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Coincidences & Curiosities

“Is it just an accident, or is some deeper pattern at work?”

-Gary Klein


Both the aforementioned quote and title of this morning’s Early Look come from Chapter 4 of a fantastic #behavioral book I’ve been citing titled Seeing What Others Don’tThe Remarkable Ways We Gain Insights.


I don’t mind repeating myself when it comes to great books and great processes. In fact, that’s the most important point about having a repeatable #process - Rinse & Repeat. The 3 core factors in our macro model remain: history, math, and behavioral psych.


With that perspective, if we are humble enough to accept that we really don’t know what we don’t know about Global Macro and all of its developing patterns, coincidences and curiosities will reveal that correlations often perpetuate causality. Soros called that reflexivity.


Coincidences & Curiosities - z 55


Back to the Global Macro Grind


“Coincidences are chance occurrences that should be ignored except that every so often they provide us with an early warning about a new pattern… they should be listened to, rather than ridiculed, because they just might be onto something.” (Seeing What Others Don’t, pg 45)


Now, instead of “they”, substitute Mr. Macro Market’s signals and now we’re talking the same language. The only way to save and/or make real money in this profession is to understand new patterns before consensus does. We call those Phase Transitions.


In macro, many times a “new” pattern is simply a cyclical regurgitation of an old one. In order to respect the “deeper patterns at work”, we simply need to know the #history of it all. While patterns are rarely identical, their #behavioral aspects often rhyme.


On that long-term pattern score, let’s consider the multi-duration #history message of the US Dollar:


  1. TAIL (long-term): after being devalued to a 40yr low in 2011, the US Dollar put in a long-term bottom and has started to recover
  2. TREND (intermediate-term): after one of its biggest 6-month ramps (ever) starting in Q3 of 2014, it’s up another +5.5% YTD
  3. TRADE (immediate-term): down -1.1% last week and -2.2% in the last month, is now hostage to Dovish Fed expectations


Longer-term I think the Dollar is recognizing the pattern of devaluation that European and Chinese planners think they’ll need to engage in as their respective secular (demographic) headwinds become as relevant as Japan’s have been (see Macro Themes deck for details).


From an intermediate-term TREND perspective, the US Dollar has been wrestling with not only the aforementioned competitive Currency War devaluations but the weekly back and forth amongst US economic policy navel gazers on a “rate hike.”


And while the “dots” on a rate hike continue to be pushed out (anyone remember they were “supposed to hike” in June?), Mr. Macro Market’s most immediate-term message to the Federal Reserve (Fed Fund Futures < 30% probability of a SEP hike) is don’t do it (again).


What if they do? You know, “just to get off of zero because it’s time”, or something like that...


Well, I say we go backwards and look at TRADE and TREND duration risk for clues on what markets could reverse:


  1. EUR/USD is +2.7% in the last month – #FedHike would = Dollar Up, Euro Down
  2. Japanese Yen is +3.8% m/m and Up Yen drove the Nikkei -1.6% overnight - #FedHike = Up Nikkei
  3. Oil (WTIC) is +1.7% in the last month (crushing stocks); Up Dollar = Down Oil #Deflation Risk ON
  4. Copper is +4.9% in the last month (big Dovish Beta); Up Dollar = Copper Crash still ON
  5. Emerging Market Stocks (MSCI) +1.8% last week and would likely resume their crash on #FedHike
  6. Chinese Stocks (Shanghai Comp) +1.3% last week would probably keep crashing no matter what!


Then there’s the expectations impact of the almighty FED DOVISH headline on US stocks (“they’re gonna rip, bro!”). And that’s where things are starting to look not only curious, but coincident. Check out the following 1-month correlations:


  1. US Dollar Index DOWN -2.2% month-over-month
  2. SP500 DOWN -5.9% month-over-month
  3. USD vs. SPX 30-day correlation POSITIVE +0.80


Yep. Maybe Ed has had this right all along. Maybe it’s RISING gas prices on Down Dollar, that is the new pattern of bearish US GDP growth!


If you’ve studied post WWII economic #history, you’ll recall that a #StrongDollar is the only long-term pattern of purchasing power strength that Americans have enjoyed. In fact, a #StrongDollar was coincident with two of the most popular Presidents in US history:


  1. 1 (Reagan) had the strongest of #StrongDollars (see Chart of The Day), sub $20/oil and ~4% real GDP
  2. 1 (Clinton) had the 2nd strongest USD period and average < $20 Oil with ~4% GDP too


So, maybe… just maybe – everyone is staring at the tree ahead of this week’s Federal Reserve decision (Thursday) instead of the forest.


Maybe consensus on BOTH bearish US Equities (-205,684 net SHORT position in SPX Index + Emini non-commercial CFTC contracts = fresh YTD high), and Fed Fund Futures (implying no hike) have it right…


After all, it would be no coincidence if a slowing US economy was the signal amidst the noise. When the economy is slowing, the Fed gets dovish and the Dollar falls. And yes, from a TREND perspective, stocks probably will too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.12-2.24%

Nikkei 178
VIX 21.71-31.19
USD 94.51-96.13
Oil (WTI) 43.03-48.01


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Coincidences & Curiosities - z Chart of the Day

Monday Mashup

Monday Mashup - CHART 1 new new


We are removing KKD from the LONG bench.  The company reported a very challenging quarter last week and provided little guidance that suggests that the issues they face are one time in nature.




