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The Macro Show Replay | June 8, 2015


CHART OF THE DAY: US Non-Farm Payrolls Are In the #Process of Peaking

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

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CHART OF THE DAY: US Non-Farm Payrolls Are In the #Process of Peaking - z 06.08.15 chart

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...As you can see in today’s Chart of The Day (it’s actually a rock solid table of historical labor cycle data), these are the facts about US labor metrics. I’d like you to zero in on the number of NFP months (+/-) vs. economic cycle peaks:


  1. DEC 1969 (economic cycle peak) = +4.9 months (# of months after DEC 69’ when NFP peaked)
  2. NOV 1973 =  +5.9 months
  3. JAN 1980 = +3.9 months
  4. JUL 1981 = +2.0 months
  5. JUL 1990 = +1.0 months
  6. MAR 2001 = +1.0 months
  7. DEC 2007 = +3.0 months


...unless it’s “different this time”, US non-farm payrolls are in the #process of peaking. And I’m not a big fan of capitulating at peaks.

Education of A Bond Bull

“Education is what happens after one has forgotten what one has learned in school.”

-Albert Einstein


After rates rise, we learn that consensus hasn’t learned a whole heck of a lot about cyclical investing. It’s too bad they don’t teach that in school.


I don’t know about you, but I got schooled last week. Both stocks and bonds were down. With German Bund Yields doubling in 3-days, then US yields rallying on  another “good” jobs report, bond yields ripped.


No, I’m not capitulating on the Slower-For-Longer (lower rates) cycle call this morning. If US growth was accelerating, I would. On jobs, #history students know that Non-Farm Payrolls rising is what happens AFTER the US economic cycle has already peaked.

Education of A Bond Bull - Jobs cartoon 06.05.2015

*Click here to watch The Macro Show at 8:30am ET with special guest, U.S. macro analyst Christian Drake.


Back to the Global Macro Grind


As you can see in today’s Chart of The Day (it’s actually a rock solid table of historical labor cycle data), these are the facts about US labor metrics. I’d like you to zero in on the number of NFP months (+/-) vs. economic cycle peaks:


  1. DEC 1969 (economic cycle peak) = +4.9 months (# of months after DEC 69’ when NFP peaked)
  2. NOV 1973 =  +5.9 months
  3. JAN 1980 = +3.9 months
  4. JUL 1981 = +2.0 months
  5. JUL 1990 = +1.0 months
  6. MAR 2001 = +1.0 months
  7. DEC 2007 = +3.0 months


Yeah, I know – the Fed and its Old Wall research departments are all over it, reminding you about that this morning. But, unless it’s “different this time”, US non-farm payrolls are in the #process of peaking. And I’m not a big fan of capitulating at peaks.


Zooming into this #LateCycle (2015), here’s what the rate-of-change in Total Non-Farm Payrolls (NFP) has looked for the last year:


  1. JUL 2014 = +2.01% year-over-year growth (y/y)
  2. OCT 2014 = 2.04% y/y
  3. NOV 2014 = 2.11% y/y
  4. ***FEB 2015 = 2.34% y/y
  5. APR 2015 = 2.18% y/y
  6. MAY 2015 = 2.21% y/y


And if you want to data mine, Total Private Payrolls (PP) peaked in rate-of-change terms in FEB 2015 as well = 2.71% (vs. 2.53% in Friday’s jobs report).


In other words:


A)     The US economic cycle (see recent GDP report for details and/or April/May economic data) already peaked

B)      The latest of #LateCycle indicators (employment) is in the process of peaking, as it always does


“So”, Janet, what do you say you raise rates into that?


You know, with the almighty Dow down for 3 straight weeks (-1.6% in the last month) – why not give it a try, just to see what happens? Not that you care about the stock market, or any other asset bubble that your boy Bernanke perpetuated… give it a whirl!


