The UK, Euro and Yields

Client Talking Points


Just an awesome Retail Sales print of +4.7% year-over-year out of the UK this morning (to put that in context, with the same weather, the U.S. posted a 0.9% year-over-year Retail Sales # in April). The Pound is up +0.7% on that to $1.56 vs USD and looks as good as any currency on our screens right now.


The Euro held the low-end of our $1.10-1.15 risk range and is up +0.5% vs. USD this morning after A) dovish Fed Minutes and B) Hilsenrath parroting the same in the WSJ – this is the headwind to shorting Euros into the June 17th Fed Meeting, a Lower-For-Longer Fed; German data continues to slow. 


Global Yields are trading like Pac-Man still but lower-highs remains the longer-term picture. The UST 10YR dropped -3bps to 2.22% this morning and really has no support to 1.97%; German, Italian, and Spanish 10YR Yields all -2-3 basis points as the ECB has front-loaded its QE to May-June.

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.  Further, 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


GOLD: still looks good +0.1% to $1210/oz this am - no resistance to $1240 $GLD



There is no royal road to anything. One thing at a time, all things in succession. That which grows fast, withers as rapidly. That which grows slowly, endures.

-Josiah Gilbert Holland


Australians are the most confident they’ve been since January 2014 after the central bank cut interest rates and the government announced a A$10 billion ($7.9 billion) boost for families and small businesses.


The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.

CHART OF THE DAY: Short Low, Cover High? $IWM $SPX

Editor's Note: The brief excerpt and chart below are from today's morning note written by Hedgeye CEO Keith McCullough. Click here for information on how you can subscribe.


CHART OF THE DAY: Short Low, Cover High? $IWM $SPX - zzz Chart of the Day


Back to this epic SP500 “correction” that consensus has been positioned for (at the start of this week = YTD high net SHORT positions of -60,044 and -31,909 in SP500 Index + E-mini and Russell 2000 mini contracts, respectively):


  1. SP500 was down -0.1% yesterday
  2. SP500 was down -0.1% the day before that
  3. SP500 is down -0.2% from its all-time high


Consensus Corrections

“Brevity and conciseness are the parents of correction.”

-Hosea Ballou


I figured I’d use that title this morning to pad my open-rates. Bears love to read about corrections.


Correction? Looking at futures and options activity, consensus hedge fund positioning has been looking for a big correction for two weeks (i.e. they ramped the net SHORT position in the SP500 and Russell 2000 to YTD highs after the correction we had 4 weeks ago).


Short low, cover high, eh.

Consensus Corrections - Bubble bear cartoon 09.26.2014


Back to the Global Macro Grind


I’ve spent the last decade of my career analyzing relationships between price, volume, and volatility. Before that, all I’d stare at was price. For 6 long years I’d watch some of my bosses and their buddies chase price charts. Sometimes it worked; sometimes it didn’t.


Ole school money managers will recall Stan Weinstein’s technical reports and a charting program called TC 2000. While they hopefully worked for some, they didn’t work for me. So I built my own.


There’s no need to get into a fight with the point-and-click zoo-keepers of the 50 and 200 day moving monkeys today. My point on this matter is this: a market price has a tendency to put in a short term top when:


  1. Volume starts to decelerate into the final stages of the accelerating price momentum
  2. Volatility (in terms of how I calculate historical as a leading indicator) starts to signal higher-lows
  3. Price itself finally signals a series of lower-highs


That’s not the SP500, yet (it might be within another full day of fresh price, volume, volatility data today), but it is the Russell 2000. I’m not saying this is going to provide you the elixir of a “technical” life (it’s actually math). But it sure beats chasing charts.


As the years have gone by, I’ve added analysts to my risk management #process and, in turn, they’ve added their own ideas, revolutions, and overlays to my timing model. One of the big ones is a z-score to measure what we call the “lean” in Consensus Macro hedging.


This is one of the many ways we have tried to quantify one of the 3 core legs to the Hedgeye Process stool – Behavioral Market Analysis. Just as a quick reminder to those of you who are new to reading my rants – those 3 legs are:


  1. History
  2. Math
  3. Behavior


If our analysis can’t be quantified into one of those 3 buckets, we don’t really find it a productive and/or effective use of our research time. In other words, we don’t do the GDP or markets “feel” thing – and we definitely don’t try to tell markets what they should do.


Back to this epic SP500 “correction” that consensus has been positioned for (at the start of this week = YTD high net SHORT positions of -60,044 and -31,909 in SP500 Index + E-mini and Russell 2000 mini contracts, respectively):


  1. SP500 was down -0.1% yesterday
  2. SP500 was down -0.1% the day before that
  3. SP500 is down -0.2% from its all-time high


This isn’t always the case, but in a centrally-planned-raging-bull-market, it happens frequently. When everyone is positioned for down, and markets go up - consensus capitulates and covers… then volume dries up and volatility starts to rise – then markets go down!


Intraday yesterday, the US stock market gave you a preview on what keeps the Pain Trade (higher stocks for longer) in motion. It’s called a Dovish Federal Reserve (see Fed Minutes and/or Hilsenrath parroting the same in the Journal this a.m. for details).


