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How Much Lower Can Stocks Go?

Client Talking Points

VIX

Great contrarian indicator with the Financial Times running a “risk on” story because the VIX is “below 20.” That, of course, means nothing to us as the risk range for the VIX is 18.55-29.47 coming off the all-time low in cross-asset class volatility last year; big asymmetry to the upside.

DOW

Signaled immediate-term TRADE overbought in Real-Time Alerts (the General Electric activist move helped perpetuate that) within our bearish TAIL risk view yesterday. We have immediate-term downside in the risk ranges for both the SPY and DIA of 6%; fits the asymmetric volatility setup too.

GOLD

Gold held its immediate-term breakout line of $1,124 yesterday and is up with Copper down -0.7%; everything global cyclical remains in crash mode so this isn’t a spot to be complacent. We see upside in Gold to $1,157 and we expect to see that if the UST 10YR breaks down through 1.99% again.

 

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

 

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 9%
FIXED INCOME 25% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
GIS

Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity
PENN

Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY

 

Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September. Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels.

TLT

It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news. Moreover, we believe this late-cycle weakness is likely to remain ongoing.  

Three for the Road

TWEET OF THE DAY

Do You Suffer From H.P.A.D.? (Hedgie Performance Anxiety Disorder) https://app.hedgeye.com/insights/46702-do-you-suffer-from-h-p-a-d-hedgie-performance-anxiety-disorder… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

There is no exercise better for the heart than reaching down and lifting people up.

John Holmes

STAT OF THE DAY

The average out-of-network ATM fee in the U.S. is currently at a record high of $4.25, up 21% over the past 5 years.


October 6, 2015

October 6, 2015 - Slide1

 

BULLISH TRENDS

October 6, 2015 - Slide2

October 6, 2015 - Slide3

October 6, 2015 - Slide4

 

 

BEARISH TRENDS

October 6, 2015 - Slide5

October 6, 2015 - Slide6

October 6, 2015 - Slide7

October 6, 2015 - Slide8

October 6, 2015 - Slide9

October 6, 2015 - Slide10

October 6, 2015 - Slide11


Call Invite | Q4 2015 Macro Themes Conference Call (10/8/15 at 1:00PM ET)

 

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, October 8th at 1:00PM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.

 

Q4 2015 MACRO THEMES OVERVIEW:

  • #SuperLateCycle (USA): Slowing growth typifies the twilight of an economic expansion and negative 2nd derivative trends are creeping in across much of the domestic fundamental data. From labor and manufacturing markets to consumer and business confidence, leading indicators are beginning to roll as the late-cycle moves past peak. We'll detail why Slower-And-Lower-For-Longer remains the call. 
  • #GlobalSlowing: With the Street, IMF, World Bank and OECD all still forecasting global growth of around 3% for 2015, we find it appropriate to reiterate our call for global growth to come in at or below half that rate. Moreover, while China's August CNY devaluation effectively made our #EmergingOutflows theme a consensus bearish cog in the global economic outlook, we do not think investors are appropriately positioned for a likely trend of negative revisions to the respective growth outlooks in the U.S., Eurozone and Japan throughout the balance of the year.
  • #Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain. Crashing inflation expectations are perpetuating the pain across all asset classes and sectors levered to unrealistic growth expectations (energy, industrials, materials), as well as across the high-yield bond market, commodity markets, commodity currencies. Is the U.S. equity market next in line?

 

WATCH LIVE

Watch Keith McCullough walk through this presentation live Thursday at 1:00PM ET.

 

CALL DETAILS

  • Toll Free:
  • Toll:
  • Confirmation Number: 13621323
  • Materials: CLICK HERE

 

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Kind regards,

The Hedgeye Macro Team

 


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Cartoon of the Day: Help!

Cartoon of the Day: Help! - jobs cartoon 10.05.2015

Excerpt from today's Early Look by Hedgeye CEO Keith McCullough:

 

"...While I’m sure the Old Wall storytelling will be epic this morning on “why the jobs number wasn’t that bad” … and “stocks closed up on the day… the bottom is in…”, blah blah blah… allow me to re-interrupt with economic cycle-realityThe jobs number sucked… and labor data will continue to suck into year-end."

 


It's Been a Tough Year In Bentonville | $WMT

Editor's Note: This an abridged excerpt from a research note written recently by our Retail team led by Sector Head Brian McGough. If you're an institutional investor and are interested in accessing our Retail research (or any of our other sector coverage areas) please email sales@hedgeye.com.

*  *  *  *  *

2015 has been less than a banner year for Walmart.

 

For starters, the stock is down 24% YTD as the company took one on the chin as it invested in both its people and e-comm capabilities. The new minimum wage standard at $9.00 alone will cost the company $0.24 (up from the original guidance of $0.20) add on top of investments in e-comm and Fx pressure and we get to an earnings growth rate for the year of -10% at the mid-point of the guide.

 

It's Been a Tough Year In Bentonville | $WMT - z wamo

 

 

We've seen Walmart try to offset these costs over the past year by renegotiating terms with its vendors (not once, but twice), cutting some 24-hour locations, and reducing employee hours.

 

Now it's going after its headcount at HQ.

 

This 2.5% headcount reduction is just a drop in the bucket compared to the 13% cut Target (TGT) announced earlier this year. But, its pretty obvious that Walmart is scratching and clawing for every bps of margin.

 

That's bad news for the rest of retail.


Do You Suffer From H.P.A.D.? (Hedgie Performance Anxiety Disorder)

In this brief excerpt from The Macro Show earlier this morning, Hedgeye CEO Keith McCullough offers a lighthearted take on a curious mental affliction investors are currently battling. 

 

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.


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