CHART OF THE DAY: Long-Term Rates Don't Lie About Growth

CHART OF THE DAY: Long-Term Rates Don't Lie About Growth - 12.16.15 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.


"... You don’t have to be the Wright Brothers to understand the very basic physical nature of long-term bond yields vs. the rate of change in real-growth:


  1. When GROWTH is accelerating on a TREND basis, long-term yields rise
  2. When GROWTH is decelerating on a TREND basis, long-term yields fall


That’s why the longest of “long-term investors” have been right to bet on Lower-For-Longer at every long-term-lower-high in the 10yr Yield. It’s Slower-For-Longer, eh."

Can She Fly?

“Gentlemen, I am going to fly.”

-Wilbur Wright


And that, the Wright Brothers did.


But will Janet Yellen?


Ladies and gentlemen, you are about to see an exhilarating political liftoff whereby a dove will pretend to look like a hawk. Then, (within minutes maybe) you’ll be considering a dove being a dove again. I’ll have LIVE analysis @HedgeyeTV at 2:10PM EST.

Can She Fly? - Yellen cartoon 09.17.2014NEW

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


Back to the Global Macro Grind


Ahead of this historical Fed decision, I’m running out of original content, so bear with me while I update you with yet another data-driven perspective – that of the Bank of England (BOE).


Mark Carney (head of the BOE) stole some headlines this morning by reversing his hawkish course, saying that “rate hike conditions are unfulfilled.” Yep. He told the truth and said that both the growth and #deflation data has slowed since July.


Ultimately, you don’t need a central-planner who is analyzing data (and market moves) on a political lag to remind you what part of the world has already had precipitation. But it is nice to see that some of these people are somewhat objective.


Dollar Up, Pound Down on that…


And what you’d expect to happen on the 1st US rate hike day in 9 years (1st hike into a corporate profit slow-down since 1967), in FX and Rates markets, is happening right now too:


  1. US Dollar +0.1% vs. the Euro to $1.09 EUR/USD with bearish TREND resistance for EUR/USD = $1.13
  2. US Dollar +0.3% vs. British Pound to $1.50 with bearish TREND resistance for GBP/USD = $1.54
  3. US 10yr Yield +3 bps on the day to 2.27% (after dropping to 2.13% on last week’s US #GrowthSlowing news)


Interestingly, Global Bond Yields have “bounced” off the lows into this Fed hike too:


  1. Swiss 10yr +19 basis points (bps) month-over-month to -0.19%
  2. German 10yr +11 bps month-over-month to 0.64%
  3. Italian 10yr +11 bps month-over-month to 1.67%


Notwithstanding the basic observation that all of the aforementioned 10yr Yields remain below that of the US 10yr Yield, it’s important to note that British Yields are actually down (1 beep on the 10yr) in the last month on this dovish BOE pivot.


When the growth and inflation data slows, I pivot – what do you do, Sir (and Madame)?


So, let’s say that after an hour (or day) of rate-hiking, the market forces Yellen to pivot. Yesterday’s 0.0% CPI (consumer price inflation reading) and this morning’s US Industrial Production report (reminder, it’s in a recession) definitely support that.


Then what?


Does the Dollar go down? What if it doesn’t (because the Euro, Pound, and Yuan are being centrally planned down)? What if the Dollar doesn’t do anything but rates start going down (again)?


Damn that data. It’s been crashing those who have been betting on higher-rates for almost 2 years.


For those of you who are new to following Hedgeye, we were bullish on US #GrowthAccelerating and bearish on the Long Bond (bullish on #RatesRising) for all of 2013. That, incidentally was the year consensus was actually bearish on rates!


You don’t have to be the Wright Brothers to understand the very basic physical nature of long-term bond yields vs. the rate of change in real-growth:


  1. When GROWTH is accelerating on a TREND basis, long-term yields rise
  2. When GROWTH is decelerating on a TREND basis, long-term yields fall


That’s why the longest of “long-term investors” have been right to bet on Lower-For-Longer at every long-term-lower-high in the 10yr Yield. It’s Slower-For-Longer, eh.


With neither growth nor inflation accelerating, you’re probably going to witness the most dovish “rate hike” in US history today. Ladies and gentlemen, she is going to fly alright – in 10yr Yield terms, if she’s lucky maybe 10 beeps.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.12-2.36%

SPX 2003-2060
RUT 1105--1163

VIX 17.98-25.21
USD 97.01-99.54
Oil (WTI) 34.08-37.97


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Can She Fly? - 12.16.15 chart

The Macro Show Replay | December 16, 2015


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

December 16, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.36 2.12 2.28
S&P 500
2,003 2,060 2,043
Russell 2000
1,105 1,163 1,131
NASDAQ Composite
4,901 5,045 4,995
Nikkei 225 Index
18,498 19,203 18,565
German DAX Composite
10,145 10,683 10,450
Volatility Index
17.98 25.21 20.95
U.S. Dollar Index
97.01 99.54 98.22
1.06 1.10 1.09
Japanese Yen
120.34 123.67 121.69
Light Crude Oil Spot Price
34.08 37.97 36.74
Natural Gas Spot Price
1.76 2.01 1.81
Gold Spot Price
1,051 1,086 1,060
Copper Spot Price
1.99 2.10 2.05
Apple Inc.
109 116 110
641 681 658
Alphabet Inc.
747 782 760
Facebook Inc.
102 107 104
Valeant Pharmaceuticals, Inc.
85.99 114.13 109.59
Kinder Morgan Inc.
13.53 17.66 15.84



Rates, Italy and Oil

Client Talking Points


Both locally and globally 10YR Yields are higher into the event risk. The UST 10YR is at 2.27% with an immediate-term risk range of 2.13-2.36%; the Swiss 10YR is up +19 basis points month-over-month (off all-time lows) to -0.17%; Italian and German 10YR Yields are up +11 basis points month-over-month.


