When You Can't Get Out! Jamming Mashed Potatoes Through a Garden Hose

On today's edition of The Macro Show, Hedgeye CEO Keith McCullough explains the liquidity issue facing many hedge funds that are trapped in small-cap positions.

Volatility: Big Asymmetric Upside Risk | $VIX

A great contrarian indicator with the Financial Times running a “risk on” story because the VIX is “below 20.”


That, of course, means nothing to me as the risk range for VIX = 18.55-29.47 coming off the all-time low in cross-asset class volatility last year (see chart below).


Big asymmetry to the upside.


Volatility: Big Asymmetric Upside Risk | $VIX - z km vix


Editor's Note: This is a brief excerpt from Hedgeye's morning research. Click here if you're interested in learning more abour our various investing product options.

CoreLogic HPI ↑ Acceleration, Month 6

Takeaway: CoreLogic continues to reflect positive momentum in home prices with the Y/Y rate of change accelerating to +6.9% in August.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 


CoreLogic HPI ↑ Acceleration, Month 6 - Compendium 100615


Today's Focus: August CoreLogic Home Price Report


CoreLogic HPI:  Home prices rose +1.2% month-over-month in August with year-over-year growth accelerating +120 bps sequentially to +6.9% - marking a 6th month of acceleration off the Feb ’15 RoC trough.   The direction and magnitude of change was similar across the non-distressed series. 


The implication of accelerating 2nd derivative price trends remains unchanged:  Prices lag demand trends by ~12 months and trailing demand trends argue for further acceleration in HPI over the nearer-term.  Rising price growth supports higher ASP’s, builder margin expansion, and (with housing related equities and home price growth showing a strong contemporaneous relationship) positive equity performance across the housing complex.    


CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM YoY 


CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM Current vs Revision 


CoreLogic HPI ↑ Acceleration, Month 6 - HPI TTM YoY Ex Distressed 


CoreLogic HPI ↑ Acceleration, Month 6 - HPI 3 Indices



About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

CHART OF THE DAY: What Do You Get After +600 Global Rate Cuts?

Editor's Note: Below is an excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. If you're serious about getting (and staying) a step or two ahead of consensus, click here.


...But, after 600 or so “rate cuts”, globally… what you have is a lot of inventory (supply – see Chart of The Day from our pending Q4 Themes Call), slowing demand, and … well… graying times for long-term global growth forecasts.



Roger that. What’s next?


CHART OF THE DAY: What Do You Get After +600 Global Rate Cuts?  - zz 10.06.15 chart

A Gray Time

“Monday, October 9th, 1933. A gray day in a gray time.”

-Daniel James Brown


Looking for some inspiration ahead of our Q4 Global Macro Themes Call on Thursday, I started reading The Boys In The Boat last night. It’s the story of 9 Americans and their quest for Gold at the 1936 Olympics in Berlin.


While the aforementioned quote probably doesn’t inspire you to get out of bed this morning and chase another no-volume US stock market chart on green, it is Daniel James Brown’s opening sentence to an epic story. I love opening sentences.


I read #history in order to stay away from the Old Wall’s noise. In gray times of both US and Global #GrowthSlowing, history provides me calm and context. Without knowing where we’ve come from, how on earth could we know where we’re going?


Back to the Global Macro Grind


The 1 period was one of sustained #Deflation. While we’ve seen deflationary shocks in markets in both 2008 and 2015, we have not had to deal with it being pervasive. That’s why consensus continues to chase “reflation” rallies like yesterday’s.


The most basic thesis on the illusion of growth (artificially inflated asset prices) is that central planners around the world can offset the gravity of oversupply and secular slowing with currency devaluation.

A Gray Time - Deflation cartoon 02.24.2015

*Click here to join Keith LIVE on The Macro Show this morning at 9am ET.


But, after 600 or so “rate cuts”, globally… what you have is a lot of inventory (supply – see Chart of The Day from our pending Q4 Themes Call), slowing demand, and … well… graying times for long-term global growth forecasts.


Roger that. What’s next?


  1. More economic data confirming what macro markets have been pricing in for the last 3-6 months
  2. More lower-highs in stock markets around the world that remain in crash mode
  3. More hope for moarrr #cowbell on currency devaluation to resuscitate asset prices


Oh, and more pre-announcements like Caterpillar (CAT) and Dupont (DD), more #LateCycle jobs cuts (including pro-cyclical CEO firings), and more and more and more hope that this is all “priced in” after 77 months of a US economic expansion.


Knocking the #process pins down 1 by 1 this a.m., let’s do the data first:


  1. US non-manufacturing (Services) ISM slowed from its cycle-peak yesterday to 56.9 in SEP from 59.0 in AUG
  2. German Factory Orders slowed (again) sequentially by -1.8% in AUG after slowing -2.2% in the prior month
  3. Swiss CPI remained deflationary at -1.4% y/y in SEP vs. -1.4% y/y in AUG


Actually, the “prices” component of the US Services PMI moved into the recessionary zone (like Switzerland that has a negative -0.23% yield on a 10yr bond as a result) yesterday at 48.4 SEP vs. 50.9 in AUG.


