US 10YR, USD, Commodities

Client Talking Points


We were always 1 bad jobs report away from the Fed coming around to our lower-for-longer view on rates; 1.83% yield for the US 10YR this morning with an immediate-term risk range = 1.80-1.93%, and no intermediate-term support to the all-time closing (yield) lows.


The USD was down hard on Friday, especially vs. the Euro, as the short position in EUR/USD (futures/options contracts -225,776 net SHORT position) is massive; risk range now $1.07-1.10 and we think the rates move is much more important from an intermediate-term point of view.


Gold loves Down Dollar, Down Rates – it’s +1.2% to $1222/oz this am but signaling immediate-term overbought; Oil +3.5% on the same, but tapping the top-end of its current 46.48-51.06 WTI risk range too

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. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.


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. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007.  We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.  


                                                                                                                                                                      While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market.  All else equal, we’d view improving demand as a net positive.  On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.



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. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.

Three for the Road


REALITY CHECK #2: We have been long bonds & $TLT since 4/1/14 in Real-Time Alerts. It's up +22% since. @Hedgeye @KeithMcCullough


“Yesterday is not ours to recover, but tomorrow is ours to win or lose.”

                     -Lyndon B. Johnson


Today in 1808, John Astor (America's 1st millionaire), incorporated the American Fur Company.

Hope Remains Intact

This note was originally published at 8am on March 23, 2015 for Hedgeye subscribers.

“One would hope that the Fed will be very cautious about tightening.”

-Ray Dalio


That’s what Global Macro man, Ray Dalio, was hoping for in his Bridgewater’s Daily Observations note from March 11, 2015. He believes that it is “best for the Fed to err on the side of being later and more delicate than normal.”


While hope is not a risk management process, I was hoping for the same last week. And my fundamental research call for lower interest rates for longer (as the rate of change in both Global Growth and Inflation slow) remains intact.


At the same time, I am not hoping for a devalued US Dollar. US companies who are reporting international revenues and earnings are. The only reason why US GDP growth isn’t falling below 2% is because real US consumption growth loves #StrongDollar.


Hope Remains Intact - z doll 2


Back to the Global Macro Grind…


The problem, of course, is that when the Dollar is rising and Rates are falling (at the same time), you get #Deflationary forces in asset prices tied to inflation expectations. This is where Wall Street and Main Street are hoping for different things.


Last week, on the dovish Fed “news”, the US Dollar and Interest Rates dropped:


1. US Dollar Index (-2.4% for the week) had one of its biggest down weeks in the last 6 months

2. US Treasury Yields (10yr) dropped 18 basis points on the week to 1.93%


That was the very immediate-term move that Dalio and I were hoping for, as it took out the big bang risk of the Federal Reserve making a policy mistake at the end of multiple cycles.


On Down Dollar:


1. The Euro had one of its biggest up weeks in the last 6 months, +3.1% to -10.6% YTD

2. Gold had a big bounce (Gold loves Down Dollar, Down Rates) of +2.8% to 0.0% YTD

3. Commodities (CRB Index) finally stopped making new weekly lows, +1.6% at -6.9% YTD

4. Emerging Market Stocks (MSCI Index) bounced +3.2% to +1.4% YTD

5. Latin American Stocks (MSCI) had an even bigger bounce +5.4% to -9.6% YTD


Meanwhile, on Down Rates:


1. Biotech Stocks (IBB) ramped another +6.0% to +20.8% YTD

2. REITS (MSCI Index) ripped a +5.6% move to +6.8% YTD

3. NASDAQ tacked on another +3.2% to +6.1% YTD

4. Long Bond (TLT) had a great week, +3.8% to +4.6% YTD

5. SP500 had its 1st up week in the last 3, closing +2.7% putting it back in the black at +2.4% YTD


In other words, most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.