Italy is starting to diverge (bearishly) vs. DAX on a more consistent basis with the MIB index down -0.2% in a muted “green” European tape – keep this on your radar as Italy is a Top 10 GDP economy in the world and heading back into recession in 1H 2016.


Pre Fed hike = Dollar Up, Oil Down another -1.1% as raising rates into a slow-down is deflationary. Another important signal is that the top-end of my risk range for WTI is lower than the AUG closing lows; with the OVX at 50, that’s super bearish!


**Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE. Also don't miss today's Fed Day Live at 2:10PM ET with Keith and Darius Dale - CLICK HERE.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

MCD remains one of our top LONG ideas in the restaurants space. All indications are that all day breakfast is working, bringing back old customers and driving growth of new customers. Customers are pairing both breakfast and lunch items together in the lunch and dinner day, part which is helping drive additional sales.


McDonald’s Canada opened its first standalone McCafe this month. The much simplified concept intends to appeal to customers by offering both speed of service and low cost. They intend to be faster than their main competitor Tim Hortons and cheaper than Starbucks, carving out their own niche in the market.


This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. The key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+).


The Bears got a nice little gift in the form of weaker Gross Margins due to promotional activity, and renewed concerns about management. The reality is that this is a transformational growth story that will change on the margin more often than it doesn’t. Based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy.


Implicit in our long TLT/short JNK bias is an expectation for high-yield spreads to continue along their recent trend of widening throughout the YTD.


“The U.S. economy is #LateCycle and the probability of a recession commencing by mid-2016 is extremely elevated – both in absolute terms and relative to the belief held by the overwhelming majority of investors and policymakers. Moreover, the risk of a global recession is also great in this scenario.”


The economic cycle doing what it always does (i.e. decelerate into a recession before bottoming and then reaccelerating) is reason enough to be bullish on the long bond and bearish on junk bonds, which are accelerating into full-blown crisis mode (the JNK ETF declined another -2% on Friday and is down -4.1% WoW, -5.8% MoM and -12.7% YTD).

Three for the Road


VIDEO (2mins) Whoops! A Look Back At Some of Wall Street’s Worst Predictions This Year



Know the value of time. Snatch, seize, and enjoy every minute of it.

Lord Chesterfield


Kohl’s will keep its doors open for more than 170 hours straight from 7am on Thursday, December 17 through 6pm on Christmas Eve, that is up from 100 hours last year.

Best Ideas Call Invite | WisdomTree (WETF) - Not So Smart Beta

Takeaway: We will be hosting our latest deep dive BlackBook presentation tomorrow Thursday, December 17th at 11am EST.

watch the replay below.


We will be hosting our next BlackBook presentation tomorrow Thursday, December 17th at 11am EDT on asset manager WisdomTree (WETF). Our presentation will outline how there is substantial unrecognized risk in this high growth story:


  • Concentration Risk: The firm has the most concentration risk in the industry to its top two products, the HEDJ and the DXJ. Both of these international hedged products underperform benchmark in local terms and thus the main value proposition is that FX hedges offset their beta construction weaknesses. While the firm has cut its teeth on its innovative fundamental benchmarking process, our analysis finds consistent underperformance across most of its strategies. 
  • Dollar Risk: Because both HEDJ and DXJ are dependent on Dollar strength for returns, investors have embedded leverage to the fate of the U.S. currency. Our research shows that the dollar appreciates BEFORE rate hikes, but DECLINES after. Moreover, the dollar is a consensus long and there are numerous reasons to expect it to slow its rate of ascent. Currently the U.S. currency has put in a 3 standard deviation move within a 10 year period and has hit its +20% Y/Y rate of change, a key resistence level. 
  • New Product Risk: We see new product introduction waning as FX hedged products are successful to the extent that a cheap currency hedge is available. Only the Swiss Franc, the Euro, and the Japanese Yen are viable candidates for hedged equity products considering current interest rate differentials and liquidity, which means the firm has already launched its most successful funds.
  • Estimate Risk: WETF used to rely solely on its EM and fixed income products however those are in double digit decline now. Outside of the two important international hedged products the franchise is decaying its AUM by -4% Y/Y. The Street continues to have substantial expected growth for HEDJ and DXJ but this is risky considering local underperformance outside of FX gains. Our 2017 estimates are -25% below the Street and we see a high probability of the firm missing Consensus' lofty expectations.


CALL DETAILS - Thursday, December 17th at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • Conference Code: 13626744
  • To Automatically add to your Outlook Calendar Click HERE
  • For Associated Materials Click HERE


Jonathan Casteleyn, CFA, CMT 

Joshua Steiner, CFA


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