Euro, Spain, Russell

Client Talking Points


$1.13 vs. USD into the @ECB event and the question remains whether Draghi can be incrementally more dovish than the Fed is implied being with UST 3-month yields moving back to NEGATIVE -0.01% this morning – if he doesn’t bring the cowbell, EUR/USD should hold $1.12 and Oil/Gold/Copper etc. should bounce post WTI’s -2.3% #deflation yesterday


We hosted a risk mgt call w/ Daniel Lacalle yesterday (ping me if you want the replay) and in the absence of Draghi trying to reflate European stocks, remember that Spain is as #LateCycle as the USA is at this point – the early DEC election (going left) = major catalyst as well


Less hedge funds are short it (vs. SPY) so it continues to go down faster (and more often) than SPY, closing -1.5% yesterday taking its draw-down from the YTD high to -11.7% and signaling bearish on both my TRADE and TREND durations = pure play short on US #GrowthSlowing 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald’s reports 3Q15 earnings Thursday, October 22nd before the market opens, with a conference call at 11:00am ET. We are expecting strong sequential improvement in performance globally. We look forward to giving you an update on the company’s performance next week, but this week we wanted to focus on the ‘Looming Crash in Beef.'


On Thursday, October 15th, we held a thought-leader call regarding the declining price of beef and how long it will continue. Prices have sky rocketed in recent years and are now standing at more than two standard deviations above the 30 year average. We believe a 50% decline down to historical averages is well within the realm of possibilities. Declining beef prices will be a major tailwind for McDonald’s as they navigate their turnaround.


Restoration Hardware opened its new Full Line Design Gallery at the Cherry Creek Shopping Center in Denver this week.  This is another anchor property -- using 53,000 feet of the 90,000 left vacant by Saks at Cherry Creek.


RH is taking up the size of its stores from an average of 8,000 square feet to about 40,000+ for its new stores – and productivity rates on these new assets are headed higher. In the old stores, RH could only show 10% of its assortment, while in the newer format stores, the company is showcasing better than 75%. Consumers can’t (and don’t) buy what they don’t see.


The #SlowerForLonger theme from Hedgeye Macro has been consistent and straightforward. Our pivot in advance of the most recent jobs report to get long of gold and stay out of the way short-side on commodities turned out to be a good position.


Growth expectations have been correctly revised, but there’s still a good amount of room between Hedgeye estimates and consensus. We are expecting GDP in a range of 0.1%-1.5% for Q3 and another 1-handle in Q4. If that proves accurate, flatter goes the Treasury curve (TLT, EDV), wider goes high yield spreads (bad for JNK), and down goes the USD (GLD).

Three for the Road


Congrats to everyone who took up their #GrowthSlowing exposure yesterday buying $TLT $ZROZ $MUB, etc.



"What is the point of calling yourself the best if you truly don't believe that in your mind?"

-Bret "The Hitman" Hart


Daniel Muphy of the NY Mets has homered in 6 straight post season games, he had 14 homeruns through 130 games during the regular season.

BREAKING: Earnings Season Still A Hot Mess

Are we entering an earnings recession?


It's a question we've been posing for a while now. Here's a quick look at where we stand right now. 


BREAKING: Earnings Season Still A Hot Mess - 10 22 2015 earnings


As we outlined in our Q4 macro deck, earnings recessions have preceded economic recessions in the last 3 cycles. 


BREAKING: Earnings Season Still A Hot Mess - 10 22 2015 EARNINGS REC


Investors beware. 

DM Asia/Emerging Markets Investment Strategy Update

***The roundup below is an example of our data-driven internal research process. Specifically, it helps our team contextualize the key economic releases and policy developments occurring across Developed Asia and Emerging Market economies on a daily basis. To the extent you'd like to be BCC'ed on such emails please shoot us a quick note and we'll add you to the list.***



In Australia, Commonwealth Bank became the second bank to lift mortgage rates in as many weeks. Speculation ensued that the RBA may be forced to add to their -50bps of rate cuts in the YTD, which weighed on the AUD. Does the RBA risk quashing household consumption growth – which is accelerating on a trending and sequential basis – in hopes of stimulating industrial production and inflation? Recall that headline CPI and PPI are structurally depressed, as is core CPI, which is decelerating on a trending and sequential basis. All told, we've been [admittedly lazily] short the AUD since introducing the thesis in mid-2012 and have yet to encouter a fundamental reason to cover given that we remain "mid-cycle" from the perspective of the bull market in U.S. dollars that is being perpetuated by the G-3 monetary policy divergence theme we authored in 4Q14.


DM Asia/Emerging Markets Investment Strategy Update - Australia Economic Summary


DM Asia/Emerging Markets Investment Strategy Update - DM Asia Idea Flow Monitor


In Brazil, the stench of stagflation continues to force BCB’s hand, as evidenced by their decision to leave their benchmark SELIC rate unchanged. Recalled that we discussed these dynamics earlier this week, when we highlighted the structurally depressed nature of Brazilian economic growth and structurally elevated nature of Brazilian inflation. To make matters worse, the deepening nature of their political crisis only adds to the consternation experienced by investors. We continue to view Brazil as a structural short and to the exent you are looking for a non-consensus way to play a bounce in reflation assets [to lower-highs], we strongly suggest you look elsewhere (i.e. Russia). CLICK HERE for more details.


