#Crash Mode

Client Talking Points


One of the signals that remained in #crash mode yesterday (> 20% decline from bubble peak) was the Russell. It has no immediate-term support to the low-end of the 981-1,032 risk range (sell high end of range, cover low) – both the ISM of 48.2 (4th straight month of contraction) and Fed Loan Officer Survey’s keep #Recession probability rising.


Too bad both the Draghi devaluation move (and the Japanese negative rates one) only gave those stock markets 2-day rallies. Straight down again for the DAX, IBEX, and MIB Index (all are in #crash mode with Spain leading the draw-down at -27.4% from its 2015 bubble peak) #EuropeSlowing.


Wow is chasing charts getting painful to watch – straight back down this week for WTI (down -6.6% yesterday and down another -2.3% this morning with no support to the low-end of the risk range at $27.62). Draghi and Kuroda Devaluation moves are Dollar #Deflation ones; UST Yield Spread (10s/2s) 113 basis points is flattest curve of the cycle.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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 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.  


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


$HAIN core US business is in a free fall...



You will either step forward into growth, or back into safety.

Abraham Maslow                                      


70% of fatal avalanches take place within four days of another avalanche.

INSTANT INSIGHT | Taylor: 'The Iowa Vote Is A Referendum On Donald Trump's Candidacy'

Ahead of tonight's Iowa caucuses, we thought we'd bring you a few key insights from Potomac Research Group Senior Analyst JT Taylor. Below is a brief excerpt from Taylor's "Morning Bullets" sent to PRG institutional clients each morning. 




INSTANT INSIGHT | Taylor: 'The Iowa Vote Is A Referendum On Donald Trump's Candidacy' - trump


"TRUMPING THE COMPETITION?: The Iowa vote will be a referendum on Donald Trump's candidacy; if Trump can convert his massive crowds into turnout at the caucus tonight, then he should notch his first victory. Those hoping for a lot of Trump no-shows will probably be disappointed. He's been at the top of the polls for six (!) full months now, and one shouldn't doubt the enthusiasm. The last Des Moines Register poll released over the weekend showed Trump leading Ted Cruz by five percent, and higher turnout will be to his benefit, not Cruz's. 


A win in Iowa would turn the Trump phenomenon into cold reality. In the event he wins Iowa, establishment-wing Republicans worry he'll have enough momentum to roll on through NH and then the Super Tuesday primaries with almost triple the number of delegates than anyone else. Cruz would be the most immediately hurt -- but what could he or the other candidates do to dent Trump in return? Cruz, meanwhile, has made a late shift towards attacking Marco Rubio in ads, rather than the frontrunner." 


For more insights from Taylor watch the video below:

Cartoon of the Day: Headstand

Cartoon of the Day: Headstand - Fed cartoon 02.01.2016


"At this point, it is difficult to judge the likely implications of this volatility," said Fed Vice Chairman Stanley Fischer today. No it's not. Our Macro team has been calling U.S. #GrowthSlowing for a year and a half now.


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Who Do You Trust? Hedgeye's Macro Team Or The Atlanta Fed?

Takeaway: There is an increasing likelihood the U.S. slides into a recession in 2016.

Who Do You Trust? Hedgeye's Macro Team Or The Atlanta Fed? - Fed grasping cartoon 01.14.2015


So... the Atlanta Fed just put out their first estimate for Q1 2016 GDP. Their call? 1.2%. As you can see below, we don't agree with that. 


Who Do You Trust? Hedgeye's Macro Team Or The Atlanta Fed? - gdp estimate


Let's just state for the record here that Hedgeye's Macro team has nailed the last five GDP reports.




The Atlanta Fed? Well ... not so much. In October, it was suggesting Q4 2015 GDP would be almost 3%. That was ratcheted way back. Its final estimate was 1.0% versus the advanced estimate of 0.7%. 


Who Do You Trust? Hedgeye's Macro Team Or The Atlanta Fed? - gdp fed q4


To be fair, the Atlanta Fed has done a better job than the supposed "blue chip" consensus forecasters on Wall Street. That's the truth...


Who Do You Trust? Hedgeye's Macro Team Or The Atlanta Fed? - wall street 4q15


Still, the Fed is clearly missing something. Fed Vice Chairman Stanley Fischer said today at the Council on Foreign Relations:


“At this point, it is difficult to judge the likely implications of this [financial market] volatility. If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States."


It's not difficult actually. We have a lot of evidence that suggests to us that the U.S. economy is headed for a recession in Q1 or Q2 of 2016. In fact, we've got a 73-slide institutional Macro deck on it (click here, here and here for a taste). 


No matter. We'll stick with our process that's nailed U.S. #GrowthSlowing for the past year and a half.


Stick with us. We'll keep you a step ahead of consensus

Back To Reality: A Short-Lived Bounce, BOJ Nonsense & Our Top Macro Ideas

Takeaway: Last Friday’s month-end markup and Japanese central-market-planning was day-trading fun. Back to reality.

Back To Reality: A Short-Lived Bounce, BOJ Nonsense & Our Top Macro Ideas  - ball drop cartoon 12.31.2015


"After the best month in Hedgeye history, we're off to a nice start in February."

-Hedgeye CEO Keith McCullough this morning


Most Wall Street firms can't say they called the bubble high in U.S. stocks back in July. Nor can they say that they started sounding the alarm bells *again* after the modest rebound from August lows.


We can.



Despite last week's month-end "rally," stocks have been hammered. The S&P 500 was down -5.1% in January ... the worst start to the year since 2009. We've been outspokenly bearish. We haven't changed our views. And we continue to see about 10% downside.


Dissecting last week's rally, a short-sighted Wall Street cheered the Bank of Japan's announcement it would pursue a "negative interest rate policy." Okay. Here's analysis from McCullough in a note to subscribers this morning:


"... The Yen 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 -7% YTD? All Japanese, European, and Chinese FX panic means is more #Deflation, in Dollars."


The BOJ's manic policy decision is rippling through global bond markets...


Back To Reality: A Short-Lived Bounce, BOJ Nonsense & Our Top Macro Ideas  - bond yields


"... Ten-year 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% – US Long Bond (TLT) remains our favorite Macro long idea alongside USD and Utilities (XLU)."



Q: How do you play Wall Street's end-of-month exuberance?

A: Fade the storytelling.


This remains the winning risk management strategy.


Back To Reality: A Short-Lived Bounce, BOJ Nonsense & Our Top Macro Ideas  - spy rta




Early Look

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