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The increased stock market volatility is overshadowing fundamentals in the Consumer Staples space.  Consistent with the Hedgeye Macro Team’s view of the overall market, style factors are currently playing a big role in performance and will likely be a factor as 3Q15 comes to a close.  According to the Hedgeye Macro Team, the style factors that should continue to get you paid into the quarter-end are:

  1. Low-Beta, Big Cap (Equities)
  2. Long Duration Government Bonds
  3. U.S. Stocks That Look Like Bonds


In the Consumer Staples space the proof is in the numbers. In the consumer staples sector large cap/low-beta names, for the most part, have been some of the best performing companies.  Consistent with this thesis on the LONG side we like GIS and LNCE.  Unfortunately, our WWAV long is painful, but the HAIN SHORT feels much better.  




In a flight to safety environment, Consumer Staples will likely continue outperforming.  Year-to-date, Consumer Staples has outperformed the S&P 500 by 260bps. Over the last five days, as you see below, the XLP has outperformed the entire market except for XLU.

WHAT’S IN STYLE? - CHART 3 replace


While on a relative performance the XLP is outperforming the stock market as whole, stocks still look expensive.  The XLP is currently trading at 11.38x EV / NTM EBITDA, well above its five year average of 9.77x.

WHAT’S IN STYLE? - CHART 4 replace


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



CHART OF THE DAY: Alpha Remains (For The Growth Slowing Bulls)

Editor's Note: The excerpt and chart below are from today's Early Look written by Hedgeye CEO Keith McCullough, Click here to subscribe and begin beating consensus.


CHART OF THE DAY: Alpha Remains (For The Growth Slowing Bulls) - z ben cod 09.23.15 chart


...Not loving the following US Equity Sector Styles has shown you the performance love in both Q3 and YTD:


  1. Energy Stocks (XLE) -20.7% YTD
  2. Basic Materials (XLB) -15.1% YTD
  3. Industrials (XLI) -11.0% YTD


I don’t hate, but I’d dislike being long the Financials (XLF) on “rates are going up” (XLF -8.5% vs. SP500 -5.6% YTD); whereas I still like (don’t love) our non-consensus 2015 long --> US #HousingAccelerating is +4.8% YTD (ITB) in real absolute performance terms.


Loving Growth?

“Every love story needs a catalyst of some sort.”

-Ian Somerhalder


I love growth. I do. I absolutely love it. I love it so much that my beautiful wife Laura and I have had 4 children and my firm and I have grown revenues +35% year-over-year to a new record here in the third quarter.


I loved our US #GrowthAccelerating call in 2013 too. So, please, tell your perma bull friends that I’m not a hater of growth. I’m a lover. I love a lot of things. A nice glass of wine. A cigar. Oh, and Damon’s flow! (Ian Somerhalder plays Damon in The Vampire Diaries)


But, as those of you who are bullish on baby making and/or revenue generation know, the manifestation of your love needs a catalyst. My love for the Long Bond as of late has a very simple one – Growth Slowing, Globally.

Loving Growth? - Slow growth snails cartoon 07.14.2015

**Join Keith LIVE on The Macro Show this morning at 9am ET. Click here for access.


Back to the Global Macro Grind


Since I’m gearing up to give you some more buy/cover signals (on red) in Real-Time Alerts today, I’m just trying to show you the love. I have it in me. Do you? What is the catalyst for you to start loving either Global or US growth this morning?


Loving the following Style Factors should continue to get you paid here into quarter-end:


  1. Low-Beta, Big Cap (Equities)
  2. Long Duration Government Bonds
  3. US Stocks That Look Like Bonds


Not loving the following US Equity Sector Styles has shown you the performance love in both Q3 and YTD:


  1. Energy Stocks (XLE) -20.7% YTD
  2. Basic Materials (XLB) -15.1% YTD
  3. Industrials (XLI) -11.0% YTD


I don’t hate, but I’d dislike being long the Financials (XLF) on “rates are going up” (XLF -8.5% vs. SP500 -5.6% YTD); whereas I still like (don’t love) our non-consensus 2015 long --> US #HousingAccelerating is +4.8% YTD (ITB) in real absolute performance terms.


Trust me, like my main man Lee Brice sings in “Hard To Love”, I get it. I’m a married man. I’m taken. Many on the Old Wall have no love for the transparent and accountable independent research platform we have built. How could they love their competition?


I’ve always told people who aspire to achieve all of the over-compensation benefits of this game that that’s not why they should play it. You should rise & grind to play this game every morning because you love it. That’s the catalyst. Not the money.


Today is central-planning-love day in Europe:


  1. ECB overlord Draghi testifies to European Parliament
  2. FX markets have been shorting Euros every day (since the Fed went dovish) into this event
  3. But will he deliver the love?


