Asia, USD, Europe

Client Talking Points


This ramp chart on the Hang Seng is something to see, up another +1.2% overnight (8th day in a row) and +15% in the last month to +16.1% year to date; KOSPI ripped another +1.4% to its highest level since AUG 2011 (Chinese Stocks up another +1.9% to +24.7% year to date for the Shanghai Comp).


US Dollar

 I was seeing NYC investors all day yesterday and there are a lot of people looking for the USD to decline (and Oil to rise) – not happening as the USD is +2.6% week over week to 99.29 on the USD Index and WTI is re-testing a breakdown through $50; Euros continue to burn, $1.06 last – staying with our #StrongDollarDeflation theme.


My oh my are these stock markets in Europe incredible to watch – DAX is +1% this am to fresh year to date highs of +25.4% and places like Denmark are +35.7% year to date. They love the smell of Burning Euros, and how could you blame them? European profit margins are going up on this FX move like US ones did when the USD was devalued.

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


OIL: not delivering for the bulls as #StrongDollar Deflation continues to dominate -1.1% = $50.25



“The secret of getting ahead is getting started.”

                           -Mark Twain                       


The total year-to-date outflow from domestic equity funds increased by nearly two thirds to -$8.8 billion as of April 1st from -$5.4 billion as of March 25th.  This asset class is doing especially poorly this year.  From 2007 through 2014, excluding 2008, domestic equity funds lost -$68.6 billion per year on average. However, even with those outflows, average first-quarter domestic equity flows were neutral.  On the other hand, as we show in the chart below, this year's Q1 flow sits -$8.8 billion below the ex-2008 average of +$26 million.  Post-2006, the only years that had worse domestic equity outflows in the first quarter were 2008 at -$41.0 billion, 2009 at -$27.3 billion, and 2012 at -$19.2 billion.  By the end of those years, investors had pulled -$157.0, -$40.6, and -$167.9 billion, respectively, from domestic equity funds.  Given the asset class' year-to-date outflows in what is usually the best quarter of the year, things do not look so rosy for domestic active managers.

The Short Happy Life

This note was originally published at 8am on March 27, 2015 for Hedgeye subscribers.

“You know, I’d like to try another lion.”



That was a Hemingway metaphor for married-middle-aged-men conquering their fears in a short story called “The Short Happy Life of Francis Macomber.” It’s a story about a man and his adulterous wife on a safari hunt in Africa.


Right before she kills him, Macomber says: “I’m really not afraid of them now. After all, what can they do to you?


Well, evidently, she (and/or a lion) can do a lot to you! And it made me think about the confidence I am building in risk managing this macro tape. Buying US Dollars, Stocks, and Bonds on dips – Shorting Commodities on rips. Feels like a short happy life, for now…


The Short Happy Life - 56


Back to the Global Macro Grind


But, as any battle tested hunter of the Alpha knows, what we “feel” about markets doesn’t matter. In fact, fading our most immediate-term fears tends to be where we make the best short-term-happy buy/sell decisions.


Whether I’ll prove to be right on this or not for more than today is the ultimate Global Macro question right now (it’s been the same question for 6 months), but this morning it’s back to business with what I think is the best way to be positioned right now:


  1. Long US Dollars (UUP)
  2. Long long-term Treasuries (TLT)
  3. Long US Housing (ITB)
  4. Long US Consumption and Healthcare stocks (XLY and XLV)
  5. Short Commodities and their related stocks/bonds (OIL and XOP)


Ultimately this is the long and short of being positioned for our top Global Macro Theme in Q1 of 2015, Global #Deflation (yes, there are plenty of ways to be uber LONG of the bearish theme – because it’s only bearish for those who are long inflation expectations).


Not to be confused with Global #GrowthAccelerating, #Deflation is Mr. Macro Market’s message when:


  1. The World’s Reserve Currency (Cash) is in high demand vs. other countries who are burning theirs
  2. Both US and Global Interest Rates are falling


Anyone who has studied economic and market history knows that interest rates don’t fall unless the rate of change in GROWTH is slowing. When the rate of change in GROWTH was accelerating (USA in 2013), both the US currency and US rates rose, in tandem.


