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EARLY LOOK FLASHBACK: 'Do The Macro Before The Macro Does You'

Editor's Note: What follows below is an abridged excerpt from Hedgeye's Early Look written by CEO Keith McCullough on 8/20/15. We've said it before (and we'll say it again), if you're tired of recycled, second-rate, consensus research...there's a bona fide solution. Click here to learn more and subscribe.

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EARLY LOOK FLASHBACK: 'Do The Macro Before The Macro Does You' - z vv

The Big Picture

Since we started Hedgeye in 2008 with a macro view that the Fed couldn’t devalue their way out of a cyclical slowdown, I can’t tell you how many times I’ve been asked how I think this all ends.

 

“This” being the grand central-planning experiment of our time.

 

You know, the one that’s based on the linear-economist premise that “shock and awe” rate cuts, bazookas, and currency devaluations can not only smooth economic cycles, but raise the heavens and part the seas…

 

But what happens then the US economic cycle slows into a stiffening demographic (secular) headwind? What happens when all of the world’s growth and inflation expectations start to slow, at the same time?

 

If you didn’t know the answers to these questions, now you’re starting to know. It ends how it all started. It ends in the capitulation of the Currency War. This is it. This is the war that nobody, other than we Wall Street types, will come to fight for.

 

EARLY LOOK FLASHBACK: 'Do The Macro Before The Macro Does You' - currency wars

Macro Grind

Got capitulation via devaluation? After Vietnam devalued the ding Dong (their currency) yesterday, Kazakhstan opted for the -23% daily-devaluation overnight. If you don’t follow Global FX, you do now.

 

“But I’m an equity guy.” Yep. Totally get it. I used to be too. Then I got crushed by the macro and decided I better do some macro before the macro did me. Interconnected risks between policy moves, currency crashes, and equities matter, big time.

 

In the last year alone, “Emerging Market” Equity outflows have almost doubled the outflows they saw during the 2008 crash. Why the 2-bagger? Because when my boy Bernanke devalued the US Dollar to its post Nixon low (2011) chart chasers rammed their asset allocation pie charts into countries that “emerged” with strong currencies on the other side.

 

In other words, the outflow is a function of the prior inflow. Chase high; puke low.

 

Now a US Equity only guy/gal should be quick to say something like “but the market is only -3% off its all-time high.” And last I checked, that was true in NOV of 2007 and MAY of 2000  too. This is what happens at cycle tops – trailing returns look awesome.

 

But then you start to see the internals (and externals) break-down, crash, and challenge all of that awesomeness. And that is precisely what you are seeing right now. From a Global Equities perspective, in the last month alone, here are some draw-downs:

 

  1. Greece -18%
  2. Russia -13%
  3. Singapore -11%
  4. Hong Kong -10%
  5. Germany -10%
  6. Turkey -9%
  7. South Korea -8%
  8. Australia -7%
  9. United Kingdom -6%

    10. USA (Russell 2000) -5%

 

And voila. There it is, the Russell (2000 stocks) is “outperforming” the rest of the global growth and inflation slowing gong show. And the SP500 is outperforming that better yet. “So” everything must be fine. Global reflation and growth must be fixin’ to rip!

 

Let’s get serious here and not make the mistakes many equity only investors did in 2000 and 2007. Let’s not ignore the growth and inflation slowing data. Let’s not close our eyes when we look at the bond market either.

 

What say you Mr. USA Bond Market?

 

  1. TREASURIES (10yr) = 2.11% this morning after dovish Fed Minutes (that reflect dovish data)
  2. JUNK = making lower-lows (4yr lows), daily, as spread risk widens (as it always does when growth slows)

 

There’s that darn combo Hedgeye keeps using, #GrowthSlowing.

 

But what does it mean when the entire edifice of central-planning and those that market asset management at its alter are promising 2x the baseline growth (GDP) that is actually occurring? *reminder, Hedgeye is at 1.4% q/q SAAR and 1.6% y/y

 

Every single perma-bull economist/strategist in the US has not only a “3-4% US GDP” forecast in the 2H of 2015, but has it mapped in excel as far as the linear-seeing-eye can fathom, into 2016 and beyond.

