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INVITE | Q3 2015 MACRO THEMES CONFERENCE CALL

TOMORROW (July 7th) at 1pm ET we will be hosting our highly-anticipated Quarterly Macro Themes conference call.  Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications. 

 

Q3 2015 MACRO THEMES OVERVIEW:

 

#SecularStagnation: Amid consensus expectations for a return to “normal” economic conditions, our analysis shows ample evidence of secular stagnation. In light of that, we reiterate our “lower-for-longer” thesis on growth, inflation and interest rates and continue to find the FOMC’s hawkish guidance wholly misplaced.

 

#EuropeSlowing: With our proprietary GIP (growth, inflation, policy) model we’ll outline the top 6 European economies that will be most impacted by real GDP growth slowing as inflation accelerates in the back half of 2015. The timing of ECB head Mario Draghi’s eventual response will be critical in terms of risk managing the EUR/USD exchange rate, as well as any associated spillover risks.

 

#ConsumerCycle: Consumption peaks late cycle and with domestic and global growth set to slow alongside easing inflation comps in 2H15, it looks increasingly likely 1H15 marked the current cycle peak in household spending growth.  We'll contextualize the current cycle, discuss the implications and detail how best to be counter-cyclically positioned as the consumer cycle enters its twilight. 

 

CALL DETAILS:

  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 13612090
  • Materials:  CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

 

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to .

 

Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Kind regards,

 

The Hedgeye Macro Team


RTA Live: July 6, 2015

Here is the replay of today's edition of RTA Live.

 


MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK

Takeaway: Instead of looking across the Atlantic, investors should be looking across the Pacific.

Key Takeaway:

While most US investors are looking at the big carnival in Greece and Europe this morning, we'd suggest they look in the other direction, towards China, where the real action is happening. 

 

Chinese equity prices are down ~30% in a month. In a month! Meanwhile, prices of Chinese steel continue to collapse (see our chart below) - an indicator we've long watched as a representation of the real underlying activity of China's economy - falling another 2.7% week-over-week. The bottom line is that real economy in China is under growing pressure and the stock market is now collapsing. 

 

As we pointed out last week, the real gauge of whether Europe poses risk to the US is best reflected in the overnight interbank lending markets. This risk can be measured in the TED Spread domestically and in Euribor-OIS in Europe. Neither of these measures have done much of anything on the Greece news. In other words, contagion fears are unfounded for now. If this changes, and those spreads begin to widen we'll be on top of it, but for now Greece/Europe are not pressing issues for the US Financials.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM19 2

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 1 of 12 improved / 7 out of 12 worsened / 4 of 12 unchanged

 • Intermediate-term(WoW): Negative / 0 of 12 improved / 7 out of 12 worsened / 5 of 12 unchanged

 • Long-term(WoW): Positive / 3 of 12 improved / 2 out of 12 worsened / 7 of 12 unchanged

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM15

 

1. U.S. Financial CDS -  Swaps widened for 19 out of 27 domestic financial institutions. Once again, financial protection providers MBIA and Assured Guaranty led the way, widening by +132 bps to 749 bps and by +59 bps to 396 bps respectively.

 

Tightened the most WoW: CB, MTG, RDN

Widened the most WoW: MBI, AGO, MMC

Widened the least/ tightened the most WoW: SLM, SLM, SLM

Widened the most MoM: MBI, MMC, AGO

  

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM1

 

2. European Financial CDS - Swaps mostly widened in Europe last week in anticipation of Greece's referendum. Over the weekend, that referendum took place, and Greek citizens voted to reject the terms of the bailout package offered by the country's creditors. The median and average changes in swap spreads were +12 bps and +160 bps, week-over-week. CDS for Greek institutions blew out by over 1000 bps each.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM2

 

3. Asian Financial CDS - Swaps on Asia banks mostly widened last week with an average change of 2 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly widened over last week, led by Italy, Spain, and Portugal on contagion worries. Those sovereigns' CDS widened by 24 bps to 134, 20 bps to 109 and 39 bps to 202 respectively.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM18

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM3

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM4

 

5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Movement was moderate; the most significant was the 3 bps widening in Chinese CDS to 93 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM16 2

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM20 

 

6. High Yield (YTM) Monitor – High Yield rates rose 24 bps last week, ending the week at 6.62% versus 6.38% the prior week.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM5

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 2.0 points last week, ending at 1891.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM6

 

8. TED Spread Monitor – The TED spread was unchanged last week at 28 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM7

 

9. CRB Commodity Price Index – The CRB index rose 0.2%, ending the week at 225 versus 224 the prior week. As compared with the prior month, commodity prices have increased 0.9%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM8

 

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 11 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM9

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 20 basis points last week, ending the week at 1.16% versus last week’s print of 1.36%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM10

 

12. Chinese Steel – Steel prices in China fell 2.7% last week, or 61 yuan/ton, to 2165 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 175 bps, -1 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 2.2% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


the macro show

what smart investors watch to win

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.

