Big League Central Planning

Client Talking Points


Forget the Italian, they brought in the French economist (Coeure) to devalue the Euro and “front-load QE” to this month and next. The EUR/USD is right back down to the low-end of our $1.10-1.14 risk range on that; correlation trades in motion (USD up, Commodities down).


The ECB didn’t like the non-centrally-planned move in Euro Bond yields – hence the intervention this morning. The German 10YR is down to 0.64% and the UK 10YR Gilt is down 6 basis points after printing its 1st #deflation in CPI since 1960. The UST 10Y is down -5 basis points on the global move. 


Not to be outdone by the Europeans, the Chinese were at it again overnight “easing requirements for corporate bond issuance.” The Shanghai Composite Casino loved that, up +3.1% to +36.7% year-to-date as growth there continues to slow and freak out the PBOC.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.


The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54. Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  At  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.


The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road



9:00am ET

Hedgeye CEO @KeithMcCullough joins @MariaBartiromo @FoxBusiness @OpeningBellFBN



An obstacle is often a stepping stone.

-William Prescott


Consumer prices in the UK fell 0.1% year-over-year, marking a return to deflation for the first time in at least 55 years. 

CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds!

Editor's Note: The chart and blurb below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information and to subscribe. 


CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds! - z 05.19.15 chart


"...Instead of Draghi coming back from the beaches with a bazooka, he sent in the Frenchman. Who’s the French guy? As in The Lefty Economist, Benoit Coeure. This guy hails from L’Ecole Polytechnique and the Paris Club de creditors. He’s big time.


And a big time headline he provided, indeed!


“Ze ECB is going to front-load ze QE” -Coeure


That’s code for we’re going to get back to Burning Euros and buying bonds..."

Non-Idle Easing

“Trouble springs from idleness, and grievous toil from needless ease.”

-Benjamin Franklin


Not to be confused with Eurocrats who have recently returned from their monthly vaca, I’m pretty sure Ben Franklin was talking about lazy Americans who spend their time doing nothing.


They’re back! This morning’s macro market moves have nothing to do with central planners standing idle. Needless easing, you say? Who cares what we say? They say they need moarrr cowbell!


With both the European and Chinese economies now slowing, at the same time, there is only one play in their gravity-smoothing playbook for that. Must ease, faster.


Non-Idle Easing - Draghi cartoon 03.31.2015


Back to the Global Macro Grind


On The Macro Show yesterday (new daily video product we’re launching on Thursday) I kept asking my man Darius Dale, “where’s Draghi?” With both European stock and bond markets under pressure, I figured he’d re-appear…


I figured wrong…


Instead of Draghi coming back from the beaches with a bazooka, he sent in the Frenchman. Who’s the French guy? As in The Lefty Economist, Benoit Coeure. This guy hails from L’Ecole Polytechnique and the Paris Club de creditors. He’s big time.


And a big time headline he provided, indeed!


“Ze ECB is going to front-load ze QE” -Coeure


That’s code for we’re going to get back to Burning Euros and buying bonds, so you, little yield chasing man, better get out of your idle bed and start buying stocks, fast! Here’s what Global Macro markets did on that:


  1. Euro -1.1% (vs. USD) to $1.11 after tapping the top-end of our $1.10-1.14 risk range last week
  2. EuroStoxx50 +2.1% in a straight line off last week’s oversold lows
  3. German Stock market (DAX) +2%, leading gainers, after a -2.2% drop on Up Euro last week
  4. US Dollar up +1% (from 1-month lows)
  5. Commodities mostly down on the inverse correlation move to USD


Oh, and not to be confused with centrally planned markets, there was the actual European economic news:


  1. German ZEW sentiment for April fell to YTD lows of 41.9 vs. 53.3 last
  2. Eurozone inflation for April clocked in at 0.0% y/y; wow was that Policy To Inflate successful!
  3. UK CPI -0.1% year-over-year in April (PPI -1.7%) was the 1st deflationary report since 1960


That would be the year 1960, not some moving monkey level in the SP500.