 

That, to put its duration in historical context, implies the greatest economic expansion since WWII. And I’m thinking less American realists sign up to come fight for an un-elected central planning war today than they did for The People back then.

 

EARLY LOOK FLASHBACK: 'Do The Macro Before The Macro Does You' - z xb

Our levels

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.07-2.18%

SPX 2061-2090
RUT 1190-1213 
VIX 13.49-15.83 
USD 95.62-98.19 
Oil (WTI) 40.07-42.65

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

EARLY LOOK FLASHBACK: 'Do The Macro Before The Macro Does You' - z 89

 

 


RTA Live: September 8, 2015

 


Do You Airbnb? A Record 17,000,000 Travelers This Summer (And Growing)

Do you Airbnb? 

 

A record 17 million travelers around the world stayed with Airbnb hosts in 150 countries this summer from May to the end of August, according to a summer metrics report recently released by Airbnb.

 

Do You Airbnb? A Record 17,000,000 Travelers This Summer (And Growing) - z a 55

 

And that number hasn’t topped-off.

 

According to the company, another 1 million travelers booked Airbnb stays this past Labor Day weekend in the U.S. The number of summer guests swelled from 7.4 million last summer to more than twice that amount this summer.

 

Some additional interesting color:

  • Airbnb guests from Paris, New York City and Seoul were this summer’s largest source markets and they made the most bookings for Lisbon, Upstate New York, and Osaka, Japan, respectively.
  • South Korea, along with Japan and Singapore, are the company’s fastest growing markets overall. China is one of the fastest-growing markets in terms of country of origin for travelers booking stays outside their country.
  • The report reveals the average age of this summer’s Airbnb guests was 35 years old, which is considered the oldest age for millennials. Female guests slightly outnumbered male guests – the split was 54% to 46% globally.

Do You Airbnb? A Record 17,000,000 Travelers This Summer (And Growing) - z todd


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.

Post Labor Day Mashup

Post Labor Day Mashup - CHART 1

 

RECENT NOTES

9/04/15 GIS | Sends the Jolly Green Giant Packing

9/02/15 HSY | THE CURRENT SET UP IS LEANING LONG

8/31/15 HAIN | LOW QUALITY & INCREASED BUSINESS RISK

8/28/15 GIS | Time to Close this Deal

8/21/15 WWAV | DON’T PANIC, BUY MORE…HAIN | PANIC, SHORT MORE

 

RECENT NEWS FLOW

Thursday, September 3

GIS / BGS | B&G Foods agrees to acquire Green Giant from General Mills for $765mm (click here for Hedgeye note)

 

Wednesday, September 2

MDLZ | Opened a new $30mm manufacturing line in Poland, in an effort to take advantage of the growth opportunity in European snacking (click here for article)

GIS | Upgraded to equal-weight from underweight at Morgan Stanley, the firm sees improved visibility from the company’s increased efforts to manage costs

 

Monday, August 31

BETR | Initiated neutral at Goldman Sachs, price target is $18, current price is $12.27, GS ran the IPO for BETR

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was down -2.4% last week, the top performer on a relative basis from our list was B&G Foods (BGS) posting an increase of +20.9%, after their acquisition of the Green Giant assets from General Mills. Worst performing company on a relative basis on our list was Hain Celestial (HAIN), which was down -4.0%.

Post Labor Day Mashup - CHART 2

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is bearish on a TRADE and TREND duration.

Post Labor Day Mashup - CHART 3

 

Food and Organic Companies

Post Labor Day Mashup - CHART 4

Post Labor Day Mashup - CHART 5

Post Labor Day Mashup - CHART 6

 

Keith’s Three Morning Bullets

Dovish Fed article out of @WSJ as another wanna be hawk (Williams) fades alongside stocks:

 

  1. VIX – does an explicitly more dovish Fed tone down short-term volatility here? My risk range model actually implies it could as the top-end of my range on front-month VIX no longer has a 4-handle in front of it (range still elevated, but 22-36)
  2. FX – Down Dollar = Up Yen = Nikkei Down (another -2.4% overnight), so not everyone is a winner; risk ranges are narrowing though as volatility across asset classes does this am (risk range for EUR/USD narrows to $1.10-1.14)
  3. RATES – UST 10yr dropped to 2.11% on the slowest rate of change in Non-Farm Payrolls since the Labor Cycle gains peaked in FEB, then back up this morning to 2.15% with Spanish 10yr +7bps approaching parity w/ UST at 2.14%

 

SPX immediate-term risk range = 1; UST 10yr 2.07-2.19%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


REPLAY | MACAU CONFERENCE AT 11:00AM ET

Watch a replay of this presentation below.

