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Buy Everything?

This note was originally published at 8am on March 19, 2015 for Hedgeye subscribers.

“A smile is a curve that sets everything straight.”

-Phyllis Diller

 

Oh, you’re not smiling this morning? Then you didn’t buy and cover everything within 3-6 minutes of the Fed statement yesterday. Consensus Long Bond Bears were not positioned for that!

 

Rather than rehash the who said what and when in yesterday’s epic Global Macro move (Dollar Down, Rates Down à Everything Reflation and Yield Chasing Up), here’s the replay of the LIVE coverage I did:

 

https://app.hedgeye.com/feed_items/43018-replay-fed-coverage-hosted-by-hedgeye-ceo-keith-mccullough

 

In the spirit of trying to “ESPN Finance” (i.e. provide live coverage and analysis from pros instead of journos), I figured I’d put myself and my analyst, Ben Ryan, to the real-time test. I’m glad we did. Evolving this profession is a big growth opportunity.

 

Buy Everything? - espnfinance

 

Back to the Global Macro Grind

 

The thing about ESPN is that they became the world’s curator of what mattered in sports (replays!). After yesterday’s macro market game was played, you know the score – and I highly doubt you want to watch 25 minutes of me analyzing, post game…

 

So go to minute 13 of that video, and I get to the highlight that mattered most. Apologies in advance for my tone and choice of words – when it’s game time, I care less about style, and more about results.

 

From an immediate-term perspective, “the call” yesterday was simple – buy everything.

 

Ok, maybe not everything – in immediately acknowledging the statement as dovish, you obviously wouldn’t have bought the US Dollar or TBT (Ultra Short 20yr Treasury ETF)… but you could have bought damn near anything else!

 

To review:

 

  1. Not only did Janet Yellen NOT make a Policy Mistake (signaling explicit rate hikes)…
  2. She masterfully pushed out the “dots” on both the timing and pace of hikes (if there will be any at all)

 

In doing so, she basically crushed whoever was betting on “rate liftoff” and may very well have put the guys who trade on inside information out of business too!

 

Can you imagine you had what you thought was the river card in hand (that she was going to remove the word “patient”) and put on a massive Long USD, Long Rates position with Utilities and REITS on the short side?

 

She removed the word alright – and then said “but that doesn’t mean we’ll be impatient.” Ha! Inasmuch as I am no fan of central planning, that was one of the best one-liners of the year. Bravo Janet – and shame on you insider-trading-bro!

 

In order to get these big macro moves right, you have to know where consensus is positioned in levered terms (in order to monitor that, we look at CFTC Non-Commercial futures and options positioning):

 

  1. US Dollar Bulls hit YTD highs at +81,210 NET long contracts at the beginning of the week
  2. Euro Bears hit all-time highs with a net SHORT position of -185,661 contracts
  3. SP500 (Index + Emini) net SHORT position was at YTD high of -39,891 contracts
  4. Russell 2000 net SHORT position hit a YTD high of -40,793 contracts
  5. Long-bond Bears ramped the net SHORT position in the 10yr Treasury to -173,194 contracts

 

Therefore, the call to “buy everything”, in the moment was more like a call to do the opposite of how the crowd was positioned. This job is not easy, but that’s why it was an easy call to make.

 

Context is the most important thing when making a high conviction “call.” I don’t make them frequently.

 

Ok ESPN guy - now what?

 

I’m just going to go back to doing what we always do – executing on our process. While the Fed could have changed everything yesterday, it did not. The USA has another month left in #Quad1, then moves back into #Quad4.

 

Yellen’s decision keeps our non-consensus view of lower-rates-for-longer on the table (US Treasury 10yr Yield smoked back down to 1.94%, German 10yr Bund Yield at all-time lows of 0.19%, etc.) and she reiterated our #deflation call.

 

With commodities having crashed again in March (and Oil’s Down Dollar Viagra bounce from yesterday fading, fast), reality is that Janet’s Fed is going to get more, not less, #deflation data when the March data gets reported in April.

 

As a Long Bond Investor (total Return of TLT up approximately +5% YTD vs SP500 +2%), you can smile this morning. If you’re still long the Russell 2000 (IWM), Healthcare (XLV), Consumer Discretionary (XLV), and Housing (ITB) stocks, you can smile too.

 

Thanks Janet, for keeping everything less-straight!

 

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

 

UST 10yr Yield 1.88-2.05% (bearish)
SPX 2076-2105 (bullish)
RUT 1230-1257 (bullish)
DAX 11811-12239 (bullish)
VIX 13.51-16.12 (bullish)
USD 97.39-100.93 (bullish)
EUR/USD 1.04-1.09 (bearish)

Oil (WTI) 41.32-46.34 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buy Everything? - 03.19.15 chart


CHART OF THE DAY: Who Gets Paid to Battle #Deflation?

CHART OF THE DAY: Who Gets Paid to Battle #Deflation? - 04.02.15 chart

 

Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for info on how you can subscribe.

 

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.

 


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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Lower For Longer - 04.02.15 chart


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April 2, 2015

April 2, 2015 - Slide1

 

BULLISH TRENDS

April 2, 2015 - Slide2

April 2, 2015 - Slide3

April 2, 2015 - Slide4

April 2, 2015 - Slide5

April 2, 2015 - Slide6

 

BEARISH TRENDS

April 2, 2015 - Slide7

April 2, 2015 - Slide8

April 2, 2015 - Slide9

April 2, 2015 - Slide10

April 2, 2015 - Slide11
April 2, 2015 - Slide12

April 2, 2015 - Slide13


REPLAY: The Macro Show, Live with Keith McCullough

Watch The Macro Show live with Hedgeye CEO Keith McCullough.

 

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.

 

 


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.


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