While this note contextualizes the latest GROWTH cycle component of the Fed’s decision on June 17th, here’s a friendly reminder on the other big economic factor that some say bond yields are rallying on – INFLATION:


  1. CRB Commodities Index was down another -0.3% last wk and is still in crash mode at -26.9% year-over-year
  2. Oil (WTI) remained in TAIL risk mode (TAIL resistance = $67.92/barrel) -2.3% last wk and -36.7% year-over-year


Not to be confused with the counter-TREND bounce off the January 2015 #deflation scare lows (when the Long Bond tested all-time highs), year-over-year inflation’s TREND remains as bearish as the rate of change in US growth is.


I’m thinking that if the Fed raises rates in this environment, equity volatility (VIX) is going to start looking like FX and Fixed Income volatility (venti!). Don’t forget that horse has already left the barn (VIX +21.7% year-over-year) too.


If I’m wrong on US Treasury Yields from here, the re-education of perma stock market bulls is officially back-to-school.


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


UST 10yr Yield 2.02-2.44% (bearish)

SPX 2079-2109 (neutral)
RUT 1 (neutral)
Nikkei 209 (bullish)
VIX 13.04-14.99 (bullish)
USD 95.01-98.05 (neutral)
EUR/USD 1.08-1.14 (bearish)
YEN 123.76-125.81 (bearish)
Oil (WTI) 56.77-61.30 (bullish)

Natural Gas 2.52-2.75 (bearish)

Gold 1170-1200 (bullish)
Copper 2.62-2.78 (bearish)


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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Education of A Bond Bull - z 06.08.15 chart

the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

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Two-Hitter: Ben Axler Brings One Long Idea & One Short to Hedgeye TV


In his third trip to the Hedgeye studio, Spruce Point Capital Founding Partner Ben Axler sits down with Hedgeye Industrials Sector Head Jay Van Sciver to discuss two of his latest ideas: Long TACO and Short NCR.

Investing Ideas Newsletter

Takeaway: Current Investing Ideas: OC, PENN, GIS, GLD, VNQ, EDV, ITB, TLT & HIBB

Editor's Note: We are pleased to present the video below exclusively for Investing Ideas subscribers. It is a brief update from Hedgeye Managing Director Josh Steiner on our bullish Housing (ITB) call. 


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Below are Hedgeye analysts’ latest updates on our nine current high-conviction long and short investing ideas and CEO Keith McCullough’s updated levels for each. Please note we added Owens Corning (OC) this week and removed Shake Shack (SHAK) as a short.


We feature two additional pieces of content at the bottom. 

Investing Ideas Newsletter      - z levels

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less


Investing Ideas Newsletter      - Growth cartoon 06.03.2015



We added Owens Corning to Investing Ideas on Friday. According to CEO Keith McCullough, "I’m ready to get people to invest in this one longer-term before I see the company report everything that will take it to higher prices."


Hedgeye Industrials Sector Head Jay Van Sciver wrote an interesting note on the bullish state of affairs at Owens Corning.


Click here to read it in its entirety. 


Penn National Gaming is a true growth story in regional gaming, finally, ripe with catalysts, same store and new unit growth, and accelerating cash flow. 


We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility.  PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016.  Both properties should well exceed current Street estimates for win per slot and EBITDA. 


PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.


The upshot: if we're close to being right on our significantly higher 2015 and 2016 EPS projections ($0.60 vs $0.47 and $1.00 vs $0.74, respectively), PENN has a lot of upside.


Investing Ideas Newsletter      - z penn22


Please see our Housing video update by Sector Head Josh Steiner above.


We are very bullish on the strength of General Mills' brands and the long-term growth potential of the stock. The 2015 fiscal year was a busy one for GIS as they underwent a major restructuring project and the $820MM acquisition of Annie’s.


We see multiple ways you can win being LONG:

  1. The current management transforms into an Activist management team - 15% chance
  2. Fundamentally – Gluten Free Cheerios is a home run – 40% chance
  3. Management sells the company – 10% chance
  4. An Activist shareholder takes a position – 35% chance

Please note above our increased faith in management to be able to fundamentally improve the business.


Management needs to start focusing (temporarily) on their non-core assets that represent roughly 28% of the portfolio such as, Pillsbury, Gold Medal, Green Giant and Progresso.  Divesting these brands would free up resources and provide greater capital to acquire a strong high growth business.


