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“For Leaders, the humility to admit and own mistakes is essential to success.”

-Leif Babin

That’s so true. And such a great leadership thought for you, your families, and your respective teams to consider as we launch into another year of Global Macro Risk Management. Welcome to 2016.

The aforementioned quote comes from a US military leadership book I cracked open over the holiday: Extreme Ownership – “How US Navy SEALS Lead And Win”, by Jocko Willink and Leif Babin.

“We are by no means infallible leaders; no one is, no matter how experienced. Nor do we have all the answers; no leader does. We’ve made huge mistakes. Often our mistakes provided the greatest lessons, humbled us, and enabled us to grow and become better.” (page 8)

Amen, brothers. And on behalf of everyone in the Hedgeye family, thank you for your patriotism and service.

Back to the Global Macro Grind

In the early years (2008-2012) of Hedgeye’s inception, I had to do a lot of marketing (and fighting) for recognition. When you’re a nobody (and nobody on the Old Wall wants that to change), sometimes you just have to pick a fight (and win it).

I won’t apologize for that. I don’t like to apologize for all my mistakes either. I’d rather own them and learn from them. Last year alone in Real-Time Alerts I made 86 clean cut mistakes. That means I was very publicly wrong 23% of the time. #timestamped

To 2016 Success - RTA ytd

When you make mistakes, what do you do? Are you held to account? Or is that simply accounted for in your accounts? Either way, I’m a big believer in Extreme Ownership. It’s the only way our natural human frailty can be battle tested and hardened for victory.

Some of last year’s victors?

  1. US Dollar +9.3%
  2. German Stocks (DAX) +9.6%
  3. Japanese Stocks (Nikkei) +9.1%

Some of last year’s losers?

  1. The Euro -10.2%
  2. Oil (WTI) -38.8%
  3. Emerging Market Stocks (MSCI) -16.9%

Yeah. They know. US Farmers were big losers last year too:

  1. Corn -16.1%
  2. Hogs -18.5%
  3. Wheat -24.1%

Or was that #Deflation-not-Ex-Energy that was a big winner, making things like farming, corporate profits, and junk bonds losers?

The humility to admit and own the mistake of not understanding #StrongDollar Deflation could have saved a lot of people a lot of money, lots of times in 2015. Instead, there wasn’t a lot of accountability. There was, however, a lot of hubris.

Pro-cyclical Old Wall hubris, that is. Not only has there not been an admission and ownership of massive macro mistakes, but there’s now a doubling down on those mistakes as if nothing was wrong to begin with!

The cover of Barron’s this weekend had “The Best Income Ideas” for a “rising interest rate” environment. Meanwhile, long-term interest rates continue to fall, making a series of lower-highs as both growth and inflation expectations fall.

Last week alone, with the SP500 down -0.8%, here were the US Equity Market Style Factors that couldn’t beat bad returns:

  1. High Beta Stocks -1.9%, closing the year down -13.3%
  2. Bottom 25% Earnings Growers -1.6%, closing the year down -13.5%
  3. Small Cap Stocks -1.4%, closing the year down -14.2%

*Mean Performance of Top Quartile vs. Bottom Quartile Stocks in the SP500

The week itself finally ended one of the most peculiar “rip your face off rallies” Santa has ever seen. For December 2015, the SP500 closed down -1.75%. The Financials (XLF), which were supposed to “go up with rate hikes” dropped -3.0% on the month.


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

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 2.16-2.32%

SPX 2003-2090
RUT 1109--1152


VIX 14.29-21.55
USD 97.41-99.41
Copper 2.02-2.12

Best of luck out there this year,


Keith R. McCullough
Chief Executive Officer

To 2016 Success - PMI CoD