CHART OF THE DAY: Contextualizing The #SuperLateCycle Jobs Report

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.


"... That’s why stocks sold off on Friday’s #SuperLateCycle jobs “news.” In rate of change terms, fully-loaded with all the part-time hiring and construction work (yes, the weather helped in that case):

  1. December non-farm payroll growth slowed to 1.88% year-over-year growth vs.
  2. The Cycle Peak of 2.34% non-farm payroll growth in February of 2015" 


CHART OF THE DAY: Contextualizing The #SuperLateCycle Jobs Report - 01.11.16 EL chart

We Are A Process

“We are what we repeatedly do.”



Yesterday Coach Doyle and I took our Mid-Fairfield Rangers Mite Hockey Team up to New Haven, CT for a tilt with Yale Youth Hockey at Ingalls Rink. Commonly known as The Whale, our kids (and parents) got the full tour of the Yale Hockey facilities after the game.


Yale Hockey Coach Keith Allain had the aforementioned quote painted into the legend that is becoming his men’s locker room. Reading that gave me an important pause for reflection – one that I was quite grateful for. It reminded me why we do what we do in this life.


What we do as parents, coaches, and professionals is what we are. What we do @Hedgeye is transparency, accountability, and trust. We are both a team and a process. We win, lose, and learn, as a team. With time, we evolve.


Back to the Global Macro Grind


Some people don’t like reading about coaching, parenting, and leadership. We do. And we don’t apologize for that. We have a macro market opinion that is born out of a rigorous rate-of-change risk management #process, and we’re very clear on that too.


You’re either reading this right now or Barron’s “Bear Scare – Why The Selling Might Be Almost Over.” The difference between our process and Old Wall Media’s is that we told you to sell before the Russell 2000 deflated -19.2% from its July #Bubble high.


We Are A Process - denial cartoon 09.28.2015


Post the worst week 1 for a US stock market ever (which is still, by our definition, a very long time), the SP500 is -6% YTD and -10% from its all-time high of 2130 in July of 2015.


Nothing last week should have surprised you – what got hit the hardest has been getting hit (hard) for the last 6 months:


  1. High Beta Stocks lost another -8.9% week-over-week and are -17.6% in the last 6 months
  2. Small Cap Stocks lost another -6.9% week-over-week and are -17.3% in the last 6 months

*Style Factors: Mean performance of Top Quintile vs. Bottom Quintile of SP500 companies


What seemed to surprise some people was that the Financials (XLF) are not a good place to be during both #Deflation and an industrial/cyclical US #Recession. Hint: when you have those, long-term rates fall. Here’s how that looked last week:


  1. US 10yr Treasury Yield dropped another -15 basis points last week to 2.12%
  2. US Yield Spread (10yr minus 2yr) flattened to a cycle low of 118 basis points wide
  3. US Financials Stocks (XLF) lost -7.3% last week and remain bearish TREND @Hedgeye


If you thought that cyclical “PMIs bottomed” when the employment/consumption/profit cycle peaked (at the end of Q2 2015), and you bought the Financials on that, you’re down -13.6% since the July high. Beats being long Apple from there (down -26.5% since SP500 top)!


That’s the most important thing consensus Macro is missing right now – that while cyclicals peaked in late 2014 (that’s why they call them cyclicals!), classic #LateCycle things like employment and corporate profits peaked 3-9 months after that.


That’s why stocks sold off on Friday’s #SuperLateCycle jobs “news.” In rate of change terms, fully-loaded with all the part-time hiring and construction work (yes, the weather helped in that case):


  1. December non-farm payroll growth slowed to 1.88% year-over-year growth vs.
  2. The Cycle Peak of 2.34% non-farm payroll growth in February of 2015


I know. I know. That’s not the way that people who think in terms of “good” or “bad” thought about the jobs report. Evidently they thought wrong. We do rate-of-change (i.e. we think in terms of things getting better or worse) and contextualize data within the cycle.


We do it that way because Mr. Macro Market does too. By the time the “companies” and media tell you, it’s too late. How do you think JP Morgan (JPM) is going to characterize the current rates and “market environment” when they report earnings on Thursday?


If they’re being transparent, accountable, and trustworthy on the matter, I’m thinking they’re talking about the Yield Curve flattening, market volatility ramping, and Credit Spreads widening. Our process has been signaling these risks rising since July too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.21%

RUT 1028-1090

VIX 20.22-28.14
USD 97.54-100.14
Oil (WTI) 32.05-35.68
Copper 1.96-2.09


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


We Are A Process - 01.11.16 EL chart

The Macro Show Replay | January 11, 2015


Lazard (LAZ) | Value Trap - Best Idea Short Call Invite

Takeaway: We are hosting a conference call this Tuesday, January 12th at 11 am to review our ongoing short recommendation on Lazard (LAZ).

watch tHE REPLAY below.


We are hosting a short black book presentation this Tuesday, January 12th at 11 am EDT on M&A advisor Lazard (LAZ). Our presentation will outline the still unrecognized risks and complacency in this highly cyclical company:


  • M&A Set to Fall: After a new high water mark in global mergers and acquisitions in 2015, the Street is still unrealistic about the opportunity for activity into '16. Estimates are still 20% too high based on "flat to up" activity levels for the New Year which ignore various warnings in the data. Our research shows with corporate funding costs on the rise, that every 100 bps rise in credit costs has historically impacted M&A activity by -20%. Thus the backup in credit spreads that started in 1Q15 all but guarantees a negative comp for mergers in '16. In addition, rising private equity percentages in global announcements and also record highs in consideration values signal an exhausted M&A marketplace.
  • Restructuring Won't Bail Them Out: Complacency is also being sourced by "hopeful" insulation that the firm's restructuring business can plug any gap as the revenue opportunity in M&A slows. Historically, the restructuring business has had a 2 year lag after M&A peaks before contributing to results but restructuring cycles have just half the duration of M&A cycles and never fully cover the lost revenue. At just 15% of total advisory revenues across cycle, restructuring is a mild insulation at best.
  • EM/Non U.S. Asset Mgmt Exposure: The firm's most profitable business, asset management, has unfavorable Emerging Market exposure and total non-US exposure sits at over 50% of AUM. The ongoing elevated levels of the U.S. dollar and investments in petro-oriented economies has historically weighed on demand for institutional exposure to non-developed domiciles. We will flesh out what a reasonable yield on Lazard's AUM business is.


CALL DETAILS - Tuesday, January 12th at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • Conference Code: 13627924
  • To Automatically add to your Outlook Calendar Click HERE
  • For Associated Materials Click HERE


Private Equity Historically Marks the Peak

LAZ - As Good As It Gets...Modeled For Perfection



Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

CORRECTION: Investing Ideas Levels - JNK

Editor's Note: Please see highlighted in yellow below the correct trend range for JNK (Junk Bonds). We apologize for the error. Enjoy your weekend.  

CORRECTION: Investing Ideas Levels - JNK - zz levels 2

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

The Week Ahead

The Economic Data calendar for the week of the 11th of January through the 15th of January is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 01.08.16 Week Ahead

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%