Election 2016: What To Watch Ahead of the Wisconsin Primary

Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.



Election 2016: What To Watch Ahead of the Wisconsin Primary - ted cruz


The WI race is drawing comparisons to the NH primary in that the presidential candidates have descended upon it as their main focus in the absence of other primaries on April 5 . Like NH, the Badger State holds the potential to upend the race, with Cruz and Sanders currently leading their fields. An underdog victory in an important swing state would give Sanders momentum going into NY, and Cruz a much needed jolt against Trump - who has stumbled this week with his comments on criminalizing abortion, the Geneva Conventions as well as his defense of his embattled campaign manager. A win by Cruz would cast further doubt on Trump's ability to win enough delegates to clinch the nomination before the convention.  



Election 2016: What To Watch Ahead of the Wisconsin Primary - Bernie Sanders 2014


In a situation reminiscent of Hillary Clinton's catch-up efforts in 2008, Bernie Sanders is pushing hard for more debates ahead of the WI and NY primaries. Clinton's camp is resisting, in large part because agreeing to more debates concedes to how popular and influential Sanders is within the Party at a time when she wants to pivot her focus to the general election. Ted Cruz has repeatedly called for additional debates, hoping to weaken Trump before WI, while Trump has shirked off more debates claiming that 12 is more than enough...and we don't disagree with the Donald this time around.



CA is on the verge of becoming the first state to raise their minimum wage to $15 an hour, potentially becoming another tool in the Sanders campaign workbench as raising the minimum wage is one of his core campaign promises. The state with the most delegates will likely serve as Trump's "judgment day" primary, and on the Dems' side a Sander's win would be an embarrassing episode for Clinton. Both candidates have a groundswell of support in the Golden State, and this issue will allow them to take the race local - not only to rally support for the candidacy, but also for the #FightFor15.

No-Volume Rally Running On Fumes

Takeaway: There's no conviction in recent "rallies" but as growth slows Utilities will continue to outperform.

Editor's Note: Below is a brief transcript and a couple of charts from The Macro Show today featuring commentary from Hedgeye CEO Keith McCullough. 


No-Volume Rally Running On Fumes - volume cartoon 5.20.2014


“For those of you looking for confirmation about the stock market being up, don’t look at volume. Go ahead. Ignore it. Nothing to see here.


Sure, the market was up yesterday but it’s up on fumes. This is what we’ve seen before in recent rallies. There’s no volume, no inflows to mutual funds, and the only thing lifting the markets are the bots and hedge funds doing their best not to go out of business. That’s why you see a lot of high short interest stock going up on literally nothing at this point."


No-Volume Rally Running On Fumes - market volume


"Let’s talk about sectors. There are plenty of sectors you don’t want to be long here as growth continues to slow in the coming quarters. Look at Consumer Staples (XLP), the best performing sector yesterday. That’s surely a signal that the economy is going to rip roar to the upside, right?


Uh, no. Not at all."


No-Volume Rally Running On Fumes - sectors info


"In fact, the only sector you want to be long on any pullbacks is our favorite sector, Utilities (XLU). It’s been the best performing sector this year on growth slowing concerns while Financials (XLF), our favorite sector on the short side, have been getting absolutely hammered.”

Ugly Growth Reality Plagues Global Equities

Takeaway: Equity markets in Europe and Japan continue to crash on our Macro team's #GrowthSlowing and #LowerForLonger (rates) calls.

Ugly Growth Reality Plagues Global Equities - Math   Myth cartoon 03.30.2016


A quick look outside the manic, easy-money driven markets in the U.S. illustrates the bearish trends still plaguing equity markets (i.e. our #GrowthSlowing and #LowerForLonger themes). Once we lap the month-end markup in the U.S., the reality that corporate profits nosedived some -10.5% year-over-year and realization that over the coming quarters GDP growth bumps up against the toughest comps of the cycle will start to sink in. 


No. Neither of these realities is bullish for stocks. 


Take a look at how European and Japanese equities are grappling with #GrowthSlowing and #LowerForLonger via analysis from Hedgeye CEO Keith McCullough:


"Europe was flat out ugly for Equity Bulls too – Spain leads losers this morning -1.5% and is in a race with Italian stocks for biggest draw-down from 2015 highs (both -25%!); they’re totally not into the Yellen Dollar Devaluation (Euro Up) thing; #GrowthSlowing in Europe remains our fundamental call there."



"Unlike the slow-volume squeeze U.S. equity beta had off those crashy FEB lows, Japan really sucked wind throughout Q1. The Nikkei closed down for 3 straight days to end the quarter right back in crash mode (-20% since the bubble highs in Global Equities of July 2015) – we remain bearish (short) Japan and one of its ETF manufacturers (DXJ and WETF)."