#StrongDollar and #RatesRising was the macro center-piece of the 1993-1999 real US economic consumption expansion (sub $20 Oil) too. Unfortunately, today is not the 1990s (perma growth bulls note this week’s capex cycle chart, which is slowing, faster, now).


What could change my mind on this?


That’s easy – reversing everything that’s been priced into macro markets for the last 6 months, for more than a 2-3 day trade.


What do I mean by that? For intermediate-term risk managers, here’s a list of 10 TREND levels to watch:


  1. UST 10yr Yield = 2.39% resistance
  2. US Dollar Index = 93.20 support
  3. EUR/USD = $1.16 resistance
  4. YEN (vs USD) = 117.09 resistance
  5. CRB Commodities Index = 235 resistance
  6. WTI Oil = $57.79 resistance
  7. Copper = $2.99 resistance
  8. Housing (ITB) = $25.01 support
  9. Healthcare (XLV) = $70.05 support
  10. Oil & Gas Stocks (XOP) = $54.39 resistance


In other words, my short happy life of the last 6 months is all one macro view. It’s by no means a permanent macro view. As most of you who have followed me for a long time know, I have no problem reversing the entire thing and doing the opposite.


But, as promiscuous as I can be with macro trends, is as wedded I am to my process.


And for now, you know, the #process is telling me to try another lion.


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


UST 10yr Yield 1.83-2.02% (bearish)
SPX 2049-2080 (bullish)

RUT 1223-1250 (bullish)
DAX 11705-12140 (bullish)
EUR/USD 1.05-1.10 (bearish)
YEN 118.62-121.69 (bearish)
Oil (WTI) 41.93-51.96 (bearish)
Natural Gas 2.63-2.79 (bearish)
Gold 1140-1208 (bearish)
Copper 2.56-2.85 (bearish)


Best of luck to our Bulldogs in Blue this afternoon at the NCAA Hockey Tournament vs. Boston University,




Keith R. McCullough
Chief Executive Officer


The Short Happy Life - 03.27.15 chart

CHART OF THE DAY: Macro Markets Are Non-Linear

CHART OF THE DAY: Macro Markets Are Non-Linear - 04.10.15 Chart


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 other words, some of my very short-term views are at odds with my longer-term ones – and others (rates) are aligned. After I’ve debated everyone else, I love to argue with myself about all of that. Macro markets, across durations, are non-linear."

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I Love Debate

“I love argument, I love debate.”

-Margaret Thatcher


And I love Margaret Thatcher. She was a beauty.  She took down the old crusty central planners of British officialdom, and stood up for the purchasing power of the people and their currency.


I have debate on the mind as I am actually meeting with some big time central planners today in NYC. I am neither bringing a taster to the lunch debate, nor a rollover in all that I have been writing and ranting about for the last 7 years. I am bringing The #Process.


In preparation for today, Darius Dale, Josh Balch, Pavitra Duggal, and I spent all of yesterday meeting with Institutional Investors. The debate in most meetings was as vibrant as it has been in a long time. I’ll recap some of the highlights in the grind.

I Love Debate - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


When I am on the road, some of the best discussions I have with my teammates are in between meetings. I can’t count how many times Darius and I can’t wait to get out of the elevator and debate amongst ourselves the best debate points of the prior meeting.


In that regard, banging out 6-8 meetings in a day is an exercise in gaining cumulative knowledge of not only what investors are thinking, but who has the most differentiated views and/or analogues that best support or refute our in-house research view.


Sometimes what people aren’t asking about is an idea in and of itself. China, for example, hasn’t been a trending topic in our meetings this year, and boom! The Hang Seng puts on a +15% ramp to the upside in the last month, so now we’ll get asked about it.


