Volatility, Gold and the USD

Client Talking Points


They smashed cross-asset volatility on the Fed decision, and that makes a lot of sense to me as a narrowing of our FICC risk ranges (especially UST 10YR Yield and EUR/USD) is short-term bullish for asset prices, including stocks (Utilities) that look like bonds.


Oh the love Gold has for the two-stroke Down Dollar, Down Rates move; being long this for the 1st time in a while felt like sitting on a hand grenade, so the +2.2% pop was appreciated; Gold diverged big from Copper, which is down another -1.1% this morning.


Get the U.S. Dollar right, and you’ll certainly get less things wrong – important overbought signal was $1.14 EUR/USD and the risk range there is now 1.11-1.14, so keep that in mind, especially when risk managing your long Oil position (risk range WTI = 58.51-61.78).


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, Keith McCullough is back from London!

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Penn National Gaming will likely tee off on the bears with a strong Q2, upward 2015/2016 EPS revisions, and the start of a 2 year growth period. PENN’s stock has climbed 27% this year on stabilizing regional gaming revenues, transaction-fueled optimism (real estate) surrounding the regional gaming companies and proximity to the opening of the new Plainridge racino on June 24. So what will drive even more upside? More and better. We think regional gaming trends are even better than anticipated by the Street and Q2 earnings should be a solid beat even before Plainridge contributes.


Housing outperformed in the latest week alongside choppy price action in equities and further, extraordinary volatility in sovereign bond markets.  Fundamental data was light with weekly purchase applications data from the MBA the lone release of import for the industry.  The first, high-frequency update on purchase demand in June, however, was positive. Purchase demand rose +9.7% sequentially, taking the index to its strongest level in 2 years at reading of 214.3. On a year-over-year basis, growth accelerated for a  4th consecutive week to +14.6%. Inclusive of last weeks gain, demand in 2Q is tracking +14.3% QoQ and +13.4% YoY.


The market has been jockeying for positioning in front of next week’s policy statement from Janet Yellen. We believe Yellen signaling that she remains “data dependent” (i.e. repeats what she said at the March 18thmeeting) is the most probable outcome. To be clear, we remain the long-bond bulls (TLT, EDV, MUB). With that being said we aren’t claiming to be able to predict the outcome of next week’s meeting (sure we do have biases). What we do know is that Hedgeye estimates for growth and inflation shake out much lower against both consensus and central bank forecasts for the full year 2015 (remember that this is after their forecasts have already been downwardly revised).

Three for the Road


Darius Dale on Fox Business: Fed Unlikely To Raise Rates This Year… @HedgeyeDDale



The task of the leader is to get his people from where they are to where they have not been.

Henry Kissinger


When men hit their mid-50s, the median male worker is making about 127% more than he did when he was just starting out in his career, according to a report released this February by the Federal Reserve Bank of New York.

The Macro Show Replay | June 19, 2015


CHART OF THE DAY: (Woeful) Establishment “Blue-Chip” Growth Forecasts

Editor's Note: The excerpt and chart below come from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to subscribe and stay a step ahead of consensus. 


Who really cares that the Fed was at 3.1% GDP, then 2.7%, then 2.4%? As you can see in today’s Chart of The Day, the establishment “blue-chip” growth forecasts have started the year high, and ended on the lows, every year since 2010.


Click to enlarge 

CHART OF THE DAY: (Woeful) Establishment “Blue-Chip” Growth Forecasts - z 06.19.15 chart

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 80.46%
  • SHORT SIGNALS 78.35%

Super-High Returns

(Editor's Note: He's back from London. Join Keith live at 8:30am ET on The Macro Show. Click here.)


“The super-high earners have the biggest crashes.”

-Moises Naim


Fair enough, Moises – but they’ve had super-high returns on incremental US Dollar Devaluations by the Federal Reserve going back to 2011. What goes up, doesn’t always have to crash on the way down.


