A Frantic Scramble

“Rowing a race is an art, not a frantic scramble.”

-George Pocock 


I think that’s a fair metaphor for annual returns.


Frantically scrambling together a year-end narrative on why the market got back to “flat” is disingenuous, at best. Beating your competition (or market beta) requires rowing a precise race.

A Frantic Scramble - The Thinker.Markets cartoon 05.08.2015


Back to the Global Macro Grind


Sure, it took both Sales/Earnings Slowing (-3-4% in Q3 to-date) and both Europe/China easing last week to keep US and European stocks from going down, but that’s not all that happened.


On a week-over-week basis, with Draghi Devaluing the Euro -2.9% (vs. USD) here’s what happened in Global Macro markets:


  1. US Dollar Index ripped at +2.6% weekly gain, taking it to +7.5% YTD and +13.1% year-over-year
  2. Canadian Dollars deflated another -1.9% week-over-week to -11.7% YTD and -14.7% year-over-year
  3. Commodities (CRB Index) got tagged for a -2.9% #deflation on the week, -15.8% YTD, and -28.9% year-over-year
  4. Oil (WTIC) deflated another -6.3% week-over-week, crashing -24.8% YTD, and -44.1% year-over-year
  5. Copper deflated -2.3% on the week, taking it to -17.0% YTD, and still in crash mode -22.5% year-over-year


Oh, right. If you put it in those terms, it wasn’t a great week.


The Russian Ruble and Norwegian Kroner dropped another -1.7% and -3.3% last week and are still in crash mode -33.1% and -21.6% year-over-year, respectively.


But, bro – the Dow Bro – it ripped +2.5% on the week to -1.0% for 2015. #Sweet


In other news:


  1. US Energy Stocks (XLE) didn’t like the Up Dollar news and deflated another -1.4% on the week
  2. MLP (Alerian Index) Energy stocks got pounded for another -6.1% weekly decline
  3. Emerging Market Stocks (MSCI Index) deflated -0.8% on the Down Euro #StrongDollar news
  4. Latin American Stocks (MSCI) deflated -0.9% week-over-week on the same
  5. Russian Stocks (RTSI Index) deflated -0.9% week-over-week


Man, what a bummer.


My narrative isn’t the manic one that went from saying this was a “global bottom” in demand led by “reflation” signals that lasted 3 weeks, when it was actually the #Deflation Risk that has been crushing consensus for a year now that ruled the week.


Sure, US Equity Beta loved not going down on that – but it was really only the big liquid Tech Stuff that dominated:


  1. US Tech Stocks (XLK) were +4.4% on the week vs. Healthcare Stocks (XLV) DOWN -0.6%
  2. Large Cap (as a US Equity Style Factor) was +2.1% on the week vs. Small Cap only +0.5%

*note: that’s what happens when Amazon, Google, and Microsoft all beat, on the same day!



Inasmuch as the market was “flat” in 1987, these Tech titans of the 2015 US stock market #bubble are up “in size” here in October.


But can they do that every day?


Moreover, can the Fed remain Dovish on every week that both the Europeans and Chinese opt for more easing?


I always try my best to answer these questions in real-time (in both Real-Time Alerts and in our Hedgeye Asset Allocation model) as I’m a big believer in being held accountable to the timing of it all. On that front, here are some of the bigger moves I made last week:


  1. Took our net asset allocation (longs minus shorts) to Commodities to 0%
  2. Took up our net asset allocation to Fixed Income close to its max at 32%
  3. Shorted the SP500 (SPY) in Real-Time Alerts on Friday


While I started shorting SPY in July, I’ve been on the sidelines for the last month with no position in RTA.


The main reason for that was that consensus hedge funds shorted the AUG lows at VIX 40. Now VIX is at 14 and I foresee most of the frantic scramble to cover higher as yesterday’s news.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.09%

RUT 1135--1176
EUR/USD 1.10-1.13
Oil (WTI) 44.24-46.31


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


A Frantic Scramble - 10.26.15 EL chart

EM, Euro and UST 10YR

Client Talking Points


Emerging Markets didn’t like the Euro Devaluation last week, the EM MSCI Index closed -0.8% on the week. Reminder: there’s a $9T USD denominated debt #bubble that deflates on these tightening events (see our Q4 Macro Themes deck). Yes, ECB President Mario Draghi ramping USD is deflationary – ask Oil down -6.3% last week, or Energy Stocks (XLE -1.4%).


The Euro oversold to the low-end of our $1.10-1.13 immediate-term risk range vs USD into week’s end. European Equities had their Viagra move (+6.8% week for the DAX, crushing all U.S. indices with the Russell only +0.3%) and are showing no follow through this morning as Spain’s PPI deflates (again) to -3.6% year-over-year vs -2.2% last print.


The German 10YR is at 0.51% and the UST 10YR pulls right back to 2.07% this morning as the world wakes up to more deflation and #GrowthSlowing news. Don’t forget that we get U.S. GDP for Q3 this week and most of the sell side is still in la la land.


**Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

What week it was for MCD shareholders! Shares finished the week up 7.3%. We have been saying all along that the third quarter of 2015 would be the inflection point for the McDonald’s (MCD) turnaround. After this print, it appears that the heartache is finally over at McDonald’s, as this quarter marks the first good quarter the company has had in two years.


From here, the upside in the stock price lies with the growth of All Day Breakfast, additional G&A cuts, national value offering implementation, reimaging of restaurants, commodity deflation, especially in beef and increased operational efficiencies, among others. In addition, the REIT is a potential driver of incremental value but not crucial to the long-term success of this call. With Steve Easterbrook at the helm we are confident this company will be better managed than it has been in a long time.


RH unveiled a full floor of Modern product in their New York Flatiron store this week. The new concept sits on the first floor of the 21k sq. ft. store and marks the 3rd property in RH’s fleet (along with Denver and Atlanta) to carry the new product line.


Fundamentally and financially, we’re about to see growth at RH go on a multi-year tear. We think this stock is headed to $300 over the next 2-3 years. We’ve been patient for the catalyst calendar to begin, and the waiting is finally over.


As devaluation and global currency war jockeying from central bankers around the world continues, the acknowledgement of growth slowing continues to push yields lower. The long-bond was up on Thursday, after the ECB meeting, despite an easing-fueled rip in equities. The bond market doesn’t believe in the growth storytelling and we expect it to continue.


Remember that Down Euro Devaluation is a global TIGHTENING event because the world’s biggest asset price #deflation risk is that the world’s inflation expectations (commodities, debt, etc.) are DENOMINATED IN DOLLARS. That has implications for gold (risk to being long), but we want to get through the Fed meeting and GDP data next week before we pivot on a gold view. Stay tuned.

Three for the Road


‘Do It If You Love It’: Doug Cliggott’s Career… via @hedgeye



Success is more a function of consistent common sense than it is of genius.

An Wang


According to researchers with an American office furniture company, the average office worker gets interrupted every 11 minutes. And after a break of flow, employees take an average of 23 minutes to get back on task.

The Macro Show Replay | October 26, 2015



investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

October 26, 2015

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‘Do It If You Love It’: Doug Cliggott’s Career Reflections


In this bonus segment from Real Conversations with distinguished market strategist Doug Cliggott, Hedgeye Director of Research Daryl Jones asks Doug what he’s learned about getting market calls wrong, the intellectual freedom afforded to him at JP Morgan, and the significance of mentors throughout his career.


CLICK HERE to watch the first part of Doug's interview.

The Week Ahead

The Economic Data calendar for the week of the 26th of October through the 30th of October is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 10.23.15 Week Ahead

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.