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The Momentum Mob

“When the mob gains the day, it ceases to be any longer the mob.”

-Napoleon Bonaparte


In markets, the momentum mob constantly cares about one thing – #charts. Lots and lots and lots of charts. The linear moving average ones are the simplest to scare you with. My 5 year old daughter can generate them on an iPad, so they have the broadest demographic point-and-click appeal. It’s all about the 50 and 200 hundred day, bro.


No matter where you go this morning, here we are – in the midst of another “breakout” in US bond yields. Notwithstanding that this one has been caused by an epic breakout in Global Yields, US equity only guys looking at TLT have the “bearish chart” now inasmuch as they had the uber bearish Oil one down at $43/barrel.


Even though many of you were right on bond yields (lower-for-longer) for 16 months starting in January of 2014, if you remained bearish on bond yields at the 2015 lows like I did, you have been wrong (on bonds) for a month. And now the mob has you by the #charts, so it’s time to … uh, panic?


The Momentum Mob - 19


Back to the Global Macro Grind


What’s a +28% ramp (in 24 hours) in German Bund Yields, amongst friends? That’s gotta be good for “stocks”, right? Wrong. As the bond yield #charts have “broken out”, sorry bros, it’s been bad for stocks too.


Q: If you can’t be long stocks or bonds, what do you do?

A: Raise cash


At 62% Cash in our Asset Allocation Model, at least we got something right. But most of that “raising cash” came from the equity side of what we liked in Q1. That said, what you really want to know is why I didn’t do the same in Treasuries?


Before I try to answer that question (again), let’s contextualize this epic 1-month move in Global Bond Yields:


  1. US 10yr Treasury = +34 basis points (bps) to 2.34%
  2. Canadian 10yr = +45 bps to 1.82%
  3. German 10yr = +53 bps to 0.68%
  4. French 10yr = +56 bps to 0.98%
  5. Italian 10yr = +60bps to 1.86%
  6. Portuguese 10yr = +84 bps to 2.42%


In other words, even if you don’t look at % moves and rates of change, on an absolute basis being long Treasuries vs. short just about everything else (1 through 5 on that list) was a relative winner!




Not on the performance part (German Bund Yield move was +353% vs. the UST move of +17%). When it comes to getting things right/wrong, I don’t calculate losses in cocoa-puff terms. TLT 1-month losses have been real. I should be held to account for that.


So why didn’t I pull a Jedi mind trick on all of you and book all of our gains in the Long Bond (TLT) at the top (with bond yields re-testing their all-time lows in January, or with the 10yr UTS yield down at 1.85% in April for that matter)?


A: #process


I.e. there would be no fundamental way for me to explain it within the risk management framework in which our longer-term growth and inflation views evolve.


Which obviously begs the question as to whether or not a 1-month move in bond yields has rendered our #process broken OR it’s simply signaling that stocks and bonds don’t go up forever (with no volatility and no down-days).


To review what we believe (because market #history does):


  1. Both local and global bond yields falls when the rate of change in growth is SLOWING
  2. Both local and global bond yields rise when the rate of change in growth is ACCELERATING


With both the trending rate of change in both US and Global Growth #slowing (with our model suggesting y/y US growth slowing to 1.8% in 2H of 2015), there’s no fundamental reason for me to be bearish on Long-duration bonds other than price momentum.


This is where the whole #ChartChasing thing comes into play. In my former hedge fund life I used to see guys chasing 50 and 200 day moving monkeys all of the time. So I taught myself to remain calm and not do that. I shorted Russell 2000 yesterday instead.


If both gas prices and bond yields head higher (from here), someone is going to gain the day. And that’s not going to be the American and/or European consumer. It’ll be a mean macro mob, because their charts will tell you to be short everything.


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 1.91-2.32%

SPX 2079-2117
VIX 13.03-15.79
USD 94.09-95.89
Oil (WTI) 55.62-61.12

Gold 1170-1200


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Momentum Mob - z 05.12.15 chart

QE Heroes

This note was originally published at 8am on April 28, 2015 for Hedgeye subscribers.

“The hero of a tragedy, in order to interest us, should neither be wholly guilty nor wholly innocent.”



That’s the opening volley from a brick of a recently published #history book (926 pages) that has been staring me in the face for months – Napoleon – A Life, by Andrew Roberts.


Research truths tend to be revealed with time. And since there’s never been a definitive history of the Corsican formerly known as “Napoleone de Buonaparte”, this one is getting what I love in a good read – polarizing reviews.


In many ways, this makes me think about the short history of QE (Quantitative Easing). Ben Bernanke has been quick to try to shape his own version of the story. And while I think he’s suspect in doing so, only time will tell who the real heroes are.


Back to the Global Macro Grind


As long as stock markets around the world continue to hit all-time highs, the central planners will look wholly innocent to many who think equity gains reflect economic growth. All the while, they’ll look wholly guilty to those analyzing the economic data.

QE Heroes - Card house cartoon 12.03.2014

While the Japanese and Chinese stock markets are more obvious examples of the divergence between economic reality and stock “charts”, it will be interesting to observe how the American and European narratives change alongside market prices.


