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REPLAY | New Best Short Idea Overview with Tom Tobin | Q&A on $MD + $HCA $HOLX $ZMH

 

Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A session Wednesday May 27th at 12:30PM ET. They gave a high level overview of our short thesis on Mednax (MD). 

 

Tom and Andrew will also answered questions related to HCAHOLX and ZMH, catch the replay above.



The Momentum Mob

This note was originally published at 8am on May 12, 2015 for Hedgeye subscribers.

“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!

 

#Kidding

 

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
RUT 1209-1244
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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Momentum Mob - z 05.12.15 chart


MACAU WEEKLY ANALYSIS (MAY 18-25, 2015)

CALL TO ACTION

We remain negative on the Macau stocks but tactically we’d like to see a relief rally before re-shorting.  The Galaxy Phase 2 opening could actually provide a little bit of a catalyst – it won’t be awful and but investor sentiment is awful ahead of this period of capacity increases.  We’re projecting some market growth from the expansion but most of the business generated at Phase 2 should come from the other properties.  For 2015/2016 we remain most concerned with the trends in base mass, which we believe are markedly worse than anticipated by the Street.

 

Please see our detailed note:

http://docs.hedgeye.com/HE_Macau_5.26.15.pdf


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The Macro Show Replay | May 26, 2015

 


CHART OF THE DAY: Newsflash ... The Fed is Not Going to “Raise Rates” On This

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

 

CHART OF THE DAY: Newsflash ... The Fed is Not Going to “Raise Rates” On This - 5Y BE CoD

 

...Contextualized this way, the present (being YTD) is less than 6 months old. If you pull back your time-series #history to 1 year, obviously most of these “inflation” barometers have plummeted.

 

Five year breakevens is a fair way to consider inflation expectations, and while it’s true that those are +11 basis points for the current quarter, they are -32 basis points year-over-year. Newsflash: the Fed is not going to “raise rates” on that...

 


Dollar vs. Inflation

“I started to establish the present and the present moved on.”

-Wallace Stegner

 

I love spending long weekends with my family. I hope you had a great one with yours. Welcome back.

 

This weekend I took some time to review what I’ve organized as the un-read section of my library and I found a book that I’ve been wanting to read for a long time – Wallace Stegner’s 1972 Pulitzer Prize Winner, Angle of Repose.

 

In some ways I find Stegner to be like Hemingway. He’s of the same era; he writes from a historian’s perspective; and he keeps his short stories within a story concise and to the point. These are all writing attributes I aspire to achieve someday. Until then, I evolve.

 

Back to the Global Macro Grind

 

When considering the non-linearity of Global Macro markets, isn’t Stegner’s aforementioned quote the truth? Just as Bloomberg writes a headline about FX “volatility expected to reverse direction”, it breaks out this morning. Again, welcome back.

 

Before I get into the #behavioral side of this foreign currency move (Japanese Yen -1.1% this a.m. to fresh YTD lows), it’s always critical to review the #history of market moves, so that we can attempt to establish context:

 

  1. In “front-loading” QE, Eurocrats devalued the Euro by -3.8% last week, taking it down -9% vs USD YTD
  2. After 6 weeks of pervasive weakness, the US Dollar Index spiked on that, closing the week +3.1% at +6.4% YTD
  3. The Japanese Yen, which had been doing nothing for months, finally broke down, dropping -1.8% on the week

Dollar vs. Inflation - burning euro cartoon 05.01.2015 

That’s why another drop in the Yen this morning matters. Not only did it break immediate-term TRADE support last week, fortifying our long-term bearish TAIL risk view, but now it’s testing a break-down to lower-lows, -2.5% YTD.

 

Now, since I’m bearish on the US Dollar into this week’s GDP report (Friday) and next week’s jobs report for June (then the Fed meeting on June 17th), these Euro and Yen moves are going to present opportunities on the long side of commodities.

 

If you didn’t know that the USD impacts commodity #deflations and reflations (or whatever consensus is whining about right now on “inflation” coming back at sub $60 Oil and 1.68% 5yr US break-evens), now you know.

 

With USD having a -0.90 inverse correlation to the CRB Index (30-day duration) here’s what everything Commodities did last week:

 

  1. CRB Commodities Index -2.5% = -1.9% YTD
  2. Oil (WTI) -1.4% to $59.72 = +6.2% YTD
  3. Gold -1.7% to $1204 = +1.6% YTD
  4. Copper -3.9% to $2.81 = -0.5%
  5. Energy Stocks (XLE) -0.6% = +1.3% YTD

 

Contextualized this way, the present (being YTD) is less than 6 months old. If you pull back your time-series #history to 1 year, obviously most of these “inflation” barometers have plummeted.

 

Five year breakevens is a fair way to consider inflation expectations, and while it’s true that those are +11 basis points for the current quarter, they are -32 basis points year-over-year. Newsflash: the Fed is not going to “raise rates” on that.

 

Longer-term, what does the world want – a stronger or weaker Dollar?

 

  1. If you’re a European stock market bull, you want #StrongDollar, Burning Euro
  2. If you’re an Emerging Markets bull, you want #WeakDollar, Recovering EM Currencies
  3. If you’re a non-Wall St American, you want a #StrongDollar, Rising Purchasing Power

 

That’s what macro markets reminded you of on last week’s #StrongDollar move:

 

  1. European Stocks (EuroStoxx 600 and German DAX) +2.8% and +3.2% to +19% and +20.5% YTD, respectively
  2. EM Latin American Stocks (MSCI Index) -5.5%  to -4.2% YTD
  3. Russell 2000 +0.7% to +3.9% YTD with the almighty Dow DOWN -0.2% on the week

 

Yep, the Russell is basically a US domestic revenue index whereas both the Dow and SP500 are increasingly proxies for international earnings. That’s why the Russell rocks during #StrongDollar periods (see our 2013 US #GrowthAccelerating theme for details).

 

That’s also why the US Sector Style  (equities) outperformance last week was very much what it was prior to the recent US Dollar correction. US Consumer Discretionary (XLY) loves #StrongDollar whereas the global Industrials (XLI) loathe it.

 

Love it or loathe it, US Dollar #history has been established. And it’s my job to write about its policy risks for both the short and long-term. While it’s true that, in the long-run, Keynes is right (we’ll all be “dead”), the present moves on.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.97-2.24%

SPX 2108-2144
RUT 1
Nikkei 192
USD 94.51-96.85
EUR/USD 1.09-1.15
YEN 120.32-123.04
Oil (WTI) 57.31-61.68

Gold 1190-1230

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

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

Dollar vs. Inflation - 5Y BE CoD


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