The Macro Show Replay | July 6, 2015

 


Euro, Yields and Oil

Client Talking Points

EURO

The Euro is down on the NO news and the risk range here is widening again to $1.09-1.13 which should be respected as it’s A) a leading indicator for rising volatility in FICC and B) an explicit #deflation risk on signal (think inflation expectations of things like Oil and low-quality peripheral debt). 

YIELDS

The credit risk trade is back on this morning with UST and German Yields down to 2.30% and 0.73% (vs. Italian and Portuguese 10YR Yields up +10-11bps to 2.34% and +3.02%, respectively) – don’t forget the slowing #LateCycle U.S. jobs report from Friday either please.

OIL

WTI Oil smashed for a -3.7% loss this morning and that’s after a -6.7% drop last week – down -44% year-over-year the #StrongDollarDeflation risk remains for most things levered to inflation expectations (including junk debt) – this is why big beta to “reflation” is in drawdown mode again.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with CEO Keith McCullough and Macro Analyst Ben Ryan.

Asset Allocation

CASH 51% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 4%
FIXED INCOME 30% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
KATE

We’re all-in on Kate Spade at current levels. The Hedgeye Retail team believes that comps are accelerating into the double digits in 2H, and we think that KATE’s margin guidance for this year will prove conservative. Ultimately, we think that numbers this year are 10% too low – a delta that widens to 20%+ next year, and to 50%+ by 2018 when we think KATE has $2.50 to $3.00 in earnings power. Using decelerating multiples as growth accelerates and the P&L matures gets us 50%+ upside in a year and a 2-3-bagger by 2018.

PENN

Our Gaming, Lodging and Leisure team reiterates its high-conviction thesis on Penn National Gaming. PENN remains one of our favorite names on the long side. It maintains the best new unit growth story in domestic gaming. PENN's property in Massachusetts has had an excellent start. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.

TLT

The Hedgeye Growth, Inflation, Policy (GIP) model is signaling a move into QUAD 3 for the second half of 2015. This is a set-up for the domestic economy where growth is slowing and inflation is accelerating. We reiterate our intermediate to long-term bullish bias on long-duration Fixed Income and gold. Our back-testing results cast a favorable outlook for Long-Term Treasuries, REITs, and Gold with a favorable set-up as seen in the first three charts below. When growth is slowing (QUAD 3 and QUAD 4), long term rates tend to move lower.  The logic is simple:

  • #GrowthSlowing: As growth slows, a revision in forward-looking growth expectations manifest in lower yields
  • #InflationAccelerating: Commodity prices have made a significant move off of the 2015 lows as seen in the last chart below, and we expect the follow-through to play out in Q3 inflation readings. CPI readings track the commodity price sample used in chart #4 below very closely and CPI compares are easy in 2H 2015 vs. more difficult GDP comps (QUAD 3)       

 

Three for the Road

TWEET OF THE DAY

In today's Early Look "Oh, No!" I explain how Down Euro drives Global #Deflation Risk

@KeithMcCullough

QUOTE OF THE DAY

If a man does not know to what port he is steering, no wind is favorable to him.

Seneca

STAT OF THE DAY

Ranking and review site Niche.com identified which traditional colleges in the U.S. are the toughest to get into, Harvard was ranked #1 with an acceptance rate of 5.8%. 


CHART OF THE DAY: #GrowthSlowing? (Ignorance Is Bliss!)

Editor's Note: This is a chart and excerpt from today's morning market note written by Hedgeye CEO Keith McCullough. Click here to become a subscriber.

 

...No you didn’t. You didn’t think I’d do what all of the mainstream financial media (and most sell-side strategists) are doing this morning and ignore another rate-of-change #GrowthSlowing in US employment, did you?

 

As you can see in today’s Chart of The Day (I did the Crayola coloring myself over the weekend), the peak in a classic #LateCycle US economic indicator (non-farm payroll growth) was 4 months ago (February 2015) at 2.34% year-over-year.

 

CHART OF THE DAY: #GrowthSlowing? (Ignorance Is Bliss!) - z 07.06.15 chart

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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