Ah, wasn’t local life in America grand back then. That’s when the front-page of the NY Times would trumpet a young President by the name of John F. Kennedy and his #StrongDollar, Strong America message…


Newsflash: this is not the 1960s


This is a worldwide growth slow-down. It’s getting more volatile by the day, week, and month as central planners struggle with realizing the output of their currency devaluation policies to inflate – economic stagnation.


In other gravity-bending news, China’s slowdown continues and so does the “policy response” to “stimulate. The Shanghai Comp Casino ripped another +3.1% overnight to +36.7% YTD on “easing requirements for corporate bond issuance.”


You don’t have your 401k or clients in “China” as Chinese growth slows at a faster rate than its population is aging? What is wrong with you? Don’t stand idle. Get a Chinese broker and a margin account already. This is easy. Grievous toil be damned.


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


UST 10yr Yield 1.96-2.32% (bearish)

SPX 2107-2139 (bullish)
RUT 1 (bullish)
Nikkei 196 (bullish)
VIX 11.97-15.44 (bullish)
USD 92.99-95.61 (neutral)
EUR/USD 1.10-1.15 (neutral)
YEN 118.81-120.78 (bearish)
Oil (WTI) 55.99-61.39 (bullish)

Natural Gas 2.78-3.10 (bullish)

Gold 1 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Non-Idle Easing - z 05.19.15 chart

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The Bond Battler

This note was originally published at 8am on May 05, 2015 for Hedgeye subscribers.

“You got to be tough.”



In classic Ernest Hemingway terms (tight and to the point), that’s what a young man by the name of Nick was told by an old street fighter after he got busted by a brakemen (thrown off a train) up near Macelona, Michigan. #BlackEyes


The short story is called The Battler – and it’s a beauty for those of us who have to (and love to) grind it out every day. Win, lose, or draw – there’s a lesson to be learned from every experience.


After being bearish on Treasury Bonds in 2013, I’ve been battling it out on the long side of these barbarous low-volatility-high-return Long Duration Bonds for going on 17 months now. Every time bond yields bounce to lower-highs, I hear it from every corner of the Twitter-sphere. You got to be tough to fight off the perma Bond Bears.

The Bond Battler - 3  yield Godot 07.27.2014


Back to the Global Macro Grind


Being deaf would probably help me too.


If all I did was what you should do when you are trying to handicap the probability of Long-term Bonds rising/falling (front-run the rate of change in growth/inflation), I’d concern myself less with daily moves. But some of you pay me to fight. So fight today, I will.


“They all bust hands on me – but they couldn’t hurt me.” –Hemingway


If you can take a punch (both in this game and the one I used to play on the ice), your career will last longer. Here’s what the body blows have looked like on rallies (in Long Bond Yield terms) for the last 6 months:


  1. December 2014, US 10yr Treasury Yield rallies to 2.28% on expectations of accelerating Q1 US growth
  2. March 2015, UST 10yr Yield rallies to 2.25% post another #LateCycle US Jobs report
  3. May 2015, UST 10yr Yield rallies to 2.14% on…


On what?


  1. Global Bond Yields having their biggest 6-day % move (off the all-time lows)?
  2. The Almighty Bond “Bubble” finally popping, for real this time, because it’s “expensive”?
  3. Expectations of a mean reversion back to #LateCycle jobs gains in the US (May 8th report)?


Triple Crown fans, if we’re betting on expectations, I’ll take all 3 for the trifecta. And I’ll fade #3, staying long The Battler (Long Bond) to win at Friday’s run for the roses.


I obviously get that all 3 of the aforementioned expectations can come to fruition. But I also get this thing called probability that I won’t fade unless I have fundamental reason to do so.


It’s been what, 37 years, since Affirmed won the Triple Crown? While it hasn’t been that long for Bond Bears to get paid (2013), don’t forget that the key wager then was that US growth would accelerate from 2012. And it did.


