• run with the bulls

    get your first month

    of hedgeye free


Earnings Season: U-G-L-Y (You Ain't Got No Alibi, You Ugly)

Takeaway: A total of 374 of 500 S&P 500 companies have reported Q1 results with aggregate sales and earnings growth down -2.7% and -8.8% respectively.

Earnings Season: U-G-L-Y (You Ain't Got No Alibi, You Ugly) - earnings cartoon 01.27.2015


It's been an ugly earnings season.


Some important callouts this morning:

  • A grand total of 374 of 500 S&P 500 companies have reported Q1 2016 results, with aggregate sales and earnings growth down -2.7% and -8.8% respectively;
  • So far... 7 of 10 sectors have reported negative earnings growth;
  • Earnings growth for our favorite sector short call, Financials (XLF), are down -13.8% with sales -4.0%;
  • Energy (XLE) earnings growth crushed, down -99.5%, with -30.7% sales growth;


Here's what it looks like right now.

Earnings Season: U-G-L-Y (You Ain't Got No Alibi, You Ugly) - earnings 5 5

Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products




Daily Market Data Dump: Thursday - world equity markets 5 5


Daily Market Data Dump: Thursday - sector performance 5 5


Daily Market Data Dump: Thursday - market volume 5 5


Daily Market Data Dump: Thursday - rates and spreads 5 5

Things That Matter To Us Today: CH 11 Cycle and UA

Takeaway: Retail bankruptcies highest since 2009. This UA/China knockoff that getting so much press is a right of passage. We're not worried bout it.


In case you were hiding under a rock, Aeropostale finally did a favor for both the teen shopping crowd and the investment community alike when it filed Chapter 11 this week. There are two major takeaways from where we sit…

  1. First off, let this serve as a reminder as to how long these apparel retailers can sustain a state of sub-mediocrity without going under. While not super high margin businesses, the only real capital needs are in inventory -- as capex is generally low, and property values are almost all off-balance sheet. In other words, by the time a company looks like it is headed to file, it might actually have another full economic cycle left in it.  That's Aeropostale.
  2. Secondly, this event marks the sixth major retail bankruptcy of the year -- putting the year-to-date count ahead of the full-year Ch 11 tally ahead of the full year count for each of the past six years. If we annualize the current run-rate, we'll be on track to see more bankruptcy events than any year in two generations -- including the Great Recession. In fairness, as someone astutely pointed out to us last month, Chapter 11 filings are historically weighted toward the start of the fiscal year. That, in fact, is true. But we're still likely to see a few more by the end of the year. Regardless of any nuances, the most notable point to us is that we're seeing such a significant uptick in business failures when we're so late in this economic cycle. 

Things That Matter To Us Today: CH 11 Cycle and UA - 5 5 2016 chart1

Things That Matter To Us Today: CH 11 Cycle and UA - 5 5 2016 chart2


UA - Imitation is the Sincerest Form of Flattery

The press is blowing out this whole 'Uncle Martian' debacle as being debilitating for UnderArmour in China. It's definitely serious. But every other brand has 'been there done that'. It's almost turned into a right of passage in this business for some lowly Chinese knock-off specialist to carbon copy intellectual property (Name, Logo, Likeness) for premium US and European brands.  Just look at the juxtaposition of the pictures below.

Things That Matter To Us Today: CH 11 Cycle and UA - 5 5 2016 chart3

Our latest note on UA, titled UA | Huh? Can be found at the following link CLICK HERE


GIL - Gildan Activewear Announces Agreement to Acquire Alstyle Apparel, LLC, the Apparel Division of Ennis, Inc.



ANF - Abercrombie & Fitch COO Jonathan Ramsden stepping down after 7 years with the company



COST - Monthly Comps

Things That Matter To Us Today: CH 11 Cycle and UA - 5 5 2016 Cost


KSS - Kohl’s is first retailer to integrate Apple Pay with its reward program -- service currently available in 250 stores



Higher duty exemptions 



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.

CHART OF THE DAY | FYI: Employment Growth Peaked In Feb 2015

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. 


"... if NFP (non-farm payrolls) ramps to a rate-of-change acceleration ABOVE last year’s peak growth rate (+2.3% year-over-year NFP growth), my conviction on US #GrowthSlowing could fall below 66%, but would have to TREND that way."


CHART OF THE DAY | FYI: Employment Growth Peaked In Feb 2015 - 05.05.16 EL Chart

Play The Game You're In

“This American world was not made for me.”