What Naim is referring to is the asset price crash period of 2007-2009 where “the number of Americans making $1M or more fell 40% to 263,883, while their combined incomes fell by nearly 50% - far greater than the less than the 2% drop in total incomes for those making $50,000.” (The End of Power, pg 6)


Love or loathe them, the US stock and bond markets aren’t socialized democracies. These are centrally-planned-markets that are highly sensitive to both the valuation of American currency and the “risk free” rate of capital.

Super-High Returns - Central planning cartoon 03.20.2015


Back to the Global Macro Grind


Did the most recent “surprise” from the Fed matter to the 2011 all-star asset price inflations?


  1. Gold (peaked in 2011 on a nominal basis) = +2.2% yesterday
  2. Utilities (had their biggest relative return year ever in 2011) = +1.3% yesterday


For those of you new to risk managing macro markets within the framework of front-running-probable-central-planning-behavior, note that “expensive” stocks and bonds get more expensive when the market is seeking certain macro exposures.


The two big macro exposures that moved on this recent Fed decision to cut its 2015 GDP forecast closer to ours at 1.8-2.0%:


  1. Down Dollar
  2. Down Rates


Who really cares that the Fed was at 3.1% GDP, then 2.7%, then 2.4%? As you can see in today’s Chart of The Day, the establishment “blue-chip” growth forecasts have started the year high, and ended on the lows, every year since 2010.


In 2011, Gold absolutely loved having exposure to Bernanke devaluing the Dollar to the all-time (post Nixon/Carter/Burns) lows. That’s when long-term rates first tested the mental concept of all-time lows too.


Are we going to see $1900/oz Gold and all-time (which at the time was a long-time) high food prices (2012) again? I doubt it. That’s because the longer-term setup for the US Dollar is to make a series of higher-lows as the Europeans are forced to devalue Euros.


Got 80 cents?


I do. In Euros vs. US Dollars, that is. But that’s my long-term TAIL risk view for both European growth (even worse demographic spending cliffs than the USA, which is saying something) and it’s very immature, but centrally-planned, currency.


If I wanted to just make long-term TAIL risk calls, I’d go up to my lake house in Thunder Bay, fish, and write books. Instead, I choose to travel the world over to help you risk manage the immediate-to-intermediate-term, because I’d get fat fishing.


Never mind this class-warfare crap that politicians from Marx to whoever has driven into the American narrative. We are all responsible and accountable adults. With #process and objective analysis we have super-opportunities to help a lot of people not crash again.


I know. Enough about reminding you about how this ended, long-term risks, etc. Let’s get into the very immediate-term setup so that you can get on with your day:


  1. US Dollar Index immediate-term TRADE oversold on the Fed “news” at $93.81
  2. EUR/USD immediate-term TRADE overbought at $1.14 with a risk range of $1.11-1.14
  3. UST 10yr yield of 2.30% has an immediate-term risk range of 2.15-2.38%, risk manage it
  4. Gold immediate-term TRADE overbought at $1205 on the Down Rates, Down Dollar move
  5. Utilities (XLU) signaled immediate-term TRADE overbought into yesterday’s close


So what would I do from here? Book some gains. This shorter-term macro game of gaming catalyst dates is hard enough as it is. You were either setup for this Federal Reserve move, or you were not.


Another immediate-term move I’d make on the immediate-term oversold signal in USD is:


  1. Re-short some Japanese Yen (FXY)
  2. Buy back the DXJ (Japanese Stocks) we sold pre the Fed decision


Yep. It’s all #timestamped, and I actually sent out that signal to buy DXJ in Real-Time Alerts on red yesterday so apologies if the Early Look reiteration of what I’d do is more like what I already did. Sometimes a great way to not crash is to keep moving.


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


UST 10yr Yield 2.15-2.38% (bearish)

SPX 2104-2126 (bullish)
RUT 1 (bullish)
Nikkei 199 (bullish)
VIX 12.40-15.91 (bullish)
USD 94.01-95.48 (neutral)
EUR/USD 1.11-1.14 (neutral)
YEN 122.21-125.04 (bearish)
Oil (WTI) 58.51-61.78 (bullish)

Nat Gas 2.69-2.99 (bullish)

Gold 1185-1205 (bullish)
Copper 2.54-2.66 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Super-High Returns - z 06.19.15 chart

Cowbell & Cannons!

