Yen, Euro and Gold

Client Talking Points


The Yen finally stops going parabolic (down -0.3% vs USD) on these poor Japanese central planners who are now calling for an “end to one-sided speculative moves”, LOL. The Nikkei gets relief on that obviously, +1.1% and still -24% since #TheCycle peak in July.


No relief for the Euro’s ramp ($1.14 vs USD) for European Equity bulls who not only have to deal with the reality of an economic slow-down from #TheCycle (2015) peak, but crashing banks and equity indices; Italy leading losers (again) this morning taking the MIB Index crash to -27% since July.


With the Down Dollar trade signaling immediate-term oversold, both Gold (which we like) and Oil (which we don’t like) are signaling immediate-term TRADE overbought at $1262 and $41.57, respectively (good spot to buy some USD for a trade and sell some Commodity exposure).


*Tune into The Macro Show with Macro and Materials analyst Ben Ryan 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


Utilities $XLU (our fav Sector) +12.4% YTD vs. Financials $XLF (fav Short) -7.1% YTD



Great spirits have always encountered violent opposition from mediocre minds.

Albert Einstein  


According to the Centers for Disease Control and Prevention smoking kills half a million Americans each year and costs more than $300 billion.

The Macro Show with Ben Ryan Replay | April 12, 2016

CLICK HERE to access the associated slides.

 An audio-only replay is available here. 

Gen-X Weighs on Housing Market


In this brief excerpt from The Macro Show earlier today, Hedgeye Housing analyst Christian Drake discusses the demographic and structural headwinds facing U.S. housing. 

Early Look

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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.

Cartoon of the Day: The Cycle

Cartoon of the Day: The Cycle - GDP cartoon 04.11.2016


The U.S. growth outlook is getting pretty grim. The Atlanta Fed's GDPNow tracker for U.S. economic growth in Q1 2016 just hit 0.1% after a spate of new negative data.


We've been making this bearish call for a while now and highlighted in our Q2 Macro themes that "the U.S. economy faces its toughest GDP comp of the cycle in 2Q16."

Central Planning Delusions: From Helicopter Money To NIRP

Central Planning Delusions: From Helicopter Money To NIRP - central bank cartoon 02.17.2016

Falling behind on the latest central planning nonsense?


We think it's pretty clear that the central planning #Belief system is breaking down (see chart below... since the BOJ announced negative interest rates (1/29), the Yen is up +10.8% and the Nikkei is down -10.1%)


Central Planning Delusions: From Helicopter Money To NIRP - boj nirp nikkei jpy 


However, the links below are must-reads to stay up on the latest central planning shenanigans around the world. Whether you agree or disagree with the authors, insights abound, from Ben Bernanke's defense of "helicopter money" to German Finance Minister Wolfgang Schäuble comparing easy-money policies to drug addiction.




  1. Ben Bernanke's Brookings blog: What tools does the Fed have left? Part 3: Helicopter money --  Helicopter money gets the Bernanke stamp of approval and how it would work... "Money-financed fiscal programs (MFFPs), known colloquially as helicopter drops, are very unlikely to be needed in the United States in the foreseeable future... However, under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs may be the best available alternative. It would be premature to rule them out."
  2. IMF: The Broader View: The Positive Effects of Negative Nominal Interest Rates -- Insight on the IMF's latest thinking about negative interest rates... "Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability. Still, there are limits on how far and for how long negative policy rates can go."
  3. WSJ: Germany’s Schäuble: Time Is Near to End Central Banks’ Easy-Money Policies -- Refreshing sanity from ECB critic German Finance Minister Wolfgang Schäuble... "There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem,” Mr. Schäuble said, comparing the move away from easy-money policies to ending a drug addiction."

  4. Bloomberg: Former Yellen Adviser Proposes Sweeping Reform of Fed System -- Good ideas... "Dartmouth College professor Andrew Levin targeted four areas of change for the Federal Reserve system: make the Fed a fully public institution; ensure the process of picking regional Fed presidents is transparent; set seven-year term limits for regional presidents and Board governors; and make the entire Fed subject to external review."

Retail: The Next Chapter ... 11

Takeaway: Three months into 2016 and we're already rivaling Great Recession bankruptcy rates. What say you, Sears?

Editor's Note: Below is an institutional research note written by Hedgeye Retail analysts Brian McGough and Alec Richards. To read more of our Retail team's research ping


Retail: The Next Chapter ... 11 - retail island 1 14 15


It's so easy to succumb to the 'water torture' of Chapter 11 press releases in retail coming from the likes of Sports Authority, Vestis Retail Group (Eastern Mountain Sports, Bob's, and Sports Chalet), and Pacific Sunwear. But it's important to take a step back. Then another. And another. Then, and only then, does the big picture come into focus about the broader economic cycle.


Consider this...over the average economic cycle, we see 15 to 25 retail chains go under. Those represent roughly 1% of Retail Sales. Naturally, the filings are not even by year. Sometimes (like when the economy is ripping) there are none. Plenty of profits to go around for even the worst retailers. But some years there's upwards of 15 (Great Recession).


In just a little more than three months, we've already seen 4 parent bankruptcies (6 chains) in US Retail. Annualized, that's about 16, or 0.5% of retail. 


After an extremely tough winter selling season for shoes and apparel, it's only natural that we'd see this year push the 2016 tallies to a level close to what we saw in the Great Recession.


Sears, anyone?


Retail: The Next Chapter ... 11 - retail chapter 11

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