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McCullough: Gold vs. Central Bankers?

In this brief excerpt from today's edition of The Macro Show, Hedgeye CEO Keith McCullough is in rare form, pulling no punches on what's currently going on with gold, central bankers and more. 


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GIS | Green Giant Divestiture is the Worst Kept Secret

General Mills is on the Hedgeye Consumer Staples Best Ideas list as a LONG.


The rumors keep rolling in on the expected divestiture of their Green Giant assets. With the latest rumors that Bonduelle is in discussions with Centerview to team up on a bid for Green Giant, reported by Reuters. Bonduelle is a France based company, but owns manufacturing facilities in Canada that co-pack for the Green Giant business.


This is further confirmation that GIS is still active in the deal process. After just closing out their fiscal year 2015 at the end of May, teams around the company are freed up to conduct a divestiture. Year-end tends to be a strenuous time at manufacturing companies as its all hand on deck from supply chain and sourcing planning volumes for next year, and finance preparing the numbers. It’s no surprise that the sale process probably got pushed till after the year closed.


General Mills needs to divest tired assets, and Green Giant is one of the worst performers in the portfolio and we at Hedgeye will be glad to see it go to someone else. Below is a chart from our GIS Black Book that outlines “the other 28%” of assets that management has labeled as non-core.


GIS | Green Giant Divestiture is the Worst Kept Secret - CHART1


We hope to see more divestitures come down the pipe, and an acquisition or two to tack some growth onto the portfolio. We predict FY2016 will be a busy portfolio shaping year.

Chasing Horses

“A horse never runs so fast as when he has other horse to catch up and outpace.”



That’s a great opening volley of a quote for the latest #behavioral book I’ve cracked open, Top DogThe Science of Winning and Losing, by Po Bronson & Ashley Merryman. For those of you with competitive fire, I highly recommend it.


In the “Foundations” part of the book, the authors introduce a term called #edgework (“a term borrowed from Hunter S. Thompson’s description of anarchic human experience”). “Edgework stems from the way skilled performance brings control to a situation most people would regard as uncontrollable.”


In other words, if you took the Greece, China, and the NYSE halt (amidst a 5-6 week Nasdaq decline) as an opportunity to get really long “new tech” and short everything reflation (Oil, Gold, Russia, Brazil, etc.), you have wicked edgework!


Chasing Horses - z 3 cc


Back to the Global Macro Grind


On the other hand, if you’re like me and you only got one half of that right (avoid #Deflation), you better start interviewing Google (GOOGL), Facebook (FB), and Apple (AAPL) analysts. Non-consensus longs they aren’t – but wow, bros, look at those charts!


Forget chasing charts (or horses) for a second and remind yourself what was the last part of the US stock market to stop going up at the 2007 peak. Remember the Cramer’s “Four Horseman” (hint: it included RIMM) in SEP 2007? I do.


As a cycle guy, it’s been fascinating (but not surprising) to observe that, at all 3 US economic cycle peaks (2000, 2007, and 2015), the cycle slowing perpetuated #bubble multiples in the growth that Wall Street had left to chase.


All the while, the market internals have looked scarier at each of those 3 market peaks. Here’s how yesterday’s looked:


  1. PRICE – SPY (SP500) +0.08% yesterday vs. RUT (Russell 2000) -0.52% = bearish divergence
  2. VOLUME – Total US Equity Market Volume (see Chart of The Day) -21% and -24% vs. its 1-mth and 1-yr averages
  3. VOLATILITY – front-month VIX not being able to close below 12 for the 3rd time in the last 3 months


I hear ya – using price, volume, and volatility is probably cherry picking data (or something like that). But if you back out the move in the XLK (Tech ETF heavily weighted to names like AAPL and GOOGL) which was +0.5% on the day (and is +5.5% for July-to-date!):


  1. Energy Stocks (XLE) deflated another -1.3% yesterday (down -4.9% for July-to-date!)
  2. Basic Material Stocks (XLB) down another -0.9% and is -2.3% to kick off Q3
  3. Russia and Brazil (their stock markets) are -7.4% and -3.3%, respectively, month-over-month


Seriously, if you can’t buy “Global Growth” (until they halt Chinese and European stocks) and you definitely can’t buy “reflation” and/or anything linked to commodity inflation expectations – do you blame people for bucking up for apps and ads?


I don’t. Those were damn good horses to be riding; especially if you:


A)     Sold AAPL at the 2007 #bubble top (and bought it back in 2011 < $35) and/or

B)      Bought the Googler sub $250 in 2011 (when global growth was slowing)


I’d ride those cost basis’ all night long!


Sadly, save some exceptions, this isn’t the way most people “invest” anymore. In 2011, the same guy who was shorting AAPL and GOOGL was probably buying Gold at $1900. It’s just chart (momentum) chasing. And it rarely ends well.


