Following The Flow

“The whole world is simply nothing more than a flow chart for capital.”

-Paul Tudor Jones


While I’m sure some in the social science departments of academia might quibble with PTJ’s definition of the world, at this hour of the morning it’s a reasonable one for macro people like me.


#Charts. So many charts. They go up. They go down. Sometimes fast; sometimes slow.


If you look at one or two charts, you might confirm what you want (need) to see. But what if you look at all of the world’s major macro market charts, across durations, every morning of your life? What would you see?


Following The Flow - Bull herd cartoon 03.18.2016


Back to the Global Macro Grind


While it was another good week for us on the long side (Utilities up another +1.0% with the Long Bond Yield falling another 11 basis points to 1.87% on the UST 10yr), my High Beta, High Leverage (Style Factors) US Equity shorts sucked.


That said, it’s a good thing I don’t have subscribers long US Healthcare, European, or Japanese stocks.


Post the Fed’s move to devalue the US Dollar and reflate US stocks to 5 week highs (which equates to YTD returns of: SP500 0.3%, Nasdaq -4.2%, and Russell 2000 -3.0%), here’s how the aforementioned lagged week-over-week:


  1. US Healthcare Stocks (XLV) -2.6% to -7.2% YTD
  2. European Stocks (EuroStoxx 600) -0.2% to -6.6% YTD
  3. Italian Stocks (MIB Index) -2.0% to -13.1% YTD
  4. French Stocks (CAC 40) -0.7% to -3.8% YTD
  5. Japanese Stocks (Nikkei 225) -1.3% to -12.1% YTD


Whereas if you played our #GrowthSlowing call more aggressively (into the Fed agreeing with it), here’s what really worked last week:


  1. Short USD = down another -1.2% on the week to -3.6% YTD
  2. Long Euros and Yens (vs. USD) = up +1.0% and +2.0%, respectively, to +3.8% and +7.8% YTD
  3. Long Commodities = +1.6% on the week for the CRB Index to 0.1% YTD
  4. Long Oil = +2.4% on the week for WTI to +0.8% YTD
  5. Long Russia = +4.7% on the week to +16.9% YTD


Seriously, who isn’t levered long Russia? There was a manic media headline that crossed my screens about “Egypt Now In Bull Market” too. So I checked that out and see that Egyptian stocks ramped +14.0% on the week to +6.8% YTD. #Awesome


*Note: if you do the multi-duration math, you better not have been long Egypt pre last week!


Away from not being levered-long most things that would have killed my credibility for the last 18-20 months, it was a pretty quiet week. From a rate of change research perspective most of the trending US cycle data continued to slow:


  1. NAHB (builder confidence) 58 FEB vs. 65 in OCT = 9 month low from Housing cycle-peak
  2. US Consumer Confidence (U of Michigan survey) 90 MAR vs 91.7 FEB = new cycle low
  3. Industrial Production -1.03% year-over-year for FEB, slowed vs. the hoped for JAN “bottom”


Yep. Housing Starts (see the weather?) “beat” and so did the “Philly Fed” (joy to the world), but neither US Retail Sales nor Producer Prices did (both slowed sequentially and remain bearish secular problems for US corporate profits that are currently in #recession).


Back to what most people in the US stare at (Dow Bro), here’s what I have definitely not been long for the last month:


  1. High Beta Stocks were up another +2.8% on the week = +17.2% in the last month
  2. Highly Levered Stocks (EV/EBITDA) up another +1.8% = +14.1% in the last month
  3. EPS #GrowthSlowing Stocks (bottom 25% of SP500) +1.9% on the week = +13.5% in the last month

*Mean performance of Top Quintile vs. Bottom Quintile (SP500 Companies)


Since all of these US Equity Style Factors are the recipient of Down Dollar, we should probably “ex” them out. Lol


There aren’t many long-term capital flow questions coming in these days (most emails I get have to do with super short-term March-to-date squeezes), so here’s some building Correlation Risk to noodle over (i.e. what people are chasing = 15-day inverse correlations):


  1. US Dollar vs. SP500 = -0.84%
  2. US Dollar vs. CRB Index = -0.96%
  3. US Dollar vs. Oil = -0.82%


And if you look at Consensus Macro positioning (non-commercial CFTC futures & options), post the US Dollar’s -3.6% YTD correction, the US Dollar just registered a -2.3x z-score (1yr duration).


What does that mean and/or “just give me the bottom line KM” on why it matters? Almost 100% of the time that something is +/- 2x (standard deviation) overbought/oversold in futures & options terms, that something mean reverts (goes the other way).


Sure – a USD bounce might be as super short-term as the reflation rally has been. But wouldn’t that make the flow of it all change in a hurry? Are you positioned for that? If you have been (for the last 18-20 months), you’ve been happy with your returns.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.79-1.98%

RUT 1055-1105

Nikkei 168
USD 94.73-97.70
Oil (WTI) 34.65-41.53


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Following The Flow - 03.21.16 chart

REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.


Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)





1. Under 60 Seconds: Tiffany's Earnings Report | $TIF (3/18/2016)



Hedgeye Retail analyst Brian McGough highlights three key points from Tiffany's latest earnings report.


