The Grindstone

“Now it is necessary to get to the grindstone again.”

-Ernest Hemingway


For those of you who are Hemingway fans, you’ll remember that classic one-liner.


He penned it at the end of his preface to “The First Forty Nine” in 1938. He was preparing for the next stage of his life, writing from Finca Vigia (his home in Cuba). That’s where he’d spend the last 22 years of his life, before dying in 1961.


For those of you who didn’t know, that one-liner inspired “Back To the Global Macro Grind…” While my English Lit professor @Yale was very close to failing me in 1995, thank God she saved me with Hemingway’s short-form writing examples.

The Grindstone - grindstone farmer


Back to the Global Macro Grind


With the Federal Reserve having not made a monetary policy (rate hike) mistake last week, Fed Vice Chair, Stanley Fischer, reiterated lower-rates-for-longer at his rock-star-status meeting of the mainstream minds yesterday.


No matter where you’ve been positioned, here we are. If I were you, with both interest rates and the US Dollar grinding lower this morning, this is what I’d be doing next:


  1. Buying US Dollars on red; Shorting Euros on green
  2. Shorting Commodities and their related stocks/bonds on green
  3. Buying Long-term Bonds (and stocks that look like bonds) on red


In other words, from a Foreign Currency market perspective, I’ll be fading (doing the opposite of) the counter-TREND move. But from a Fixed Income standpoint, I’ll stay with what’s been a very bullish intermediate-term TREND.


The main reasons for that are twofold:


  1. The best way to be positioned for Global #Deflation and #GrowthSlowing remains being long Long-term Treasuries
  2. The best way to stay with the Europeans, Japanese, and Chinese devaluing their currencies, is to be long US Dollars


On Global #Deflation, If you grind through all of the recent Global Macro data, it’s not that hard to see:


  1. Germany’s producer prices (PPI) for FEB were -2.1% year-over-year (vs. -2.2% in the prior month)
  2. Finland’s producer prices (PPI) for FEB were -1.8% year-over-year (vs. -1.9% in the prior month)
  3. United Kingdom’s PPI for FEB was -1.8% year-over-year (vs. -1.9% in the prior month)


And while some of these year-over-year #deflations slowed month-over-month, don’t forget that this all happened in FEB when most things commodities had a Down Dollar bounce. In March, all of the #deflation data should accelerate to the downside again.


On Global #GrowthSlowing (key word there is Global), here’s your data update:


  1. Eurozone PMI for March 51.9 (vs. 51.0 in FEB)
  2. Chinese PMI for March 49.2 (vs. 50.7 in FEB)
  3. Japanese PMI for March 50.4 (vs. 51.6 in FEB)


Chinese and Japanese stocks are running right at YTD highs of +13-14% on those sequential slowdowns. Why? #GrowthSlowing begets more currency burning expectations, which begets higher stock prices in those currencies.


Meanwhile everyone who is long Europe who thinks the German PMI data (which was good, not great, sequentially at 52.4 MAR vs. 51.1 in FEB) is going to carry all of Europe for the rest of the year (France’s PMI sucked at 48.2), has a simple question to answer:


Is the European “growth story” (going from recession to something hoped-for that is less than recessionary) intact with Draghi allowing all of his Burning Euro accomplishments to get unwound?


From a research perspective, the answer to that question is an unequivocal no. Yesterday Draghi was thumping his Italian chest hairs celebrating the “benefits of a weaker Euro.” The immediate-term risk range for the EUR/USD also blew out to $1.03-1.10.


Not to be confused with my English Lit professor, my calculus guy in New Haven never threatened to fail me. The math of the matter is that as risk ranges “blow-out” like the Euro’s just did, variance rises, and so does my expected volatility for the FX market.


As you just witnessed with the Fed’s latest move, in reaction to unexpected currency strength, the only play in the central planner’s playbook is to get easier, not tighter. So, now it’s your turn Super Mario and Mr. Kuroda – prepare your respective FX grindstones.


Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research views in brackets):


UST 10yr Yield 1.85-2.02% (bearish)

SPX 2080-2117 (bullish)

RUT 1 (bullish)

Nikkei 192 (bullish)
VIX 12.79-15.94 (bullish)

USD 97.01-99.24 (bullish)

EUR/USD 1.03-1.10 (bearish)

Yen 119.39-1.21.90 (bearish)
Oil (WTI) 42.42-48.28 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Grindstone - 03.24.15 chart

March 24, 2015

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REPLAY | The Macro Show with Keith McCullough

Hedgeye CEO Keith McCullough presents The Macro Show, where he breaks down what's happening in global macro this morning and takes viewer questions. Watch the replay from today's show right here.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

3 New Areas of Focus for Today's LULU Black Book

Takeaway: These are the three areas of focus that we think will be new to most people in today's LULU Black Book presentation.

Focus: LULU

Other Relevant Names: NKE, UA, GPS, VFC, COLM, Puma, Adidas, Reebok


This evening we put the finishing touches on a 50+ page Black Book detailing some of the key issues surrounding Lululemon. While we’ll certainly outline our thoughts around near-term factors given the print in two days, we think that the most value-add from our presentation will come from our work into three areas we’ve never seen researched before for LULU; 1) Brand perception by country (33 brands), 2) Competitive positioning by activity (yoga, running, pilates, etc…), and 3) detailed analysis of LULU’s 80 real estate markets in the US.   


Call Details 

Date/Time: Tuesday March 24/11:00am ET

Dial-In Number: 

Toll Free Number: 

Conference Password: 13604247

Materials: CLICK HERE


More specifically…

1)      Results of our consumer survey that allowed us to assess brand perception in the US, Canada, UK, Australia, and China by upper income athletic women (we’re surveying customers where LULU is growing)

  1. differences in spending levels by region on each of about 33 athletic brands
  2. what each of those brands is actually used for (for example, people talk about Athleta and Lululemon in the same sentence, but it turns out that the activities the product is used for is very different).
  3. we’ll look at differences in women’s activity level by country, whether Yoga translates to other cultures, and what sport/activity brands like LULU need to grow share in those markets.

2)      Analysis of LULU’s US real estate portfolio, including…

  1. detailed overview of market share in each of LULU’s 80 core markets (similar to what we did for RH to gage store opportunity and market size – see below)
  2. individual market saturation trend over time – which markets are driving the comp vs. hurting it?
  3. what are income characteristics of new markets versus existing?
  4. how do activity trends for female consumers look in new markets vs the existing fleet? 


RH Real Estate Example

 3 New Areas of Focus for Today's LULU Black Book - rh1


Each Column Below Represents A RH Store – We Have That Detail for Lululemon

 3 New Areas of Focus for Today's LULU Black Book - rh2


3 New Areas of Focus for Today's LULU Black Book - rh3


3 New Areas of Focus for Today's LULU Black Book - rh4











UUP: Adding the U.S. Dollar to Investing Ideas

Takeaway: We are adding the U.S. Dollar to Investing Ideas.

Editor's Note: Below is a brief note written earlier today by Hedgeye CEO Keith McCullough. Our macro team will provide a deeper update this weekend.

UUP: Adding the U.S. Dollar to Investing Ideas - Dollar cartoon 03.09.2015


After a -2.4% down week, the US Dollar selling continues this morning, by another -0.8%. While there haven't been many pullbacks to signal buy on in the last 6 months, this appears to be one of them.


US Dollar Index (and UUP) are signaling immediate-term TRADE oversold within its bullish intermediate-term TREND.


Europe and Japan have worked hard to devalue their respective currencies. I expect both of them to so more of the same next.


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