New orders dropped -10% month-over-month in the US Services PMI too. So I signaled SELL the Dow Jones Industrial Index (DIA) on that in Real-time Alerts. #timestamped


Whether I’m an hour or a week early on another US equity SELL signal really doesn’t concern me. I’m as focused as I’ve ever been in my career – focused on the research and quantitative signaling #process that has been working vs. consensus gone bad.


Got Lower-Highs on decelerating volume days? Big time:


  1. Japan’s Nikkei signaled immediate-term TRADE overbought within its bearish TREND last night (short it)
  2. Hong Kong’s Hang Seng failed @Hedgeye TRADE resistance and has -6% immediate-term downside from the close
  3. Germany’s DAX is struggling to stay out of #crash mode (-20.5% since April and no support to 9145)


But no worries, Spanish stocks rallied yesterday on a -8% drop in its Services PMI print for SEP… because consensus thinks Spain’s GDP is going to ramp back up to +3% in 2016.




It’s ok to laugh. I have to at this hour, or I’d be right grumpy. The grayness of it all can be all so consuming if one is considering the data within Mr. Macro Market’s score.


Finally, on the effervescent hope of the aforementioned “What’s Next” #3:


  1. Dr. Copper doesn’t appear to be hearing #Cowbell this morning, dropping -7% (and still crashing)
  2. UST 10yr Yield back down to 2.05% continues to signal a series of secular lower-highs (range = 1.95-2.08%)
  3. Gold, the barbarous relic of ancient times, has held support with immediate-term upside to $1157


And that’s all I have to say about that.


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


UST 10yr Yield 1.95-2.08% (bearish)

SPX 1 (bearish)
RUT 1070--1157 (bearish)
DAX 9 (bearish)
VIX 18.55-29.47 (bullish)
USD 95.25-96.65 (neutral)
EUR/USD 1.11-1.13 (neutral)
YEN 119.11-121.65 (bullish)
Oil (WTI) 44.08-47.91 (bearish)

Gold 1124-1157 (bullish)
Copper 2.22-2.38 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


A Gray Time - zz 10.06.15 chart




  • Oct 8: Hedgeye Macau call 2:30pm
  • Oct 8: Tigre de Cristal opens


0880.HK -  The chief executive of casino operator SJM Holdings Ltd, Ambrose So Shu Fai, believes measures the central government intends to take to help gaming in Macau recover from its slump will have the desired effect, Rádio Macau reports.   

The Portuguese-language radio station quotes Mr So as telling reporters that the easing of curbs on mainlanders visiting Macau would bring more tourists to the city. 


Takeaway: We still recommending a long trade in Macau stocks but we struggle to see what the government can do over the near term to boost GGR. 


AIRBNB - Westpac Bank confirmed on Tuesday that Westpac and Airbnb are teaming up in a new campaign to aid Australians with the home ownership process. The campaign, called "Spare, Spare Room" will be officially launched on Wednesday. Throughout the campaign, Australians will have the opportunity to win one of 50 $250 gift cards to accommodate their guests through Airbnb.  


CCL -  Star Princess docked at Canada Place in downtown Vancouver, BC, early Sunday with reported norovirus on the ship.  On the 15-day cruise to Hawaii apparently 61 were sickened by the virus.  



UBER - A small startup quietly operating in Boston says it can build a better business by taking less from drivers, and charging passengers lower prices.

  • Fasten’s service is identical to Uber’s low-cost UberX service, which employs regular folks to ferry passengers in their own cars, except for a couple of important details. 
  • Instead of taking a percentage cut, say 20% to 30%, from each ride, it only takes $1 per ride (or a fixed daily or weekly fee, according to Fasten’s website). 
  • For passengers, Fasten can potentially be cheaper because it doesn’t use “surge pricing,” price hikes that kick in when demand goes up. Instead, Fasten says it lets passengers increase their fare offers if drivers don’t accept their ride requests quickly enough. 



Korean Casino Deal - A deal announced on Monday could lead to the development of one of the largest foreigners-only casino resorts seen so far on Jeju Island in South Korea.  The country’s Lotte Tour Development Co Ltd announced that a privately held affiliate, Dongwha Investment and Development Co Ltd will be building the biggest integrated resort on Jeju Island.  The resort could have up to 1600 hotel rooms, 200 tables, and up to 400 slot machines. 


Takeaway: Chinese tourists can travel to Jeju Island without a Visa for up to 30 days, making Jeju a viable option. 


China Outbound Travel - According to the China Outbound Tourism Research Institute, Hong Kong, Tokyo and Bangkok were the top three outbound tourism destinations, while long-haul destinations in Europe and America have also increased significantly.  As the Golden Week holiday coincided with the mid-Autumn festival this year, Chinese workers taking an extra three days off work would have had a 12-day holiday, encouraging longer haul travel.  





Arkansas (total): +20% YoY

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