“Be willing to be a beginner every single morning.”

-Meister Eckhart


As most of you already know, we are early risers here at Hedgeye.  For better or worse, that’s how it goes when you aren’t the smartest hombres in the stock market operating business.   If you want to stay ahead of the competition, you have to get up earlier and out work them. (Or so we hope!)


Lucky for us, there is some credence to this early morning mantra and its relationship to success. Biologist Christoph Randler surveyed 367 university students, asking what time of day they were most energetic and how willing and able they were to take action to change a situation to their advantage.  In a follow up interview in the Harvard Business Review, he offered this conclusion about his study:


“When it comes to business success, morning people hold the important cards. My earlier research showed that they tend to get better grades in school, which get them into better colleges, which then lead to better job opportunities. Morning people also anticipate problems and try to minimize them, my survey showed. They’re proactive. A number of studies have linked this trait, proactivity, with better job performance, greater career success, and higher wages.”


Not only is there a correlation between success and getting up early, but early risers also are generally happier.  In fact, a 2012 study published in the American Psychological Association journal, Emotion, reported the following:


“Early risers are generally happier than night owls. More than 700 respondents, ranging from ages 17-79 were surveyed and asked about their emotional state, health and preferred time of day. Self-professed morning people reported feeling happier and healthier than night owls.”


Most importantly, for those of you that are up early and in your office by 8:30am, you can tune in to The Macro Show, which can be found here every day at 830am.




Cock-A-Doodle-Doo - 4 rr


Back to the Global Macro Grind...


For those that follow global residential real estate markets, you probably didn’t have to get up that early to recognize that Canada’s housing market is solidly in bubble territory.   My colleague Josh Steiner pulled together a 130+ page deck last week that went through his short call on the major Canadian banks.  A key component of his thesis was based on the housing market and indebtedness of the consumer, specifically:


  • Income growth broadly in Canada has outpaced home price growth by 87% in Canada from 2000 – 2014.  In 2006, at the peak of the bubble in the U.S., this metric was only at 67%;
  • From 2000, home prices in Canada are up 247% versus 176% over the same time period in the U.S.; and
  • Canadian Household debt-to-income ratio is 167% (the highest level ever) compared to 103% in the U.S.


The challenge with these extremes of home price appreciation and consumer indebtedness is that the banking system itself in Canada is very concentrated.  In fact, RBC and TD originate roughly half of all mortgages in Canada.  In aggregate, the largest six Canadian banks are 2.1x larger in asset size than Canada’s GDP!


There is also a bank that we think is a pure play on Canada going “supernova”.  As Steiner wrote in his presentation:


“There isn’t likely to be much, if anything, left of this company once this call plays out. Despite holding the bag on everything subprime, it holds the lowest loan loss allowance of the group and is levered 15x.”


If you would like to discuss the thesis with our Financials Sectorhead Josh Steiner or purchase his report, please email .


Even as we see a more volatile future in the Canadian economy and likely the Canadian stock market, the U.S. stock market continues to plod along in boring fashion.  According to a report from Bloomberg this morning, the SP500 hasn’t posted a gain of 2% for more than 126 days, which is the longest streak since the one ending in February 2007 (and we know what happened shortly after that!).  Further, the last time the index went without out a 2% move in the first half of the year was 2005.


On the topic of volatility, Keith had the following to say on the VIX in his 6am Direct from KM note this morning to subscribers:


VIX – the ole “buy everything” call worked, somehow – but this one wasn’t that hard to get right if you had A) a more dovish Fed and B) another Greek bailout right. It’s sad, but front-running predictable central planning behavior works; VIX still range bound 12.29-15.46.”


If you get up early and front run the Fed, you are probably having a decent year performance wise.


Speaking of the Fed, Jon Hilsenrath from the Wall Street Journal this morning highlighted what we’ve been highlighting for some time now, which is that the Fed’s economic projections are inaccurate at best.   Or as Chairperson Yellen says, they are “fraught with uncertainty.”  


On some level, she is correct as the Fed wrongfully predicted that the jobless rate would settle between 5.3% and 5.8% by the end of 2016 and instead it did by December 2014.  Since it’s almost 8am and we’ve been up for a few hours now, we won’t even get into the question of why either Yellen or Hilsy are fixated on such a meaningless stat . . .


Finally, in the public service announcement category, Keith will be on a panel at the 6th Annual Inside Alternatives Conference July 13-14, 2015 in Denver CO.  We hope to see you there! Click here to learn more.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.17-2.49% 

SPX 2105-2130 
Nikkei 20102-20839 
VIX 12.29-15.45
USD 94.01-95.62

Gold 1170-1203


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


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