Back to the bearish divergence between the SP500 and the Russell 2000, I think one basic #behavioral factor associated with consensus shorting low and chasing high might explain part of it. Check out the recent move in non-commercial (CFTC) hedging:


  1. SP500 (Index + Emini) net SHORT position of -119,980 at the end of last week registered a -1.63x 1YR z-score
  2. Russell 2000 (mini) net SHORT position of -7,553 at the end of last week registered at +1.31x 1YR z-score


In other words, since a z-score is a measurement of an observation’s relationship to its sample mean (in this case signaling too bearish at -2 and too bullish at +2), Consensus Macro was too bearish on SPY and too bullish on IWM. So they did the opposite.


That tends to happen when people have to hedge out “High-Beta” (as a Style Factor) in their portfolio when big beta stocks are getting smoked (like they did in the 6 weeks prior to last week’s 4 Horsy Ramp). The Russell is “higher beta” than the SP500.


All the while though, “Low-Beta” (stay with it) continues to crush “High-Beta” on a 1-3 month duration. And, if beta chasers in Tech/Biotech see a mean reversion (pullback from the highs), I think they’ll ultimately have to chase low-beta this summer too.


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


UST 10yr Yield 2.21-2.46% (bearish)

SPX 2093-2130 (bullish)
RUT 1 (neutral)
Nikkei 209 (bullish)

VIX 11.76-14.53 (bullish)
USD 97.06-98.49 (bullish)
EUR/USD 1.07-1.10 (bearish)
YEN 123.01-125.63 (bearish)
Oil (WTI) 49.46-51.89 (bearish)

Nat Gas 2.65-2.94 (bearish)

Gold 1096-1144 (bearish)
Copper 2.45-2.56 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Chasing Horses - Volume CoDpng

CHART OF THE DAY: Scary Market Internal > Total US Equity Market Volume

Editor's Note: This is an excerpt and chart from today's Early Look. It was written by Hedgeye CEO Keith McCullough. Click here to learn more and subscribe. 


...All the while, the market internals have looked scarier at each of those 3 market peaks. Here’s how yesterday’s looked:


  1. PRICE – SPY (SP500) +0.08% yesterday vs. RUT (Russell 2000) -0.52% = bearish divergence
  2. VOLUME – Total US Equity Market Volume (see Chart of The Day) -21% and -24% vs. its 1-mth and 1-yr averages
  3. VOLATILITY – front-month VIX not being able to close below 12 for the 3rd time in the last 3 months

CHART OF THE DAY: Scary Market Internal > Total US Equity Market Volume  - Volume CoDpng


The Macro Show Replay | July 21, 2015



Client Talking Points


Unbelievably low volume at the all-time retest of the SPY highs yesterday (Total U.S. equity market volume -21% and -24% vs. the 1 month and 1 year averages, respectively) and unless it’s different this time, making sales with front month VIX < 12 continues to work. 


Down -0.5% vs. SPX +0.1% yesterday and we think a lot of this can be explained by the S&P 500 having a big net short position (-119,800 non-commercial CFTC contracts) vs. RUT having a relatively too bullish one at -7,533 contracts.


Everything commodity-deflation linked hammered; please stay clear of those “reflation” ideas – long our favorite equity market (Japan +6 days in a row, +3.3% month-over-month vs. Russia and Brazil -7.4% and -3.3% month-over-month, respectively).


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The General continues to make tough calls as they work to further streamline their manufacturing footprint as part of Project Century. Last week, announcing the closure of two plants, one in West Chicago, IL and the other in Joplin, MO, eliminating approximately 620 positions in the process. West Chicago produced cereal and dry dinner products for the U.S. Retail organization, while the Joplin facility was acquired as part of the Annie’s acquisition and produced snacks. Because of union negotiations management is expecting these actions to be fully executed by fiscal 2019. We view this as a big positive for the company as they go to a more nimble asset light model, which will save on capex and allow it to be allocated to higher growth product platforms.


According to Gaming, Lodging and Leisure Sector Head Todd Jordan, additional state gaming agencies have reported revenues for the month of June. The good news here is that Penn National Gaming remains on track to beat second quarter estimates this Tuesday July 23rd. In addition, PENN will be hosting an investor day on July 24th. We will be there and communicate any noteworthy color and developments. Bottom line? The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming.



After an awful retail sales print on Tuesday, the confluence of growth slowing data reared its ugly head Friday with a +0.1% year-over-year headline CPI print for June and a UofMich consumer sentiment reading that declined to 93.3 from 96.1 in May. Note that a +0.1% inflation rate is a heck of a long way from the Fed’s 2% target. These two prints were successful in taking the 10-Year Treasury yield down 10 basis points from Monday’s highs to finish the week at 2.35%. We remain one of the lonely bulls on Treasury bonds (bearish on yields) via TLT, EDV, VNQ.

Three for the Road


VIDEO: Being Long Gold is a Disaster https://app.hedgeye.com/insights/45308-mccullough-being-long-gold-is-a-disaster … via @hedgeye



hink of giving not as a duty but as a privilege.

John D. Rockefeller Jr.


A large fire consuming 3,500 acres broke out around I-15 in California on Friday, destroying 20 vehicles and 4 homes.

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