Call Invite | Q1 2016 Macro Themes Conference Call (1/5/16 at 1:00PM ET)

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on TOMORROW, January 5th at 1:00PM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.




  • U.S. #Recession?: Industrial activity and corporate profitability are already trending at recessionary levels. Meanwhile, domestic employment, consumption and income growth are all past peak and policy-driven deflationary pressures should persist in perpetuating soft external demand, EM distress, weak import pricing, HY credit risk and further flagging in corporate capex. We’ll contextualize the current macro data and handicap the probability of recession as the late-cycle U.S. economy traverses its steepest GDP base effects of the cycle.
  • #CreditCycle: An extended breakout in corporate credit spreads has preceded recessionary periods in prior cycles, and since we introduced our deflation theme in 2H14, both high yield and investment grade spreads have marched higher off all-time lows in cross-asset volatility and all-time highs in corporate credit outstanding. In effect, we are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated in the form of continued recessionary earnings growth as the business cycle gets dangerously long in the tooth.
  • #CurrencyWar: Historically, Fed tightening cycles, #LateCycle slowdowns and #Quad3 outcomes have all been independently been bearish for the USD. As such, our expectation for a continuation of #StrongDollar commodity and asset price deflation appears misguided in the context of our dour fundamental outlook for the U.S. economy. That said, however, currencies cannot be analyzed in isolation and our proprietary analysis of the world’s top-10 economies renders the [dollar-bullish] global monetary policy divergence theme we authored well intact.


CLICK HERE to watch Keith McCullough walk through this presentation live.


Call Invite | Q1 2016 Macro Themes Conference Call (1/5/16 at 1:00PM ET) - q1 2016 pic




  • Toll Free:
  • Toll:
  • Confirmation Number: 13627300
  • Materials: CLICK HERE


As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,


-The Hedgeye Macro Team

P | Covering Short

Takeaway: Bombed-out sentiment + no immediate catalysts = Cover. Question now is mgmt's commitment to diversifying its model


  1. BOMBED-OUT SENTIMENT: The Web IV expectation heading into the ruling amongst the sell-side was primarily calling for down to flat rates.  But we now realize that the actual buy-side expectation into the ruling was more aligned with our expectation (+.20c) than the sell-side’s since Web IV rates came in about 15% higher than 2015 rates, and the stock rallied.  But the rally was fairly muted, closing up 14% off a near two-year low on lower volume than its last earnings release; it lost roughly half of those gains the following day.  In short, we now realize that buy-side sentiment was bombed out into the ruling, and hasn’t really improved since. 
  2. NO IMMEDIATE CATALYST: We suspect mgmt sandbagged 4Q15 guidance to bring down 2016 estimates.  Consensus is now looking for revenue growth of only 23%.  The Ticketfly acquisition should provide incremental revenue growth of roughly 5%-6% based on the limited info mgmt has provided.  Net-net, consensus is only looking organic revenue growth in 2016 of ~17%, which is roughly half the rate at which P has onboarded sales reps YTD in 2015.  While we still expect Active Listeners to decline on y/y basis, potentially as early as 4Q15 (see notes below for supporting analysis), we can’t pinpoint the exact quarter when that happens.  
  3. HAS THE STORY CHANGED? Our thesis heading into the Web IV ruling was that P’s ad-supported model couldn’t survive the outcome.  We suspect P came to same conclusion following final arguments, and hastily took steps to diversify its model.  In the following months, P acquired both Ticketfly and Rdio’s assets, and extended multiple olive branches to the major labels in the pre-1972 settlement and publishing deals with Warner and Sony.  More importantly, P has continued to strike additional deals with the industry despite a favorable Web IV ruling, suggesting P may actually be committed to working toward direct/interactive licenses, and pushing into the higher ARPU/margin subscription market.  If that is the case, then P could be a different story.  


Let us know if you have any questions, or would like to discuss further.


Hesham Shaaban, CFA




P: New Best Idea (Short)
12/22/14 03:56 PM EST
[click here]


P: User Penetration Survey (N=20,000)

08/28/14 04:12 PM EDT

[click here]

China, Copper and UST 10YR

Client Talking Points


Apparently the year-end markups on no volume lost their luster – China had already devalued Yuan to a 5 year low as the economy continued to slow – today the casino in Shanghai is halted (again) at -7% on the day – the “EM/China Growth” story reminds us of Ned Stark in Game of Thrones (it died early in this cycle call and it not coming back).


