CHART OF THE DAY: How To Play US #GrowthSlowing

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.


"... Back to REITS, in stark contrast to what they did vs. Utilities when #Deflation dominated in JAN-FEB 2016 (REITS got crushed), they’ve really started to rip higher post the ugly 0.5% GDP report and another rate-of-change slow-down in non-farm payroll (NFP) growth:

  1. The Vanguard REIT ETF is pulverizing the Financials (XLF -1% in May) and is now +8.5% YTD
  2. Vs. Utilities (XLU) which continues its impressive, but steady, march higher to +13.5% YTD"


CHART OF THE DAY: How To Play US #GrowthSlowing - 05.10.16 EL Chart

Making America Weak Again

“The cheap dollar tactic started a currency war that has been playing out ever since.”

-Jim Rickards


In The New Case For Gold, Rickards reviews a critical period in American history that Ben Bernanke refuses to have the courage to admit. “Though it seems like an extraordinary policy to adopt, since 2010 the US government has effectively abandoned the sound dollar.”


“In January of that year, the United States ended the sound dollar policy that prevailed since 1980. An intentional policy of cheapening the dollar to encourage inflation and nominal growth was commenced.” (pg 120)


This Weak Dollar Policy, of course, has been tried before. If you want to see Trump make America weak again, you should vote for him so that he can triple down on what Nixon/Carter did in the 1970s inasmuch as Bush/Obama did in the most recent decade. It’ll be you-ge!


Making America Weak Again - trump point


Back to the Global Macro Grind


As any bi-partisan and/or objective student of Economic History can teach you, weakening a currency weakens the purchasing power of The People who earn their living (and have to pay to live) in that currency.


Given that you have two deteriorating Boomer Brands (Republican and Democrat parties) fighting over how much their political and corporate leaders should get paid in devalued Dollars, I’m surprised that someone isn’t running on the basic principle of sound money.


Instead of sounding creepy like Cruz, I’d bet my entire net wealth that I could lay a beat-down on Trump in a US Dollar debate. But, who knows, maybe I’ll just get to beat on Mr. Big Time for the next 4-5 years on Twitter instead.


In the meantime, despite the Fed’s renewed Dovish Down Dollar policy in 2016, what’s really getting beaten up are America’s profits:


  1. 441 of 500 S&P 500 companies have reported their Q1 2016 numbers
  2. Aggregate SALES growth is DOWN -2.4% year-over-year
  3. Aggregate EARNINGS growth is DOWN -8.9% year-over-year
  4. Ex-Energy (EPS -109% y/y), Financials have EARNINGS DOWN -14.3% year-over-year
  5. Ex-Energy, Technology has EARNINGS DOWN -8.4% year-over-year


Yeah, I know. Everyone nailed calling #TheCycle and this is all going to be fine. But when? Are Financials (banks, brokers, asset managers, etc.) going to crush it under a Down Dollar Trump and/or Hillary currency policy?


Maybe that’s why REITs have gone parabolic in the last few weeks. Have you seen my boy Big Time’s comments on how to protect his Dad’s original rental/real estate holdings? “I love debt!” And, ‘believe me, the US can never default because we can print money.’


I’m not yet dumb (or is it numb?) enough yet to believe everything Big Time says, but I can believe that he’d print money in order to try to protect his own interests above The People’s.


Don’t forget that RENT remains the largest component of the median US consumer’s cost of living (24% of total expenditures vs. something like gas at 4%) … and it remains at all-time highs.


Back to REITS, in stark contrast to what they did vs. Utilities when #Deflation dominated in JAN-FEB 2016 (REITS got crushed), they’ve really started to rip higher post the ugly 0.5% GDP report and another rate-of-change slow-down in non-farm payroll (NFP) growth:


  1. The Vanguard REIT ETF is pulverizing the Financials (XLF -1% in May) and is now +8.5% YTD
  2. Vs. Utilities (XLU) which continues its impressive, but steady, march higher to +13.5% YTD


Since I do believe that Big Time’s chances at becoming President are higher than Wall St. consensus, shouldn’t I consider adding REITS to our Best Macro Ideas list alongside the Long Bond (TLT), Munis (MUB), Extended Duration Treasuries (EDV), Utilities (XLU) and Gold (GLD)?


Heck, why not? Low Beta and Safe Yield is just one gargantuan bet that US growth continues to slow and that both Republicans and Democrats race to devalue the Dollar to try to show Americans the illusion of growth (asset inflation) again, isn’t it?


Of course it is, but it also runs its course when bad economic data becomes bad (again) for 90-100% of Americans who don’t get paid by Clinton Foundation speeches or owning their own apartment towers and oil wells.


What’s interesting is that the overall US Equity market traded deflationary yesterday, but REITS did not:


  1. US Dollar Up (small) on the day
  2. Oil (WTI) and Gold DOWN -2.9% and -2.3%, respectively
  3. Metals & Mining Equity ETF DOWN -7.8% on the day


So they jammed everyone back into what has not been working since the April 2016 lower-bubble-highs in the SP500 and chased US Retailers, Restaurants, etc. (you know, the stuff that does well when America is actually great, economically) and that was that.


But now what?


What happens when the entire equity market goes to Quad4 (#Deflation), including REITS? Well, I guess that might be my buying opportunity. Unlike Trump, I don’t love debt. But like many Americans (and Canadians), I love buying things on sale.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.71-1.82%

SPX 2030-2070
RUT 1096-1128


VIX 13.61-17.78
USD 92.49-94.65
Oil (WTI) 42.51-46.34

Gold 1255--1310


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Making America Weak Again - 05.10.16 EL Chart

USD, Japan and Singapore

Client Talking Points


Get the Dollar right and you’re still getting most things macro right – USD hammered #Reflation yesterday (Metals & Mining ETF -7.8% on the day!) and should signal immediate-term TRADE overbought on this bounce up at 94.65 USD Index.


