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August 25, 2015

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Cartoon of the Day: One Banged Up Bull...

Cartoon of the Day: One Banged Up Bull... - global growth.sick bull cartoon 08.24.2015


Baseball Hall of Famer Dizzy Dean famously said, "It ain't braggin' if you done it." It's in this spirit which we showcase the fact that Hedgeye's macro team led by CEO Keith McCullough has been proactively heralding the huge risk and related market implications of growth slowing around the globe. It was this reality which has played the lead role in the recent market carnage.


It has been a contrarian call all along. Our team of analysts made it.


Volatility Asymmetry (We’re In Uncharted Territory for Most Risk Managers)


Hedgeye CEO Keith McCullough answers a subscriber’s question on market volatility in this brief excerpt from The Macro Show earlier this morning.


Subscribe to The Macro Show today for access to this and all other episodes. 


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FLASHBACK: 2.75% or 1.75%?

This (rather prescient and contrarian) Early Look was written on June 26, 2015 by Hedgeye Risk-Manager-In-Chief and CEO Keith McCullough. If you would like to leave consensus groupthink behind and begin your subscription click here.

“Take your pick as to when the story begins.”

-Moises Naim


Was it when Chinese growth really started slowing? Was it when #LateCycle sectors of the US stock market (Industrials and Transports) started to break down? Or was it when secular European #deflation started to “reflate”?


Was it a “technical” breakout in bond yields from levels very few fund managers thought we’d ever see (don’t forget that all-time lows in Global Yields were in Q1 of 2015)? Was it a “liquidity” move? Or was it both?


How about the latest no-volume-ramp in both US and European stocks? Was it the more dovish Fed (which Bond Bears had dead wrong)? Was it “Greece”? Was it both? Or neither? Take your pick.


FLASHBACK: 2.75% or 1.75%?  - TsipuMerk


Back to the Global Macro Grind…


As my French Canadian hockey roommate in college used to say, “the thing of it is, Mucker…” that whoever the establishment was and/or is supposed to be on Global Macro matters, they just don’t seem to matter much anymore.


The fact of the matter is that after all the storytelling, 6 months into 2015 the Dow/SP500 are +1-2%; Oil = range-bound; bond yields have ramped from 3yr lows (in January) to +23 basis points (10yr) YTD, and US earnings have slowed, big time.


Sure, you can tell me a story about “liquidity and technicals” … and until something drops like Chinese stocks just did (-7.4% overnight, -14.8% month-over-month), I’ll entertain it – because the “charts look good” and I’m just a really nice guy.


But, to be clear, chasing the momentum associated with what already happened (charts), isn’t a research #process. On that front, the biggest top-down factor to solve for is real (inflation adjusted) growth. So what’s your pick?

  1. US and Global Growth are going to accelerate from here through 2016 and beyond
  2. US growth accelerates sequentially in Q2, then slows (again) in Q3 and beyond
  3. European growth slows sequentially in Q2/Q3; Japanese growth accelerates Q2/Q3

I’ll pick 2 and 3 (because that’s what our GIP Models are signaling as the highest probability). For those of you who are new to considering our research and risk management process, GIP model stands for:

  1. Growth
  2. Inflation
  3. Policy

In meetings with Institutional Investors, I affectionately call this our government PIG model (GIP in reverse) because, essentially A) that’s what big central-planners are and B) they believe the P (policy) solves for the G (growth).


In reality, what we have learned in the last 5-10 years (after almost 600 “rate cuts” globally) is that:


A)     When real-growth misses the perpetually optimistic government “forecast”,

B)      Central planners ease (cut rates) and devalue their currencies… then that “policy action”

C)      Reflates asset prices (cost of living in local currency terms) and slows real-purchasing power (spending)


If you want to retire from 2/20 and become a famous academic, spend the rest of your life telling the world a story that’s based on that (I’m too busy reading to write a book).


My name is Keith McCullough, and I write daily-non-fiction macro from a house on the lake in Northern Ontario (Canada).


Other than reading my rant right now, what do you do? Do you write? Or do you read what other people write? Can you, transparently and accountably explain, daily, what it is that you think is going to happen next and why?


I know. It’s hard. But so is life.


It’s even harder to spend your Global Macro life chasing consensus and big round “targets” like 3% GDP, Dow 20,000, and “the 10yr is definitely going to 2.75%, bro.”


Btw, that last one isn’t a joke. It must be making the rounds on the buy-side these days because I have heard 2.75% about two dozen times in the last 3 weeks from very sharp accounts (more when last price was at 2.54%, eh).


No, God doesn’t call with a level. And no, I don’t purport to know anything about nothing either.


All I know is that our Bayesian-inference research #process got us as bullish on real US growth (bearish on long-term Treasury Bonds) in 2013 as it’s getting me bearish on this #LateCycle (74 months in) expansion slowing into 2016.


Our predictive-tracking algorithm is implying a sequential acceleration in real GDP in Q2, then another big deceleration in Q3. Does that get the Bond Bears 2.75%? Maybe. But maybe not. And, more importantly, if it does, maybe it’s 1.75% after that.


Q2 ends in 5 days. And Mr. Macro Market will decide when the discounting of real GDP slowing in Q3/Q4 matters - not a research note that cherry picks the timing of what already happened.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.19-2.44%

SPX 2083-2130
Nikkei 20404-21015
USD 93.91-95.99
YEN 122.69-124.36
Oil (WTI) 59.06-61.14

Gold 1164-1194


Best of luck out there today (and enjoy your weekend),



Keith R. McCullough
Chief Executive Officer


FLASHBACK: 2.75% or 1.75%?  - 06.26.15 chart2


 “Starbucks’ new ‘tapas’ menu is totally disgusting” -NY POST August 20, 2015


While this headline might be a bit of sensationalism, the point is not lost on me.  Starbucks’ food initiative is not a driver of incremental traffic and makes operations more complex while having negative implication for the brand.


We wrote a Hedgeye SHORT SBUX Black Book in January of 2015, and the centerpiece of the short thesis was focused on the food not driving incremental traffic into the stores.  Needless to say the timing was off, but the thesis is still in play with timing being the remaining issue.    


In its quest for growth in its U.S. store base, Starbucks is trying to be all things to all people.  In the end this could be a bad decision for the company.  Starbucks’ aggressive move into serving more food at every day-part will ultimately be disruptive to the operations and the poor quality food will also impact the consumer perception of the brand.


Just like nobody went to McDonald’s for espresso based drinks, nobody is going to Starbucks to eat food wrapped in plastic and heated in a Microwave.  Starbucks’ new food it is serving goes completely against the secular trend consumers are looking for; customizable, all-natural, non-GMO and organic alternatives.  The quality of the Starbucks brands is associated with its hand crafted beverages and that does not automatically extend to the current food offerings. 


In our SBUX Black Book we ran a survey that asked consumers if they like the La Boulange food at Starbucks.  It was clear that consumers did not like the new food. 




We recently ran a new survey that asked. Do you go to Starbucks more often because of the increased food offerings? 




Time will tell where Starbucks’ new food efforts are headed, but we suspect it will not end well.





Hedgeye CEO Keith McCullough hosted RTA Live this morning at Hedgeye TV studios. Catch the replay below: 




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