As of 5:50 am EST, the only comment I’ve seen from an ECB man (Nowotny) is that there’s “no real need to act in the short term.” Uh, oh. That’s not the love European Equity bulls were looking for! Stay tuned for super Mario. He’s up next.


In other Global Macro news this morning:


  1. China’s Manufacturing PMI (purchasing manager index) slowed in SEP to 47.0 from 47.5 in AUG
  2. Germany’s Manufacturing PMI slowed from 53.5 in AUG to 52.5 in SEP


Those are 2 of the top 4 countries in terms of Global GDP contribution (#1 is the USA, #3 is Japan) and, as you know, since both the USA and Japan have also slowed sequentially throughout the summer, the probability of their PMIs slowing in SEP is high too.


Yep. For growth bulls, it’s hard to love that statement. Especially if you’ve been telling clients that neither Global Growth Slowing nor #Deflation matter (and that you should be long the Industrials (XLI) and Financials (XLF), as a result). #Ouch


“So”, what, precisely, is the catalyst for the lovers of cyclical growth, when growth is clearly slowing?


  1. Is it central planning? (600 rate cuts globally didn’t cut it yet)
  2. Is it comping the slow-growth compares?
  3. Or is it sentiment being “too bearish” AFTER consensus had 2015 growth forecasts completely wrong?


Since the Fed, PBOC, and ECB are learning what the Japanese taught them (you can’t CTRL+Print growth) and Q3 US GDP slowing is still one of the biggest catalysts of the year, I guess sentiment is the only relevant catalyst to consider.


And, since I love no-conflict-of-interest-paper-trading in Real-Time Alerts, I’m looking forward to helping you risk manage that day-to-day chop. I absolutely love trying to handicap the immediate-term within the intermediate-term view. What’s not to love about that!


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


UST 10yr Yield 2.09-2.21% (bearish)

SPX 1 (bearish)
RUT 1131-1168 (bearish)
DAX 91 (bearish)

VIX 19.86-27.06 (bullish)
USD 94.59-96.71 (neutral)
EUR/USD 1.10-1.13 (neutral)
YEN 118.78-121.86 (bullish)
Oil (WTI) 43.93-48.61 (bearish)

Nat Gas 2.55-2.68 (bearish)

Gold 1117-1142 (bullish)
Copper 2.29-2.38 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Loving Growth? - z ben cod 09.23.15 chart

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.

The U.S. Isn’t "Decoupling"

Client Talking Points


We have no idea how anyone can trust their numbers, but even the ones they report are slowing – PMI 47.0 SEP vs. 47.3 AUG (lowest level since 2009). The Shanghai Composite remains in crash mode -2.2% overnight, -40% since APR.


It’s central-planning hope day for European Equities as ECB President Mario Draghi testifies to the overlords. The DAX is bouncing +1.2%, but that’s after a nasty crash day yesterday (inclusive of the bounce, DAX -22% since April) and SEP PMI slows (again) to 52.5 from 53.5.


Don’t forget that begging for Draghi to devalue is deflationary (Down Euro --> Up Dollar --> Down Commodities and related sectors). Energy (XLE) is down -20.7% year-to-date and Basic Materials (XLB) is down -15.1% year-to-date – easy calls to have stayed with. We reiterate the SELL call on Industrial demand & pricing (XLI -11% year-to-date).


**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

McDonald’s remains one of our Restaurant teams Best Ideas on the LONG side.  We continue to believe that 3Q15 will be the inflection point for the company’s turnaround and that we are going to be looking at a much different company 1-3 years from now.


Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.


Penn National Gaming continues to be our favorite Regional Gaming stock.


Regional numbers for August have come in soft, but we predicted the August weakness. September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels. 


Slower (and Lower) For Longer remains our non-consensus call. It's nice to see that the Fed is finally starting to see what the #GrowthSlowing late-cycle data does.

  1. GROWTH: is #LateCycle and will be slower (again) in Q3 than it was in Q2
  2. INFLATION: misreported, yes – in the area code of the Fed’s 2% “target”, no

Our estimate for Y/Y% GDP for Q3 is a range of 0.1% to 1.5%. Even the Q/Q SAAR # that consensus hangs on will be comping against a 3.7% Q/Q SAAR GDP print (second revision). Good luck positioning for a rate hike. Prepare for the fade…. AGAIN.

Three for the Road


VIDEO (1min) Should You Stay Away From U.S. Equities? $SPY https://app.hedgeye.com/insights/46472-should-you-stay-away-from-u-s-equities



Learn to smile at every situation. See it as an opportunity to prove your strength and ability.

Joe Brown


According to a new study by researchers at Yale, Americans send 5 pounds of garbage per person per day to landfills.

The Macro Show Replay | September 23, 2015


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