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Lower For Longer

“I find my life is a lot easier the lower I keep everyone’s expectations.”

-Bill Watterson


For those of you who aren’t into Hedgeye-style Fed and Global #Deflation cartoons, may I suggest some ole school Calvin & Hobbes? Bill Watterson syndicated that uniquely American comic strip during some of the best of US economic times, then stopped.


Lower For Longer - 11


“Watterson stopped drawing Calvin and Hobbes at the end of 1995 with a short statement to newspaper editors and his readers that he felt he had achieved all he could in the medium.” (Wikipedia)


What if US bond yields break to all-time lows, and I just stop? This is not the 1990s. As you can see in our Chart of The Day, the world is getting older at its fastest rate. As Global #GrowthSlowing gets priced into bond yields, your market life gets easier accepting that.


Back to the Global Macro Grind


As we roll into our Q2 Global Macro Themes call (April 7th) and I look back on the most thought provoking slides of our Q1 deck, this chart we are showing you again today is a critical one to consider from a long-term global demographic perspective.


What we are showing you here is the world’s 65+ year-olds as a percentage of 25-54 year-olds, in rate of change terms. And the investment implications associated with this demographic reality are quite simple:


The number of aging baby boomers who are inclined to allocate retirement assets to Fixed Income instead of Alibaba (BABA) or Go Daddy (GDDY) stock is accelerating! So I’ll reiterate our uber bullish call on the Long Bond (TLT) again this morning.


Lower-rates-for-longer? Yep. Here’s what drove the outperformance of bonds vs. US stocks (again) yesterday:


  1. In rate of change terms, the ADP employment report slowed (again), sequentially in March
  2. USA’s ISM slowed to 51.5 in March vs. 52.9 in February
  3. The “employment” component of the ISM slowed to 50.0 MAR vs. 51.4 FEB


In other words, anything that walks or quacks like a slowing US jobs picture is not a duck. To the bond market, it’s a dove. And, my newest bff Janet, is the Mother of All Doves!


In terms of risk management levels for the US 10yr Bond Yield:


  1. The immediate-term TRADE range is now 1.82-1.93%
  2. Long-term TAIL risk resistance remains up at 2.39%
  3. And there’s no intermediate-term TREND support to the all-time closing lows


Since all-time remains a very long time, we’re thinking that Americans who are predisposed to get themselves levered up with cheap credit are going to absolutely love the idea of a 3% 30yr mortgage rate.


Put another way, the more right we are on Global #Deflation and slower-for-longer Global GDP growth rates, the more bullish we’ll probably get on Housing (ITB) as all of the “folks” who are paying peak US rents, will see the affordability equation on buying improve.

Lower For Longer - Deflation cartoon 02.24.2015

Getting back to why the Tizzle (TLT) shot up to +5.1% YTD yesterday (+1.3% on the day vs. SP500 -0.4% to 0.0% for 2015), what could Mr. Macro Market possibly be front-running now? How about the 1st slowing NFP (non-farm payroll) number in the last 7 months?


My man Hatzius @Goldman wrote a nice piece of rate of change research on this NFP matter last week that our most recent Employment Cycle conference call pointed to in the week prior to that – the probability of payroll gains slowing, is rising.


And, at the end of the day, with:


A)     #StrongDollar +

B)      Global #Deflation


Already messing with Janet’s former June rate hike expectations… what do you think she is going to do next if C) is a deteriorating series of US employment data?


Ah, lower-for-longer, eh! I find my life easier still thinking this way.


