Cartoon of the Day: Earnings Jack-In-The-Box

Cartoon of the Day: Earnings Jack-In-The-Box - earnings cartoon 04.25.2016


"If the economic (GDP falling to 1%) and profit cycle (SP500 Earnings currently -8.1% year-over-year with 130/500 companies reporting) data wasn’t so bad, those begging for Dovish (Fed) Dollar Devaluation wouldn’t believe in buying commodities/stocks here either," Hedgeye CEO Keith McCullough wrote in today's Early Look.

CHART OF THE DAY: What Happens When The #BeliefSystem Breaks Down In US?

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.


"... Perversely, if the #BeliefSystem starts to break down here in the USA, Gold is going to be an intermediate-term loser in that. Those who are begging Yellen to devalue will have to cover US Dollar shorts and sell both their Oil and Gold futures contracts."


CHART OF THE DAY: What Happens When The #BeliefSystem Breaks Down In US? - 04.26.16 Chart

Dollar Standard

“We had a dollar standard instead.”

-Jim Rickards


Got Reagan and Clinton? Republicans and Democrats? #StrongDollar, Strong America?


That’s what all Americans (not just the 1% of us “making money” on Wall St.) had in the 1980s and 1990s. That’s what allowed their purchasing power to manifest into everything that was not US Dollar Devaluation by the Federal Reserve. That was awesome.




Every time the GDP cycle slows (and profit growth slows in conjunction with that), what do both Republicans and Democrats (Bush and Obama Administrations) beg for? Same thing Nixon and Carter did => Down Dollar, Bailouts, Inflations/Reflations, etc.


That’s not an American Standard anyone in this profession should be proud of. That’s the “Inequality” standard. And until a legitimate leader figures this out, we’re heading down history’s littered path of failed monetary policies.


Dollar Standard - Fed Up cartoon 03.22.2016


Back to the Global Macro Grind


Are the US Dollars in your savings accounts considered money? How about the Gold in your safes? Of course they are. And, unless you want to try to build your wealth in failed currencies, it’s critical to understand when there are buying opportunities in both.


Since what elected US Presidents should do … and what their un-elected Federal Reserve Chair people will do … are currently two very different things, I struggle getting completely amped up about buying more Gold at any time and price.


There is no question that a return to a sustainable #StrongDollar would be one of the major headwinds for Gold breaking out above $1300/oz again. At the same time, there are many more questions as to what Presidential candidate actually wants a strong USD!


As Rickards reminds us in his latest book, The New Case For Gold, “for 30 years, from 1980 to 2010, the world did not have a Gold Standard. We had a dollar standard instead. Now we have no standard and no anchors whatsoever…” (pg 43)


That’s why, at a price this year, I have no problem buying:


  1. Gold
  2. US Dollars
  3. Or Japanese Yens


You have to be completely catalyst and levels driven to risk manage all 3 of these major global currencies. Since Gold has no chairman of central planning, it’s a race between Janet going “dovish” (again) and sane people not believing the Bank of Japan.


A) If you don’t believe the BOJ (Bank of Japan), you’re covering shorts and buying Yens as the #BeliefSystem breaks down

B) If you believe Yellen, you’re hoping that the #BeliefSystem doesn’t break down in the US (as it has in Japan and Europe)


Fun, eh?


Perversely, if the #BeliefSystem starts to break down here in the USA, Gold is going to be an intermediate-term loser in that. Those who are begging Yellen to devalue will have to cover US Dollar shorts and sell both their Oil and Gold futures contracts.


Currently, from a CFTC Futures & Options positioning perspective, USD vs. Oil and Gold is as stretched as it has been all year:


  1. US DOLLAR: net LONG position is all the way back down to +13,314 contracts (vs. a 1YR avg of +43,586)
  2. OIL: latest net LONG position has ramped back up to +397,838 contracts (vs. a 1YR avg of +297,315)
  3. GOLD: net LONG position is huge right now at +188,030 contracts (vs. a 1YR avg of +51,173)


Another way to think about this is the standard deviation of the NET position relative to itself, across durations. On the 1YR duration, we measure this weekly using a z-score:


  1. US DOLLAR 1YR z-score is currently -2.08x
  2. OIL’s 1YR z-score is currently +1.80x
  3. GOLD’s 1YR z-score is currently +2.26x


Anytime anything big in macro is positioned +/- 2.0x standard deviations, it’s generally a good time to start thinking about fading (doing the opposite) of what that macro position has done in the last 3 months.


Getting the next big move in USD => Oil => Gold? That’s my struggle right now.


I bet that it will be your struggle too. And, sadly, if an un-elected Fed is allowed to devalue the Dollar into the US election… rising gas, rent, and food prices will most definitely be the struggle for both the American People and their economy.