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

“To cannon, all men are equal.”

Napoleon Bonaparte


If the 2015 “call” on macro markets has been that bad news is good, what happens when bad news is bad? Yesterday was ugly, globally. Darius Dale did a good job outlining why from a global #GrowthSlowing perspective.


But what about from a “liquidity” perspective? It’s one thing for strategists to be telling you that European Yields are rising because “inflation is back.” It’s entirely another for others to say that’s happening because growth is too.


If both of those lines of reasoning are wrong, and the real reason is the beginning of a liquidity event coupled with #LateCycle growth slowing… to most portfolios, this is going to feel like cannons. Unless it’s different this time, Volatility ↑ + Illiquidity ↑ doesn’t end well.


Cowbell & Cannons! - z canon

***Click here to watch The Macro Show at 8:30am ET with Director of Research Daryl Jones.


Back to the Global Macro Grind


By characterizing European growth and #Deflation risks the way he did, I think un-elected-central-planning-overlord Draghi made his first huge mistake on Wednesday. He tried to talk down stock and bond market volatility, so both ripped!


I’ll say this until I’m dead (so bear with me in the meantime): in the long run, central planners cannot smooth economic gravity and/or control market volatility.


On that front, one of the biggest mistakes Bernanke made between 2006-2011 (too high on growth expectations; too low on volatility expectations) was the same one Draghi is making right now.


If I’m right on Slower-For-Longer (on growth), but wrong on Lower-For-Longer (on rates), that may very well mean we have finally reached the beginning of the end of bad-news-is-good.




A)     That would mean real-time growth forecasts and expectations are getting cut (like they are starting to now)

B)      And markets are starting to believe central planners have lost control of the short-term control mechanism for that


To be crystal clear on what that control mechanism is – it’s cowbell and cannons.


Cannons, as in unadulterated and obliterating launches of money printings and bond buyings. Cowbell, as in “whatever it takes” when German Bund Yields (10yr) double, in 72 hours!


In the absence of both, what do you get? (see your portfolio returns from yesterday for details)


While many of you have rightly risk managed markets since 2009 by understanding the basic mechanisms of bad news = more cowbell/cannon = good (for stocks), here’s the last month in Global Equities:


  1. Dow Transports -3.6% month-over-month
  2. Hang Seng -3.5% month-over-month
  3. South Korea’s KOSPI -4.6% month-over-month
  4. Poland’s stock market -5.7% month-over-month
  5. Brazil’s stock market -5.9% month-over-month
  6. Argentina’s stock market -8.8% month-over-month


Bull markets in Global Growth? Cherry picking? Not really. If this table of 6 channel checks isn’t in your “global growth is accelerating” note to clients, at least we agree to agree you’re obfuscating reality in order to appeal to the bullish proclivities of your base.


The best month-over-month performer in Global Equities is the Shanghai Composite Index at +16.9%. So, if you want to really make some perma bulls some money, you should just call it A) what it is and B) what it has been – Moarrr Cowbell!


At this point, the Chinese are coming out with it daily. That’s right Chinese margin broker. You go bro! That’s how you do this. We taught you how to do this. You get it. So pump it!


Japanese stocks keep working because the BOJ gets the joke too. In both Europe and the USA (where secular demographic slowing is as obvious), extending and pretending that “growth is back” is only going to turn the cannon on the Fed and ECB themselves.


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


UST 10yr Yield 2.02-2.39% (bearish)

SPX 2085-2111 (bullish)
RUT 1236-1264 (neutral)
Nikkei 20363-20649 (bullish)
VIX 13.51-15.75 (bullish)
USD 94.88-96.80 (neutral)
EUR/USD 1.07-1.14 (bearish)
YEN 123.66-125.62 (bearish)
Oil (WTI) 56.80-61.48 (bullish)

Natural Gas 2.53-2.69 (bearish)

Gold 1170-1205 (bullish)
Copper 2.65-2.79 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Cowbell & Cannons! - z 06.05.15 chart

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