8/28/15 ZOES | Entering the Big Leagues




Friday, September 11

KKD | Announced it has signed a development agreement with Fraliment S.R.L to open 12 Krispy Kreme shops in Bolivia over the next five years (click here for article)

CMG | Linked to salmonella outbreak in Minnesota (click here for article)

LOCO | Continued south Texas expansion with new location in New Pharr (click here for article)

SBUX | Mobile order and pay to be rolled out nationally to all locations by the end of September (click here for article)


Wednesday, September 9

KKD | Reported 2Q16 results, earnings per share ex-items was $0.15 versus FactSet estimates of $0.18. Revenue came up short of estimates as well, reporting $127.3mm versus consensus of $131.2mm. Same-store sales were +2.3% versus consensus of +2.6%, due to this poor performance management lowered full year EPS guidance down to $0.76 - $0.80 versus previous guidance of $0.80 - $0.85 (click here for press release)

MCD | Announced it will fully transition to cage-free eggs in the U.S. and Canada over the next 10 years (click here for article)

JMBA | Increases share repurchase program to $45mm (click here for article)


Tuesday, September 8

PLAY | Dave and Buster’s reported a great 2Q15, led by an 11.0% same-store sales built up by 12.1% increase in walk-in sales and a 2.2% increase in special events sales. Due to the strong numbers management is raising guidance, total revenues are now expected to be $844mm to $853mm versus previous range of $822mm to $831mm (click here for article)

PBPB | Announced a $35mm share repurchase program (click here for article)

DNKN | Named Michael Shutley Vice President, Federal & State Government affairs (click here for article)



Casual Dining and Quick Service stocks that we follow widely outperformed the XLY last week. The XLY was up +1.2%, top performers on a relative basis from casual dining were BOBE and TXRH posting an increase of +4.2% and +2.6%, respectively, while SHAK and PBPB led the quick service group this week up +13.4% and +7.8%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3



From a quantitative perspective, the XLY looks bearish from a TRADE and TREND perspective, TRADE support is 73.19.

Monday Mashup - CHART 4



Monday Mashup - CHART 5

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Monday Mashup - CHART 7



Monday Mashup - CHART 8

Monday Mashup - CHART 9

Monday Mashup - CHART 10


Keith’s Three Morning Bullets

Bets continue to mount on a Dovish Fed meeting…


  1. USD – US Dollar Index closed on its low for the wk (-1.1% on the wk) and is seeing follow through selling this morning vs. both Euros and Yens – what’s most interesting about this to me is that on 30-day correlation, SPX has a POSITIVE correlation to USD of +0.8 (meaning a Dovish Fed could be bad for stocks)
  2. JAPAN – Down Dollar is definitely bad for Japanese Stocks – that INVERSE correlation has not changed; Yen +0.3% took another -1.6% out of the Nikkei overnight – it’s -12.5% in the last month with the US Dollar -2.7% (and Yen +3.8%)
  3. UST 2yr – yield tested a “breakout” above 0.75% for the 6th time in 6 months last wk… and failed; back down to 0.71% on Dovish Fed spec this morning and, with Fed Fund Futures this low, I still think the Fed could train wreck macro markets if they tighten


SPX immediate-term risk range = 1; UST 10yr Yield 2.13-2.24%


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



Dovish Fed Meeting?

Client Talking Points


The U.S. Dollar Index closed on its low for the week (-1.1% on the week) and is seeing follow through selling this morning vs. both Euros and Yens. What’s most interesting about this to us is that on 30-day correlation, SPX has a POSITIVE correlation to USD of +0.8 (meaning a Dovish Fed could be bad for stocks).


Down Dollar is definitely bad for Japanese Stocks – that INVERSE correlation has not changed; Yen +0.3% took another -1.6% out of the Nikkei overnight – it’s -12.5% in the last month with the U.S. Dollar -2.7% (and Yen +3.8%).


Yield tested a “breakout” above 0.75% for the 6th time in 6 months last week… and failed; back down to 0.71% on Dovish Fed spec this morning and, with Fed Fund Futures this low, we still think the Fed could train wreck macro markets if they tighten.



**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

MCD is one of Sector Head Howard Penney's favorite names. He thinks McDonald's is finally emerging from the doldrums and is doing everything they need to do to fix the company domestically.


Penney believes there is not only a huge inflection point coming for the profitability of the company, but also for their sales. He thinks this means Wendy’s, Jack In the Box, Sonic will suffer a bit as MCD begins to take its market share back.


Bottom Line here? September regional gaming revenue growth should accelerate meaningfully from August and provide a catalyst for the stock. Our bull thesis on PENN appears very much intact.


In a higher volatility, growth-slowing environment, you want low-beta exposure (stocks that move less than the market) and a larger allocation to long-term Treasuries.


In the recent Macro Overlay video series exclusively for Investing Ideas subscribers, Keith rank-orders our top investing ideas positions from a fundamental macro and style factor perspective (low-beta, big cap liquidity, slower growth):

  1. Treasuries (TLT)
  2. “Something that looks like Treasuries” (EDV)
  3. Gold (GLD)
  4. Low-Beta, Big-Cap liquidity: McDonalds
  5. Low-Beta, Big Cap Liquidity: General Mills

Three for the Road


McGough: Why Restoration Hardware Shares Are Headed Even Higher | $RH https://app.hedgeye.com/insights/46315-mcgough-why-restoration-hardware-shares-are-headed-even-higher-rh… via @HedgeyeRetail cc @KeithMcCullough



Creativity is thinking up new things. Innovation is doing new things.

Theodore Levitt


According to the American Pet Products Association Americans spent $58.04 billion on their pets last year.

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The Macro Show Replay | September 14, 2015


September 14, 2015

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McGough: Why Restoration Hardware Shares Are Headed Even Higher | $RH

In a special guest appearance on The Macro Show on Friday, Hedgeye’s Retail Sector Head Brian McGough discusses why Restoration Hardware’s stock has worked (and why this is just the beginning of the RH growth story).

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.