• run with the bulls

    get your first month

    of hedgeye free


CHART OF THE DAY: A Picture Which Should Give Perma Bulls Pause

CHART OF THE DAY: A Picture Which Should Give Perma Bulls Pause - 11.17.15 EL chart


Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.


"... Darius Dale and I were doing the rounds, seeing sharp Institutional Investors in Boston yesterday, when what was looking like another flat to down day for US stocks turned into some rip roaring fun to the upside.


It’s a good thing they bounced them. That was the 1st real up day (albeit on slowing volume – see Chart of The Day for details on Total US Equity Market Volume being -12% vs. its 1yr average) for the US stock market in the last 9."


“The economic mechanisms of an efficiently inefficient market are fundamentally different from those of neo-classical economics.”

-Lasse Heje Pedersen


That’s a mouthful, but it makes a lot more sense than the bill of linear-economics goods I was sold in college. I’m looking forward to debating real-world market practitioners at our inaugural Global Macro conference tomorrow in Stamford, CT – it’s called Macrocosm.


The principles of neo-classical economics are fun to consider, mainly because they’re so easy to disprove. Pedersen’s book, Efficiently Inefficient, is a great primer on the fundamental differences between econ PhD dogmas and real world markets.


Does capital structure matter? How about funding frictions and liquidity constraints? When do you need to be aware of phase transitions in economic, profit, and credit cycles? These are all questions we non-linear people will be considering at Macrocosm.


Macrocosm - z macrocosm pic


Back to the Global Macro Grind


Darius Dale and I were doing the rounds, seeing sharp Institutional Investors in Boston yesterday, when what was looking like another flat to down day for US stocks turned into some rip roaring fun to the upside.


It’s a good thing they bounced them. That was the 1st real up day (albeit on slowing volume – see Chart of The Day for details on Total US Equity Market Volume being -12% vs. its 1yr average) for the US stock market in the last 9.


With the SP500 +1.5% on the day, the real pin-action (beta chasing) was in that good ole “reflation” trade:


  1. Oil (WTI) popped +3.1% on the day after collapsing another -7.9% last week
  2. Energy Stocks (XLE) proceeded to ramp +3.3% > 2x the SPY move in turn
  3. Utilities (XLU), the only major S&P Sector to close up last week, closed +1.7% too


What was it that drove this ramp? Was it NY Fed Head Bill Dudley turning tail saying the Fed doesn’t really have to raise rates in DEC due to “well below target inflation.”


Macrocosm - reflation cartoon 10.13.2015  2

Click here to join Hedgeye CEO Keith McCullough live on The Macro Show at 9am. 


Was it a bird or a plane? Was it simply that US and European Equity markets signaled immediate-term TRADE oversold into Friday’s close? Or some combination of all of the above?


I’m pretty sure it wasn’t another set of US Retailers (XRT) missing numbers yesterday (Dillard’s (DDS) down -15% on the Friday/Monday “low gas prices” combo – and Urban Outfitters (URBN) seeing US demand being so bad that they’re buying a pizza chain).


No, I couldn’t make up that pizza-pivot if I tried. That stock is going to keep crashing today.


Copper is still crashing this morning too, down another -0.4% to $2.10, taking its YTD and 6-month #Deflations to -26% and -28%, respectively. But we really shouldn’t talk about that when we can be debating how Qe4 is going to drive the next bull market in Energy.


Seriously, that’s on the table.


That was the main contention in our client debates yesterday – the line of questioning went something like this:


  1. “So, let’s just say you’re right and the probability is rising of a US recession by mid-2016…
  2. And let’s assume that the Fed isn’t dumb enough to keep raising into a slow-down…
  3. Wouldn’t you guys being right on the economy mean the Fed needs to start easing again?”


Yep. Why not?


Oh, right. There’s that thing called the US Presidential election where:


  1. If the US is dropping below 1.5% GDP growth (towards 0.4% - Hedgeye’s low-end scenario for Q4 to be reported in Q1)
  2. The probability rises that a Republican could win…
  3. And if that Republican contender is anti-Federal Reserve, how does Janet (a Democrat) go to Qe4 during the debates?


Well. Since she’s un-elected, I hope everyone realizes that she can have the “courage to act” however she damn well pleases. That said, this whole central-planning catalyst calendar is going to get really gnarly if she tries going there.


Remember that if/when the Fed pivots back to dovish from pretend-hawkish, they have to tell the American People why they are doing that. Say it with me now – Super #LateCycle Growth Slowing


In other news, neo-classical linear economists still have +3-4% US GDP growth forecasts for 2016.


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


UST 10yr Yield 2.17-2.36% (bearish)

SPX 2020-2073 (bearish)
RUT 1139--1167 (bearish)

NASDAQ 4 (bullish)

Nikkei 181 (bullish)

DAX 101 (neutral)

VIX 16.59-20.25 (bullish)
USD 97.99-100.08 (bullish)
EUR/USD 1.05-1.07 (bearish)
YEN 121.53-123.99 (bearish)
Oil (WTI) 39.79-43.55 (bearish)

Nat Gas 2.23-2.40 (bearish)

Gold 1070-1101 (bearish)
Copper 2.08-2.20 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Macrocosm - 11.17.15 EL chart


Takeaway: Please join us TODAY at 11 a.m. EST for our latest Best Ideas call on shares of PRA Group (PRAA).



