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

Takeaway: We are hosting a conference call today, 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 today, 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 - Today, Tuesday, January 12th at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • Conference Code: 13627924
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Private Equity Historically Marks the Peak

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



Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

CHART OF THE DAY: A Bear Market For Global Equities?

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


"... It’s not just US stocks that are entering bear market mode, btw:

  1. Spain’s stock market (IBEX) is in crash mode -24.2% from its April 2015 peak
  2. Germany’s stock market (DAX) is toying with crash mode -19.1% from its April 2015 peak
  3. Japan’s stock market (Nikkei) dropped another -2.7% overnight and is -17.4% from its July 2015 peak" 


CHART OF THE DAY: A Bear Market For Global Equities? - 01.12.16 EL chart

Preservation of Capital

“The way to build long-term returns is through preservation of capital and home runs.”

-Stanley Druckenmiller


I had the pleasure and privilege of speaking at the Duquesne Club in Pittsburg, PA last night. Founded in 1873 by real American Capitalists, I was humbled by both my surroundings and the sobriety of the Q&A session.


You see, this wasn’t a NYC “idea dinner.” These were really wealthy people who run real manufacturing, industrial, and cyclical businesses. They get it. We are in a cyclical #Recession, and their 1st rule of investing remains what Buffett used to preach – don’t lose money.


When Druckenmiller ran Duquesne Capital, he was one of the all-time greats. He understood that if you don’t preserve capital during market declines, you’re always trying to get back to breakeven. Soros taught him how to take small losses before they became big ones.


Preservation of Capital - recession cartoon 12.22.2015


Back to the Global Macro Grind


Hitting home runs is fun too. But don’t forget that, for a long-only investor, being completely out of an asset class that crashes is the equivalent of a hedge fund all-star like Stan hitting one out of the park from the short-side.


“I’ve learned many things from him (George Soros), but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” -Druckenmiller


With the Russell 2000 (66% of stocks you could be long or short) moving into crash mode yesterday (down -20% from its July 2015 closing high), there are a lot of people losing a lot of money out there right now.


Been there, done that.


It’s what we do when we’re losing money that is the most important part. Do we ride losers? Do we double and triple down on them? What happens when we’re “right” on a company’s revenues and earnings, but the market makes that stock a loser too?


This, effectively, is where markets are at right now. And it’s no laughing matter.


How does it end? I don’t know. All I could tell American Industrialists last night was that my highest probability bet is that this is, as Churchill called it, “the end of the beginning.”


The end of the bull market in FX, Commodities, Emerging Markets, etc. is as obvious as the sun rising in the East at this point. That’s not new. What has really started to end in the last 6 months is an epic bull market in US stocks.


When bull markets are ending, my job is to help you risk manage and preserve capital.


They can end slowly, or all at once. And that’s why I said I’d have the arrogance of a perma-bull to suggest that I know precisely when and where this bear market ends. All I can do in the meantime is map and measure the economic and profit cycles for clues.


It’s not just US stocks that are entering bear market mode, btw:


  1. Spain’s stock market (IBEX) is in crash mode -24.2% from its April 2015 peak
  2. Germany’s stock market (DAX) is toying with crash mode -19.1% from its April 2015 peak
  3. Japan’s stock market (Nikkei) dropped another -2.7% overnight and is -17.4% from its July 2015 peak


Yep. Japanese stocks peaked, literally, in the same week that both the SP500 and the Russell 2000 closed at all-time highs. Much like I did in November 2007, trust me, I wrote down every closing price at those all-time #bubble highs in July 2015.


They aren’t leaving my notebook.


In other news, the Federal Reserve’s Lockhart (voting member of the FOMC this year) said yesterday that the US economy is “strong enough to justify more rate hikes.”




Lockhart, don’t forget, runs the Atlanta Fed – as in the entity that continues to cut its US “GDP Now” (updated for real-time data) forecast – so his comment on rates is as contradictory as some Chinese dude from officialdom telling you China’s GDP is still 7.0%.


If the Fed continues to both cherry pick the data and tighten into an obvious cyclical #Recession and consumption slow-down, they will probably be the catalyst to invert the Yield Curve.


By the time the Yield Curve is inverted (2yr yield is higher than the 10yr), you better have preserved a lot of capital. Because you’re in a recession. And you’re going to need capital. No one hits home-runs from the long-side without a bat.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.23%

RUT 1028-1071

VIX 20.85-28.09
Oil (WTI) 31.68-35.01


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Preservation of Capital - 01.12.16 EL chart

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 80.52%
  • SHORT SIGNALS 78.67%

The Macro Show Replay | January 12, 2016


“Bounces” within Crashes

Client Talking Points


The Russell 2000 took a peak at crash mode intraday yesterday (down more than 20% from its July 2015 bubble high) and is currently down -19.6% from that 1295 closing price. This is not China – this is a U.S. domestic liquidity trap strangled by USA #Slowing.


