“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


Stock Report: Utilities Select Sector SPDR (XLU)

Takeaway: We added XLU to Investing Ideas on the long side on 1/08.

Stock Report: Utilities Select Sector SPDR (XLU) - HE XLU table 1 11 16


For new subscribers unfamiliar with our macro team's process, we have a battle-tested approach on which asset classes outperform beta given our proprietary view on both growth and inflation. Our loudest call right now remains positioning for #SlowerForLonger (growth) as the steady stream of #SuperLateCycle economic data continues to manifest itself.


That’s our edge – an empirically-tested model for front-running the second derivative of growth, inflation, and policy. Once we know whether or not growth and inflation are accelerating or decelerating, we have a back-tested, tactical strategy for which asset classes outperform in a given environment.


Make no mistake. Our #SlowerForLonger call still fits our team's macro view. As a consequence, we are sticking with #LowerForLonger on interest rates and higher Utilities (XLU) multiples.   




Factor exposure is very important to us, especially when volatility is in a bullish TREND set-up and small cap, illiquid stocks continue to underperform. Here's another way to look at it:



+ Illiquidity

+ Too many hedge funds chasing performance...

= #Pain


Unlike the holiday season squeeze in everything we don’t like, continuing to short small cap, volatile stocks and buying less volatile utilities has been an alpha-generating strategy so far in 2016:


  • High-beta stocks lost another -8.9% last week (-17.6% in the last 6 months)
  • Small cap stocks lost another -6.9% last week (-17.3% in the last 6 months)




To be clear, we don’t expect our non-consensus #SuperLateCycle and #SlowerForLonger call to end without a recession. While the exact timing of when a recession will ultimately commence is always difficult to nail-down, we are arguably already in an industrial recession (cyclicals peaked in rate-of-change terms in late 2014), as late-cycle things like employment and corporate profits peak ~3-9 months after that.


The bottom line here? We continue to expect utilities to outperform the broader market given this current environment.    


Stock Report: Utilities Select Sector SPDR (XLU) - HE XLU chart 1 11 16

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Cartoon of the Day: Good News, Bad News

Cartoon of the Day: Good News, Bad News - Fed cartoon 01.11.2015


One of the biggest risks to financial markets right now is believing the Fed's economic forecast.

IN THE NEWS: Barron's On Hedgeye Restaurants Analyst Howard Penney's Short Chipotle Call | $CMG

Takeaway: Tempted to nibble on shares of beaten down Chipotle? You may want to reconsider says Howard Penney.

Over the weekend, Barron's Senior Editor Vito Racanelli dug deep into Hedgeye Restaurants analyst Howard Penney's call to short Chipotle (CMG). Shares are down 45% from its all-time high.


IN THE NEWS: Barron's On Hedgeye Restaurants Analyst Howard Penney's Short Chipotle Call | $CMG - chipotle barron s


As Racanelli writes:


"... The Denver-based chain faces a long road to regain investor trust. That’s the view of Howard Penney, an industry analyst with decades of experience at Hedgeye Risk Management, an independent research firm. He has been spot on since he turned skeptical on Oct. 19, 2015.


Is Chipotle now a cheap stock, given its heretofore 20% revenue and 30% EPS growth over the past seven years? Penney remains bearish."


In the story, Penney walks through his five stage life-cycle restaurant guide for investors tempted by Chipotle’s 45% decline.


"... Eventually, management psychology will signal a bottom in the stock price, he says. In stage No. 5, management decides to close stores, slow growth, and stop discounting to improve profitability. That’s the time to buy, says Penney, who has a $275 price target on Chipotle, down another 33%. He bases that on a still rich P/E of 27 times his estimate of $10 a share this year."


IN THE NEWS: Barron's On Hedgeye Restaurants Analyst Howard Penney's Short Chipotle Call | $CMG - chipotle cartoon


Bottom line according to Penney: We're a long ways off from Stage 5. Don't buy the dip. 

Got Risk? TED Spread Doubles In Past Month

Market risk is rising.


Our Financials analysts Josh Steiner and Jonathan Casteleyn highlighted this morning that the TED spread, the 3 month US Treasury Yield minus 3 month LIBOR (a proxy for risk), has nearly doubled in the past month or so.


Got Risk? TED Spread Doubles In Past Month - ted spread


The TED Spread is just one more market measure confirming our thinking about rising risk and volatility. Our macro team recently pointed out in our Q1 2016 Macro themes deck that a bear market for equities could be in the offing.


To be clear, the TED spread is still well below 2011 levels and pales by comparison to the jarring spike seen during the throes of the financial crisis. As Hedgeye CEO Keith McCullough points out, "Don't think about risk in terms of absolutes - rate of change is what matters most."


As Keith likes to say, "Risk happens slowly at first, then all at once."


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