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Greece: Extend & Pretend

Client Talking Points


Maybe it’s just us, but we can’t figure out what they actually did for Greece this morning – we guess that’s the point! Whatever it is they’re doing, the DAX loves it +3% after breaking down for weeks; Greek Stocks +8.3% (but -11.4% month-over-month).


The more interesting move is the #divergence between German/American 10s (both +6 basis points day-over-day) vs Italian/Spanish 10s (yields for both down -12 basis points day-over-day); credit /flow move we guess (US 10YR Yield was -13 basis points week-over-week coming into this).


Down -0.9% last week for the U.S. Dollar Index (that makes it down 3 weeks in a row into and out of an incrementally dovish Fed); USD down -5.2% in the last 3 months, so it will be important to continue to watch its easing signal as #LateCycle econ data rolls in.


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with special guest Healthcare Sector Head Tom Tobin.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Shares of Penn National Gaming are up approximately 9% since it was added to Investing Ideas on May 26. Our Gaming, Lodging & Leisure team reiterates their high conviction on the stock and notes that Ohio and Kansas have both been super-strong revenue generators in the month of May. This positive development has has led our analysts to raise their estimates even higher (and we're already the highest on the street...).


It was a busy week across the housing space with a host of fundamental releases, builder earnings and notable regulatory updates.   Net-net-net....the past week offered another positive update on the state of the residential real estate market with housing turned in a second week of strong, positive absolute and relative performance. The NAHB HMI (Builder Confidence Index) for June surged across all categories and in all regions, posting its best reading in almost 10 years. Total Starts declined -11% MoM to +1.036 MM units with SF and MF starts declining -5.4% and -20.2% month-over-month, respectively.  Permits, meanwhile, rose to an 8-year high advancing +11.8% sequentially and +25% year-over-year.   The strength in permits augurs forward strength in Starts and suggest residential construction spending will be (increasingly) supportive of GDP growth over the next couple quarters.



Bottom line right now remains that Lower-For-Longer is firmly intact as long as US #GrowthSlowing is. As Keith pointed out on Friday, Consensus Macro is still stubbornly sticking to the tired idea that rates have to go higher - they just have to... because, they haven't? All told, it was a great week sticking with the process on the long side of bonds. Here we feature an in-depth discussion from Senior Macro Analyst Darius Dale which does a thorough job outlining where our macro team currently stands with respect to the Fed, interest rates, markets and economy. The prescient discussion occured just hours before release of the FOMC statement.

Three for the Road


Starbucks doubles its Global Farmer Fund Program; In 2015 99% of @Starbucks coffee supply chain verified as ethically sourced $SBUX



Leadership is intentional influence.

Michael McKinney


“Jurassic World” is only the second film in history to top $100 million in two separate weekends. “Jurassic World” has now passed “Jurassic Park” ($357.1 million) as the highest-grossing domestic release in the franchise’s history when not adjusted for inflation.

Education of A Bond Bull

This note was originally published at 8am on June 08, 2015 for Hedgeye subscribers.

“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 1239-1267 (neutral)
Nikkei 20371-20679 (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


Click to enlarge

Education of A Bond Bull - z 06.08.15 chart

CHART OF THE DAY: Buy Everything! (Well, Not Everything)

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


CHART OF THE DAY: Buy Everything! (Well, Not Everything) - z 06.22.15 chart


Actually let me take that back – not all “stocks” liked the Dovish Down Dollar + Down Rates move. Here’s how our two favorite S&P Sector Shorts and Global Equities did with the pin tucked in the front, and some USD devaluation tailwind:


  1. US Financial Stocks (XLF) down -1.2% week-over-week, taking them back to 0.0% for 2015 YTD
  2. US Industrial Stocks (XLI) down another -0.4% week-over-week to down -1.5% for 2015 YTD
  3. European Stocks (EuroStoxx600) down -1.0%, taking their 3-month correction to -3.8%


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Chambers #Grind

“I really grinded over those four or five-footers – that was the difference.”

-Jordan Spieth


Love that quote. After acknowledging that “I didn’t have my best ball striking”, that’s how an impressively transparent and accountable young man boiled down his #history making win at the US Open yesterday.


