in trying to devalue the Dollar from here, I think you’re up this river without a paddle until you make your next move.


How do we invest in these #StrongDollar + Down Rates Global Macro waters? No real change from where I’ve been:


  1. Commodity #Deflation = rocks, so avoid those (reiterating the asset allocation of 0%, which we’ve had for 6 months)
  2. US Equities = domestic consumption opportunities abound (Russell 2000, Housing, Consumer, Healthcare)
  3. Int’l Equities = owning central plans to ramp stocks markets (Japan, Germany, Italy, Spain, etc.)


And in FX and Fixed Income you obviously own what the long-term investors in Global #Deflation and #GrowthSlowing do – US Dollars and Long-term Treasuries. It’s a Giant Macro River, and I’m happy owning the deepest and most liquid parts of it.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.91-2.05%
SPX 2069-2107

DAX 110
USD 97.97-100.69
EUR/USD 1.04-1.08


Best of luck out there today and have a great weekend,



Keith R. McCullough
Chief Executive Officer


Giant Macro River - 03.20.15 chart

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OC: Removing Owens Corning from Investing Ideas

Takeaway: We are removing OC from Investing Ideas.

Please note that we are removing Owens Corning (OC) from Investing Ideas today. 


According to Hedgeye CEO Keith McCullough: 


"We want to get through earnings season here before I come back to this one. Northeast weather was obviously a problem. We can always add names like this (and PENN) back to Investing Ideas from a better price level."


OC: Removing Owens Corning from Investing Ideas - owens corning ecotouch insulation diy frustrations large 9


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