The Macro Show Replay | December 21, 2015



As a follow-up to the the launch of the Hedgeye Materials vertical, please join us TOMORROW (Tuesday, December 22, 2015 at 11AM EST) for a review of the bear case on Newmont Mining.






NEM is typically perceived as a ‘premium’ gold miner, but, for one, we aren’t sure there really is such a thing.  Long-term, NEM has been a secular underperformer; we expect that underperformance to continue.  NEM may struggle with comparatively high costs in a declining gold price environment.  We are not convinced that NEM’s 2015 cost reductions reflect the underlying production economics and expect the shares to be further derated by the market in 2016.




  • Assumption vs. Reality:  A look at key assumptions behind NEM’s costs and those of competitors
  • Charges Coming:  NEM may need to again adjust asset values lower, potentially with broader implications
  • Likely Value Trap:  Cyclicals in a downswing typically look cheap as conditions deteriorate
  • No Gold Cure:  With mine production likely to exceed estimates and gold continuing to move out of favor with investors, we expect gold prices to decline in most major currencies.


Dial-in information will be distributed in the reminder email for this call. Please email for more information on joining.


December 21, 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
2.32 2.12 2.19
S&P 500
1,995 2,048 2,005
Russell 2000
1,104 1,157 1,121
NASDAQ Composite
4,879 5,042 4,923
Nikkei 225 Index
18,503 19,618 18,986
German DAX Composite
10,192 10,871 10,608
Volatility Index
17.84 24.83 20.70
U.S. Dollar Index
97.68 99.41 98.73
1.06 1.10 1.08
Japanese Yen
120.35 123.15 121.25
Light Crude Oil Spot Price
34.24 37.98 35.83
Natural Gas Spot Price
1.66 1.98 1.76
Gold Spot Price
1,049 1,082 1,065
Copper Spot Price
2.03 2.13 2.11
Apple Inc.
105 112 106
641 685 664
Alphabet Inc.
745 780 756
113 122 118
Kinder Morgan Inc.
13.84 17.37 15.14
Walt Disney Company, Inc.
105 112 107



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.

CHART OF THE DAY: New Bullish Narrative = Fed Hikes Into Downturn?

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.


"... Finally, since some of the perma bulls are now saying that everything they missed is “priced in”, here’s what sentiment looks like from a net positioning perspective (CFTC non-commercial futures and options):

  1. SP500 (Index + Emini) net SHORT position just closed at its LOWEST level in 3 months (-55,366 net short contracts)
  2. US Dollar net LONG position just came in at its LOWEST level this month (+36,858 net long contracts)"


CHART OF THE DAY: New Bullish Narrative = Fed Hikes Into Downturn? - 12 21 15Chart of the Day

Experiment or Demonstration?

“With us flying is not an experiment; it is a demonstration.”

-Wilbur Wright


Chapter 9 of what I think is one of the best non-fiction books of the year, The Wright Brothers, by David McCullough, is called “The Crash.” What I like most about this amazing story of American innovation is the obsession and objectivity of the #process:


“People think I am foolish because I do not like men to do the least important work on the machine. They say I crawl under the machine when the men could do the thing well enough. I do it partly because it gives me opportunity to see if anything in the neighborhood is out of order.”

-Wilbur Wright (pg 195)


As we move into the final weeks of 2015, it’s still very obvious that the Federal Reserve’s grand experiment has generated forecasts that are very much out of order. Both market prices and their commensurate volatilities demonstrated that again during last week’s “rate hike.”

Experiment or Demonstration? - Fed forecast cartoon 11.13.2015


Back to the Global Macro Grind


Trying to “demonstrate strength” by raising interest rates into a slow-down revealed the #1 weakness of the macro market last week. It’s called #Deflation. No, it’s not “transitory.” It’s been pervasive.


Here’s how that looked in #StrongDollar terms:


  1. US Dollar Index +1.2% on the week to +9.3% YTD
  2. Canadian Dollar -1.3% on the week to -16.6% YTD
  3. Brazilian Real -2.7% on the week to -33.4% YTD
  4. CRB Commodities Index -1.5% on the week to -25.1% YTD
  5. Oil (WTI) -3.0% on the week to -42.4% YTD
  6. Copper -0.4% on the week to -25.5% YTD


And that’s just a small but impactful snapshot of what is happening underneath the hood of the Global Macro market’s machine. Whether you’re a Brazilian farmer or a Canadian miner, you get it. Yep. That’s “ex-Energy.”


If you have friends who still aren’t yet aware of modern day macro and how experimental central-plannings impact Foreign Currencies, Commodities, and Credit markets, please send them a Hedgeye Macro subscription for Christmas!


