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REPLAY | Special Free Edition of The Macro Show: Global Markets .. Grave Risk?

You're invited.

REPLAY | Special Free Edition of The Macro Show: Global Markets .. Grave Risk? - z ba ba


Hedgeye CEO Keith McCullough hosted a granular, no-punches pulled, deep-dive look at why markets are more vulnerable than ever and how to prepare for the uncertainty ahead.

As you may already know, Keith has been proactively warning our subscribers about the coming crash.

You do not want to miss this opportunity.


Click here to watch the replay.


Like what you see? Subscribe to The Macro Show here.

Growth Bears

Client Talking Points


Welcome to #Quad4 (Rates Down, Dollar Up). The USD has been up for 2 straight weeks and up for 3 of the last 4, holding our long-term TAIL risk level of 92-93 support. The 90-day inverse correlation between the SPX and USD is -0.77.


On its own path (for now) +3.7% week for WTI despite Dollar Up and up another +1.8% this morning getting closer to the top-end of our refreshed immediate-term risk range = $43.69-47.80. Oil Up = GDP Deflator needs to go up (GDP down).


The Yield Spread got smashed to fresh year-to-date lows last week (10YR minus 2YR = 95 basis points) keeping the Financials (XLF -4.0% year-to-date) our favorite sector on the short side vs. Utes (XLU +14.1% YTD) our favorite on the long side.


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

Asset Allocation

5/15/16 60% 3% 0% 6% 25% 6%
5/16/16 58% 2% 0% 7% 27% 6%

Asset Allocation as a % of Max Preferred Exposure

5/15/16 60% 9% 0% 18% 76% 18%
5/16/16 58% 6% 0% 21% 82% 18%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration

Utilities (XLU) remains our favorite sector on the long side as Financials (XLF) remains our favorite sector on the short side. Current global macro positioning is squarely behind a continuation in the reflation trade as evidenced by commodity leveraged credit spreads, global macro futures and options positioning, and forward-looking volatility expectations. Global macro futures and options positioning show a market that is leaning long of commodities and short of U.S. dollars. Corporate credit as a % of GDP remains at cycle highs, capital markets activity has dried up significantly, and credit extension is tightening nationwide according the most recent Fed Senior Loan Officer survey.


For some perspective on the Macro environment and why we favor companies like McDonald's (MCD), here's an excerpt from the Early Look written by Hedgeye CEO Keith McCullough:


Taking a step back, don’t forget where US Consumers (70% of GDP) were at this time last year:


  • US Employment Growth (NFP) was putting in a cycle peak
  • US Consumer Confidence was putting in a cycle peak
  • US Consumption Growth was putting in a cycle peak


Peak. Peak. #Peak!


And what happens when you start to lap the cycle peak? Well, instead of crappy Baby Boom capacity putting up mediocre (barely positive) same store sales at the peak, they look even crappier on the back side of the cycle."


That's why we like large-cap, low-beta, liquid companies like McDonald's in this tumultuous market environment. Case in point, earlier in the week, MCD hit an all-time high. Since we added the company to Investing Ideas, it is up almost 30%.


Stick with it. Restaurants analyst Howard Penney reiterates his "road to $150" call, implyling more than 15% upside from here.


Credit markets are one of the major beneficiaries (maybe the largest) of the reflation trade since February. While yield spread compression has been a positive for Long Bonds (TLT, ZROZ), a perceived monetary policy shift and a collapse in bond market volatility expectations have been a positive for Junk Bonds (JNK), but we don’t expect it to continue.


With growth continuing to slow alongside consensus positioning broadly, downside deflation risk is on the table. As we’ve highlighted on a daily basis, consumption growth and labor market growth peaked in Q1 2015 and both are slowing alongside a continued corporate profits slowdown. This mix:

  • Smells like incremental deflation on the margin;
  • Is a huge risk for high yield credit (JNK);


Did we mention TLT and ZROZ were up 4.4% and 2.1% respectively last week? Not bad with U.S. #GrowthSlowing.

Three for the Road


An Animated History Of U.S. #GrowthSlowing https://www.youtube.com/watch?v=KegxiDarBlM&feature=youtu.be via @YouTube



Only he who can see the invisible can do the impossible.

Frank L. Gaines


Today in 1866, Congress eliminated the half dime coin and replaced it with the nickel.

**Call REPLAY** - Bats Global Markets (BATS) | The Little Engine That Could

Takeaway: We have added BATS shares to our Long bench with a $34 per share fair value.

We hosted a BlackBook call on recent IPO Bats Global Markets (BATS) last week. We have added shares to our Long bench this morning with a $34 fair value and think a tactical entry point will come about after 2Q16 earnings which will make the stock a Best Ideas Long. Enclosed is the replay to our call and associated materials.