So that makes this setup for timing the call on a correction tricky:


  1. Higher-all-time highs are bullish, until they are not
  2. The all-time closing high for the SP500 is only 3 days old
  3. We have at least 3 dovish catalysts between now and June 17th


Nope. No one said timing markets is easy. But there are north of 14,000 hedge funds out there that are still competing with me on the timing of it all! With over $2.2 TRILLION in assets under management, it’s a crowded game.


But, if you’re able to keep your emotions, frustrations, and intellect intact… while, at the same time, concisely measuring the rate of change in net positioning, volume, and volatility… your timing won’t be perfect, but it will be more profitable than consensus.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.97-2.32%

SPX 2105-2139
VIX 12.14-14.48
USD 92.75-96.16
Oil (WTI) 56.31-61.40

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


***Click here to watch The Macro Show live at 8:30am.


Consensus Corrections - zzz Chart of the Day

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 80.52%
  • SHORT SIGNALS 78.67%

God's Bunds?

This note was originally published at 8am on May 07, 2015 for Hedgeye subscribers.

“God understands more about financial markets than many who write about them.”

-Jean-Claude Juncker, May 6th, 2014


Now that German Bund Yields have quintupled, in 8 trading days, I’m thinking God understands more about financial markets and economic cycles than many who try to centrally plan and smooth them.


For those of you who don’t know who Jean-Claude Juncker is, he’s the former Prime Minister of Luxembourg (1995-2013) and residing President of the European Commission. This guy is a hard-core Eurocrat.


It might just be me, but I was under the impression that these dudes in Europe thought they had this all under control. Didn’t Draghi promise investors “whatever it takes”? If this bond market move is God’s work, Europeans better pray for it to stop.

God's Bunds? - Draghi cartoon 03.05.2015


Back to the Global Macro Grind


That wasn’t a typo – at one point this morning German Bund Yields flash-crashed, or something like that, to 0.76% on the 10 year. Only last week it was trading at 0.14%. That’s a five bagger!


Since I’m bullish on US Treasuries, that’s not good. Despite weakening US economic data (see the rate of change in the ADP jobs report in today’s Chart of The Day), Treasuries have been down for 7 straight days. #EuropeanYieldRamp is the main reason why.


To be fair to the revisionist historians, they think this is all supply and demand and/or “fundamentally” driven by things like “higher inflation expectations.” I don’t. This is an outright panic-shift in market expectations.


To review where some big market expectations were 10-30 trading days ago:

  1. Draghi was going to keep rates low (in some cases negative), for as long as it takes
  2. European growth was being engineered by this lower-for-longer rate policy
  3. Down Euro was damn good for German, Dutch, etc. “exporters”… and their “stocks”


Then, z-z-z-ooom! (or ka-boom, depending on what you’re long)

  1. Euro stopped going down (USD stopped going up) as both US jobs and GDP reports slowed
  2. Oil started to rip on Down Dollar (and a circular supply narrative)
  3. And out of nowhere, despite Down Dollar, European rates started to rip higher


This morning alone:

  1. German 10yr Yield = +15 bps to 0.75%
  2. France 10yr Yield = +14 bps to 1.05%
  3. *Japanese 10yr Yield = +8 bps to 0.43% (one of the biggest daily % moves in a decade)


And US centric navel gazers are freaking out because US 10yr Treasuries moved 2 basis points off a base of 2.26%. If I’ve said this to investors who have emailed/called me in the last 48 hours 100 times, I’ve said it 1,000 times - #EuropeanYields!


If central planners didn’t give markets the “all-clear” expectation, absolutists who say “well, this isn’t much of a move from such low levels” might have a reasonable point. But that’s not how macro market risks evolve.


There is a massive amount of leverage that is betting on #LowerForLonger in Europe/Japan, and risk models move in percentage terms, not “valuation” opinions. Forget the +25% move in 30 minutes in German Bund Yields, they’re +514% in eight days. #Again!


So what is a man or woman to do when neither stocks nor bonds work?

  1. Raise Cash – we’ve been moving towards our highest Cash position (57%) of the year in the Asset Allocation Model
  2. Wish that you’d raised more Cash… and
  3. Call yourself as dumb as I feel for not selling US Bonds when the #process said buy more


To review the #process. We believe that you:


A)     Buy long-term Treasury bonds when growth is slowing

B)      Sell them when growth, in rate of change terms, is accelerating


And since I personally didn’t get the memo from God on the Euro Bond Yield move, I am going to evolve the #process and implement prayer this morning. Because, to be honest with you, other than raising cash, I don’t know what else to do.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.86-2.29%

SPX 2063-2096
RUT 1201-1230
DAX 11101-11304
VIX 13.32-16.51
EUR/USD 1.06-1.14
Oil (WTI) 54.13-61.92

Gold 1169-1203


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


God's Bunds? - z 05.07.15 chart

May 21, 2015

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The Macro Show Replay | May 21, 2015


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.