Short Bill Gross and the Bond Bears (Again)

Editor's Note: This is an excerpt from Hedgeye research this morning. If you're curious and considering becoming a subscriber (a very good idea), please feel free to take a look around and see how we can help you by clicking here.

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So, a very loud and vocal chorus of Bond Bears was out in force yesterday (see Bill Gross on German Bunds… and in the U.S., those saying the Housing data was “too good”, so that meant the Fed would hike, etc, etc).


All that chirping accomplished was tap the top-end of our 1.84-1.99% immediate-term risk range for 10YR UST (which we are still long via TLT).


Our advice? Buy red, sell green. In other words, buy more bonds at the top-end of the yield range.


Rinse and repeat.


Short Bill Gross and the Bond Bears (Again) - zowsa


Takeaway: We reiterate our bullish bias on Japanese equities amid a powerful trifecta of supportive factors.

Below watch a video update of our intermediate-to-long term thesis on the Japanese economy and its financial markets.


CLICK HERE to download the associated presentation in PDF format (11 slides).


As always, feel free to ping us with questions.


Best of luck out there,




Darius Dale


Keith's Macro Notebook 4/23: VIX | UST 10YR | Gold

Hedgeye's Macro Analyst Darius Dale shares the the top three things in CEO Keith McCullough's macro notebook this morning.

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Retail Callouts (4/23): SKX, TJX, ZQK, SPLS, EBAY

Takeaway: Removing SKX from our short bench.


Retail Callouts (4/23): SKX, TJX, ZQK, SPLS, EBAY - 4 20 chart2





SKX - Removing From Short Bench


Takeaway: We’re removing SKX from our Short Bench. We added the name to the Bench on Monday after we flagged it as a negative on our SIGMA screen this past week. As a reminder, this analysis triangulates the P&L and balance sheet to hone in on which companies are likely to beat on the Gross Margin line, and of course...which companies are going to miss. We were looking for 1) the SIGMA trajectory coming out of 1Q15 and 2) the quality of the print. Both of which looked good enough for us to pull this name off our radar screen on the short side for now.

Retail Callouts (4/23): SKX, TJX, ZQK, SPLS, EBAY - 4 23 chart1





EBAY - Ebay lays out post-split vision for marketplace and PayPal



TJX - TJX chairman Cammarata to retire, CEO Meyrowitz will succeed him



ZQK - Quiksilver Investor Renews Calls for Retailer to Pursue Sale



SPLS - Staples Acquires Makr to Make More Design Services Happen



ABG Acquires Jones New York And Taps Mark Weber, Former CEO LVMH, Inc., As Strategic Advisor



Bill Langsdorf Named to Lead Former Wet Seal



Kering - Puma Appoints General Manager for EMEA



M - Macy's gets intimate with Heidi Klum



Ikea changes the rules on high-tech furnishings



Metro interested in some Target Canada stores



Sears Hometown and Outlet CEO to leave Aug. 1


U.S. Stocks Battle Back

Client Talking Points


A critical component to our model is how we model historical volatility (as a leading indicator), and it’s signaling a range of 12.07-14.32 on front-month right now – that’s bullish for equity beta. We’ll see if the Fed is the catalyst the market has been sniffing out (SPX only -0.5% off her all-time high as of yesterday’s close).


Very loud chorus of Bond Bears yesterday (Gross on German Bunds, and in the U.S. some said the Housing data was “too good”, so the Fed would hike?); all that did was tap the top-end of our 1.84-1.99% immediate-term risk range for 10YR UST – buy more bonds at the top-end of the yield range.


Another clean cut way to play an easier Fed (Down Dollar) and rates at the top-end of the range is obviously buying Gold at the low-end of its $1181-1208 range – we haven’t been a Gold Bull lately, but we have no problem changing our mind, from a time/price.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

MTW revised down its 2015 guidance for the Foodservice Equipment segment and preannounced a weaker than expected 1Q 2015. Sales in the quarter are a noteworthy miss, but we do not believe that the release has relevance for our sum-of-the-parts valuation thesis, and see many reasons to anticipate stronger operating results in 2H 2015.  Basically, we think investors stand to be paid for suffering through this volatility, with potential share price upside on separation ranging from the high 20s to low 40s. Near-term profit weakness is partly why the shares are ‘cheap’, and we think holders may be compensated well for the volatility. The shares are currently trading lower on a weaker than expected 1Q15, but 2Q15 should show improved Crane segment results and 2H should show better Foodservice Equipment results.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was mixed in the latest week with the April homebuilder confidence survey (NAHB HMI) putting in a strong sequential improvement, while March Housing Starts were a bit soft. The National Association of Home Builders (NAHB) released its April Housing Market Index survey (HMI) – essentially a survey of builder confidence. The print was strong as it showed a nice bounce across all three survey categories: traffic of prospective buyers, current conditions, and expectations 6 months out.  Housing Starts were up sequentially in March, but by less than the market expected. Total Starts rose by 2% to 926,000 (seasonally-adjusted annualized rate) from 908,000 in February.


On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.

Three for the Road


VIDEO (4mins on Fox) Here's How We're Playing 'Rates Down'



The genius thing that we did was never give up.



The first YouTube clip was shared 10 years ago.

CHART OF THE DAY: Homebuilders + Long Bonds (No Cognitive Dissonance Here)

CHART OF THE DAY: Homebuilders + Long Bonds (No Cognitive Dissonance Here) - 04.23.15 chart


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


...I remain bullish on both Long-Duration Bonds (TLT, EDV, MUB, etc.) and Housing (ITB, DHI, MTG, etc.), 


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