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USD/Commodities/China

Client Talking Points

USD

After a 2-day drop, then straight back up overnight as EUR/USD backs off from $1.10 to $1.08 and the Yen failed @Hedgeye resistance too – US currency doesn’t operate in a vacuum – TRADE and TREND support for USD Index intact.

Commodities

The CRB Index was +1.8% yesterday to close at 220 + +5.3% off multi-year lows but now at the top-end of its 209-221 risk range with Oil and Gold backing off the top-ends of theirs too; USD is holding its ground keeps #deflation risks on.

China

Epic ramp for the Chinese stock market (up another +2.5% overnight to +22.5% year to date for the Shanghai Comp = 7 year high as A) both growth and inflation data slows and B) stimulus hopes run rampant) – We just had a Real Conversation @HedgeyeTV w/ Steve Roach where we focus the 1st part on China here: https://app.hedgeye.com/feed_items/43360-real-conversations-stephen-roach-on-global-imbalances-risks-and-how

 

Asset Allocation

CASH 33% US EQUITIES 11%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 11%

Top Long Ideas

Company Ticker Sector Duration
MTW

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.

ITB

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.

TLT

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

TWEET OF THE DAY

EVENT: Hedgeye's Q2 Global Macro Themes Call 11AM EST @KeithMcCullough

QUOTE OF THE DAY

“I played the game one way.  I gave it everything I had.  It doesn’t take any ability to hustle.”

                        -Wade Boggs

STAT OF THE DAY

Once again, ZERO perfect NCAA March Madness brackets were submitted.


CHART OF THE DAY | Initial Claims: As Good As It Gets?

CHART OF THE DAY | Initial Claims: As Good As It Gets? - 04.07.15

 

Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye Director of Research, Daryl Jones. Click here to subscribe.

 

In today's Chart of the Day, we take the longer view of the employment cycle and we show initial jobless claims going back to the mid-1960s.  The data in this chart quite clearly shows that if anything we are closer to the peak in the employment cycle than the trough.  More interestingly, as the chart also shows, employment improvement peaks, on average, 7 months before an economic cycle does. 

 


Dream Themes

“Deep into that darkness peering, long I stood there, wondering, fearing, doubting, dreaming dreams no mortal ever dared to dream before.”

-Edgar Allan Poe

 

Yesterday was the championship game for college basketball and like most NCAA tournaments, this one was full of its share of surprises.  To many (especially Wildcat faithful) the biggest surprise in the tournament was the premature end to Kentucky’s perfect season.  (Although after last night’s 5th national victory for Coach K, the Duke basketball faithful probably aren’t too concerned about Kentucky!)

 

The dream of a perfect season in NCAA basketball begins anew next season.  It has been 39 long years since Indiana, under Bobby Knight, last had a perfect season in 1976.  That’s a long time for basketball fans to wait for a proverbial “Dream Team”.  Luckily for all of you, once a quarter Hedgeye releases our "Dream Themes" and today at 11am ET we will be walking you through our Q2 2015 investment themes (ping if you haven’t already received the dial-in).

 

Clearly, we are being somewhat facetious in suggesting our quarterly investment themes are perfect.   But even if we aren’t perfect, every quarter we endeavor to highlight the top three macro-economic themes that we believe are most relevant.  To some investors, quarter-to-quarter thematic investing may seem counterintuitive. 

 

In a globally integrated economy that is increasingly being managed by governments and central bankers, we think nothing could be further from the case.  When the direction of the markets can be influenced by the simple changing of a single word in a central bank’s policy statement, frankly it is careless not to stay on top of the real-time changing currents in macro investing.

 

Dream Themes - central planning cartoon 01.04.2015

 

Back to the Global Macro Grind...

 

The key themes we will be discussing later this morning are highlighted below and as usual there will be heavy focus on the U.S. economy:

 

1. LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest.  We'll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.  

 

2. DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the "secular stagnation" thesis most recently highlighted by Bernanke's blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...

 

 3. Oil's #DeflationDeck:Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation's dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into 2016 and beyond.     

 

Given the recent disappointment in U.S. employment, the #LateCycle USA is likely to be the most controversial to investors.  Specifically, on Friday the Labor Department’s data showed the U.S. added a mere 126,000 jobs in March.  The economic bulls of course will tell you, and there is some credence to their argument, that part of the fall in March was a one-time correction in the energy sector as domestic oil drilling adjusts to a new, and much lower, paradigm in oil.

 

In today's Chart of the Day, we take the longer view of the employment cycle and we show initial jobless claims going back to the mid-1960s.  The data in this chart quite clearly shows that if anything we are closer to the peak in the employment cycle than the trough.  More interestingly, as the chart also shows, employment improvement peaks, on average, 7 months before an economic cycle does. 

 

With the current expansion getting long in the tooth at 71 months versus a median expansion of 51 months,  you probably get very clearly why we think the most important current macro topic is to focus on where we are in the cycle.  In as much as we’d like to dream of economic cycles that expand in perpetuity, that’s not how the world works outside of academia.

 

In typical reactionary fashion, members of the Federal Reserve are now beginning to explicitly push out the so-called “dots”.  Yesterday Atlanta Fed President Dennis Lockhart, who is currently a voting member, said he favors a July or September “lift off” instead of June, with the caveat that most of the negative data in Q1 was transitory (which is how most economists classify data that doesn’t agree with their prevailing view).

 

The irony of course is that to the extent that the Fed doesn’t continue to be wrong on real-time economic data, and does at some point in the next couple of quarters get the chance to raise rates, the Fed will be signaling that we are likely in the longest economic expansions in the history of the U.S. economy.  This assumes that the Fed then raises rates through 2017, which would put the U.S. economic expansion at near 100 months!

 

Sounds like a bit of a dream to you? Well, us too.  And as Victor Hugo wrote about dreams in Les Miserables:

 

“There is nothing like a dream to create the future.”

 

Indeed.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.84-1.93%
SPX 2044-2094

VIX 13.63-16.21
YEN 118.98-120.49
Oil (WTI) 46.39-52.24
Gold 1180-1218 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research 

 

Dream Themes - 04.07.15


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CALL TODAY | Q2 2015 MACRO THEMES CONFERENCE CALL

We will be hosting our highly-anticipated Quarterly Macro Themes conference call today Tuesday, April 7th at 11:00AM ET.  Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications. 

 

Q2 2015 MACRO THEMES OVERVIEW:

 

#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest.  We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.  

 

#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...
 

Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into 2016 and beyond.

 

CALL DETAILS


  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 39359212
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

 

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to .

 

Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Kind regards,

 

The Hedgeye Macro Team

 

CALL TODAY | Q2 2015 MACRO THEMES CONFERENCE CALL - 4 6 2015 8 48 09 AM


The Grindstone

This note was originally published at 8am on March 24, 2015 for Hedgeye subscribers.

“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 1235-1275 (bullish)

Nikkei 19341-19942 (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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Grindstone - 03.24.15 chart


April 7, 2015

April 7, 2015 - Slide1

 

BULLISH TRENDS

April 7, 2015 - Slide2

April 7, 2015 - Slide3

April 7, 2015 - Slide4

April 7, 2015 - Slide5

April 7, 2015 - Slide6

 

BEARISH TRENDS

April 7, 2015 - Slide7

April 7, 2015 - Slide8

April 7, 2015 - Slide9

April 7, 2015 - Slide10

April 7, 2015 - Slide11
April 7, 2015 - Slide12

April 7, 2015 - Slide13


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 80.28%
  • SHORT SIGNALS 78.51%
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