Japan loves Up Dollar, Down Yen, the Nikkei was up +2.2% overnight and got U.S. Equity Futures excited, but we would fade that. The Nikkei will signal overbought on the bounce around 16,667 inasmuch as Yen will signal oversold vs. USD around 110.


Just in case someone is telling you global “demand” is why Japanese stocks bounced, after getting smoked China didn’t bounce overnight and Singapore was -0.9% (-22% from the April 2015 Global Equity #bubble high).


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

As our Growth, Inflation, Policy model is oscillating between tracking in quad 3 and 4 for the second quarter, we’re sticking to core positions that perform well when growth is slowing and the yield curve is flattening:

  • QUAD3: Growth Slowing, Inflation Accelerating
  • QUAD4: Growth Slowing, Inflation Decelerating


The model signals that growth is slowing either way, and we expect a continuation of bond market discounting late cycle, growth-slowing. An allocation to Long Bonds (TLT, ZROZ) and Utilities (XLU) keeps investors out of the way of guessing which way assets levered to inflation will move next. The yield spread 10s-2s moved this week like it is headed toward taking out YTD lows. To be clear, this is NOT an indication that growth is back.


McDonald's (MCD) reported 1Q16 earnings on April 22nd that beat consensus estimates. The quarter serves as continued proof that the comeback story is in full swing.


The big question is where MCD is headed in terms of their national value platform. They had the McPick 2 for $2, then 2 for $5, now they have shifted to the monopoly promotion. McDonalds regaining a consistent value message is key to their success, and they know this. Additionally, we have another two quarters of tailwind from All Day Breakfast before we begin to lap it.


McDonalds’ recovery has been nothing short of extraordinary and has been a great source of alpha for all of its holders. We continue to like the name on the LONG side given the strong fundamental turnaround and the style factors that we love, big cap, low beta and liquidity.


#GrowthSlowing remains our call here in Q2. How do we know growth is slowing (ex. being validated by Treasury bond market and XLU outperformance)?


We look at every relevant data series on a rate-of-change basis to analyze a sine curve. Taking a look at our analysis of Y/Y Non-Farm Payroll growth, a clear cyclical picture develops. Mainstream media and other sell-side sources who talk about guessing the sequential NFP number are pursuing a fool’s errand (a confidence interval that is very wide) in terms of positioning into a number. We call this “open the envelope risk."


Rather, constructing a sine curve of the rate of change in NFP growth gives us a clear visual that employment growth peaked (in Feb. 2015), and it’s not recapturing that growth rate in this cycle. So whatever the sequential number is M/M, we know where this series is headed. And, when considered with every other relevant data series, we have a clear empirical view on where the U.S. economy is positioned in the economic cycle.

Three for the Road


VIDEO (2mins) Expensive? ‘I Love Expensive’… via @hedgeye



With courage you will dare to take risks, have the strength to be compassionate, and the wisdom to be humble. Courage is the foundation of integrity.

Keshavan Nair


90% of Alaska’s general fund revenue comes from oil. 

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The Macro Show with Keith McCullough Replay | May 10, 2016

CLICK HERE to access the associated slides.


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

Cartoon of the Day: An (Increasingly) Red Book

Cartoon of the Day: An (Increasingly) Red Book - China cartoon 05.09.2016


Chinese equities were down hard overnight (Shanghai Comp down another -2.8% and -47% from 2015’s high) on terrible export (-1.8% y/y APR vs. +11.5% MAR) and import (-10.9% y/y APR vs. -7.6% MAR) data. To be clear, we’re not in the everything has “bottomed” camp.

McMonigle: New Saudi Oil Minister Doesn't Mean New Oil Policy

Takeaway: Saudi Arabia will continue its market share policy, rather than join the "freeze" oil production coalition.

Editor's Note: This is a special, abbreviated excerpt from an institutional research note written by Hedgeye Potomac Senior Energy analyst Joe McMonigle. It was written this past weekend, following news of the Saudi energy minister cabinet reshuffling. McMonigle continues to be ahead of consensus on key issues and developments impacting the price of oil.  



(On a related note, click image below to watch McMonigle discuss this topic on BNN earlier today.)


McMonigle: New Saudi Oil Minister Doesn't Mean New Oil Policy - mcmonigle image 5 9


Saudi Arabia King Salman Appoints Former Aramco CEO Al-Falih as New Energy Minister

Change in Ministers Does Not Mean Change in Oil Policy


Joseph McMonigle, Senior Energy Analyst

May 7, 2016


Saudi Arabia announced a major cabinet reform and reshuffle on Saturday that also included the appointment of former Aramco CEO Khalid Al-Falih as the new Minister of Energy and Industry replacing long-time oil minister Ali Al-Naimi.


Al-Falih is highly respected and well-known in the energy community. As Aramco CEO, he transformed a national oil company into a global energy company. His appointment will bring stability and credibility to the world’s second largest oil producer. When he left Aramco, he was appointed as the Saudi Minister of Health and also stayed on as chairman of the state oil company.


The most important take-away here is that a change in oil ministers does not equal a change in Saudi oil policy.  We fully expect the Saudi market share policy to continue at least through 2015, and therefore, we do not forecast any change in OPEC policy at the upcoming June 2 meeting in Vienna.


Beginning in January 2016, Al-Falih started to become more visible on Saudi oil policy having a prominent role at the World Economic Forum in Davos. His public comments have been very much in line with current Saudi oil policy.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%