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And The Bounce…

Client Talking Points


A massive move in cross-asset class volatility (one of the biggest in macro history) now has the USD in the position of bearish TRADE, bullish TREND – with EUR/USD risk range now = $1.12-1.16, will ECB President Mario Draghi be the news @JacksonHole and devalue again? BOJ guys don’t have it in their central planning playbook to let Yen run away from them from here either.


Gold is correcting this morning (alongside Treasuries) on the Global Equity bounce and maybe that’s sniffing out a Draghi move too – we’ll see, but we’re in wait and watch mode here on buying Gold as we would rather buy it at the low-end of my 1,131-1,168 range on a European or Japanese FX War move.


One of the most epic moves in U.S. Equity volatility, ever – and ever, given the 2008 and 2011 moves we risk managed through, is a long time - this is an absolute Phase Transition that will ultimately have to answer to growth expectations – risk range on VIX is now 29.03-47.13!

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One of the ways that McDonald's is going to take market share back is through one of the most popular items on its menu—the Egg McMuffin. "I honestly believe that if there is a silver bullet, it’s all day breakfast for McDonald’s," says Restaurants Sector Head Howard Penney. "And I do believe they’re going down that road and they will do it."


Penney adds that we’ll probably know more about that at the November analyst meeting and what the breakfast potential will be. There’s obviously a lot of things that go around MCD doing breakfast (e.g. shrinking other parts of the menu, etc).


"We continue to like Penn National Gaming here due to stable regional gaming trends, better than expected quarterly and annual earnings, and the Plainridge and Jamul contribution to PENN’s two-year growth story," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan. 


It was a very good week for those sitting behind the long-bond coming out of the FOMC minutes release on Wednesday. During a tumultuous 5-day stretch in which the S&P 500 fell over -5%, subscribers who followed our recommendation on TLT were sheltered from the market storm and gained almost +2%. Moreover, during the past month, TLT has gained +5.7% versus a -6.8% loss for the S&P 500 (a 1,200 basis point difference). In other words, it has paid handsomely to buck the consensus tide.

Three for the Road


FLASHBACK: 2.75% or 1.75%?  https://app.hedgeye.com/insights/45978-flashback-2-75-or-1-75 … via @hedgeye



Keep your eyes on the stars and your feet on the ground.

Franklin D. Roosevelt


The average age of German citizens is 46, the average age is second only to Japan’s. One in 20 Germans is over 80 and by 2050 it will be one in six, according to UN data.

TWTR: The Crossroads (User Survey: n=7,500)

Takeaway: TWTR is risking long-term damage to its business model by trying to appease the street. Mgmt needs to shift gears before it’s too late.


  1. THE PROBLEM: Monetization is coming at the expense of user growth and retention.  TWTR runs a CPC ad model, meaning the user must engage with TWTR’s ads in order to generate revenue.  In order for TWTR to drive the level of revenue growth the street is expecting, it must continually introduce more and more ad load, which has historically pushed its more casual users away.  In short, TWTR has been chasing good prints at the cost of potential life-time users.  Longer-term, TWTR’s business model will be hampered by its cumulative churn, leading to a smaller user base to distribute ad load on to, hence lower potential revenues down the road.
  2. THE DATA: We have seen this dynamic playing out throughout TWTR’s reported history, with US MAUs and Ad Engagements (proxy for ad load) moving in opposite directions (see note below).  We also ran a survey attempting to segment TWTR’s users by engagement levels (n=7,500).  What we’ve found is almost 40% of respondents with a twitter account are no longer using the platform.  Of those that do remain, roughly half do not use the platform daily, suggesting they are more casual users, hence more likely to churn off.  The good news is that there is still room for user growth (estimated 38% US penetration), but not enough to support a model with elevated churn.
  3. THE CROSSROADS: TWTR needs to decide what matters more: appeasing near-term street expectations, or building a sustainable business model.  The latter means that TWTR needs to prioritize the user; both attracting new users and reclaiming the ones that it has lost.  We’re not sure exactly the best way go about doing that, but what we can say is TWTR can’t win the user while simultaneously chasing lofty consensus revenue expectations with rampant increases in ad load.  Mgmt's approach to 2016 guidance will essentially tell us where its priorities lie; i.e. whether TWTR is a secular short or something we can potentially get behind.  For now, we remain short.  


TWTR: Are Acquisitions Enough?
03/17/15 08:50 AM EDT
[click here]


TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   Ad eng vs. MAU 2Q15

TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   User Survey Churn 3Q15



Let us know If you have any questions or would like to discuss in more detail.


Hesham Shaaban, CFA



August 25, 2015

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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

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. 


Subscribe to Hedgeye on YouTube for all of our free video content.


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

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.