Lazy or Crazy?

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

“What a pity the man wasn’t lazy.”



That’s what a “theologist” who spent his time politicking instead of battling on the front-lines had to say about a General (Napoleon) who fought 60 wars (only lost 7) and died by the age of 51.


When battling it out in macro market moves like these every morning, I don’t think the first word that comes to mind in describing me would be lazy. That said, I think a good case can be made that if I keep doing this I could go crazy.


Darius Dale and I spent all of yesterday (and into the early eve at a dinner) debating Global Macro issues with Institutional Investors in New York City. It was a mental grind. And we liked it.


Lazy or Crazy? - macro call cartoon

Grab some coffee and click here to watch Keith on The Macro Show at 8:30am ET


Back to the Global Macro Grind


Of the many strategies we’ve heard from investors, the one we hear about the least is the laziest one of all – i.e. the do nothing strategy. As in literally buy everything right now and then go away for the summer and don’t touch your portfolio.


I guess the other thing you could do is sell everything and go away for a while too. Is that crazy? Or is that just not an option? At the end of the day, the art of managing money is having moneys to manage. Being “fully invested” means we get to go crazy, together.




So let’s get a little nuts this morning and strap on the 3 week portfolio pants ahead of the Fed meeting on June 17th:


  1. Don’t buy more Long-term Bonds (you should have been buying them, lower, for the last 6 weeks)
  2. Buy Gold (because we like to buy low, and Gold hasn’t done anything but trade in a thick chop for 6 weeks)
  3. Buy US stocks that look like Bonds (Yield Chasing proxies like Utilities, REITS, etc.) that have corrected in 2015


I know. I’m the former 2 and 20 guy who has this crazy strategy of buying on red and selling on green. So let’s get out there and sell some of those Japanese stocks that we have in the International Equity exposure now that they have been up for 10 straight days.


After 10 days in a row, do you buy or sell? In Japan, that hasn’t happened in 27 years so I don’t think it’s an entirely crazy idea to book some gains; particularly since the aforementioned 3-week-portfolio implies another US Dollar selloff.


Down Dollar? Pardon? Yep. When the Dollar signals immediate-term overbought, the current macro playbook says:


  1. Burning Japanese Yens are usually signaling oversold
  2. The Weimar Nikkei is usually signaling immediate-term overbought


That is all. So simple a guy who has taken an 80 mph slap shot off the top of the head (with no bucket on) can do it. #stitches


If you don’t like my playoff hockey shtick, and you’re more into the “long-term” thoughtful thing … and you want to do nothing into Friday’s GDP slowing report and/or next week’s potential train wreck of a US jobs report, that is up to you.


Just be aware that the longer-term call (let’s say the next 6-12 months) is probably the easiest it’s been to make (relative to the short-term call) since the summer of 2007.


Remember that?


Yep, that’s the last time that my model started to signal #LateCycle for the US employment and consumption cycle. And the #LateCycle call before that was in the summer of 2000.


Wanna get really nuts? Let’s go all cyclical on the pro-cyclical “jobs are good” consensus:


  1. The last time US Jobless Claims were this “good” (on a 4 week rolling avg) was April 15 of the year 2000
  2. The SP500 imploded from 1356 to 776 (-43%) to the October 2002 cycle low
  3. The Nasdaq crashed from 3321 to  1114 (-66%) to that same October 2002 low




I guess being lazy on the cycle work would be classified as big battles lost by the perma bulls who bought the 2000 and 2007 US economic cycle tops.


Tops, as you know, are processes, not points. So are cycles. And you can call me crazy staying in certain markets for another 3 weeks. You can call me lazy if I go to 65% Cash after that too.


But this isn’t my first bull/bear cycle battle and I’m thinking that if these keep coming around every 6-7 years, I have few more good fights with long-term “growth” consensus left in me.


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


UST 10yr Yield 1.98-2.20% (bearish)

SPX 2108-2139 (bullish)
DAX 11440-11889 (neutral)
Nikkei 20081-20683 (bullish)
VIX 12.75-14.45 (bullish)
USD 95.05-98.33 (bullish)
EUR/USD 1.08-1.15 (bearish)
YEN 121.09-124.16 (bearish)
Oil (WTI) 57.09-61.40 (bullish)

Natural Gas 2.80-3.10 (bullish)

Gold 1180-1209 (bullish)
Copper 2.72-2.81 (neutral)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Lazy or Crazy? - z 05.28.15 chart

June 11, 2015

June 11, 2015 - Slide1

The Macro Show Replay | June 11, 2015


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BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts

After declining nearly -60% in a 9-month period, WTI crude oil has moved 41% off the March lows. The logical question to ask is: what’s changed?

*  *  *  *  *  *  *

BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - Z O9


Aside from the obvious inflection in expectations for the direction of the U.S. dollar, a good argument can be made that not much has changed from a fundamental perspective. Below we outline the Bull/Bear debate:



Domestic production growth is decelerating and expected to go delta negative within the next couple of months (production has been much more resilient than originally expected—See below)


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 2


Rigs continue to come offline (although decelerating) while production per rig is still increasing sequentially       --> How long can production per rig continue to increase? It could be petering out..


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 3


After increasing for 16 consecutive weeks and sparking fear that the U.S. may be running out of storage space, crude oil inventories at commercial refiners have declined for 6 consecutive weeks coming out of the seasonal refinery maintenance season


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART4



What we viewed as a big consensus short bias to crude (and all commodities for that matter), has been washed out.


Consensus Positioning usually chases price. We saw this at the lows in commodity prices in March (the market moved shorter of commodities the more they went down!)


As you can see in the chart below, the market is longest (most bullish expectations) when prices are highest.


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 5


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 6


While showing signs of deceleration, domestic crude oil production is still touching new highs not seen in 43 years. The EIA reported a 43-Year high of 9.6MM B/D of production in May (NOTE: The EIA has upwardly revised preliminary estimates for February, March, and April production numbers which originally showed a noticeable deceleration in production starting in March. The blue series in the chart below estimates their reported figures in March. They have since been upwardly revised.


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 7


On a global scale, oil markets are as competitive as they’ve been in a long time. Global crude production in 3 of the top 4 producing countries is up double digits YY and positive in 17 of the top 20 producing countries, also on a YY basis.


BULL VS BEAR: What’s Changed in Crude Oil? (And Commodities For That Matter) + 7 Excellent Charts - CHART 8

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Cartoon of the Day: Geriatric U.S. Growth

Cartoon of the Day: Geriatric U.S. Growth - Growth cartoon 06.10.2015

"There’s definitely a narrative out there (perpetuated by Mario Draghi which I think was a huge mistake) that both the European and US economies are accelerating," Hedgeye CEO Keith McCullough wrote earlier this week. "We hear it in investor meetings every day ... Unfortunately for the bullish growth narrative, both the economic data and market moves discounting future growth expectations are reminding you that #accelerating is exactly what it isn’t."


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