Since Global Macro can take the discussion anywhere, there’s a lot to talk about, but I’d say the Top 3 Debates I’ve had in the last week (I was in the Midwest to start the week) have been centered on these questions:


  1. Is the Dollar done going up?
  2. Is Oil done going down?
  3. Is the US economy that slow in Q1?


If I recapped what the healthiest debate was 1 month ago today, it was all about whether rates were going up or down. The Fed’s March 18th meeting put a lot of the questions about “liftoff” at bay (Fed Funds Futures pushed the 1st hike out to DEC too).


Markets moving in one direction with data supporting it will do that to a debate. The debates get much more interesting when market prices are whipping around in a range, like the US Dollar and Oil have been.


On the US Dollar:


  1. There tends to be a lot of anchoring on Fed policy, and less respect for what Draghi and Kuroda are committed to doing
  2. We agree with investors who tell us that our being right on lower-rates-for-longer is less bullish for the USD in isolation
  3. We don’t agree that consensus gets what a EUR/USD level of 80 cents looks like from an asset allocation perspective


On Oil:


  1. Since we believe that the US Dollar’s epic 6 month ramp is the beginning of a longer-term TREND, Oil bulls don’t like that
  2. Oil Bulls tend to data mine for decoupling – meaning they’ll agree with our USD view, but say supply or demand is bullish
  3. Oil Bears tend to believe that demand is as good as it’s going to get (it’s pro cyclical) and supply is a long-term problem


On the US Economy:


  1. Almost everyone asks about the Atlanta Fed forecast chart that’s been getting passed around (going straight down)
  2. Almost no one models GDP year-over-year like we do, so we surprise them when explaining Q1 GDP is going to be good
  3. The timing of what the Fed thinks GDP is in Q1 (and what they’ll probably have to say April 29th) is a great debate


On that last point about April 29th, it’s interesting because:


  1. That’s the date of the next FOMC decision on rates/policy
  2. It’s also the date of Q1 2015 GDP being released
  3. And, most importantly, that date is pre the next US jobs report


So when debating the timing, I’ve been trying to make the point that A) since the most recent jobs report was the worst in almost a year and B) the way the Fed looks at GDP (Q/Q SAAR) is going to look really “slow” sequentially, they’ll punt on rate hikes.


And since Fed Fund futures are pricing in my view, it’s tough for someone to argue with me on that, unless they have inside information… that said, anything can happen obviously. We’ll see if I’m right.


If I am, from today’s time and price to that critical Macro Catalyst date (April 29th), I think you could see:


  1. USD sell off from this week’s immediate-term overbought zone of 99.46-99.87 on the USD Index
  2. Oil bounce again within its bearish TREND (top end of the risk range, for now is $53.54 WTI)
  3. US Interest Rates making yet another lower-high here and re-testing 1.81% on the 10yr Yield


In other words, some of my very short-term views are at odds with my longer-term ones – and others (rates) are aligned. After I’ve debated everyone else, I love to argue with myself about all of that. Macro markets, across durations, are non-linear.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-1.97%
SPX 2076-2096

RUT 1  
VIX 13.03-15.96
USD 98.03-99.76
EUR/USD 1.06-1.08
WTI (Oil) 46.43-53.03


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


I Love Debate - 04.10.15 Chart

April 10, 2015

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The Hedgeye Gaming, Lodging, and Leisure team will host a conference call Friday, April 10th at 11:00AM ET to discuss the latest Macau data and our overall thoughts on the market and the stocks.   




LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.




  • The company and market details behind March's 39% GGR decline
  • Summary of our late March Macau trip
  • The true Mass/VIP split is masked by smoking ban related reclassifications of tables - we'll get you the right numbers
  • In terms of YoY declines, the worst could be behind us - but does that mean sequential trends are improving?
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) - Still below the Street?
  • Research Topic: Why we're a little more positive on Direct VIP



Attendance on this call is limited. Please note if you are not a current subscriber to our Gaming, Lodging, and Leisure research there will be a fee associated with this call. Ping for more information.

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

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