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CHART OF THE DAY: Got Non-Sucker Alpha?

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.

 

"... If you can’t be long the “growth” that everyone is already long, what was up last week that is A) actually up YTD and B) generating non-sucker alpha for the right reasons?

  1. Utilities (XLU) had another monster week, closing +3.7% to 4.9% YTD
  2. The Long Bond (TLT) capitalized on another -13 basis point drop in the 10yr Yield to get to +5.3% YTD
  3. Gold tacked on another +1.8% for the week, moving to +5.3% YTD" 

 CHART OF THE DAY: Got Non-Sucker Alpha? - 02.01.16 Chart


SPY Suckers

“If you don’t know who the sucker is, it’s you.”

-Unknown

 

Searching through QuoteInvestigator.com this morning (nice life at 5AM), I couldn’t figure out who actually made this common sense statement first. If you know, let me know!

 

In one of Berkshire’s Annual Reports, Warren Buffett wrote: “As they say in poker, if you’ve been in the game 30 minutes and don’t know who the patsy is, you’re the patsy.”

 

I don’t like the word patsy, and I don’t want to be the sucker. What I really want is good #process. As Lasse Heje Pedersen wrote in Efficiently Inefficient, “we are interested in strategies that can be expected to continue to make money in the future – a repeatable process that generates alpha.” (pg 39)

 

SPY Suckers - trust my gut cartoon 10.14.2015  2

 

Back to the Global Macro Grind…  

 

Don’t be the guy/gal who woke up this morning with the “15 Stocks To Buy Now” (cover of Barron’s this weekend). Instead of how to “position for a rebound” (Barron’s), non-suckers will continue to be positioned for what’s been working for 7 months – selling into the mother of all-time highs in US stocks, and ramping up defensive Long-term Treasury type (TLT) exposures.

 

Last week was a fun one, if only because they found “rebalance” as a reason to mark-up the US stock market into month end after a ridiculous move by the Japanese to target “negative yields” in their bond market. After closing +2.5% on the day on Friday (to get the SP500 +1.7% on the week), most macro pundits were able to forget that US GDP had a 0% handle on it (0.7% for Q4).

 

If you dig into the internals of the macro market moves (we’re non-sucker sticklers for breaking down the storytelling of it all) here’s how the weekly scores looked relative to 2016 to-date:

 

  1. US Dollar Index flat for the week and +1.0% YTD
  2. Burning Yen (vs. USD) -1.9% for the week and -0.7% YTD
  3. Nikkei (Japan) +3.3% for the week and -8.0% YTD
  4. Russell 2000 +1.4% for the week and -8.8% YTD
  5. Nasdaq only +0.5% on for the week and -7.9% YTD
  6. Healthcare Stocks (XLV) down -2.0% for the week and -7.7% YTD

 

I’ll stop there for a second as it’s critical to contextualize that the “QE hope” was all that was – a day trade. Many US “growth” investors aren’t long Japanese stocks or Commodity squeezes – they’re long Nasdaq and Healthcare beta.

 

If you break down the US Equity Style Factors week-over-week:

 

  1. High Short Interest Stocks were +2.8% for the week and are -6.0% YTD
  2. Low-Growth Stocks were +3.1% for the week and are -5.1% YTD

*Mean Performance of Top Quartile vs. Bottom Quartile of SP500 Companies

 

In other words, not only did Energy Stocks (XLE) +4.4% lead the low-quality-short-squeeze on Friday, but the Top Quartile of SP500 Sales Growers sucked, closing only +0.7% on the week and only -7.5% YTD.

 

If you can’t be long the “growth” that everyone is already long, what was up last week that is A) actually up YTD and B) generating non-sucker alpha for the right reasons?

 

  1. Utilities (XLU) had another monster week, closing +3.7% to 4.9% YTD
  2. The Long Bond (TLT) capitalized on another -13 basis point drop in the 10yr Yield to get to +5.3% YTD
  3. Gold tacked on another +1.8% for the week, moving to +5.3% YTD

 

While US Dollar (UUP), The Long Bond (TLT), and Utilities (XLU) remain the Top 3 LONG Ideas in our Global Macro Themes Deck, I added Gold (GLD) to the long side (when it was red on the day) in Real-Time Alerts late last week.

 

On the other side of those Long Ideas, there’s a bounty of excellent short selling opportunities this morning in things like:

 

  1. Oil
  2. Copper
  3. CAT
  4. Canadian (and US) Banks
  5. SPY (SP500)

 

Oh yeah. You like that last one don’t you! SPY has been the sucker’s rally position for the aforementioned 7 months (when it locked in its all-time #Bubble high of 2130 in July of 2015).

 

Admittedly, being short SPY hasn’t been as sexy as short something like the Italian Stock Market (MIB Index DOWN another -2.0% last week to -12.9% YTD with #EuropeSlowing from its cycle peak), but it’s been pretty sexy.

 

From a sentiment perspective, looking at the CFTC non-commercial net SHORT position in the SP500 (Index + Emini):

 

  1. It got 54,976 LESS short last week to -137,478 net SHORT contracts
  2. That’s 50% less short than the peak short position established in SEP 2015 (at the market low)
  3. And that position registers a -0.5 z-score vs. its 1yr avg (the 6mth avg net SHORT position = -148, 831)

 

So, for starters, I’m thinking that the SP500 (SPY) has at least another 200 handles of intermediate-term TREND downside (another -10% from Friday’s marked-up close) before I take a knee again. Consensus on a US #Recession isn’t nearly Bearish Enough.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.91-2.02%

SPX 1 
RUT  
YEN 119.01-121.54 
Oil (WTI) 27.52-34.66

Gold 1100-1132

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

SPY Suckers - 02.01.16 Chart


Yen, Commodities and Yields

Client Talking Points

YEN

The Yen was smashed on the “negative yield” panic by the Japanese on Friday. Good for a 2-day Nikkei lift to lower-highs, but what’s next with the Nikkei down -7% year-to-date? All Japanese, European, and Chinese FX panic means is more #Deflation, in Dollars.