Copper was tagged for another -2.7% drop to kick off 2016 - friendly reminder that PMIs have not “bottomed” and the bearish credit cycle is still early relative to some of the crashes we’ve seen in commodity linked currencies, countries, and equities.


Our Best Idea in Macro for Day 1 of 2016 is the Long Bond, and it’s going to do its job this morning ahead of another bad ISM report this morning; immediate-term risk range for the 10YR = 2.16%-2.32%.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

With the Fed's 25 basis point hike in interest rates, in the financial sector, FII stands to benefit most from even this marginal change.


In essence, Federated Investors (FII) has a stable business for what we think will be a volatile 2016. 2015 finished with slight positive inflows into the firm's main business line, money market or cash products. This is reminiscent of the start of cash builds in 1999 and 2006 ahead of the negative returns in risk assets in 2000 and 2007.


RH is our top long idea in all of retail, and we view the recent weakness in the stock as a buying opportunity. All in we think the company will build to $5bn in sales at mid-teens operating margin which equates to $11 in earnings power. This growth and profitability comes from...

  •  ~30% Square footage growth with new full line design galleries.
  • New businesses, like Modern and Teen, that can be easily layered over its low cost infrastructure.
  • Leveraging occupancy from the "sweet heart" real estate deals the company is getting as a high end traffic driving tenant willing to take anchor size leases. 

The yield spread (10Y’s -2Y’s) compressed to a 52-week low of 120 basis points last week.  AGAIN, that’s a 52-week low in growth expectations right after “lift-off”. Into year-end, the bond market continues to price in what it has all year long: #Slower-and-lower-for-longer.


We continue to believe deflation will pressure the policy-fueled leverage embedded in junk and high yield bond markets. The cheap money, corporate credit boom inflated asset prices and it has more room to deflate. This deflationary run started in the second half of 2014, with the introduction of our #Deflation theme. Back then, was also the low in cross-asset volatility and the high in outstanding corporate credit (commodity producers chasing inflation expectations were the largest contributor).

Three for the Road


NEW VIDEO | Hedgeye @RutgersU: Howard Penney’s Bear Case on Chipotle $CMG… via @HedgeyeHWP



Impossible is just a big word thrown around by small men who find it easier to live in the world they’ve been given.

Muhammad Ali                   


Corn, hogs and wheat ended 2015 down -16.1%, down -18.5% and down -24.1% respectively. 


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The Macro Show Replay | January 4, 2016


January 4, 2016

  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.32 2.16 2.27
S&P 500
2,003 2,090 2,044
Russell 2000
1,109 1,152 1,136
NASDAQ Composite
4,903 5,122 5,007
Nikkei 225 Index
18,111 19,108 19,034
German DAX Composite
10,109 10,807 10,743
Volatility Index
14.29 21.55 18.21
U.S. Dollar Index
97.41 99.41 98.75
1.07 1.10 1.09
Japanese Yen
118.81 121.23 120.20
Light Crude Oil Spot Price
35.05 38.35 37.07
Natural Gas Spot Price
1.71 2.36 2.35
Gold Spot Price
1,049 1,085 1,061
Copper Spot Price
2.02 2.12 2.13
Apple Inc.
104 108 105
648 695 676
Alphabet Inc.
749 797 778
Walt Disney Company, Inc.
102 108 105
Kinder Morgan Inc.
13.24 16.41 14.92
Valeant Pharmaceuticals Inc.
95.59 109.24 101.65


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.


CHART OF THE DAY: A Leading Indicator of U.S. Recessions Flashes Red

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


"... As you can see in today’s Chart of The Day, Thursday’s reading from the Chicago PMI of 42.9 December vs. 48.7 in November was recessionary. Nope, PMI’s didn’t “bottom” in October. Expectations for a Q4 “rally” in everything that didn’t work in 2015 topped in October instead."


CHART OF THE DAY: A Leading Indicator of U.S. Recessions Flashes Red - PMI CoD

Early Look

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