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Barron’s: ‘3% Growth, No Recession’ … LOL

 

In this animated excerpt of The Macro Show, Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale discuss why Barron’s is wrong on U.S. economic growth and why Friday’s GDP report will have a “0” in front of it.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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From The Vault | 5 Must See Interviews With Rickards, Roach, Stockman, Alpert & Grant

Takeaway: High-level insights with some of the smartest investors and thinkers in the world.

From The Vault | 5 Must See Interviews With Rickards, Roach, Stockman, Alpert & Grant - keith cartoon

 

Beyond our 30-plus analysts, Hedgeye's reach runs deep. We're fortunate to have relationships with some of the smartest and most sophisticated investors in the world. It's on that note that we highlight these five must-see Real Conversations where Hedgeye CEO Keith McCullough goes deep with some of the best and brightest global minds. 

 

1. Jim Rickards, "Rickards, McCullough Unplugged on Fed, USD, Economy & More" (5/9/2014)

 

Controversial best-selling author James Rickards sits down with Hedgeye CEO Keith McCullough to discussed why "Keynesian economics is junk" and why "Yellen is worse than Bernanke."

 

2. David Stockman, "Crisis Coming? Stockman on ‘Likely Global Recession’ & Consequences of the Fed"

 

David Stockman, the outspoken former Reagan budget director and bestselling author of “The Great Deformation,” sat down with McCullough discussed why "we are in a fantastic bubble... that is a function of rogue central banking now fundamentally off the deep end."

 

3. "Real Conversations with James Grant of Grant's Interest Rate Observer" (6/12/2014)

 

James Grant, editor of Grant's Interest Rate Observer, discussed monetary policy, market froth, and why central banker-induced "financial leverage will fail."

 

4. Stephen Roach, "Roach on Global Imbalances, Risks and How It All Ends" (4/6/2015)

 

Stephen Roach, Yale University professor and former Chairman of Morgan Stanley Asia, joined McCullough to discussed why "central banking has lost its way." 

 

5. Dan Alpert, "A Dire Appraisal of Our ‘Broken Global Economy’"(11/18/2014)

 

Dan Alpert, economic policy expert, author of “The Age of Oversupply,” and founding Managing Partner of investment bank Westwood Capital, discussed with McCullough why central bankers are "between a rock and a hard place" because "if you remove the stimulus keeping financial and real asset prices up... deflation would bring them crashing down."


INSTANT INSIGHT: Europe Soars On Hopes Of More Cowbell

Takeaway: Relying on unelected central planning bureaucrats to bail out stalling economies is a losing bet.

INSTANT INSIGHT: Europe Soars On Hopes Of More Cowbell - Draghi cartoon 01.20.2015

 

Nothing like new lows in European PMIs to get the QE-hope party started this morning! 

 

European bulls are begging for more central market planning QE as Eurozone PMI hit new cycle lows. Check out the bloody red charts below:

 

 

... And the recent cliff dive in Eurozone PMI numbers:

 

Meanwhile, the euro is burning on all the easy money speculation. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"The euro is down another -0.6% vs. USD this morning after falling -1.1% last week with the composite Eurozone PMI hitting a 13 month low of 52.7 in FEB; since the risk range is $1.09-1.13, I expect this party to end at $1.09, and Gold to hold $1150"

 

 

INSTANT INSIGHT: Europe Soars On Hopes Of More Cowbell - QE cartoon 10.20.2015

 

Bulls love quantitative easing. They'll accept any justification to send European equities higher, especially if it means admitting that Europe's economy is slowing. Lets put this "bounce" in context:

 

"The DAX loves Burning Euro, +2.1% on the bounce but still very much in crash mode (-23% from the April 2015 peak when the European economic cycle was peaking); Draghi will have his work cut out for him at the March 10th meeting to break $1.09"

 

 

None of this should inspire confidence.

 

We'd put our money on economic reality (aka growth continuing to slow). Relying on some effervescent hope that un-elected central planning bureaucrats can bailout stalling economies around the world has been a losing bet for some time now. 


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HedgeyeRetail (2/22) | Idea List - Moving LULU Up On Short Side

Takeaway: We're moving LULU up a few notches on the core short idea list. FL Black Book on Wednesday @ 1pm ET.

FL | Black Book Ahead of the Print

Wednesday, @ 1PM ET

For Full Details CLICK HERE

 

Hedgeye Retail Idea List - Moving LULU up on the short side.