COMMODITIES

Dare we say layup short selling opportunities in things we don’t like (Oil and Copper specifically) on last week’s bounce – both are down -1.2-1.8% this morning. Gold (which we’re long in RTA, currently) is up +0.4% as #Deflation Risk = On.

YIELDS

Yields around the world crushed by Japan doing more of what hasn’t worked for decades – JGB 10YR = 0.04%! German 10YR = 0.31%, Swiss 10YR -0.31%. The U.S. Long Bond (TLT) remains our favorite Macro long idea alongside USD and Utilities (XLU).

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 60% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 2%
FIXED INCOME 25% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
XLU

After a busy week of domestic data, you probably don’t need us to tell you that growth continues to slow. Despite the short-covering squeeze in energy stocks, Utilities (XLU) closed out January as the only sector in positive territory (+5%), other than Consumer Staples which eeked out a +0.5% gain. It was an awful start to the year for the S&P 500 (-5%). Don’t expect +10% of relative outperformance every month, but if you stuck with us on this trade, you’re in much better shape than most.

GIS

GIS remains one of our top Long ideas in the consumer staples space. As we have continued to say it boasts style factors that are ideal in turbulent times; high market cap, low beta and liquidity.

 

Recently, General Mills has been attacked by Chobani commercials, claiming that Yoplait yogurt contains the same ingredients used in pesticide. GIS filed a false advertising lawsuit against Chobani demanding that they stop showing that commercial because it could be detrimental to sales. GIS just got word that a federal judge has barred Chobani from continuing the ad campaign. This is a win for GIS, but it is unclear right now if there was any damage done to the brand. At this time we do not believe it had any serious impact on the company. We will keep you informed of any material information regarding this lawsuit as it moves forward.  

TLT

Long-Term Treasuries (TLT) continues to preserve capital against the slow-moving trainwreck in Junk Bonds (JNK). Week-over-week, 10-year bond yields crashed 13 basis points to 1.92%. That helped lift the best play on U.S. growth slowing (TLT) by 0.85% on the week as credit spreads continued to widen (JNK gained +0.76% on the week, underperforming TLT marginally on a relative basis).

Three for the Road

TWEET OF THE DAY

NEW VIDEO | From #Washington To Wall Street: What To Watch w/JT Taylor https://app.hedgeye.com/insights/48857-from-washington-to-wall-street-what-to-watch-with-jt-taylor … cc @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

What would life be if we had no courage to attempt anything?

Vincent van Gogh

STAT OF THE DAY

Only 17 states require high school students to take a course in personal finance.


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 80.33%
  • SHORT SIGNALS 78.51%

How Did You Do In January?

Takeaway: We've got 21 new reasons why it pays to be a RTA subscriber.

How Did You Do In January? - bull drinking 01.08.2016 

We're not going out on a limb here stating that it was a rough month for most people. That's the reality. Stocks posted their worst January since 2009.

  • The S&P 500? Down -5.1%

  • Dow Industrials? Down -5.5%

  • Nasdaq? Down -7.9%

 

Not so for our Real-Time Alerts subscribers. In fact, this past month was one of the best (absolute and relative) months in RTA history.

 

As you can see below, Hedgeye Risk-Manager-In-Chief Keith McCullough more than managed global market volatility. He delivered a remarkable 21 of 23 winning signals in Real-Time Alerts.

 

Not a bad way to start one of the most difficult months in recent history.

 

Click to enlarge

 

How Did You Do In January? - z rta

Editor's Note: Hedgeye's Real-Time Alerts are risk management signals, not actual trades. For more information click here.

 

Here's a tweet posted on Friday. We've been seeing a lot of these... 

 

...And a recent email from another subscriber.

How Did You Do In January? - z sub ff

 

Looking for performance?

Transparency?

Accountability? 

Try Real-Time Alerts.

 

WHAT EXACTLY IS REAL-TIME ALERTS? 

Nearly every trading day, you’ll receive Keith’s latest risk management signals – buy, sell, short or cover. While each signal is quantitatively driven, qualitative research updates provide Macro and stock-specific context to guide you. Subscribers also get LIVE, unfettered access to Keith via exclusive online RTA Live segments. During this private broadcast, he offers detailed insight into why he’s making the calls he’s making and answers subscriber questions during live Q&A. 


From Washington To Wall Street: What To Watch With JT Taylor

 

In this HedgeyeTV video short, Potomac Research Group Senior Analyst JT Taylor walks through the past week on Capitol Hill. Taylor speculates on who won Thursday's GOP debate (sans frontrunner Donald Trump), discusses the evolving Clinton-Sanders face off and looks at whether former NYC Mayor Michael Bloomberg may ultimately join the fray.


The Week Ahead

The Economic Data calendar for the week of the 1st of February through the 5th of February is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.

 

CLICK IMAGE TO ENLARGE.

The Week Ahead - 01.29.16 Week Ahead


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.

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