Keep Going

“Don’t watch the clock; do what it does – keep going.”

-Sam Levenson


My family felt bad watching Jordan Spieth melt-down at The Masters yesterday – until he made it clear that he didn’t feel bad for himself. The 22 year-old from Dallas, Texas acted like a 40 year-old man in defeat. No excuses. Just a big lesson learned.


Q: How do you go from birdying the last 4 holes on the front 9 (with the lead in the last round of a Major) to going bogey, bogey, quadruple-bogey? A: You lay off the ball, just a little, in trying to protect what seemed like an unsurmountable lead.


Do you ever lay off your game? Do ever veer from your #process? These are easy mistakes to make. We all make them. What’s hard is staying focused and disciplined during the clutch parts of the game. For macro markets, that time is now.


Keep Going - growth  cartoon 04.05.2016


Back to the Global Macro Grind


That’s right Earnings Season fans, it’s game time. Alcoa (AA) will kick things off tonight, followed by Jamie Dimon’s JP Morgan (JPM) on Wednesday. All the while, you’ll get PPI, CPI, Retail Sales, and Industrial Production reports for the month of March.


Three weeks ago (after the slow-volume squeeze off those epic FEB lows), was it time to layoff the bear case for the US economic and profit cycle slowing? Or was it time to get back in the go-zone and start shorting High Beta stocks again?


With the US Dollar down another -0.4% last week to new YTD lows of -4.5%, was it time to “buy reflation because global growth has bottomed” or is it time to get long #StrongDollar and short Commodities again?


What does the signal (process) say?


  1. US Dollar immediate-term TRADE oversold within a bullish long-term TAIL setup (93.12 TAIL support)
  2. Oil (WTI) immediate-term TRADE overbought post a +8.0% weekly ramp (following a -6.9% weekly decline!)
  3. Gold immediate-term TRADE overbought after another +1.7% gain last week to +17.2% YTD


Whether you are a Gold Bull right now or not (I am, from a price), the overbought signal is the signal inasmuch as the immediate-term TRADE overbought signal in the Japanese Yen vs. the US Dollar is obvious.


So, you might cover some Japanese Equity Shorts on that. The Nikkei was down another -2.1% last week to -16.9% YTD. No one ever went broke booking gains. Oh, and smile when you make birdies like that!


Generally speaking, staying away from Global Equities from those March highs has been a good call. US Equities have been down for 2 of the last 3 weeks as both European and Japanese stocks continue to crash from their 2015 cycle highs:


  1. Argentina -7.3% last week to +4.7% YTD
  2. Emerging Markets (MSCI) -1.1% last week to +2.9% YTD
  3. SP500 -1.2% last week to +0.2% YTD
  4. Nasdaq -1.3% last week to -3.1% YTD
  5. Russell 2000 -1.8% last week to -3.4% YTD
  6. EuroStoxx 600 -0.4% last week to -9.3% YTD
  7. German DAX -1.8% last week to -10.4% YTD
  8. Italy’s MIB Index -1.5% last week to -18.3% YTD


In other words, the closer your country’s stock market has been to Down Dollar (EM and Commodities), the less-bad bogey golf you’ve been playing. If you want to be playing with the lead (birdies and pars), it’s been all about the Long Bond, baby!


Since we like the initial phase of Argentina’s political turnaround story (Kirchner corruption out, Macri in), I could definitely get interested in buying their stock market if it has more down weeks like it did last week. An Up Dollar will most likely do that.


In addition to Commodities (CRB Index) having an inverse correlation (30-day duration) of -0.88 vs. the US Dollar, it’s important to realize that the SP500 now has a -0.90 correlation on that same duration. They’re both begging for a “dovish” Fed.


It’s also interesting to note where, from a sentiment perspective, Consensus Macro futures and options positioning is. Here’s the latest CFTC non-commercial net positioning:


  1. SP500 (index + Emini) +29,272 LONGER last week to -103,123 net SHORT = +0.39x 1yr z-score
  2. 10YR Treasury -67,397 SHORTER last week to -85,976 net SHORT = -1.02 1yr z-score
  3. Gold steadily high at +163,589 net LONG contracts = +2.17x 1yr z-score


Yep. Wall Street is as long “reflation” (Oil and Gold on an absolute basis, and SPY on a relatively less net short basis) as it has been all year long and still fighting the wall of worry on our Long Bond Bull.


The 10yr US Treasury Yield dropped another 5 basis points (down -55 bps YTD) last week to 1.72% and continues to signal what US Equity’s top performing Style Factor (Low Beta Stocks = +7.5% YTD vs High Beta -3.0%) does…


Don’t argue with the clock on #TheCycle; do what it does – and keep going with your #GrowthSlowing positioning.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.67-1.82%

SPX 2027-2059
RUT 1080-1107


Nikkei 15190-16229

USD 94.04-95.19
YEN 107.39-110.98
Oil (WTI) 35.16-39.99

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Keep Going - 04.11.16 chart

USD, Oil and UST 10YR

Client Talking Points


After falling another -0.4% last week to year-to-date lows of -4.5%, the U.S. Dollar Index is signaling immediate-term oversold in my model for the first time in April (the 30-day correlation between USD and S&P 500 is -0.90).