All the while, consensus was setup for a rate-hike. Here’s where futures and options net positioning (CFTC non-commercial positions) are:


1. SP500 (Index + Emini) net SHORT position rose to its highest of 2015 at -76,511 contracts

2. Long-term Treasuries (10yr) net SHORT position came off its YTD highs to -132,900 contracts

3. The Euro’s net SHORT position got pinned at YTD highs of -201,135 contracts


With the SP500, Long-term Treasuries, and Euros all straight up from within six minutes of the FOMC announcement, Consensus Macro getting squeezed provided for a cherry on top of what was an admittedly hoped-for reprieve in policy mistake expectations.


Hence my “buy everything” call on the news. But now what? Do you sell everything? I don’t think so – I’m definitely not selling Long-term bonds and/or anything that looks like a bond. Not if the market is expecting the Fed to deliver on “data dependence.”


While this week’s CPI data should get a small lift from Oil bouncing like it did in FEB, that #deflation data is going to look very dovish when it gets reported for MAR (in April). Friday’s final GDP report for Q414 will also look slower, sequentially.


Fortunately, our rate of change models are not built on hope.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.89-2.03%

SPX 2080-2119

RUT 1238-1275

USD 97.17-100.39

EUR/USD 1.04-1.08

Oil (WTI) 42.04-48.03

Gold 1159-1188


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer


Hope Remains Intact - 03.23.15 chart

CHART OF THE DAY: Which Way for $USD, Commodities and $TLT?

CHART OF THE DAY: Which Way for $USD, Commodities and $TLT? - 04.06.15


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


In the meantime, the only big macro call that I’ll stay with is being long Long-term Bonds. While I’m always learning about theoretical scenarios where the easiest call to make can be wrong, the only thing that’s been dead wrong there is the Rate Hike consensus.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Always Learning

“Organizations cannot learn unless the individuals within them learn.”

-Edward Hess


“Always Learning” is a nicer title for the morning after the long weekend than the title of the most recent book I cracked open: Learn Or Die, by Edward Hess.


For those of you who missed the Late-cycle slow-down in the US labor report on Friday, Global Macro markets did not. It’s a big Rates Down, Dollar Down (Commodities Up) morning here in America that we need to risk manage.


We’re on the right side of the rates move, so my primary focus will be risk managing the losing side of the Currency move. Will a bearish TRADE in the US Dollar disrupt our bearish intermediate-term TREND view of Commodities? Learning starts by questioning what it is that we believe.


Always Learning - 44


Back to the Global Macro Grind


When it comes to running money or an independent research firm, I think Hess asks the right question as an opening volley to the aforementioned book: “Learn or Die: Is this just a snappy title or is it a business truth?”


Having run both a buy-side and research company, I’d say that it is an absolute truth. Everyone makes mistakes. Not everyone can recover from not learning from those mistakes.


Since what I believe about Global Macro markets today can easily change tomorrow, I try to put myself in a position of perpetually being open to the idea that Mr. Market’s immediate-term TRADE can change the direction of our intermediate-term TREND views.


With that in mind, the easiest call to reiterate this morning is the one where both the TRADE and TREND agree: lower-for-longer on US interest rates. Here’s how that looked both week-over-week, and in the context of the intermediate-term TREND:


  1. US 2yr yield dropped -12 basis points last week to 0.48% (-19 bps YTD) and remains bearish TREND
  2. US 10yr yield dropped -12 basis points last week to 1.83% (-33 bps YTD) and remains bearish TREND


Whereas the toughest call to make is the counter-TREND move (which was caused by the same employment #GrowthSlowing factor – a weak jobs report) in the US Dollar. Here’s how I’d contextualize that, across durations:


  1. US Dollar Index -0.5% on the wk to 96.80 (+7.2% YTD with bullish intermediate-term TREND support of 93.71)
  2. CRB Commodities Index +0.4% last wk to 216 (-6.0% YTD with bearish intermediate-term TREND resistance of 239)


What makes easy even easier (and tough tougher) is Consensus Macro positioning (in non-Commercial CFTC futures and options positioning terms) right now:


  1. Long Bond (10yr US Treasury) net SHORT position still way too short at -134,579 contracts
  2. EUR/USD net SHORT position at its highest short position of 2015 at -225,776 contracts


In other words, Bond Bears got squeezed on Friday inasmuch as Euro Bears did – and now one major question is will there be follow through on either and/or both? The other, of course, is what do slowing growth expectations mean for US stocks?