In sharp contrast, Dustin Johnson (who 3 putted from 12 feet to lose the Championship) said “I did everything I was supposed to do. I hit the ball well – I just really struggled to get it in the hole – I wasn’t hitting bad putts, they just weren’t going in.”


Actually, getting the ball in the hole (under pressure) is what you are supposed to do, Dustin. I don’t care who you are. Nice ball striking is, well, nice. But If you want to be a Champion, you gotta #grind boy. #Grind, grind, grind.


Chambers #Grind - 44


Back to the Global Macro Grind


So you have “nice” short ideas and did all your bottom-up research but missed that A) the Fed was going to be Lower-For-Longer last week and B) that Greece was going to extend and pretend again this morning?


SP Futures +19 handles pre-open! #Fun


Or at least more fun than trying to stick some of those greens at Chambers Bay. No matter what conditions your game is best suited for, you need to play the macro game that is in front of you.


The “buy everything” call we’ve had into a prevailing consensus wind of “it’s just time for the Fed to hike” has a few very simple components:


  1. Down Dollar = asset price reflation
  2. Down Rates = #YieldChasing


And here’s how those 2 core factors off the tee box looked last week (golfers, think of them like wind and pin):


  1. US Dollar Index down for the 3rd straight week into and out of the Fed meeting, -0.9% week-over-week
  2. US 10yr Treasury Yield down for the 2nd consecutive week, -13 basis points week-over-week to 2.26%


US stocks enjoyed that (Dow Jones Industrials Index up for the 2nd straight week putting it back in the black for 2015 at +1.1% YTD), but the biggest recipient to Down Dollar + Down Rates = Up Gold, absolutely loved that, closing +1.8% on the week.


Actually let me take that back – not all “stocks” liked the Dovish Down Dollar + Down Rates move. Here’s how our two favorite S&P Sector Shorts and Global Equities did with the pin tucked in the front, and some USD devaluation tailwind:


  1. US Financial Stocks (XLF) down -1.2% week-over-week, taking them back to 0.0% for 2015 YTD
  2. US Industrial Stocks (XLI) down another -0.4% week-over-week to down -1.5% for 2015 YTD
  3. European Stocks (EuroStoxx600) down -1.0%, taking their 3-month correction to -3.8%


If you stayed out of those big performance pot-bunkers, you were probably pleased. That said, you still had to grind over those putts once you got on the greens. There were two holes in particular that had huge breakers:


  1. Chinese Stocks (Shanghai Composite) -13.3% week-over-week, but +25.1% in the last 3 months
  2. Greek Stocks (Athens Index) -11.3% week-over-week, taking them to -5% in the last 3 months


Sure, Greek stocks are up +8% this morning on whatever extension and pretension macro market players are going to have to deal with next, but they’re also still -11.3% in the last month so this isn’t for the faint of heart.


In terms of how we’re setup right now (you can see my tilts in the Hedgeye Asset Allocation Model every day), we have one of our lowest cash positions since April. I’d characterize our cross-asset class weights being as balanced as they’ve been in a while too.


If you’d like me to rank our Best Ideas in ETF terms, here’s what I’m thinking (Top 3):


  1. ITB - US Housing Stocks (they’ve corrected on rate fears)
  2. XLV – US Healthcare Stocks (they haven’t corrected, and should continue to outperform)
  3. GLD – Gold, yep – #grind


Japanese Stocks (DXJ) are still our favorite in the International Equity bucket. And I’d be a seller of European Equities on this morning’s Greek ramp. If you’re looking for a natural head-to-head twosome, I’d put Japan up against Germany, long/short.


I’m also thinking I should stop with the golf metaphors and just get ready to #grind. Today’s gap-up open in both European and US equities is going to provide for quite a day. Like the reasons or not – we still need to put the alpha ball in the hole.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.38%

SPX 2094-2126
Nikkei 20109-20609
USD 93.88-95.40
EUR/USD 1.11-1.14
Oil (WTI) 59.05-61.35

Gold 1185-1204


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Chambers #Grind - z 06.22.15 chart

The Macro Show Replay | June 22, 2015


June 22, 2015

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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.