BlackBook Presentation HERE

Audo replay HERE


Perversely, Recessions Are Best: While investors are in love with growth, counterintuitively recessions or phase transitions from growth to economic decline are a boon for the exchange sector. Volatility rises substantially late in the cycle and the onset of recession is a very profitable time for the sector. While a violent rise in volatility is not good for the broader trading community, a run-of-the-mill recession and volatility above current, historically low levels is a solid catalyst for the group.


**Call REPLAY** - Bats Global Markets (BATS) | The Little Engine That Could - chart2 VIX recession


**Call REPLAY** - Bats Global Markets (BATS) | The Little Engine That Could - chart3 cash and option


Mind Your Exposures: Another hallmark of economic declines is the consistent rise of corporate credit spreads over Treasuries, however we are confident that the agency-only operations of the exchanges is an all-weather business. With the highest ROIC and lowest cost of capital in Financials, the sector can outperform partly because it's a self-funding sector.


**Call REPLAY** - Bats Global Markets (BATS) | The Little Engine That Could - chart4 ROIC 


Not Bullish Enough: We see substantial opportunity in U.S. options and U.S. ETFs, as the recent merger of Nasdaq and ISE puts market share up for grabs. Furthermore, we don't think BlackRock is simply "spreading the chips around" with its recent BATS ETF listing. Rather, we think that once it gets through this trial period, BATS' lower-cost listing venue should gain more share. We are +10% above consensus for next year and think that, relative to a Financial sector with negative top line and earnings growth, investors will pay more for whatever growth is available.


**Call REPLAY** - Bats Global Markets (BATS) | The Little Engine That Could - New earnings table 



Please let us know of any questions.

Jonathan Casteleyn, CFA, CMT 


Joshua Steiner, CFA

Attention Students...

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REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.


Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)




1. McGough: Behind The Massive Spike In Retail Bankruptcies (5/13/2016)



In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Brian McGough explains why we’ve already seen more retail bankruptcies this year than in any full year in the last six.


2. As Neil Howe Predicted In March … ‘Trump Will Run To Left Of Clinton’ (5/10/2016)



Renowned Demographer and Hedgeye Sector Head Neil Howe is always one step ahead of the crowd. Case in point: A popular Washington Post article today lays out how presidential hopeful Donald Trump is “running to the left of Hillary Clinton.” In a then controversial video on HedgeyeTV, Howe predicted this would happen … back in March. Watch as Howe and Hedgeye CEO Keith McCullough review and update his prescient call in this brief excerpt of The Macro Show.


3. McCullough: Expensive? ‘I Love Expensive’ (5/9/2016)



In this brief excerpt from The Macro Show today, Hedgeye CEO Keith McCullough responds to a subscriber’s question about why he’s still bullish on McDonald’s (MCD), Utilities (XLU), and Long Bonds (TLT) even though they are “getting expensive.”


Investing Ideas - Levels

Takeaway: Current Investing Ideas: DE, HBI, LAZ, MDRX, FL, NUS, JNK, TIF, WAB, ZBH, ZROZ, XLU, MCD, TLT

Please see below Hedgeye CEO Keith McCullough's refreshed levels for our high-conviction Investing Ideas.


Enjoy the rest of the weekend.


Investing Ideas - Levels - levels 5 14


Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

This Week In Hedgeye Cartoons

Our cartoonist Bob Rich captures the tenor on Wall Street every weekday in Hedgeye's widely-acclaimed Cartoon of the Day. Below are his five latest cartoons. We hope you enjoy his humor and wit as filtered through Hedgeye's market insights. (Click here to receive our daily cartoon for free.)




1. No Mirage (5/13/2016)

This Week In Hedgeye Cartoons - retail cartoon 05.13.2016


Despite Retail Sales numbers beating consensus estimates, the year-over-year growth numbers have been declining since the second half of 2014. Slower growth? That explains why retailers like Kohl's (KSS) and Nordstrom (JWN) got crushed this week. We reiterate our #ConsumerSlowing call. 


2. The Spin Cycle (5/12/2016)

This Week In Hedgeye Cartoons - The Cycle cartoon 05.12.2016


"While it should surprise no one who has been on the right side of the US economic, profit, and credit cycle call that the #LateCycle Sectors of the US Economy (Financials, Consumer Discretionary, Tech, Healthcare) are the biggest dogs for the YTD, the pace of the decline in the US Retail (XRT) sub-sector of consumer has caught many off-side this week," Hedgeye CEO Keith McCullough wrote in the Early Look this morning.


3. Precious Metals (5/11/2016)

This Week In Hedgeye Cartoons - gold cartoon 05.11.2016


It's been a tumultuous 2016 for investors but there's always a bull market somewhere. Gold is up more than 20% this year.


4. Dead On Arrival (5/10/2016)

This Week In Hedgeye Cartoons - earnings season cartoon 05.10.2016


A brief update on earnings season:

  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 


5. An (Increasingly) Red Book (5/9/2016)

This Week In Hedgeye Cartoons - 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.

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.