 

We will host a Macau conference call Today, September 8th at 11am ET to present more analysis on the August numbers, our projections and outlook, and where the Chinese may or may not be gambling. As always, we will entertain questions at the end of the presentation.

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

DISCUSSION POINTS

  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • The promotional environment
  • "True" Mass trends
  • Research Topic: Where has the lost Macau business gone? 

CALL DETAILS

Attendance on this call is limited. Ping  for more information


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO

Takeaway: Short-term bounces notwithstanding, China's slowing growth continues to weigh on the global outlook.

Key Takeaway:

The roller coaster ride continues with high yield (-22 bps) and commodities (+6.2%) looking better on the week, while China, the TED Spread and EM sovereign swaps looked worse. 

 

China, of course, remains a front burner focus, but the TED Spread has been quietly creeping higher over the past month and is now +6 bps M/M to 31 bps as well.

 

Concerns over the global fallout  from a slowing China continue to reverberate. CDS for Chinese financial institutions widened between +16 and +21 bps last week, and the Chinese interbank rate widened by +26 bps to 2.03%. 

 

Reflecting the market's growing worries about China, our heatmap below is dominated by red on both the short and intermediate term.

Current Ideas:


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM19 CURRENT IDEAS 2

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 1 of 12 improved / 5 out of 12 worsened / 6 of 12 unchanged
• Intermediate-term(WoW): Negative / 0 of 12 improved / 7 out of 12 worsened / 5 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM15

 

1. U.S. Financial CDS – Swaps tightened for 12 out of 27 domestic financial institutions while unchanged at the median. Even with stocks losing value last week, overall perceived risk of default in the U.S. was little changed.

Tightened the most WoW: MBI, AGO, ACE
Widened the most WoW: LNC, PRU, MET
Tightened the most WoW: ACE, ALL, CB
Widened the most MoM: MET, MMC, RDN

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM1

 

2. European Financial CDS – Swaps mostly widened in Europe last week, strongly affected by weak Chinese manufacturing data, even after ECB President Mario Draghi said he could provide further stimulus to the Eurozone given his projections for slower than expected growth and low inflation.

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM2

 

3. Asian Financial CDS – Chinese financial CDS widened notably last week, between +15 and +21 bps, as the country was hit with weak manufacturing data early in the week. Meanwhile, Japanese and Indian financial CDS were little changed.

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM17

 

4. Sovereign CDS – Sovereign Swaps were little changed last week. French sovereign swaps tightened by -1 bps to 33 bps while Italian sovereign swaps widened by +1 bps to 116.

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM18

 

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM3

 

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps widened last week on concerns that their export-based economies would be hurt by slowing Chinese growth. Brazilian sovereign swaps widened the most, by +48 bps to 379, followed by Turkish swaps, which widened by +17 bps to 280.

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM16

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 22 bps last week, ending the week at 7.15% versus 7.37% the prior week.

TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM5

7. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.0 points last week, ending at 1865.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM6


8. TED Spread Monitor – The TED spread rose 3 basis points last week, ending the week at 31 bps this week versus last week’s print of 27 bps.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM7


9. CRB Commodity Price Index – The CRB index rose 6.2%, ending the week at 197 versus 185 the prior week. As compared with the prior month, commodity prices have decreased -0.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - 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 was unchanged at 10 bps.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM9


11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 26 basis points last week, ending the week at 2.03% versus last week’s print of 1.77%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM10


12. Chinese Steel – Steel prices in China fell 0.6% last week, or 13 yuan/ton, to 2260 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM12


13. 2-10 Spread – Last week the 2-10 spread tightened to 142 bps, -5 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 5.9% upside to TRADE resistance and 2.5% downside to TRADE support.


TUESDAY MORNING RISK MONITOR | CHINA REMAINS RISK NUMERO UNO - RM14


Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT

 

 


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