-Alexander Hamilton


I’ve been hearing a lot of whining lately. That tends to happen when people aren’t winning. It’s not the attitude that I put up with as a coach. But, especially in non-contact activities, it’s a consensus attitude that winners should capitalize on.


For Big Government, Big Bailout, central-market-planning apologists, Alexander Hamilton has made quite the come-back on the American pop-culture scene. He’s currently crushing it on Broadway. People in Washington must love the guy too.


That doesn’t surprise me. More and more people in America think that more government is the answer to #GrowthSlowing again.


The aforementioned ‘give up because it’s not going your way’ quote comes from a book I finished reading on my vacation called Revolutionary Characters. The author, Gordon Wood, questions whether Wall Street leans Hamiltonian or Jeffersonian:


“Most present-day Republicans, for all their enthusiasm for Hamilton’s vision of a powerful military machine, do not want a Leviathan state that manages the economy and taxes people. So for the foreseeable future Hamilton seems to have few friends among those who would use The Founders to further their political causes.” (pg 123)


Play The Game You're In - alexander hamilton


Back to the Global Macro Grind


As opposed to whining about what many on Wall Street continue to beg for (Fed Intervention, Dollar Devaluation, Debt Monetization, Levered Buybacks, etc.), I say we just deal with it and play the game we’re in. There’s a lot of money to be made.


After being devalued by a “dovish Fed” to 16 month lows last week, the US Dollar spent the last few days wreaking havoc on whoever chased the highs of the “reflation” trade in April.


The way we played this in Real-Time Alerts was as follows:


  1. Friday – SELL signals in Oil and Copper
  2. Monday – BUY signal in US Dollar (cover Oil)
  3. Tuesday – COVER signal in Copper
  4. Wednesday – SELL signal in USD, COVER signal in SPY; Buy Signal in Energy (XLE)


Oh you little day-trader, you. Not really. I’m just signaling how I’m reading and reacting to the game in real-time. In late April and early May, I’m seeing the game as well as I did in late December, early January (after not seeing the game very well at all in March).


But it’s really NOT ok to speak openly about making good shots and bad shots, is it? This isn’t a game where everyone is striving for excellence like say, professional golf, where players can bluntly tell you they’re playing great or terrible, is it?


Since our performance as a profession has become so bad, we’ve almost reduced ourselves to a level of mediocrity that can only be considered a massive market and mind share opportunity. I say whoever stops whining and starts winning is going to crush it.


Back to why I made the decisions I made yesterday:


  1. US DOLLAR – could easily get smoked back to YTD lows on a bad jobs report tomorrow
  2. SPY (SP500) – tapped the low-end of my immediate-term risk range yesterday (top-end of the range = 2079)
  3. Energy (XLE) – like SPY, signaled immediate-term TRADE oversold yesterday and is a Down Dollar call too


Q: “Where could you be wrong Keith?”

A: On all of it


If I didn’t think I was going to be right, why would I waste my time A) signaling what I did and B) reiterating it this morning? I spent some time on The Macro Show yesterday discussing how I think about probability-weighting my decisions:


  1. If I think the probability of something happening is 33% or less, I do nothing
  2. If I think the probability of something happening is 66% or higher, I usually do something


In the Superforecasting book I’ve been citing as of late, Phil Tetlock makes the case that human beings naturally have 3 options: Yes, No, or Maybe. Since I don’t do maybe, I like to boil it down to Yes or No.


In other words, when I make a decision I have a confidence interval that is A) better than a coin toss and B) better than most people’s batting averages in the league. That doesn’t mean I’m going to be right. It simply sets a standard to be right.


A better question you can ask me on where I “could be wrong” is: since you have at least a 66% chance implied in hitting the button on that call, what are the Top 3 things that wouldn’t give you 99% conviction?


That way I can separate the risks to the position I take into a more tangible set of “thirds thinking” of the Top 3 ways I could be wrong. For example, if the Top 3 ways I can be wrong are highly unlikely, I’ll have Madoff type conviction = 99%


If you want these percentages to be 100% accurate, you’re missing my point entirely. This game is non-linear, so there is no super-secret calculation for conviction. However, there is a consistent #process here to calibrate my conviction.


In both tone and #timestamps, I’d be hard pressed to find my greatest loather in life who wouldn’t acknowledge that our highest conviction Global Macro idea for the last 6 months has been #GrowthSlowing.


While some sequential head-fake data points in the last 3 months have been “bullish”, most of them have mean reverted back to intermediate-term TREND bearish. Of the Top 3 things where I could be wrong from here, #EmploymentSlowing is one of them.