If you’re purely playing this from a Correlation Risk perspective (like many of the machines are), answering the question on US Equities is tough too. That’s because shorter-term durations have an inverse correlation, whereas longer-term ones have a positive correlation.


Here’s what I mean by that:


  1. US Dollar Index 30-day correlation to the SP500 is -0.70
  2. US Dollar Index 180-day correlation to the SP500 is +0.73


I could be wrong on this, but what I believe Mr. Market is trying to tell us with that juxtaposition is that for the US stock market to go up longer-term, growth expectations need to stabilize and strengthen. That only happens with a #StrongDollar – not a weak one.


But, if growth expectations continue to fall, at an accelerating rate:


  1. US interest rates will fall
  2. US Dollar will fall
  3. And as expectations for an easier Fed rise, stocks could bounce like commodities just did


If I haven’t confused you yet on the potential for multiple scenarios playing out, across multiple durations, let me speak to you every other day as rates, currencies, stocks, and commodities whip around! This is going to be fun.


In the meantime, the only big macro call that I’ll stay with is being long Long-term Bonds. While I’m always learning about theoretical scenarios where the easiest call to make can be wrong, the only thing that’s been dead wrong there is the Rate Hike consensus.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.80-1.93%
SPX 2039-2076
USD 96.60-98.80
EUR/USD 1.07-1.10
Oil (WTI) 46.48-51.06
Gold 1181-1227


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Always Learning - 04.06.15

April 6, 2015

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Investing Ideas Newsletter

Takeaway: Current Investing Ideas: UUP, EDV, GS, ITB, TLT, MTW, MUB, RH

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


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

Investing Ideas Newsletter      - 88 

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      - central planning cartoon 04.01.2015



Goldman Sachs stock had a good week rising 1.8% against an S&P 500 that was flat in the holiday shortened week. This extends outperformance for the leading investment banking stock against the broader market with GS investors outflanking the S&P 500 by 5.9% over the past 12 months.


With the firm reporting first quarter earnings in two weeks on April 16th, the market will be speculating no more on the solid capital position of the firm and also an improved trading environment for an equity and fixed income franchise that has gained market share as European competitors retrench. Revenue estimates for Fixed Income, Currency and Commodity trading sit at $2.8 billion for the quarter but the result should be in the $3.0 billion+ range, which will get investors thinking about growth again for the company with the first year-over-year gain in bond trading since 2009.


Investing Ideas Newsletter      - gs1


March Mojo


The housing data was again strong in the latest week with Pending Home Sales, HPI and Purchase Demand all accelerating to close out March.


  • Pending Home Sales rose +3.1% sequentially in February with signed contract activity up a remarkable +12% YoY, taking the index to a new 19-month high. Pending Home Sales is a lead indicator for Existing Home Sales and the recent strength in Pending argues for upside risk in reported Existing sales (where the trend has been comparably softer) over the next couple months.
  • Mortgage Purchase Applications – the most real-time, high frequency housing demand indicator - rose +5.7% WoW on the back of last week’s +4.9% advance and accelerated to +7.6% on a year-over-year basis. Given the notable acceleration in activity in the last two weeks of March, the data does indeed appear to be catching up to the thaw – a trend we expect to continue over the next 6-8 weeks
  • HPI: The Case-Shiller 20-city series showed home prices grew +4.6% year-over-year in January, accelerating moderately relative to the 4.4% growth reported in December. A stabilization/inflection in home price growth is important as housing related equity performance tracks the slope of home price growth strongly.
  • March Employment: The March Employment report released on Friday was broadly disappointing but belied ongoing, modest strength in housing demand fundamentals. First, 25-34 year old employment growth – the key demographic for 1st time buyer demand - held near the cycle high (& at a premium to the broader average) at 2.6% YoY. Second, residential construction employment rose +4K in March despite both adverse weather and softness in the balance of construction industry (total construction employment was down -1K for the month). On a year-over-year basis, employment growth continues to hold in the high single digits as conditions in the resi construction labor market continue to tighten.