Last night Japan reported a bomb of a Retail Sales report at -9.7% year-over-year for the month of March. That compared to a paltry -1.7% in the month prior. And the Japanese stock market went up on that…


In other news:


  1. US Stocks stopped going up at their all-time highs yesterday post a weaker US Services PMI report
  2. Services PMI (Markit report) for APR slowed to 57.8 vs. 59.2 in MAR
  3. This begged me the question – are US consumption gains from “lower gas prices” slowing?


Contrary to however people who don’t understand our process, models, or investment conclusions think, we’ve actually been The Bulls on the US domestic consumption and #Housing economy for the last 4-6 months.


Some of our conclusions were born out of the following macro stimulus:


  1. #StrongDollar as a net benefit to the purchasing power of Americans
  2. #Deflation in commodities, gas prices, cost of living, etc.
  3. #Lower-For-Longer on interest rates = #HousingAccelerating


We’ve argued this is why:


  1. Housing, Consumer Discretionary, Healthcare, and Consumer Tech stocks have outperformed YTD
  2. Financials and Industrials (companies negatively affected by lower rates and #deflation) haven’t performed YTD


So why on earth would an easier Fed that:


A)     Weakens the Dollar and …

B)      Re-flates commodities prices and cost of living


… be good for real US consumption growth?


You’re right. It wouldn’t be. But it might be really good for Oil & Gas and Mining stocks!


This puts both the internal message of macro markets (stocks, bonds, commodities, FX, etc.) and US economic reality at odds with one another again. We’ve seen this movie before.


We’re seeing it in Europe and Asia every trading day. Mainstream economists and strategists are constantly being pulled towards a narrative of stock market gains being congruent with economic growth and inflation expectations.


Just to hold them to account - what if the 2H 2015 growth bulls are right, and a #DevaluedDollar + #RisingOilPrices is bullish for US economic growth? Shouldn’t interest rates be raised earlier then too? Then what happens to Housing and Biotech stocks?


Alongside some 2015 US equity bears capitulating to the upside yesterday (after getting bearish in January, covering your shorts at the all-time high isn’t a good #timestamp), Mr. Macro Market delivered that very message for us all to consider:


  1. Biotech (IBB) -4.2%, on the day!
  2. Housing (ITB) -1.3%
  3. Silver and Gold +4.5% and +2.4%, respectively


This had me asking myself if what’s been a solid run being long stocks into the Fed meeting has all been priced in? I hope it hasn’t been. But that’s not a risk management process inasmuch as the QE fans aren’t my economic #history heroes.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-1.99%
SPX 2093-2124
RUT 1246-1275
Nikkei 19939-20288
VIX 12.02-14.91
USD 96.45-97.85
EUR/USD 1.06-1.09
WTI Oil 52.35-58.16
Gold 1175-1208


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


QE Heroes - z 04.28.15 chart

May 12, 2015

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Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

REPLAY | Healthcare Q&A With Tom Tobin | $HCA $HOLX $ATHN

Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a Q&A session today in our studio.



They provided their thoughts on the recent jobs report and how it will influence the healthcare space, discussed updates to their monthly OB/GYN survey, and gave their latest thoughts on HCA Holdgings (HCA), Hologic (HOLX) and athenahealth (ATHN).


Tune in next week for another live Q&A from Tom and Andrew.



VIDEO | Agricultural Equipment: How Long, How Deep? $DE $AGCO $CNHI

Hedgeye's Industrials Sector Head Jay Van Sciver sat down with Director of Research Daryl Jones to discuss his upcoming black book and conference call on Agricultural Equipment being released this Friday.


Jay hits on various aspects of the agricultural equipment sector including why he's getting loud on Deere & Company (DE) AGCO Corp (AGCO) and CNH Industrial (CNHI) now and the influence of commodity prices.

Attendance on this call is limited. Please note if you are not a current subscriber to our Industrials research there will be a fee associated with this research call and related material. Ping sales@hedgeye.com for more information.

HIBB: Adding Hibbett Sports to Investing Ideas (BEAR SIDE)

Takeaway: We are adding Hibbett Sports (HIBB) to Investing Ideas as a short..

Editor's Note: We received considerable positive feedback from our subscribers this past weekend after we decided to highlight one of our favorite names on the short side right now ... Royal Caribbean. In light of the fact that we have grown increasingly bearish on U.S. equities, and do not see many attractive long opportunities currently, we give you Hibbett Sports.


Below is a brief note from Hedgeye CEO Keith McCullough explaining why we are adding HIBB to Investing Ideas as a short. Retail Sector Head Brian McGough will provide a fuller explanation in this weekend's update.

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HIBB: Adding Hibbett Sports to Investing Ideas (BEAR SIDE) - 36


Getting bearish (on US Equities) is a process... and I think we waded into what will now be a net short position (more shorts in US Equities than longs) at a measured pace.


We're short a few index/sector exposures (IWM and XLF) and now adding single stocks, as we received overbought signals.


The Bear case for Hibbett from Brian McGough has not changed.

Sell/Short Green (from Chicago),


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