GIS is a company known for great brands, and consumers are proving that once again. GIS is growing share in key categories this year grain snacks $ share up 187 bps vs last year, yogurt up 75 bps and RTE  cereal up 31 bps. GIS is often a leader in the categories in which they compete and they are continuing to show their strength.


Investing Ideas Newsletter      - z sha 1


Investing Ideas Newsletter      - z sha 2


Selling the company is an option, albeit an unlikely one given the current valuation. If the price were to slip a little, some big players in the market will take a harder look at it. This is also the case for an activist coming on board, for someone willing to put in the work there is still plenty of meat on the bone, but most would probably want to see a pullback in the stock before taking a major position.


All-in-all this stock is built for growth and with it currently paying a generous 3.1% dividend, that has never been decreased or interrupted, it is a worthwhile bet that this ship will turn.


Friday’s non-farm payrolls report remained consistent with the recent TREND of late cycle labor market strength: POSITIVE.

  • Non-Farm Payrolls +280K MAY (beating estimates of +226K) vs. 223K APRIL
  • NFP & Private payrolls improving sequentially (MoM and 3M/6M MA) and in RoC terms
  • Positive revision to the April print
  • Wages (both total private & nonsupervisory workers) accelerate sequentially (still decidedly middling, however) 


To reiterate our interpretation of the current strength in the labor market, in our Q2 2015 macro themes deck we took a birds-eye view of the labor market’s lagging relationship to the business cycle, and the conclusion remains: The labor market looks the best at the end of the cycle.


We aren’t calling for a recession next month, but rather the data gathered presents a strong argument that we are in the latter innings of the current economic expansion. As seen in the second table we are amidst the fourth largest expansion since the great depression (73 months) and hovering 8 months beyond the average expansion length (65 months).


Investing Ideas Newsletter      - z ben 1


Investing Ideas Newsletter      - z ben 2


Considering we are already well passed an above average length expansion, and moving into the second half of 2015 growth and inflation comps (i.e. the base effects) become very difficult, growth is likely to continue to slow. We put the likelihood of a rate hike in 2015 as highly unlikely and continue to expect rates to move to make a series of lower-highs through the balance the year (bullish for EDV, TLT, and VNQ.


When forward looking growth expectations are downwardly revised and the Fed kicks the can on rate hike expectations, rates and the dollar move lower. Gold has historically performed well in an environment of falling rates and a declining U.S. dollar and we don’t expect anything different this time around. Supporting our view, both gold (GLD) and treasuries (TLT, EDV) remain BULLISH on an intermediate-term TREND duration (3-months or more).   


No matter which way we slice it, competition in Hibbett Sports core market looks much different today than it did 15 years ago.


That is the primary reason that HIBB is looking to areas like the Midwest, Northeast, and West Coast for growth. Areas that HIBB’s current infrastructure – it has just one distribution center located in Birmingham, AL – can’t support, so the company must partner with 3PL (third-party logistics) providers to service new markets. That means lower margins and is one of only a handful of reasons we see margins coming down from industry tops at 13% down to the mid-single digits over the next 4 years.


Investing Ideas Newsletter      - z 1 hibb 6 5 chart1


Pre-2000 (before the sporting goods industry benefited from the influx of cash driven by the expansion of NKE and UA), competition was cordoned into separate territories. With DKS in the Northeast, Academy in Texas/Gulf Coast, Sports Authority in key metropolitan centers, and HIBB dominating the Southeastern United States. Since then we’ve seen a big regional migration with footprints now sitting on top of one another. In HIBB’s core market we’ve seen Sports Authority and Dick’s Sporting Good’s increase unit counts in HIBB’s core market by ~50%, and Academy double its unit count over the past 4 years.


That’s not a competitive set that lends itself to market share gains.


Investing Ideas Newsletter      - z 2 hibb 6 5 chart2


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just (ugly) charts: Problematic Industrial Data

It's not all rainbows and puppy dogs and our Industrials team has some charts to prove it.

Investing Ideas Newsletter      - z ii

FUND FLOWS: 13 weeks and counting

The negative trend in domestic equity flows continued and a new trend of negative muni fund flows has appeared.

Investing Ideas Newsletter      - z ww

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.