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FLASHBACK: An Update On Hedgeye Energy Analyst Kevin Kaiser's MLP Short Calls

Takeaway: It pays to listen to Kevin Kaiser.

Earlier today, maverick Hedgeye Energy analyst Kevin Kaiser hosted a short call on Summit Midstream Partners (SMLP). 


Kaiser was the original bear on MLP stocks, like Kinder Morgan (KMI) and Linn Energy (LINE), while virtually all of the conflicted, sell-side analysts on Wall Street remained bullish. Below is an update from a post of Kaiser's short calls from our original post, "A Cautionary Tale: Energy Analyst Kevin Kaiser's MLP Warning and 8 Short Calls.


As you can see, he nailed it.


FLASHBACK: An Update On Hedgeye Energy Analyst Kevin Kaiser's MLP Short Calls - kaiser calls


Editor's Note: To access Kevin Kaiser's research email sales@hedgeye.com

S&P 500 Earnings Are Almost All In. The Verdict Isn't Good

Takeaway: Only three sectors in ten have positive earnings growth of the 485 S&P 500 companies that have reported earnings.

S&P 500 Earnings Are Almost All In. The Verdict Isn't Good - SPX earnings snow


Nearly all of the companies in the S&P 500 have reported earnings. It's not's looking good. Below is some related analysis and key chart Hedgeye CEO Keith McCullough highlighted to subscribers this morning:


"Imagine consensus blamed the following reality for terrible U.S. Equity returns in the last 6 months: 485/500 S&P companies have reported an aggregate Sales decline of -4.5% (and an earnings year-over-year decline of -8.5% on non-GAAP numbers); that made-up EPS decline is right inline with the year-to-date decline of the Russell 2000 of -8.7%."


S&P 500 Earnings Are Almost All In. The Verdict Isn't Good - z spp


**Notice only 3 sectors in 10 have positive earnings growth. 


Ask a permabull about this next time you hear them spouting off about the "great" outlook for S&P earnings. 



More Draghi Cowbell Coming?

Takeaway: In February, 13 of 17 European PMI readings are contracting. Here's what that means for the ECB.

Q: Is European growth stalling?

A: It's getting hard to argue to the contrary.

More Draghi Cowbell Coming?  - draghbo


So far this February, 13 of 17 European PMI readings are contracting:


The warning signs are all there. The PMI pullback looks even more drastic when looking at the rate of change.


So ... what does that mean heading into the March 10th ECB meeting? We'll let you be the judge. Here's a Bloomberg chart showing the doves versus the hawks: 


Click to enlarge.



More Draghi Cowbell Coming?  - z cow


Click here to watch Hedgeye CEO Keith McCullough in this special (FREE) edition of The Macro Show.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Our monthly sentiment run is a behavioral, market-based gauge of investor sentiment in the Materials Sector. Any relative performance measure is tied to the benchmark S&P 500 Materials Sector INDEX (GICS). Further screening methodologies are included in the link to the deck below.



CLICK HERE to access the March Sector Sentiment Run presentation.


Key Call-Outs:


Positive Sentiment

Negative Sentiment


  • Looking at short-interest, 7 of the top 12 least shorted names are in the Gold Mining & Chemicals space with large-cap Diversified Metals and Miners being the most heavily shorted (FCX, AA, TCK, AWC, FMG). Gold Miners are the least heavily shorted sub-sector
  • 8 of the top 12 with the lowest buy ratings are in the Metals & Mining space, with 5 of the 8 being Gold Miners
  • Combining consensus “buy” ratings and short-interest, Diversified Chemicals, Specialty Chemicals, and Forest Product names have the most positive relative sentiment when combining both metrics. Diversified Metals and Mining, Aluminum, & Commodity Chemicals have the most negative sentiment.
  • With the outperformance in precious metals YTD, relative outperformance, declines in volatility premiums, and net futures and options positioning all suggest the market views Gold Miners much more favorably vs. the beginning of 2016. Looking at the gold market, contract positioning has gone from a consensus net short futures and options position moving into 2016, to a consensus long position in gold (TTM and 3 year z-scores are tracking +2.4 and +2.4 respectively) with futures open interest up 22.4% month-over-month. With the lack of hedging and existence of leverage in the space, each tick in the gold price is leverage won or lost. In the case of the more leveraged names (Barrick, Newmont), a long position is a highly correlated way to be leveraged long of the gold price. This highly correlated leverage to the price of gold likely explains the lack of short-interest in the space. 
  • The largest sector divergences in growth metrics (TOP-LINE, OPERATING, BOTTOM LINE) exist in the mining space. We expect a downward revision in sell-side estimates in the space as many mining company expectations still need to be taken down while some are already discounted.  



CHART OF THE DAY: This Late Cycle Indicator Just Hit A 17 Month Low

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.


"... For #behavioral evidence of that reality, look no further than one of our better new short selling ideas – US Housing (ITB). Signed contract activity for “Pending Home Sales” contracted another -2.5% sequentially in January. That’s a 17 month low in rate of change terms…"


CHART OF THE DAY: This Late Cycle Indicator Just Hit A 17 Month Low - 03.01.16 Chart

Disciplined Risk Premiums

“In some places we’re picking up disciplined risk premiums.”