2. Why This Presidential Election Will Be A ‘Bare Knuckle Brawl’ (3/18/2016)



In this brief HedgeyeTV video excerpt, Potomac Research Group Chief Political Strategist JT Taylor recaps Super Tuesday, with Hedgeye Director of Research Daryl Jones, and discusses who will be the next Democratic and Republican nominees. 


3. REPLAY on HedgeyeTV | Tom Tobin on What's Next For VRX and Much More (3/17/2016)



Healthcare Analysts Tom Tobin and Andrew Freedman were live in the studio earlier today. Watch the replay below. 


CLICK HERE to download the slides associated with this presentation.


Topics will included:

  • JOLTS release this morning
  • Update on MEDNAX (MD)
  • Key takeaways from their proprietary maternity tracker
  • And what's next for Valeant (VRX)


4. McCullough: The Belief System Is Breaking Down (3/16/2016)



In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough responds to a subscriber’s question on investing in a world riddled with global central bank interventionism.


5. REPLAY | Restaurants & Consumer Staples Q&A (3/15/2016)



Our Restaurants and Consumer Staples analysts Howard Penney and Shayne Laidlaw were LIVE in the studio Wednesday. The duo discussed key issues affecting investors including industry trends, recent developments and provide an overview of their best ideas.


CLICK HERE to download the slides for this presentation.  


6. Rickards: Why Gold Is Going To $10,000 (3/15/2016)



Bestselling author Jim Rickards sits down with Hedgeye CEO Keith McCullough to discuss his new book “The New Case for Gold” and why a cocktail of factors makes it more critical than ever for investors to protect their portfolios with gold. 


7. McCullough: Beware the Reflation Trade Risk (3/14/2016)



In this brief excerpt of The Macro Show earlier today, Hedgeye CEO Keith McCullough discusses this week’s Fed meeting, the recent reflation trade bounce and takes a deep dive into commodities markets. 


8. Young Guns | How Slowing U.S. Growth Impacts Sectors (3/19/2016)


REPLAY! This Week On HedgeyeTV - young guns recessionary 


In this edition of Young Guns, Hedgeye’s millennial-aged analysts Andrew Freedman (Healthcare), Alec Richards (Retail) and Ben Ryan (Materials) discuss how current macro trends are impacting their sectors – the balance between macro and fundamentals, the economic trends that matter, and stocks that outperform in a slow growth environment.  


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

CORRECTION: Investing Ideas Levels - ZROZ

Editor's Note: Please see highlighted in yellow below the trend range for Pimco 25+ Year Zero Coupon US Treasury ETF (ZROZ). Enjoy your weekend.  

CORRECTION: Investing Ideas Levels - ZROZ - investing ideas level update

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

This Week In Hedgeye Cartoons

Our cartoonist Bob Rich captures the tenor on Wall Street every weekday in Hedgeye's widely-acclaimed Cartoon of the Day. Below are his five latest cartoons. We hope you enjoy his humor and wit as filtered through Hedgeye's market insights. (Click here to receive our daily cartoon for free.)


1. Herd mentality (3/18/2016)

This Week In Hedgeye Cartoons - Bull herd cartoon 03.18.2016


Definition of "Herd Mentality" via Wikipedia:


"Herd mentality, or mob mentality, describes how people are influenced by their peers to adopt certain behaviors, follow trends, and/or purchase items. Examples of the herd mentality include stock market trends, superstition and home décor... Driven by emotional reactions such as greed and fear, investors can be seen to join in frantic purchasing and sales of stocks, creating bubbles and crashes."


2. Cukoo Markets (3/17/2016)

This Week In Hedgeye Cartoons - Dovish Fed cartoon 03.17.2016


Markets remain at the mercy of a mercurial Fed.


3. Atlas shrugged (3/16/2016)

This Week In Hedgeye Cartoons - bull atlas 8 ball 03.16.2016


The most recent round of permabull narratives rests on an increasingly shaky foundation.


4. crude or crud? (3/15/2016)

This Week In Hedgeye Cartoons - oil cartoon 03.15.2016


Oil prices continue to fall despite Wall Street's continued predictions otherwise.


5. Fed Day (3/14/2016)

This Week In Hedgeye Cartoons - Hawkish cartoon 03.14.2016


Hedgeye CEO Keith McCullough wrote in this morning's Early Look:


"... On cyclical stuff that has been crashing for 1-3 years, we’re “off the lows”, bros! And the Fed is going to be hawkish about that on Wednesday because:


  1. Deflation In Commodities has had another short-term “reflation” (isn’t that “transitory” btw?)
  2. Late Cycle Employment reports (while slowing in rate of change terms) are still “good” 

Young Guns | How Slowing U.S. Growth Impacts Sectors


In this edition of Young Guns, Hedgeye’s millennial-aged analysts Andrew Freedman (Healthcare), Alec Richards (Retail) and Ben Ryan (Materials) discuss how current macro trends are impacting their sectors – the balance between macro and fundamentals, the economic trends that matter, and stocks the outperform in a slow growth environment.  


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