DM Asia/Emerging Markets Investment Strategy Update - Brazil Economic Summary


In Mexico, the latest reading of household consumption growth accelerated to a near 10Y-high, preserving the trending and sequential acceleration in this sector of the Mexican economy. With exports and industrial production trending higher, business confidence and consumer confidence trending lower and various metrics of inflation structurally depressed, one could argue that Mexico is in the “sweet spot” of post-crisis equity investing – solid growth with no threat of policy tightening. This dynamic is being confirmed in the marketplace, with the WoW moves in the MEXBOL and MXN (+0.8% and -1.2%, respectively) corroborating the associated YTD deltas (+3% and -11.1%, respectively).


DM Asia/Emerging Markets Investment Strategy Update - Mexico Economic Summary


Best of luck out there today,




Darius Dale


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The Macro Show Replay | October 22, 2015


CHART OF THE DAY: The #Valeant Gong Show Hosted By Bill #Ackman


CHART OF THE DAY: The #Valeant Gong Show Hosted By Bill #Ackman - 10.22.15 EL chart


Editor's note: This is an excerpt from today's Early Look written by Hedgeye CEO Keith McCullough discussing Valeant Pharmaceuticals' recent shenanigans:


  1. A really “smart” management team levers up a company and pitches financial engineering to Wall Street
  2. “Activist” rich-boy-wonder Bill Ackman calls Valeant the next “Berkshire Hathaway” and takes a 20-30% (?) position
  3. Stock crashes (on fundamentals) and Ackman pumps to CNBC that he bought another “2 million shares”


And the stock bounces +10% … for an hour.


CLICK HERE to access Healthcare analyst Tom Tobin's prescient institutional research report on Valeant. If you’d like to learn more about our institutional research offerings please ping

Crony Crashalists

“Early in life I had noticed that no event is ever correctly reported in a newspaper.”

-George Orwell


That’s an important observation. Especially since most “newspapers” in this day and age lean left on economic and market matters, someone either needs to show us the truth, or we need to find it for ourselves.


Since I’m not much of a socialist, I had no exposure to Orwell’s writings until my English professor @Yale had me read The Road To Wigan Pier. It’s a 1937 non-fiction book and it resonated with me as it documented living his blue collared life in northern England.


“Orwellian” ideals resonated with many during a depression. My 1970s-1980s northern Canadian life wasn’t depressing. We didn’t have Ferraris and beg for central planning. We didn’t consider ourselves part of a “class” either. We just worked hard and lived.


Crony Crashalists - z hock


Back to the Global Macro Grind


Fast forward 8 decades and wow have things changed. Maybe if I moved my family back to Thunder Bay, Ontario I’d feel differently. But the probability of that happening is low. And the probability of my having to deal with socialism in America is rising.


On that rate of change score, here’s a fascinating study that one of our sharpest clients sent me earlier this week titled “One Third of Millenials View Socialism Favorably.” 


The bigger takeaway for me was that only 39% of Millenials viewed American Capitalism favorably.


Put another way (and who knows if this article is true to begin with), it’s probably safe to say that most Millenials don’t know what the difference between socialism and capitalism is anyway. That’s just sad.


But, given the socialization of what used to be free-market risks and the crony-crashalism you see in US markets (and the manic media that promotes it) every day, do you blame our youngest generation for being confused?


What kind of example are we providing them when we have gong-shows like Valeant Pharmaceutical (VRX) crashing yesterday?


Gonger? Yes. How else would you describe something like this:


  1. A really “smart” management team levers up a company and pitches financial engineering to Wall Street
  2. “Activist” rich-boy-wonder Bill Ackman calls Valeant the next “Berkshire Hathaway” and takes a 20-30% (?) position
  3. Stock crashes (on fundamentals) and Ackman pumps to CNBC that he bought another “2 million shares”


And the stock bounces +10% … for an hour.


2 million shares X $100 stock (was at $260/share 2 months ago) = $200 million dollars X 10% = $20M/hr for Ackman


And then CNBC runs the Valeant (VRX) view that someone (not Ackman) was “manipulating the stock”?


Oh great. This must be the “capitalism” (or hourly wage inflation?) that self-avowed socialists like Bernie Sanders are disgusted with. Being a free-market capitalist, who believes in a meritocracy (as opposed to preferential treatment for the “elite”), I am too.


Now that I got that off my chest, let’s pivot to the newsiest Global Macro event of the day – the European Central Market Planning meeting in Malta.


Yes. Malta – as in the gorgeous southern European island in the Mediterranean Sea. God’s visible socialist hand must have had this venue very much in mind when he was thinking of putting these people on earth to save us from the “capitalists.”


  1. EURO – vs. USD is trading flat day/day at $1.13 and will need a big time Draghi Devaluation event to break $1.11
  2. European Bond Yields are trading flat to up this morning in anticipation that Draghi may not deliver the #cowbell
  3. European Stocks are trading side-ways as they await the next central plan


Great. Isn’t this just great?


I really have nothing else to tell you this morning (hence the socialist/capitalist diatribe). Nope, sorry. I wasn’t living large at a tiki bar on a Maltese beach last night getting inside info on what the ECB will say today. So I have no “edge.”


Instead, I’ll be back to you after the newsy event as that’s all we non-crony-crashalists of the gridiron can do.


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


UST 10yr Yield 1.98-2.09% (bearish)

SPX 1 (bearish)
RUT 1131--1158 (bearish)
DAX 98 (bearish)
VIX 14.74-20.22 (bullish)
USD 94.06-95.45 (neutral)
EUR/USD 1.12-1.14 (neutral)
YEN 118.55-120.90 (bullish)
Oil (WTI) 44.06-46.90 (neutral)

Nat Gas 2.36-2.55 (bearish)

Gold 1150-1190 (bullish)
Copper 2.30-2.40 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crony Crashalists - 10.22.15 EL chart

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