-Cliff Asness


While it’s easy to rib my friends at Barron’s sometimes (on cover stories about “No recession – we’re going back to 3% GDP”, for example), I try to give credit where it’s due and I applaud their headline story this weekend about one of the asset managers I respect most – AQR.


I cited a fantastic interview AQR’s founder, Cliff Asness, did in an excellent markets book I’ve been reviewing for Early Look readers titled Efficiently Inefficient, by Heje Lasse Pederson. The aforementioned quote was part of an important answer Asness gave on AQR’s strategy:


“I think in some places we’re picking up disciplined risk premiums that are not very correlated with long-only markets, which means, if someone doesn’t have those in their portfolios, they should add them. In other places I think we’re taking advantage of human biases and we’re trying to be disciplined and determined about it, taking the other side of some common psychological trait or institutional constraint…” (pg 164)


Back to the Global Macro Grind


Just to boil this down, a “risk premium” is a return that’s greater than whatever you’d call the “risk free” rate. For us, it’s what we get paid for understanding the prevailing growth and inflation environment and having the right “risk” allocations associated with that.


What most people miss is how the rate of change of growth and inflation is affecting market expectations. That’s why there is a lot of “excess return” to be made in front-running where asset allocators have to, as Asness points out, “add to their portfolios.”


Sure, a big shot endowment man might start with what he “needs” as a return, but if the risk free rate is a negative yield and illiquid assets are deflating, then the risk premium is in owning style factors like liquidity, “low-beta” and, of course, Long-Term Treasury Bonds.


Disciplined Risk Premiums - GDP cartoon 02.29.2016


In other words, as US growth slowed from 3% to 2% to 1% (from its cycle-peak of 3% in 1H of 2015):


  1. Long-term Treasury Bond exposures like TLT have earned a risk premium of +8.4% YTD
  2. Utilities (XLU) have earned a risk premium of +7.0% YTD
  3. If you ran a hedge fund that is only long Utes (XLU) and short Financials (XLF), you’re +18.5% YTD


Oh, and that would probably be called a boring hedge fund that isn’t putting “leverage” on that pristine risk premium associated with the basic understanding that rates fall (they don’t “hike”) during #GrowthSlowing (XLU +7% YTD vs XLF -11.5% YTD).


To be fair, no reasonable risk manager would put their entire fund in one LIQUID non-consensus position like XLU vs. XLF (see Ackman’s ILLIQUID consensus Valeant (VRX) “pick” for details), but there would be one heck of a story on the cover of Barron’s if someone did!


I’m obviously generalizing here. I’m well aware that the +8.4% and +7.0% (and +18.5%) returns do NOT include interest and/or dividend payments. In the hedgie format they don’t SUBTRACT fees. And, of course, I am using a “risk free rate” of 0%.




Well, we can be like every other consensus talking head and yap about Trump, China, or Oil today. Or we can just get back to work and A) protect the risk premium we’ve earned YTD (Rule #1 = Don’t Lose Money) and then B) build upon that (compounding returns is cool).


Let’s start with the TAIL risk wagging the disciplined dog here – corporate profits:


  1. Earnings Season is coming to an end – 485/500 companies in the S&P have reported
  2. Aggregate SALES are -4.5% year-over-year and EPS (non GAAP in some cases) are -8.5% year-over-year
  3. Only 3 of 10 S&P Sectors had POSITIVE year-over-year EPS growth
  4. Ex-Telecom (don’t do that Mucker!) Healthcare and Consumer Discretionary EPS growth closed the quarter on the lows
  5. Financials finished Earnings Season with NEGATIVE EPS growth of -5.9% year-over-year


Not to simplify the complex, but if 3-6 months ago the cover of the WSJ walked through that a #LateCycle rate hike would perpetuate a stock market decline via “down earnings” for non-Energy Financials via Yield Spread compression, would people have listened?


Moreover, people are starting to remember that there is what Soros calls “reflexivity” (Asness calls it a “common psychological trait”) associated with stock market declines.


For #behavioral evidence of that reality, look no further than one of our better new short selling ideas – US Housing (ITB). Signed contract activity for “Pending Home Sales” contracted another -2.5% sequentially in January. That’s a 17 month low in rate of change terms…


And, yes, like early cyclicals (Industrials, Energy, etc.) now this #LateCycle consumption and employment factor (Housing Demand is linked to both) has slowed to NEGATIVE -1.4% year-over-year. For Housing Bulls (we were The Bull on Housing for most of last year) #NotGood.


Neither is being invested on the same side as the crowd (at the turn) when the economic, profit, and credit cycles are rolling off their cycle-peaks. But you already know that. Welcome to March. Let’s get out there and compound some risk premiums!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.65-1.81%



VIX 18.54-26.50
USD 96.43-98.63
Oil (WTI) 28.48-34.75


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Disciplined Risk Premiums - 03.01.16 Chart

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