About Everything: When Less is More

Takeaway: Millennials are trusting brands to pre-select the best products for them. They want the authoritative brands that Boomers rebelled from.

Editor's Note: In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why "we’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand." 


About Everything: When Less is More - scale



For the last half-century, America has fallen into a growing love affair with choice. It blossomed in the 1980s with supermalls, megamarts, and big-box retail, and amped up further in the 1990s by promises that you could always “have it your way”—even if that meant choosing your way through thousands of sizes, colors, styles, and tastes.


Today, Starbucks offers a mind-boggling 87,000 different beverage blends. The average American supermarket in 2014 carries nearly five times more items than in 1976.


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But apparently, this romance is cooling. A countermovement toward simplicity is underway.


Look at some of these trends:

  • Last year, Walmart reduced its average number of store displays by 15 percent.
  • British grocery chain Tesco slashed its inventory by 30 percent.
  • Paintmaker Glidden drastically thinned its color palette from 1,000 to 282.
  • Procter & Gamble reduced its range of Head & Shoulders shampoos by nearly half.

Other changes aim to streamline the decision-making process. Tesco now groups typical meal ingredients together to save shoppers time. Sites with large inventories like Netflix offer recommendations to nudge users along. Travel companies like Expedia and Four Seasons Hotels curate high-end bundled vacations.


We’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand (think Apple, Tesla, Chipotle, or Google’s home page). And a clutter of endless choices is now a symptom of a troubled brand (think JC Penney, McDonald’s, or Yahoo’s homepage).


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Choice fatigue

In his paradigm-shifting 2004 work, The Paradox of Choice, psychologist Barry Schwartz wrote that, beyond a certain point, “choice no longer liberates, but debilitates.”


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When choice builds up, consumers are bogged down. The average American now makes 70 decisions a day. Should we really spend so much time worrying about what to order from Starbucks?


Schwartz cites research (on products such as jam, chocolate, and 401(k)s) showing that consumers faced with fewer options are actually more likely to settle on one.


Growing desire for authoritative brands

Faced with endless choice, consumers often feel that companies don’t care about their time — or, even worse, that companies don’t understand their own products enough to know which one is clearly superior. Americans today want brands that they trust will give them what they want without choosing. They want brands that cut down on options, effectively deciding for the consumer.  


Generational change

When choice was shiny and new, Boomers were all for it. In response to a society that wallowed in Pleasantville sameness, young Boomers pushed for a bigger range of choices that allowed them to live life on their own terms and express their inner values.


Generation Xers followed suit. They learned to rely on themselves from an early age and equated choice with survival. Letting institutions choose for you was unthinkable. More options meant more freedom.


For Millennials, however, unlimited choice offers diminishing returns. When faced with countless options, this generation fears “missing out” (FOMO) on the best one. Millennials trust their favorite brands to pre-select the best products for them. They want the authoritative, in loco parentis brands that Boomers rebelled from. They’re relieved when their employer offers an opt-out default benefit plan, because they feel someone cares enough to recommend a “best” course of action.


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Businesses should break their inventory down into manageable chunks. Retailers with diverse product lines can limit choice simply by separating items into categories, such as brand, color, size, or flavor. E-tailers should offer robust search and filter functions, while highlighting some (but not too much) useful information about each product.


Millennials in particular appreciate companies that pare down the field for them. Default options are often characterized as paternalistic—yet this can be a positive attribute in the minds of young consumers. In scenarios with high trust and low knowledge (think health care, tourism, and retirement savings), fewer choices can be reassuring. 



If you’re in search of the next cutting-edge brand:

  • Don’t look for the firm that only knows how to proliferate option clutter.
  • Do look for the firm that knows how to simplify the complex — and augment its value by boldly choosing for you.

Financials Speaker Series TODAY: Inversion Immersion - Dissecting the Treasury's M&A Inversion Rules

Our Financials Team will be hosting a call with a top DC policy firm today, April 12th at 2:00PM ET  to outline the new Treasury framework and its potential impact on M&A.

watch the replay BELOW


  • 3rd Cut the Most Impactful? The third iteration of the Treasury's framework on tax inversions released last week seems to have upset the apple cart with already billions of dollars in merger and acquisition (M&A) transactions canceled. The understanding of the specific language and the "before and after" is still superficial however and we will dig into the specifics of the new 200 page parameters.
  • What is the fallout? While we will avoid specific deal-by-deal commentary, the new rule sets will have an industrial impact on the M&A advisory group which handles deal flow with a trickle down impact to specific sectors with a highlight on the Healthcare group. We will outline inversion percentages within total M&A activity and also which sectors have been most active.
  • Around the Beltway - A DOL Fiduciary Rule Update. In a follow up to our recent call with Bob Litan on the Department of Labor Fiduciary Rules, Jeff Shapiro will also give us the latest on the final details of the DOL Fiduciary Rule and what is new from the prior versions.




Jeff Shapiro joined Peck Madigan Jones following six years as Chief of Staff to Rep. Adrian Smith (R-NE), a member of the tax-writing Ways and Means Committee. He brings more than a decade of political and public policy experience to the firm, having previously served on Capitol Hill for Rep. Lee Terry (R-NE), who was a senior member of the Energy and Commerce Committee.