 

We're moving LULU up a few notches on the core short idea list. The stock is working for the year-to-date, but fundamentally, we still think that this is a very good brand housed within a bad company. Management is shooting to get back to a mid-50s gross margin, which is admirable. But the company has to invest in talent, distribution, branding, and e-commerce capability -- all which will A) take margins down, B) subsequently repair the top line (in 2+ years), and then, and only then will we even think about paying for a 'margin improvement story' here -- especially with UnderArmour and Nike committing incremental capital to women's fitness.  We still think there is a meaningful management shake-up this year at LULU.

HedgeyeRetail (2/22)  |  Idea List - Moving LULU Up On Short Side - 2 22 16 chart1

 

W - Wayfair adding office space, + 1,400 employees.

(http://www.pressherald.com/2016/02/18/wayfair-to-bring-nearly-1000-jobs-to-maine/)

(http://investor.wayfair.com/investor-relations/press-releases/press-releases-details/2016/Wayfair-to-Create-450-Jobs-in-Bryan-College-Station-Texas/default.aspx)

 

Various news sources have reported 3 new office building for Wayfair (2 in Maine, 1 in Texas) over the past couple of days equaling an addition of 1400 employees. That equates to an increase of 43% from current levels. Just another example of the company investing in the infrastructure to recognize a $90bn TAM that we think is overstated by as much as 50%.

 

NKE - Nike officially opens doors for Jordan Brand store located in the Central District of Hong Kong, complete with wall of all-gold Air Jordans

(http://solecollector.com/news/2016/02/jordan-8-wellington-hong-kong)

 

Fast-growing Kit and Ace seeks top executives after CEO let go

(https://www.biv.com/article/2016/2/fast-growing-kit-and-ace-seeks-top-executives/)

 

Toys "R" Us - Toys "R" Us trying to replace $1.6 billion in junk-rated bonds coming due through 2018

(http://www.wsj.com/articles/toys-r-us-poses-a-test-for-junk-bond-markets-1456099656)

 

Sperry named official footwear of SoftBank Team Japan for 35th America’s Cup

(http://footwearnews.com/2016/focus/athletic-outdoor/sperry-shoes-americas-cup-sailing-competition-194264/)

 

MarineMax annoucned 1.25mm share repurchase program -- will replace April 2015 1mm share program, of which 772,716 shares had been repurchased

(http://www.businesswire.com/news/home/20160222005303/en/)

 

American Apparel head of manufacturing Martin Bailey resigns after 15 years

(https://fashionunited.com/news/people/martin-bailey-resigns-as-head-of-manufacturing-for-american-apparel/2016021910278)

 


MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH

Takeaway: Risk measures eased last week. However, longer term measures continue to flash warning signals.

Key Takeaway:

Ten days ago our Washington Policy Group, Potomac Research, hosted a call with former Energy Secretary Spencer Abraham called OPEC Cuts = Mirage. The point of the call was that investors should expect, but shouldn't be headfaked by, comments from various OPEC countries in the weeks/months ahead aimed at shoring up oil prices. Secretary Abraham's message was clear: the Saudis believe their policies are winning and investors should continue to expect energy price weakness over the intermediate term. 

 

We view the recent bounce in oil within that context, and would be sellers of strength. 

 

Current Ideas:

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 5 of 13 improved / 2 out of 13 worsened / 6 of 13 unchanged
• Intermediate-term(WoW): Negative / 4 of 13 improved / 7 out of 13 worsened / 2 of 13 unchanged
• Long-term(WoW): Negative / 1 of 13 improved / 6 out of 13 worsened / 6 of 13 unchanged

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM15

 

1. U.S. Financial CDS – Swaps tightened for 12 out of 27 domestic financial institutions. The median CDS tightened by 17 bps to 126 as fear in the market eased over the short term. However, month over month, CDS spreads remain 39 bps wider.

Tightened the most WoW: MET, PRU, HIG
Widened the most WoW: COF, SLM, ALL
Widened the least WoW: MMC, AON, TRV
Widened the most MoM: AIG, PRU, MET

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM1

 

2. European Financial CDS – Swaps mostly tightened in Europe last week. Following the agreement between Saudi Arabia, Russia, Qatar, and Venezuela not to increase oil production, Russia's Sberbank CDS experienced one of the largest moves in Europe, tightening by -105 bps to 386.



MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM2

 

3. Asian Financial CDS – Asian bank swaps mostly tightened last week as global risk perception eased. The median CDS tightened by 27 bps to 147.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. Italian swaps tightened the most, by 6 bps to 149.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM18

 

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM3

 

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Indian swaps tightened the most, by -53 bps to 169.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM16

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 37 bps last week, ending the week at 8.84% versus 9.21% the prior week.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 4.0 points last week, ending at 1782.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM6

8. TED Spread Monitor  – The TED spread fell 1 basis point last week, ending the week at 33 bps this week versus last week’s print of 34 bps.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM7

9. CRB Commodity Price Index – The CRB index rose 2.1%, ending the week at 160 versus 156 the prior week. As compared with the prior month, commodity prices have decreased -2.5%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 15 bps.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 5 basis points last week, ending the week at 1.94% versus last week’s print of 1.98%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM10

12. Chinese Steel – Steel prices in China rose 2.1% last week, or 43 yuan/ton, to 2071 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM12

13. 2-10 Spread – Last week the 2-10 spread was flat at 104 bps. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM13

14. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread was unchanged at 40 bps.

MONDAY MORNING RISK MONITOR | VOLATILITY CATCHING ITS BREATH - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


Get The QE-Hope Party Started

Client Talking Points

EURO

The euro is down another -0.6% vs. USD this morning after falling -1.1% last week with the composite Eurozone PMI hitting a 13 month low of 52.7 in FEB. Since the risk range is $1.09-1.13, we expect this party to end at $1.09, and Gold to hold $1150.

DAX

DAX loves Burning Euro, +2.1% on the bounce but still very much in crash mode (-23% from the April 2015 peak when the European economic cycle was peaking). ECB President Mario Draghi will have his work cut out for him at the March 10th meeting to break $1.09.

UST 2YR

The UST 2YR pops (like everything that hasn’t been working in 2016) to 0.77% this morning – most importantly, that flattens the Yield Spread (10s/2s) to +100 basis points, which is a new YTD and cycle low; good day to buy more Utilities and short more Financials.

 

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

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 24% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
XLU

Long-Term Treasuries (TLT) and Utilities (XLU) remain our two best fixed income and equity vehicles to play #Lower-For-Longer on growth and interest rates as the market gets more and more skeptical about the central bank dogma.

 

With market turmoil, the Junk Bond ETF (JNK) is down -4.5% vs. the defensive, growth slowing equity sector Utilities (XLU) which is up 6.7%, outperforming the S&P 500 by 12.9% on a relative basis. That’s yet more confirmation of our dour economic outlook economy (spreads widen in tumultuous market environments and Utilities are a defensive sector that outperforms when growth is slowing).

GIS

General Mills (GIS) is a large player in the Yogurt category with their Yoplait brand. Their competitors, Dannon, Chobani and Fage have been aggressive on merchandising and consumer spending, making it difficult to compete while maintaining internal margin objectives. GIS is turning on innovation with the growth of Annie’s yogurt and that should help the trajectory of the business. Yogurt being a roughly $1.4 billion business, turning it around is a top priority for management.

 

On the broader GIS long thesis, it's unlikely that the stock is going to go up 20% in the next year, but we do believe it will fare better than most in the consumer staples sector, especially as we head into an economic slowdown.

TLT

With the market losing faith in the central planning policy backstop, investors continue to yield to top-down market signals and the direction of the data. To be clear, the data continues to deteriorate and volatility continues to break-out.

 

The yield spread (10-year Treasury yield minus 2-year Treasury yield) has compressed 24 basis points this year, and TLT is up 8.6% vs. the S&P 500 which is down -5.2%. The December Federal Funds Futures contract has declined in a straight line since December’s rate hike.  

Three for the Road

TWEET OF THE DAY

NEW VIDEO | New #FCC Proposal Should Worry $DIS $VZ $CHTR https://app.hedgeye.com/insights/49282-how-latest-fcc-rules-could-affect-disney-verizon-charter… @KeithMcCullough @PotomacResearch

@Hedgeye

QUOTE OF THE DAY

Genius ain't anything more than elegant common sense.

Josh Billings

STAT OF THE DAY

A study conducted in the U.S. found that the average American spends 67 minutes per day eating and drinking beverages. Summed up together, the average Joe spends a staggering 32,098 hours eating and drinking beverages in their lifetime.


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