Key Call-Outs (GDX, NEM, GG, ABX)

The extreme bearish to bullish reversal in sentiment YTD in gold happened quickly (Jan.-Feb.). The pace of relative bullishness has decelerated, but the market remains notably long of gold:

  • Gold is a chart with a story, and investors have repeatedly chased price on a lag. Gold has been a newsy item for the last month, AFTER the bullish move, and has since gone down on a 1-mth window (-3.6%) despite a 1) dovish pivot from the fed on growth and inflation; And, 2) a flatter curve and a weaker USD. Coincidentally historical USD/Gold correlations have broken down on that same window
  • Net Futures and Options Positioning is +2.3x/+2.3x Long on a 1Yr and 3Yr Z-Score Basis
  • After reaching the highest level of open interest since 2011 in March, the pace of open interest increases in all active futures months has slowed considerably, and is now flattening out. When put against the CFTC positioning, we know which way the outstanding OI is leaning
  • Option skew (prices investors are willing to pay for calls vs. puts in volatility terms) shows bullish sentiment, which like the CFTC positioning, is a classic indicator that chases price. Currently the surface is shaped exactly how it was in mid-October (upside calls more expensive than downside puts in volatility terms). The opposite shape was priced-in moving into 2016. Putting this chart next to the CFTC positioning chart shows the intermediate-term price risk to stretched positioning.   

Click HERE  for a link to our February note adding NEM to our best ideas short list. For the corresponding model and blackbook, feel free to ping us back directly.


Key Call-Outs (GDX, NEM, GG, ABX) - Gold Price vs. CFTC Net Positioning

Key Call-Outs (GDX, NEM, GG, ABX) - COMEX OI Build

Key Call-Outs (GDX, NEM, GG, ABX) - Vol Skew



Cartoon of the Day: US Growth Stinks

Cartoon of the Day: US Growth Stinks - growth  cartoon 04.05.2016


"Unlike many strategists (who missed calling the cycle top in US Consumption, Employment, and Profits last year), we have stayed with The Cycle call we’ve had all along here in Q2," Hedgeye CEO Keith McCullough wrote today.

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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.

Game Over. Central Bankers Can’t Do Anymore

In this brief exchange on The Macro Show, Hedgeye Demography Sector Head Neil Howe and CEO Keith McCullough discuss how global markets are closing in on a critical monetary policy exhaustion end point. “Why don’t people accept that?” Howe asks. “[Central bankers] can’t do anymore!”


President Paul Ryan? ... Plus, Donald Trump's Worst Week Ever

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email


President Paul Ryan? ... Plus, Donald Trump's Worst Week Ever - paul ryan 2


Washington gossipmongers are out in full force - speculating on a calculated bid for the presidency by Speaker Paul Ryan. Ryan would certainly be a formidable opponent to the Democratic candidate in the fall, but jockeying for the top spot isn't high on his list.


It's not Ryan's style to upend a political process, and we believe that if this scenario were to come to fruition, it would be similar to the path he walked to the speakership. Currently, there aren't many qualified, well-vetted alternatives who could be a unifying force besides Ryan - leading us to believe that if an open convention occurs and multiple ballots ensue, he could be the chosen one.


President Paul Ryan? ... Plus, Donald Trump's Worst Week Ever - trump 787


Many have labeled last week as Donald Trump's worst yet - and that charge may be validated if he loses today's primary in WI. The Badger state was Trump's to lose given the similar dynamics to other victories he's notched - one with many blue-collar Democrats and disaffected voters, that also allows independents to vote. Although Trump is trailing Ted Cruz by a small margin, it's becoming clear that his antics are not serving him well with WI Republicans - in particular Republican women.


The combination of his comments on abortion, shaming of Heidi Cruz on Twitter, foreign policy missteps, the Lewandowski incident - the list goes on - have led us to believe that he is no longer the "Teflon Donald." Trump is likely to snatch defeat from the jaws of victory tonight - exposing weaknesses in his campaign and a failure to make the pivot to acting more presidential. 


We believe that no matter the outcome, Trump and Sanders' impact on the presidential election process will be felt for years to come. Both candidates have exposed the grip the establishment has on our system. On the Democratic side we have the superdelegate system designed to prevent anti-establishment, iconoclastic candidates from winning the nomination.


On the Republican side, we are witnessing the very beginning of backroom deals for delegates - in a collaborative effort to block Trump from the nomination. The voters are becoming aware of this flawed system where the election may indeed slip away from the people, and transforming into one controlled by party leaders - we think calls for the eventual dissolution of the superdelegate system and restructuring of the delegate selection process are not far behind.

Stock Report: CME Group (CME)

Takeaway: We added CME to Investing Ideas on the long side on 3/24.

Stock Report: CME Group (CME) - HE CME table 4 1 16



We recently completed a granular, deep dive study demonstrating that all classes of volatility including equity, fixed income, and FX have been managed lower by a U.S. Central Bank engineering a historically abnormal quantitative easing policy over the past 7 years.


What does this mean and what are the implications? Well, with Quantitative Easing over (for now) and the Federal Reserve on a rate hiking policy path (for now), for the first time in a long time there is a reason to hedge bond and equity exposure. CME is one of the few venues that allows both institutional and retail investors to do exactly that. The company manages the entire Treasury futures curve and also most of the equity index futures in the U.S.




In this late cycle economic environment, CME Group (CME) has a solid earnings trajectory. The exchange continues to benefit from all 3 legs of the exchange stool including incremental volatility; incremental participants coming into its markets; and also new product introduction. Over the course of the next 12 months, we think the earnings opportunity will jump and the path to more than $5 per share in earnings will become more obvious. (Note: Our earnings target is over +15% ahead of the Street.)


Along the way, CME should continue to issue its variable year-end dividend of up to $1 billion (near $3 per share or a 3.1% yield on this distribution alone). In an environment that has entered into an earnings recession (2 consecutive quarters of negative Y/Y earnings results for the S&P 500), the exchange's results are accelerating to the upside. This large cap company currently sits on our Best Ideas list as a Long with solid earnings growth and a defensive business that thrives on incremental volatility across asset classes.




There looks to be a forming secular case that energy hedging from a commercial standpoint is receding as, historically, E&P enterprises have not hedged at low commodity prices. This is showing up in lower energy trader counts in the CFTC bi-monthly data. Conversely, financial traders counts are growing and what was a “lost decade” in financial activity (from 2000-2010 during the Financial Crisis) should be a boon for fixed income and equity hedging, which benefits CME. Thus, from a secular standpoint the more financially oriented CME will outflank the more energy dependent Intercontinental Exchange from an activity and trader growth stand point.


Stock Report: CME Group (CME) - HE CME chart 4 1 16

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