In his time on Capitol Hill, Jeff gained a reputation as a skilled political professional among Members and colleagues on both sides of the aisle. Jeff’s command of the legislative process, operational dynamics and inner workings of congressional offices was recognized by House Leadership, who tasked him with transitioning into office several Members of Congress following special elections.



CALL DETAILS - Tuesday, April 12th at 2:00PM ET

  • To Watch Live Click HERE
  • Toll Free Number:
  • Toll Number:
  • UK: 0.
  • Conference Code: 13634947
  • To Automatically add to your Outlook Calendar Click HERE


Related Tickers: GS, JPM, MS, LAZ, GHL, EVR, MC, PFE, AGN.

CHART OF THE DAY | Profits Past Peak: Next Up? Recession

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... As you can see in today’s Chart of The Day (slide 14 of the recently published Q2 Macro Themes Deck), Aggregate US Corporate Profits put in the mother of all peaks (all-time high) in the 2nd half of 2014. In this chart you can also see where:


  1. SP500 Operating Margin PEAKED and rolled
  2. US #Recessions typically appear AFTER profits and margins PEAK"


CHART OF THE DAY | Profits Past Peak: Next Up? Recession - 04.12.16 chart

Early Look

daily macro intelligence

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.

What's Priced In?

“You don’t want to negotiate the price of simple things you buy every day.”
-Jeff Bezos


Maybe Bezos should become the national spokesperson for stocks. Why haggle over things like the rate of change in the economy and profits when you can simply buy stocks (with other people’s money) at every price, every day?


What's Priced In? - Earnings cartoon 11.03.2015


Back to the Global Macro Grind


As Darius Dale and I head into Day 2 of Institutional Investor meetings in Boston, MA I’m going to proactively predict that we get hammered on one question that kept coming up yesterday: “what’s priced in?”


This is, of course, one of the most important questions that an objective investor would start asking you AFTER you’ve convinced them that the causal factor in things like the Long Bond (TLT), Gold (GLD), and Utilities (XLU) winning 2016 = #GrowthSlowing.


When the rate of change in growth slows from its cycle peak…


Drumroll… long-term bond yields fall alongside the collective economic expectation of consensus… and Low-Beta “quality” beats High Beta “leverage” to hopes like “reflation.”


On the latter, look at what Alcoa (High Beta Leverage) had to say as they kicked off Earnings Season last night:


  1. We missed revenues (again)
  2. We’re guiding down revenues
  3. We’re guiding down margins and earnings (and firing people)


Stock drops -5% on that. So what was priced in?


A) Alcoa crashing -60% from $17 to $7 from #TheCycle peak of 2014 to the FEB 2016 low?

B) Alcoa ramping +40% from $7 to $10 “off the lows” on the “bottom is in” view?


As 10th grade math majors know, if you lose -60% of your money in a stock “pick”, you need to be up +150% from that price (I’m using $7, but the stock obviously traded lower than that) just to get back to breakeven.


Moreover, if you don’t get anywhere near break-even, at some point (before and after Earnings Reports) you have to ask yourself:


A) If the underlying business, cash flow, balance sheet, etc. risks are improving or deteriorating and …

B) What’s priced in?


People who bought Alcoa in March of 2011 (with a $17 in front of it) were selling it into year-end 2011 with an $8 in front of it. For those of you who remember 2011, that’s when Bernanke had to save all natural buyers of “stocks” with unprecedented QE.


But Ben wasn’t able to save the performance spread between Utilities (XLU) and Financials (XLF) in 2011 (record high for Utes). He wasn’t able to stop Gold and Long Bond Bulls from having an awesome year either.


For Gold, 2011 was the top. For the Purchasing Power of Americans (US Dollar) that was Bernanke’s bottom.


With that historical context in mind, what if Janet Yellen is NOT able to go to Qe4 by Jackson Hole 2016? What if the US Dollar is about to lock in its YTD low and ramp back up from here? What is priced in under that probable scenario?


Or is it more probable at this point that we’re much more right on the economy than we’ve ever been, US GDP goes negative in Q2, profits continue to slow against #TheCycle peak, and Yellen goes all heli-ski-easy-money-drop on Trump for Hillary?


Lots of questions, but not a lot of time. Between now and when these cyclical realities take hold, that is…


As you can see in today’s Chart of The Day (slide 14 of the recently published Q2 Macro Themes Deck), Aggregate US Corporate Profits put in the mother of all peaks (all-time high) in the 2nd half of 2014. In this chart you can also see where:


  1. SP500 Operating Margin PEAKED and rolled
  2. US #Recessions typically appear AFTER profits and margins PEAK


For long-term investors who have modern day risk management overlays to their stock “picks”, the relationship between profits, margins, and stock prices is very obvious.


Less-obvious at the March 2016 highs for the SP500? Yes. More obvious at the February 2016 lows? Absolutely.


Fully loaded with Premier Li’s comments that China continues to see “downward pressure on the economy” overnight, what’s “priced in” from today’s price (vs. February’s)? I’m looking forward to analyzing what’s left of the free-market negotiation.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.68-1.82%

SPX 2026-2058
RUT 1081-1105

VIX 14.07-19.11
USD 93.74-94.99


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What's Priced In? - 04.12.16 chart

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. 

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