WTI was up +8% last week after falling -7% in the week prior. This will be as important to watch as anything U.S. Equity Market Beta this week; risk range is signaling a lower-high of $39.99/barrel as Oil Volatility (OVX) signals a higher-low of 43.14.



A whole lot of nothing happening from a sovereign bond market volatility perspective (Long Bond Bulls should enjoy that as it signals growth has not “bottomed”). The UST 10YR Yield was -5 basis points last week and down -55 basis points year-to-date at 1.72%.


*Tune into The Macro Show with U.S. Macro and Housing analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald's (MCD) hit another all-time high last week. As we continue to reiterate, the company has all the style-factors that we like – high market cap, low beta and liquidity. Stick with it.


We are going to be looking at a much different company 1-3 years from now. Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.


Things like All Day Breakfast, responsibly sourced ingredients, and bringing back the value proposition will lead to increased sales and customer satisfaction. While this company is too big to be completely fixed overnight, management has the right plans in place. We are confident in where they are headed.


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.


We outlined our expectation and outlook moving into Q2 last Thursday in our quarterly macro themes presentation for institutional clients. The first of the three themes was labeled #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. With this cyclical backdrop, the U.S. economy faces its toughest GDP comp of the cycle in 2Q16”….


The takeaway is that the economy faces a difficult GDP comp (growth rate) in Q2 within the continued late-cycle slowdown. 

Three for the Road



The latest installment of @HoweGeneration's "About Everything"… @KeithMcCullough



Gratitude is a currency that we can mint for ourselves, and spend without fear of bankruptcy.

Fred De Witt Van Amburgh


Approximately 7.6 million companion animals enter animal shelters nationwide every year. Of those, approximately 3.9 million are dogs and 3.4 million are cats.

The Macro Show with Christian Drake Replay | April 11, 2016

CLICK HERE to access the associated slides.

An audio-only reply of today's show is available here.

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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. About Everything | A Perfect Storm of Trends Points to Less Interest In "Things" (4/9/2016)



In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why manufacturers and retailers should prepare for the possibility that “goods” aren’t coming back anytime soon. And, even when (and if) the industrial sector emerges from its long-term atrophy, the underlying framework of the “old economy” will look entirely different than what we see today. 


Click here to read Howe's accompanying About Everything research note.


2. Who Wins In A GOP Contested Convention? (4/8/2016)



In a brief HedgeyeTV political recap, Potomac Research Group’s JT Taylor and Hedgeye’s Daryl Jones discuss the results of GOP and Democratic primaries in Wisconsin and who will be the likely presidential nominees on each side. 


3. Implications Of 2016 Presidential Election On Defense Industry (4/8/2016)



How will defense companies be impacted by either a Democratic or GOP president? PRG’s Lt Gen Emerson “Emo” Gardner USMC Ret. discusses the Defense budget and what investors should expect out of Congress with Hedgeye Industrials analyst Jay Van Sciver.


4. McMonigle: What Lies Ahead For OPEC and Oil Prices (4/7/2016)



Potomac Energy Policy analyst Joe McMonigle discusses his expectations on an OPEC/Russia production freeze and the outlook for oil prices with Hedgeye Macro analyst Ben Ryan.


5. Replay: Healthcare Q&A with Tom Tobin | $ZBH $AHS $MD $HCA $HOLX (4/6/2016)



Healthcare analysts Tom Tobin an Andrew Freedman hosted a live Q&A today to review their latest research and answer your questions. Click here to access the associated slides.


6. Game Over. Central Bankers Can’t Do Anymore (4/5/2016)



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!”


7. The Case For Shorting Lazard | $LAZ (4/4/2016)



In this one-minute excerpt from The Macro Show, Hedgeye Financials analyst Jonathan Casteleyn highlights the key short catalyst for shares of Lazard and explains why the company is a compelling short.

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. Nikkei Kneecapped (4/8/2016)

This Week In Hedgeye Cartoons - Nikkei cartoon 04.08.2016


Despite last night's modest gains for Japanese stocks, the Nikkei is still down -25% from it's summer highs.


2. A Crude Joke (4/7/2016)

This Week In Hedgeye Cartoons - Oil cartoon 04.07.2016


No follow through on yesterday's 5.1% pop in oil prices. WTI back down today. 


3. Listen Up! (4/6/2016)

This Week In Hedgeye Cartoons - Yellen cartoon 04.06.2016


 All eyes on the Fed today, ahead of the release of the FOMC minutes.


4. US Growth Stinks (4/5/2016)

This Week In Hedgeye Cartoons - 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.


5. Crash Test Investors (4/4/2016)

This Week In Hedgeye Cartoons - Europe Japan cartoon 04.04.2016


Japan's Nikkei is down -23% from its 2015 high. Meanwhile, in European equities, drawdowns from last year's peak range from -13% to -28%.

The Week Ahead

The Economic Data calendar for the week of the 11th of April through the 15th of April is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 4.8.16 week ahead

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.