We will be hosting a call Today at 11:00am EST to present a new name we've added to our Best Ideas List - PRA Group, Inc. (PRAA) - as a short



  • Supply/Demand Headwinds: The market for buying defaulted receivables is especially unfavorable. Demand for paper has exceeded supply for a few years now, mirroring the environment last seen from 2005-2007 when shares of PRAA tumbled ~70%.
  • Growing Debt: Leverage at the company has risen quickly in the wake of the Activ deal.  
  • Insiders Dumping: Widespread insider selling suggests that insiders see similar intermediate/longer-term headwinds.
  • History's Guide: Our analysis of the interplay between labor markets, terminal IRRs and pre-tax margins will shed light on what to expect fundamentally from a timing standpoint.
  • Regulatory Pressure: The CFPB is expected to set new rules for debt collectors in 2016.
  • Current Value Unsustainable: The ERC less cost to collect and taxes is currently ~$400mn below the net debt of the company.



  • Toll Free Number:
  • Conference Code: 13622076#
  • Materials: CLICK HERE (Materials will be available approximately one hour prior to the start of the call)


Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Oil, XLE and VIX

Client Talking Points


Oil led yesterday’s intraday U.S. equity ramp (every S&P Sector ramped > 1%), closing the day +3.1% WTI (post a -7.9% down week). Oil really isn’t seeing any follow through this morning as the Dr (formerly known as Copper) breaks down to fresh new #Deflation lows at $2.10/lb.


Energy stocks up +3.3% (XLE) led the rally so apparently “reflation” hopes from both JUL and OCT (both major headfakes) = the big beta the market wants to chase on up days. We are watching levels, USD, and the commodity very closely here as beta in general is a bearish style factor.


The VIX ramped from 14 to 22, then back to 18 yesterday, but the bullish TREND call we’ve had on volatility (since July 2014) is firmly intact – immediate-term risk range for front-month VIX = 16.59-20.25.


**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

Restaurants Sector Head Howard Penney attended MCD's investor meeting in New York City early last week. His takeaway from the meeting was that it was "very very bullish" for investors. Expectations were high, but CEO Steve Easterbrook came to NYC with big changes which have ultimately exceeded those expectations. "The big smile on Steve Easterbrook's face when talking about the current quarter was very telling," Penney writes. "He could not hide the enthusiasm." MCD increased the dollar value returned to shareholders by $10 billion. Penney and his team still see +30% upside from here.


Restoration Hardware (RH) shares got caught up in the tumultuous selloff of other high-end retailers. But we're still bullish on RH. Here's why. RH Tampa has just opened. That makes 4 new Full Line Design Galleries in 90 days. And all will be open before the start of holiday shopping season and just in time to house the new product lines RH Modern and Teen. Add up the four stores and we’re looking at about 210k square feet. That alone represents about 25% growth in square footage.


When all is said and done, we still think this company has $11 in earnings power 4-years out, which is nearly double the consensus. We remain convinced that the debate should not be ‘if or when’ the stock hits $115, but rather is it going to $200 or $300? We’ll be looking at an earnings CAGR of 40-50% over five years. What kind of multiple does that deserve? 20x? 25x? 30x? We’d argue the higher end.


It was a nasty end to the week for the “growth is back” bulls. It was an equally nasty end to the week in equity markets. The S&P 500 was “going to all-time highs” Tuesday before retreating over 3% from Wednesday to Friday.


With continued data-driven confirmation that growth is slowing:

  • PPI (producer price index) printed -1.6% Y/Y for October
  • On a m/m basis, PPI declined -0.4% 
  • Declines in the energy component certainly bring the index lower, but PPI ex. Food and energy only printed +0.1% Y/Y which is ugly

Three for the Road


In today's Early Look "Macrocosm" I preview our inaugural Global Macro conference (to be held tomorrow in CT)



No man is happy who does not think himself so.

Publilius Syrus


Total U.S. Equity Market Volume was down yesterday -12% vs. its 1 year average.

November 17, 2015

We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact support@hedgeye.com if you have any questions or feedback.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.36 2.17 2.27
S&P 500
2,020 2,073 2,053
Russell 2000
1,139 1,167 1,156
NASDAQ Composite
4,921 5,065 4,985
Nikkei 225 Index
18,910 19,991 19,394
German DAX Composite
10,610 11,001 10,713
Volatility Index
16.59 20.25 18.16
U.S. Dollar Index
97.99 100.08 99.54
1.05 1.07 1.08
Japanese Yen
121.53 123.99 123.19
Light Crude Oil Spot Price
39.79 43.55 42.04
Natural Gas Spot Price
2.23 2.40 2.33
Gold Spot Price
1,070 1,101 1,082
Copper Spot Price
2.08 2.20 2.12
Apple Inc.
111 118 114
Priceline.com Inc.
1,208 1,353 1,267
Valeant Pharmaceuticals International, Inc.
68.07 83.16 73.32
Facebook, Inc.
102 110 104
Wayfair Inc.
33.01 39.29 37.28
Urban Outfitters, Inc.
19.99 24.19 22.67



The Macro Show Replay | November 17, 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.