With the SP500 dropping -3.3% in the 2 days following the Fed’s experiment, this is what happened from an Equity Sector Style perspective:


  1. Basic Material Stocks (XLB) -3.8% on the week
  2. Energy Stocks (XLE) -2.8% on the week
  3. Utilities (XLU) +1.7% on the week


Yep. Same signal. When the USD ramps and rates fall, Utilities rally and #Deflation (Energy and Basic Materials) continues.


This macro reality continues to get priced into the non-Energy Style Factors of the US stock market:


  1. HIGH BETA stocks dropped another -2.0% last week to -15.3% YTD
  2. SMALL CAP stocks deflated another -1.5% last week to -15.9% YTD
  3. HIGH DEBT stocks dropped another -0.7% last week to -13.8% YTD

*mean performance of Top Quartile vs. Bottom Quartile (SP500)


And from a Sales and Earnings perspective (SP500 companies):


  1. SALES: bottom 25% Sales Growers fell another -1.4% last week to -15.5% YTD
  2. EARNINGS: bottom 25% Earnings Growers deflated another -1.0% to -15.7% YTD


That’s why stock pickers finally agree that #GrowthSlowing is as good a macro call as #Deflation has been. In a slowing growth environment, companies that are growing are getting more expensive. Meanwhile “cheap” companies that miss numbers continue to get cheaper.


Finally, since some of the perma bulls are now saying that everything they missed is “priced in”, here’s what sentiment looks like from a net positioning perspective (CFTC non-commercial futures and options):


  1. SP500 (Index + Emini) net SHORT position just closed at its LOWEST level in 3 months (-55,366 net short contracts)
  2. US Dollar net LONG position just came in at its LOWEST level this month (+36,858 net long contracts)


To put both of those positions in context, the 3-month average net SHORT position in SP500 is -160,851 and the 3-month average net LONG position in US Dollars is +41,879.


Maybe that’s why Mr. Market demonstrated that the Long USD and Short SPY position didn’t crash last week. The Fed’s credibility did.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.12-2.32%

RUT 1104--1157

VIX 17.84-24.83
USD 97.68-99.41
Oil (WTI) 34.24-37.98


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Experiment or Demonstration? - 12 21 15Chart of the Day

Perpetuating #Deflation

Client Talking Points


With the S&P 500 down -3.6% for DEC, front-month VIX is back up at 20.70 – more importantly, it’s risk range is now 17.84-24.83 and this breakout on our TREND duration has been brutal for High Beta as a Style Factor, which was down another -2% last week.


Spain is down hard in a generally up tape for European Equities this morning. Post the Spanish election the IBEX is down -2% (-7.5% in the last month) while the 10YR Yield for Spain is up +11 basis points to 1.80%; we still think ECB President Mario Draghi wants to snap Euro $1.05 vs. USD.


Oil is down another -0.6% this morning to $34.49 after deflating another -3% last week.  #Deflation is not “transitory”, it’s been pervasive and since the U.S. is in an industrial recession right now, it’s finding its way into revenues/earnings for 1H 2016.


*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Federated Investors (FII) profitability got a boost last week as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.


In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.


In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.


We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer last week. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.


But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.


Now that the Fed finally hiked federal funds by 25 basis points into a late-cycle slowdown, the fact that TLT was up 1.8% (Wed-Fri.) on “lift-off” should be concerning to the growth accelerating bulls. After the dovish hike, the U.S. Treasury 10-Year Yield (THE GROWTH EXPECTATION PROXY) was down 10 basis points (2.3% to 2.2%). And yes, the most telegraphed rate hike ever was dovish.


Just look at the Fed’s projections and the language in the FOMC's statement. Yellen, essentially, acknowledged what we have said for ~ a year and a half now:

  • “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”
  • “Market-based measures of inflation expectations remain low; some survey-based measures of longer-term inflation expectations have edged down”
  • “Net exports have been soft”
  • ... And on the Fed’s forward-looking economic projections:
  • The Fed kept 2016 GDP estimates unchanged, and downwardly revised 2017 to 2.0-2.3% from 2.0-2.4%.
  • 2016 PCE Inflation was downwardly revised to 1.2-1.5% from 1.5-1.8%. 

Three for the Road


The Playbook (when it mattered) | Fed Day Live with Hedgeye CEO Keith McCullough



A stumbling block to a pessimist is a stepping stone to an optimist.

-Eleanor Roosevelt              


764 million TVs worldwide were tuned in for a minute or more of the final 2015 Women’s World Cup, it is also the most watched soccer broadcast ever in the U.S.

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