In other words, if NFP (non-farm payrolls) ramps to a rate-of-change acceleration ABOVE last year’s peak growth rate (+2.3% year-over-year NFP growth), my conviction on US #GrowthSlowing could fall below 66%, but would have to TREND that way.


There’s a difference. That’s why the data matters inasmuch as every decision you make during every market day does. You have to play the game you’re in, not the one you are positioned for.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.73-1.86%

SPX 2040-2079


VIX 14.60-17.81
USD 92.01-94.38
Oil (WTI) 42.34-46.63


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Play The Game You're In - 05.05.16 EL Chart

USD, Oil and Sectors

Client Talking Points


One of the main reasons for the oversold SPY signal was the super-short term overbought signal in USD (2 USD up days rocked reflation beta, but on a bad jobs report tomorrow, USD can easily retrace to 16 month lows). The 90-day inverse correlation between the SPY and USD is -0.62, so it’s not the layup that buying oil/energy stocks has been (higher correlation), but it’s there.


Oil had a big bounce up +3.3% on Dollar Down move as WTI holds the low-end of our immediate-term $42.34-46.63 risk range and that’s all it’s signaling to us here – short-term range bound with long-term TAIL risk in that $46-47 range.


Our favorite sector had another good day yesterday (Utilities +1.2% in a down tape to +14.0% year-to-date), and we added Energy (XLE) on the long side (for a trade) on that SPY/XLE immediate term oversold signal; on a bad jobs print (Dollar Down, Rates Down). We think both positions can work; on a “good” print, we’ll be wrong - still like Financials and Tech on the short side.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Please note we are removed General Mills (GIS) from Investing Ideas (long side) on Monday. Hedgeye CEO Keith McCullough wrote in Real-Time Alerts: "While I like GIS from a Style Factor perspective (it did its job last week, closing up in a down tape - doing its job again this a.m. +1%), it's:

A) Signaling a series of lower-highs from a long-term perspective

B) Not as well loved by my analyst team (Penney and Laidlaw)


While we still like the long-term story, the stock’s performance in 2016 has been nothing short of spectacular. Year-to-date GIS is up +7.8% versus +1.3% for the S&P 500. The company’s 3Q15 performance was mixed with the company missing on revenues and beating on EPS with the benefit of cost cutting.


That being said, there are a number of one-time items impacting volume growth that should self-correct in 4Q16 and FY17. GIS is currently trading at 13.9x EV / NTM EBITDA an all-time high for the company. Looking past GIS, the entire Consumer Staples space feel like there is a Safety Trade/ZBB/M&A bid underneath the entire group. We maintain our long-term bullish stance on GIS, but given the rapid acceleration to all-time highs in the YTD period, a correction is inevitable.


In a recent note to Real-Time Alerts subscribers, Hedgeye CEO Keith McCullough asked rhetorically, "What to buy?" "On pull backs to the low-end of my immediate-term risk range, I'd be buying more:

1. Long-duration Bond Exposures (TLT, ZROZ, EDV, etc)

2. Low-Beta Big Cap Stocks With Safe Yields (MCD, GIS, NKE, etc.)

3. Gold (GLD)"


McDonald's (MCD) has all the style factors we like for these turbulent markets, which explains why it's up 27% since we added it to Investing Ideas in August. Stick with it here.


Despite the weak U.S. GDP print, growth is very unlikely to rebound here in Q2. Don't get caught up in residual seasonality hopium. The confluence of steepening base effects amid the trending deterioration in economic momentum support our GIP Model forecast of a continued deceleration in the YoY growth rate of real GDP from +1.9% in 1Q16 to +1% in 2Q16E. The latter growth rate translates to +0.3% on a QoQ SAAR basis, which is up from our previous forecast of -0.5% (a lower base rate implies a smaller delta to get to the same numbers, all things being equal).


Assuming Q1 isn’t revised in any material way, our forecast for 1H16E is represents the slowest pace of domestic economic growth on a multi-quarter basis since 2H12. Any downside surprises from there will surely translate to renewed recession fears.” Giddy up for continued #GrowthSlowing!


The good thing about each of our active Macro positions (i.e. TLT, ZROZ, XLU and JNK) is that each of them typically works on an absolute return basis when growth slows.

Three for the Road


Explaining How We've Been So Accurate on GDP https://app.hedgeye.com/insights/50717-mccullough-why-our-gdp-forecasts-are-so-accurate



Kites rise highest against the wind.

Winston Churchill       


A report from Oceans Beyond Piracy group shows a total of 32 seafarers had been kidnapped so far this year compared with 15 in 2015.

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.