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


UST 10yr Yield 1.82-1.93% (bearish)
SPX 2037-2076 (neutral)

RUT 1 (bullish)
Nikkei 19002-19484 (bullish)

VIX 13.13-16.67 (bullish)

USD 96.93-99.11 (bullish)
EUR/USD 1.06-1.10 (bearish)
YEN 118.71-120.95 (bearish)
Oil (WTI) 45.81-50.99 (bearish)
Gold 1166-1208 (bearish)


Best of luck out there today and enjoy your long weekend,



Keith R. McCullough
Chief Executive Officer


Lower For Longer - 04.02.15 chart

April 2, 2015

April 2, 2015 - Slide1



April 2, 2015 - Slide2

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April 2, 2015 - Slide7

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April 2, 2015 - Slide13

REPLAY: The Macro Show, Live with Keith McCullough

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The Macro Show is Hedgeye TV’s live, turbocharged and interactive daily pre-market show where we break down what’s happening in the markets and Global Macro and offer our insight on how you, the investor, can position yourself for the day ahead. We share 15 minutes or less of prepared market analysis and commentary and then answer your questions in a live Q&A session.



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Cartoon of the Day: Three Little Pigs (And a Bull)

Cartoon of the Day: Three Little Pigs (And a Bull) - Housing cartoon 04.01.2015

Hedgeye reiterates our bullish call on Housing made previously in Investing Ideas.

Keith's Macro Notebook 4/1: Europe | U.S. Dollar | UST 10YR


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

Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD

Takeaway: Nike up to record 73% of FL purchases in 2014. RH expanding its Greenwich footprint. WMT cutting vendors to pay employees.



FL, NKE - Nike % of purchases up to 73% in 2014



Takeaway: Nike purchases increased 500bps from 68% to 73%, the largest bps jump we've seen since 2008 and now sits at the absolute highest level in forever. That doesn't sound like good risk management to us. Because of AdiBok's utter collapse and the absence of a clear cut number #2 in the US market, we don't know that FL has any other option. The best possible environment for an athletic retailer is when the major brands are heavily competing for shelf space. Nike and UA (to a lesser extent) won't have to fight as hard, or spend as much, to get incremental space at FL. Foot Locker wants nothing more than to have a strong staple of contenders looking to take a few points of share. It just doesn't have that luxury.


It's not like Nike and Brand Jordan are the only brands on FL shelves, its that FL's new concepts (House of Hoops, Fly Zone, and Yard Line) are 100% Nike. It's these concepts that FL is looking to for growth in its core business, which means the Nike allocation goes up as remodels continue. We can't say Nike will back away from this strategy because it increases its distribution footprint and showcases its tier 1b product (tier 1a is saved for its own stores and website) with very little cost of capital. But, if there is one company you don't want to be monopolized by it's NKE. Especially as it continues to ramp its own direct business after a multi-year investment cycle.


Lastly on gross margin, over the past 5 years we've seen gross margin head north as Nike percent of purchases has climbed about 1000bps. This seems counter intuitive due to the leverage Nike typically exerts on its partners, but we'd argue that this is due in large part to Nike's ability to drive traffic thus taking the attachment rate higher for things like socks, headwear, etc. But, what happens when there is nothing but Nike to attach to? We think it means FL will see the full brunt of the IMU pressure the company has been calling out.

Retail Callouts (4/1): FL, NKE, UA, AdiBok, RH, WMT, SHLD - 4 1 chart1


RH - Adding 2nd Store In Greenwich Market



Takeaway: Link to full note CLICK HERE


WMT - Wal-Mart Ratchets Up Pressure on Suppliers to Cut Prices



Takeaway: 1) Walmart is cutting vendors again, but this time to pay employees instead of customers. 2)Not good for the rest of retail when the giant starts ratcheting down on suppliers. 3) This is exactly why we won't see commodity deflation (especially cotton) flow through on the P&L. WMT will set the tone and everyone will follow causing the industry to compete the benefit away.









BURL - Burlington Stores, Inc. Announces Secondary Offering of Common Stock



MW - Report: Jos. A. Bank lays off 122 headquarters employees



TGT - Target releases fresh merchandise in rapid-fire 2015 overhaul



LULU - Lululemon Athletica Inc’s new men’s ‘anti-ball crushing’ pants grab media buzz and sales



RL - Ralph Lauren, USPA Continue Legal Squabbling



CBK - Macellum Delivers Letter to the Chairman of Christopher & Banks Corporation



Macerich Rejects Enriched Simon Offer



Torrid opening Chicago flagship; on track to open 60 stores in 2015


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