Back in the U.S., we've got ideas about how to play the coming crash. Check out: "Chart of the Day: Our Freshest Idea On The Short Side"

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Initial Claims | Resilient

Takeaway: The labor market remains resilient with initial claims and Challenger job cuts showing little sign of deterioration.

The first chart below from our Macro team looks at the trend in Challenger job cut announcements. March job cuts ex-energy came in at 40.5k, which, while up 32% year over, is roughly flat with recent trends. Meanwhile, the energy patch also appears to be settling down, at least from a rate of change standpoint. The March energy patch job cut announcements of 7,747 were down from February's high watermark of 25,051, but remain broadly elevated. 


Initial Claims | Resilient - Claims17


Six of the eight states in our "Energy State" basket continue to show rising initial claims on a Y/Y basis - the exceptions being Texas, which is 2% lower Y/Y, and West Virginia (-21%). The sharpest increases in claims remain in North Dakota where claims are running +28% Y/Y.


At the national level, claims rose 11k W/W, but remain low at 276k. 


Initial Claims | Resilient - Claims12


Initial Claims | Resilient - Claims13


Initial Claims | Resilient - Claims14


The Data

Initial jobless claims rose 11k to 276k from 265k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.25k WoW to 263.25k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -7.3% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -10.9%


Initial Claims | Resilient - Claims2


Initial Claims | Resilient - Claims3


Initial Claims | Resilient - Claims4


Initial Claims | Resilient - Claims5


Initial Claims | Resilient - Claims6


Initial Claims | Resilient - Claims7


Initial Claims | Resilient - Claims8


Initial Claims | Resilient - Claims9


Initial Claims | Resilient - Claims10


Initial Claims | Resilient - Claims11


Initial Claims | Resilient - Claims19

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 107 bps. 1Q16TD, the 2-10 spread is averaging 108 bps, which is lower by -28 bps relative to 4Q15.


Initial Claims | Resilient - Claims15


Initial Claims | Resilient - Claims16



Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


Call Invite | Q2 2016 Macro Themes Conference Call (4/7/16 at 11:00AM ET)



Watch a replay below:

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, April 7th at 11:00AM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.




#TheCycle:  With the recessionary industrial data ongoing, employment, income and consumption growth decelerating, corporate profits facing a 3rd quarter of negative growth and Commercial and Industrial  credit tightening, the domestic economic, profit and credit cycles are all past peak and continue to traverse their downslope.  We’ll update our cycle view and detail why growth slowing  – and its associated allocations – remains the call as the U.S. economy faces its toughest GDP comp of the cycle in 2Q16. 


#BeliefSystem: The notion that central bankers are increasingly pushing on a string is being progressively priced into global financial markets – with one lone holdout: U.S. equities. While we admire the blind faith of domestic stock market operators in Yellen’s ability to keep “the game” going, we are keen to cite specific risks that marginally dovish policy in the U.S. will fail to overcome the depths of the domestic economic, credit and corporate profit cycles.


#DemographyDebates: We’re entering an election season that could hugely impact markets – and probably not in a good way!  What’s the impact of a Clinton or Trump victory and how will market practitioners react?  We’ll also discuss housing and the impact of millennials and immigrants in shifting demand.  Finally, we’ll exam a recurring theme of U.S. growth slowing – what’s under the hood for earnings and inflation expectations in 2016?






As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,


-The Hedgeye Macro Team

Proactively Prepare

Client Talking Points


Unlike the slow-volume squeeze U.S. equity beta had off those crashy FEB lows, Japan really sucked wind throughout Q1. The Nikkei closed down for 3 straight days to end the quarter right back in crash mode (-20% since the bubble highs in Global Equities of July 2015) – we remain bearish (short) Japan and one of its ETF manufacturers (DXJ and WETF).


Forget Q2’s prospects for one more day, Europe was flat out ugly for Equity Bulls too – Spain leads losers this morning -1.5% and is in a race with Italian stocks for biggest draw-down from 2015 highs (both -25%!); they’re totally not into the Yellen Dollar Devaluation (Euro Up) thing; #GrowthSlowing in Europe remains our fundamental call there.


We finally added QQQ to the short side (yesterday in Real-Time Alerts) – having missed shorting the Nasdaq at the beginning of Q1, we’ll have to enter the game with it already -2.7% YTD. Plenty of markups in consensus long ideas from the 2013-2015 ramp in growth stocks; heading into Q2 (we have Street low U.S. growth forecasts), we’re shorting growth (QQQ) vs. our core Long slow-growth macro ideas (TLT + XLU + GLD).


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.


Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.


We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.


In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).


While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week

Three for the Road


NEW VIDEO: #Millennials Gone Mild: The Investing Implications… @KeithMcCullough



The smallest deed is better than the greatest intention.

John Burroughs  


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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 80.47%
  • SHORT SIGNALS 78.68%