Put another way, until our models signal real US #GrowthAccelerating (year-over-year), we’re probably staying with our biggest asset allocation horse.


Since I gave the bears some air-time, don’t forget to contextualize what actually happened after those December and March Lower-Highs for 10yr yields:


  1. JAN-FEB 2015 = re-test of the all-time lows at 1.67% after bad US GDP data
  2. APR 2015 = two separate selloffs to 1.84% after a bad March Jobs report


In other words, “long-term investors” (i.e. those who understood that Global Growth and Inflation expectations were too high) who have remained bullish on Long Duration Bonds have been paid to take a few punches from the pundits.


But, but… according to consensus, jobless claims are “good.” C’mon now – that’s not true. They are actually fantastic! And that’s the point about the cycle. See slide 13 of our #LateCycle Macro deck – they are as good as they get.


In that same slide deck (slides 12-17) our Macro Research Team reviews the mean reverting #history of the labor cycle, reminding you what that economic indicator is – one of the latest and lagging indicators there are.


Yep. I’ll take the bi-monthly black eyes for staying long Treasuries (TLT). For the next 3-6 months we think year-over-year US growth continues to slow. Staying with the process isn’t always easy. But we’ve got to be tough.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-2.17%

SPX 2096-2126
RUT 1215-1250
VIX 11.73-14.70
EUR/USD 1.06-1.13
Oil (WTI) 54.85-60.39
Copper 2.79-2.97


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Bond Battler - z 05.05.15 chart

May 19, 2015

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May 19, 2015 - Slide2

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May 19, 2015 - Slide9

May 19, 2015 - Slide10


The Hedgeye Macro Playbook is a periodic, deep-dive update to our active Macro Themes and Thematic Investment Conclusions.


CLICK HERE to download the associated presentation in PDF format (25 slides).


Key conclusions: 


  • We believe the counter-TREND rally in reflation has legs to ~$71 on WTI and ~90 on the DXY. From that level of consolidation we think the USD resumes its structural uptrend. We don’t think Draghi will allow a sustainably stronger EUR to weigh on capital markets activity or inflation expectations within the Eurozone and expect the ECB to react by Jackson Hole 2015. We believe investor consensus simply needs to capitulate on the expectation for a tighter Fed [in absolute terms] before it can refocus on the policy divergence between Europe and Japan [in relative terms].
  • We remain bullish on bonds and bond-like equities and we think U.S. interest rates are likely to put in yet another lower-high into or on the June 17th FOMC meeting where Yellen will have to acknowledge in her press conference the marked slowing of economic momentum – which we think continues throughout the balance of the year.
  • Neither consensus among the investment community nor policymakers at the Federal Reserve have yet to fully internalize our rate-of-change work on the intensifying demographic headwinds to consumption growth, consumer price inflation and wage inflation. Most econometric models are calibrated to historical population dynamics – if at all – and simply fail to account for these headwinds amid perpetually misguided expectations of +3% annual real GDP growth, +2% core PCE inflation and +3-4% annual wage growth.
  • In conjunction with this view, we don’t think the Fed will ever be able to justify hiking interest rates – unless it is truly a political exercise. By the time September and/or December rolls around, the current economic cycle will be noticeably slowing into a likely recession sometime in mid-to-late 2016. If you think domestic economic growth is slow now, just wait until base effects steepen throughout the balance of the year.
  • In the context of our bearish growth forecast, we believe the domestic labor cycle is likely past peak from a rate-of-change perspective.


CLICK HERE to download the latest refresh of our Tactical Asset Class Rotation Model (32 slides).


Tomorrow morning (5/19) at 8:30am EST, we will run through the playbook live in lieu of our standard Macro Show. We will also host a live Q&A session at the end of the prepared remarks. Please email your sales counterpart to the extent you require a permanent passcode to our [daily] morning call.


As always, feel free to ping us with any follow-up questions.


Enjoy the rest of your respective evenings,




Darius Dale


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