The Nikkei is playing catchup, dropping another -2.7%. The Nikkei has had no up days in 2016, yet – so probably get one tomorrow as the Nikkei is signaling immediate-term TRADE oversold at -17.4% from its 2015 peak. The Yen signaling overbought vs. USD too.


Studying the complexion of the manic media’s “bounces” is #critical. The IBEX is up +1.2% on the bounce, but sis till in crash mode, down -24.3% from its 2015 high. The DAX is up +2.3% on the bounce, but down -18.8% from its April 2015 closing high.


*Tune into The Macro Show with Macro Analyst Ben Ryan at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald's boasts style factors that are best in class for turbulent times in the market, big cap and low beta and it has handily been outperforming the market and its competitors as of late. One of the biggest aspects of competing in their space is value offering.


McDonald’s has ceded share in the value category primarily to Burger King over the last two years. Now that they are launching a national value platform with a full slate of media support, MCD will recover the value customer.


General Mills' business seems to be starting to pick up steam, as the company is working to improve merchandising and advertising on core business.


In addition they have executed a few small, but meaningful M&A deals showcasing the change in managements thinking. The divestiture of Green Giant to B&G Foods, for instance, although a profitable business, was a good move for them given their lack of focus/investment in the brand (they have more opportunities like this throughout their portfolio, in addition to SKU rationalization).


GIS continues to look for more sizeable acquisitions in emerging markets, but the string of pearls approach may remain most effective domestically.


After the worst start to a year literally EVER for U.S. equity markets, TLT caught a bid in the first week of trading as the centrally-planned Chinese stock markets traded limit down earlier in the week. It was the largest central bank liquidity injection from Beijing since Chinese markets crashed in September.


TLT remains one of our strongest long idea calls heading into 2016 as junk bond markets begin to crack.  

Three for the Road


Chairman Jeff SMITH Sells 1,300,000 of DARDEN $DRI..  Well played and great trade!



Success is no accident.



The Financial Times reports that reselling sneakers is now a $1 billion market. 

Hedgeye Risk Management Acquires Potomac Research Group

Independent Washington Policy Research Firm Joins Forces with Independent Investment Research Firm to Provide Greater Scope of Actionable and Non-Consensus Investing Analysis



STAMFORD, Conn., January 12, 2016 -- Hedgeye Risk Management announced today that it has acquired Potomac Research Group (PRG), a Washington, D.C.-based, independent research firm which provides predictive and actionable Washington policy analysis to institutional investors. PRG’s research is sought after by pension funds, hedge funds, mutual funds and private equity firms to better understand the investing implications of legislation and regulation on specific markets, industries, and companies.


Founded in 2008 by Suzanne Clark, PRG’s seasoned analysts are widely-recognized by the industry as authorities in their respective policy areas. Their unique, non-consensus evaluation of federal legislative activities and regulatory and Federal Reserve policies is focused on determining Washington’s impact on highly-regulated industry sectors, including healthcare, defense, energy, technology and telecommunications.



“We are incredibly excited about this acquisition,” said Hedgeye CEO Keith McCullough. “This is a perfect marriage between public policy and fundamental research, with each augmenting the other. Suzanne Clark has assembled a world-class team of thought leaders at PRG. So, it’s a win-win for both companies, and it’s a big win for all of our customers who immediately gain an unparalleled edge in gauging the investing implications of Washington policy.”


PRG’s team of expert analysts includes Lt. Gen Emerson “Emo” Gardner, USMC, Ret. (Aerospace & Defense); JT Taylor (Domestic Policy Analysis); LTG Dan Christman, USA Ret. (Geopolitical Analysis); Former Energy Secretary Spencer Abraham and Joe McMonigle (Energy); Paul Heldman and Sasha Simpson (Health Care); and Paul Glenchur (Telecom & Media).


"We’re proud to have built a firm that punches above its weight,” said PRG Founder Suzanne Clark. “PRG was recognized as one of Inc. 500’s fastest growing firms in America and because of its blue chip clients and talented professionals, it achieved brand visibility almost overnight.  But our real achievement was finding Hedgeye.  Their sophisticated approach to the market and research is the perfect platform to take PRG to the next level of performance."


Hedgeye CEO McCullough added, “We are in the early innings of an historic election, one which will have significant implications for both Wall Street and Main Street. Make no mistake, Washington’s economic impact will only continue to increase, regardless of the party in power.  This merger ensures that our customers will receive the best ‘Washington to Wall Street’ research available.”



Hedgeye Risk Management is an independent investment research and media firm. Focused exclusively on generating and delivering actionable investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Consumer Staples, Internet & Media, Housing, and Materials.


CONTACT: Dan Holland


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.