You see, inasmuch as Down Dollar asset “reflation” is a windfall for us “rich people”, it’s a passive aggressive consumption tax on the rest of the country (who these politicians patronize as “folks”).


Maybe one of these big time “for The People” candidates should figure this out. For people with non-partisan standards, it’s not that complicated. How the real US consumption economy doesn’t keep slowing with growth slowing and inflation accelerating is.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.70-1.92%

SPX 2058-2106
USD 94.01-95.45
YEN 107.98-111.80
Oil (WTI) 40.34-44.39

Gold 1220--1260


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dollar Standard - 04.26.16 Chart

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USD, Oil and Europe

Client Talking Points


The USD is signaling an immediate-term higher low (94.01 on USD Index) for the 1st time in 3 months as both the S&P 500 and Copper signal longer-term lower highs (at 2106 and $2.31/lb, respectively). Hence asking ourselves where “reflation” vs. #Deflation goes from here?


Oil is having a heck of a time convincing us it can breakout above our intermediate-term TREND level of $46/barrel and from a futures/options positioning perspective, the Long Oil/Gold vs. bearish USD position hasn’t been this stretched all year either.


European equity markets are literally begging for Down Euro (Up Dollar) as the economic data continues to slow from its 2015 cycle peak, so we’re not as ready to re-short Spain/Italy/Germany until we hear Yellen’s latest storytelling on USD/Rates. Mario Draghi, meanwhile, has been asked to testify in front of German Parliament for the 1st time; ‘explain ze heli-copter money, heir Mario.’


*Tune into The Macro Show with Hedgeye CEO Keith McCullough and Demography Sector Head Neil Howe live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald's (MCD) released earnings Friday reporting strong numbers across every important metric. Consider, for example, Q1 EPS $1.23 versus FactSet's consensus estimate of $1.16. Same-store sales in the U.S. were +5.4% vs consensus +4.4%. Revenue in the U.S. was $2.02B vs consensus $1.98B. Company-operating margin was 15.4% vs consensus 14.9% and year-ago 14.3%. We are sticking with our $150 target and believe that $7.00 in EPS for 2017 is not out of the question.


CME Group (CME) which reports on April 28th still has the opportunity for an earnings beat with the +13% year-over-year volume increase coinciding with a +2% increase in pricing power. We have a 1Q16 estimate at $1.18, +3% ahead of consensus. CME stock has positively reacted on earnings the past 5 announcements, rising between +1.5-3.7%.


The market is currently pricing in a rate hike but not until … late 2017. So if you’re looking for reasons to buy the market at all-time highs, don't expect a boost from incremental Fed policy. To be clear, the dovish Fed commentary of late is a direct result of U.S. growth slowing. Friday’s manufacturing PMI continued its downward trend (it peaked in rate of change terms in August 2014). Clearly, the market gets decelerating growth, which is why Utilities (XLU) are leading equity sector divergences YTD (+9.3%) and the U.S. Treasury 10-year yield down 0.35% over that same period. (That translates into TLT +6.5% and ZROZ +10.2% year-to-date.)


With that being said, the alpha on our long utilities and Long Bonds (TLT & ZROZ) vs. short Junk Bonds (JNK) position has gone against us in the last two months. Notably, we have no direct exposure to commodities or commodity-related sectors, but being short of JNK amidst a huge rally in commodities has not been a good position. Much of the beaten down resource-leveraged credit has rallied.

Three for the Road


VIDEO: You’re ‘Crazy’ Buying Stocks Now



You can be comfortable or you can be courageous. But you cannot be both.

Dale Partridge   


There are 293 ways to make change for a U.S. dollar.

The Macro Show with Keith McCullough and Neil Howe Replay | April 26, 2016

CLICK HERE to access the associated slides.

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

An Uncomfortable Market Truth In Europe

Takeaway: Blind faith in the central planning edifice is beginning to crumble. Case in point ... the ECB.

An Uncomfortable Market Truth In Europe - Draghi Peter Pan cartoon 04.13.2016


Investors are slowly starting to acknowledge that the central planning #BeliefSystem has failed. Despite ECB head honcho Mario Draghi's best efforts, there's more evidence out of Europe's muddling economy this morning. 


Here's the latest data dump out of Europe:



No surprise ... it's been a rough year for European equities.


Here's a smattering of performance data across the Eurozone (1-year change):

  • EuroStoxx 50: -16.1%
  • UK, FTSE 100: -11.5%
  • France, CAC 40: -12.6%
  • Germany, DAX: -12.8%
  • Italy, FTSE MIB: -21.4%
  • Spain, IBEX: -20.6% 


An Uncomfortable Market Truth In Europe - europe stocks


Last week, Draghi did his best to instill confidence. European equities bounced. Today, it's back to what actually matters. The data.


Is the U.S. next?

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