We detailed our outlook for housing in 2Q with a deep dive conference call on Thursday entitled “If It Ain’t Broke…”. In short, we continue to like the setup for the sector over the current quarter.


Investing Ideas Newsletter      - phs


It was another week of declining long-term yields getting you paid on the long-side of Long-term Treasury bonds (TLT, EDV) and anything that acts like it (MUB) as the benchmark 10-Year U.S. Treasury yield declined another -12 basis points. The USD experienced some volatility ending the week down (~-50bps) with the most pressure coming after Friday’s big Non-Farm Payrolls Report (#LaborMarket).


To reiterate our view over the longer-term, we pin a good chance the U.S. Dollar will reach new highs ($120 anyone?) with the probably of long-term Treasury yields reaching all-time lows very much in play.

#GlobalDeflation was one of our top 3 themes for Q1 and we’re continuing to ride that call:

With Q1 coming to a close on Tuesday, here’s how things shake out YTD:

  • UUP +7.2%
  • TLT: +3.8%
  • EDV: +5.1%
  • S&P 500: +0.40%
  • MUB -0.1%
  • XLE (Energy): -1.8%
  • XLI (Industrials): -2.0%
  • CRB Commodities Index: -6.0%

Deflation crushes the debtor who makes pays interest in U.S. dollars (over-leveraged energy companies) and the earnings power of industries leveraged to commodity Inflation. Unfortunately the pain may not be over (Steer clear)!

Both the Hedgeye macro team and your central planners in D.C. will continue to eye the labor market intently for direction on the U.S. dollar but remember that rates can go lower with the dollar going both ways (In 2014 rates reverted a whole 75bps even though the U.S. dollar declined -2% from January 1st to May 6th before going on a tear through the back half of 2015 into this year).

  • Wednesday’s ADP report printed a number that slowed again sequentially in March which doesn’t bode well for the current rate hike expectation
  • Friday’s Non-Farm Payrolls report for March was a certified disaster for those long of rates rising:
    • Non-Farm Payroll additions added +126K vs. and expectation of +245K (+264K revised in February) 


Retail Sector Head Brian McGough and his partner Alec Richards remain big believers in Restoration Hardware (even with its recent run higher) and reiterate that RH is their best idea in retail. This recent deep dive note fleshes their thesis out in more granular detail.


While the crane business receives the most attention in part due to its cyclicality and because they are well, more noticeable, Manitowoc’s other business, Foodservice equipment, is the larger of the two in terms of operating income (60% vs. 40% for Cranes).


Several indicators are pointing towards upward momentum for MTW’s Foodservice business. Restaurant same store sales have benefitted since the drop in oil prices. Furthermore, an indicator by the National Restaurant Association, RPI Capital Expenditures Index, has surged recently in part due to lower fuel prices driving restaurant traffic and restaurant owners’ outlook.


Investing Ideas Newsletter      - MTW 4 3 20151


* * * * * * * * * * 



Senior macro analyst Darius Dale says domestic economic growth remains fairly anemic with mounting risks to the downside as we progress through the balance of the year.

Investing Ideas Newsletter      - 14

ual: will losing win, long-term?

"While a drop in jet fuel prices has led to a surge in airline shares," Industrials sector head Jay Van Sciver writes, "evidence continues to mount that UAL is not like the others."

Investing Ideas Newsletter      - 23

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