CHART OF THE DAY: Yikes! A Look At How Consensus Is Positioned

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.


"... Look at last week’s CFTC futures and options net positioning:

  1. SP500 (Index + E-mini) +56,081 net LONG contracts = +2.16x (leaning bullish on a 1yr z-score)
  2. 10YR Treasury -159,930 net SHORT contracts = -2.66x (leaning bearish on a 1yr z-score)

Really? It’s one thing for The Bull on bonds to book some gains when Janet tells him she’s gonna hike (until she sees the data she hasn’t forecasted)… but to buy SPY and short TLT on that? I guess that’s why performance out there is not good."


CHART OF THE DAY: Yikes! A Look At How Consensus Is Positioned - 06.06.16 EL Chart

Janet's Jobs Beliefs

“For superforecasters, beliefs are hypotheses to be tested, not treasures to be guarded.”

-Phil Tetlock


After this morning’s Change In Labor Market Conditions report (i.e. Janet Yellen’s favorite labor market leading indicator, which is set to slow for the 5th straight month), will Janet be dovish or hawkish? Is she really “data dependent”?


For those of you who get the game we are in, the only thing that matters to macro markets right now is which way the Federal Reserve pivots from here. Post Friday’s Jobs Bomb, not going back to dovish during Yellen’s 12:30PM speech could crush markets.


Crush? How about confuse? Imagine the jobs report wasn’t a bomb on Friday? What would the things that held the “market” together (Commodities, Gold, Utilities, etc.) have done then? What if Yellen raises rates, for the 2nd time in 6 months into the slowdown?


Janet's Jobs Beliefs - Hawk or dove cartoon 05.31.2016


Back to the Global Macro Grind


We all have problems in life, but I guess my main one is that I actually believed Janet when she said she’d “probably raise rates” in June or July. So did macro markets. But she’ll be the one with a much bigger equity market problems if she doesn’t pivot again.


Remember the sequencing of both #TheCycle and the Fed’s response to it:


  1. HAWKISH (December) raising rates in front of a horrible Q1 slow-down (economic and profit cycle)
  2. DOVISH (March/April) trying to undo the hikes with rhetoric, devaluing Dollars to reflate asset prices
  3. HAWKISH (May) post the stock market bounce and Atlanta Fed GDP Tracker rising


Now DOVISH (June) post the “belief” that labor market conditions should be improving? Oh boy is this getting to be a lot of fun.


If you live in the land of the “but the market was flat” last week,  you missed another major move within the market. Yes, for those of you who want to earn premium fees and take market share, you have to beat the market.


With the SP500 rallying into Friday’s close to 0.0% on the week, here’s what really moved last week:


  1. US DOLLAR hammered -1.6% on Friday to close down for the 1st week in 5 (but -4.7% YTD)
  2. COMMODITIY REFLATION (CRB Index) +1.4% on the week to +7.1% YTD
  3. GOLD ripped on Friday to close up another +2.4% on the week to a league leading +17.3% YTD
  4. UTILITIES ramped another +1.4% on the jobs print, closing the week up another +2.6% = +15.7% YTD
  5. FINANCIALS got pounded by the data, closing -1.4% on Friday (-1.3% on the wk) to -1.3% YTD


No, this is not a “growth investor’s” market. This is a #LateCycle consumption and employment slowing market that is paying people who are long LOW BETA (up another +1.6% on the week to +9.1% YTD) and safe yields.


KM, did you mention consumption slowing? Am I going to be the only one who writes about the YTD low ISM Services print of 52.9 (MAY) vs. 55.7 (APR) this morning? Or should I just hush it and keep shorting US Retailers that are still in crash mode?


Back to the only other economist/strategist I know who has written daily about late cycle consumer and jobs data slowing for the last 6 months – his (or her) name is Mr/Mrs Bond Market:


  1. US 2YR Treasury Yield smoked for a -14 basis point drop last week to -28 basis points YTD (0.77%)
  2. US 10YR Treasury Yield spanked for a -15 basis point drop last week to -57 bps YTD (1.71%)
  3. YIELD SPREAD (10yr minus 2yr) down another beep to YTD lows of 93 basis points wide


So, I agree, you have to be long stocks – but mainly the ones that aren’t showing sales/revenues slowing and/or the ones that look like bonds. Because this raging bull market in the Long Bond is very much intact, no matter what Janet’s beliefs about jobs are.


What’s awesome about being The Long Bond Bull (interrupted every other month by Federal Reserve short-term pivots to hawkish), is that every time people get a whiff of Bond Yields going higher, they dog-pile the short-side of my long book!


Look at last week’s CFTC futures and options net positioning:


  1. SP500 (Index + E-mini) +56,081 net LONG contracts = +2.16x (leaning bullish on a 1yr z-score)
  2. 10YR Treasury -159,930 net SHORT contracts = -2.66x (leaning bearish on a 1yr z-score)


Really? It’s one thing for The Bull on bonds to book some gains when Janet tells him she’s gonna hike (until she sees the data she hasn’t forecasted)… but to buy SPY and short TLT on that? I guess that’s why performance out there is not good.


No matter what your beliefs about where we’ve been or where we are going during #TheCycle, it’s crystal clear at this point that US economic growth peaked in Q2 of 2015.


Hedgeye’s hypothesis on that has been tested and tried, in real P&L terms, many times since July of last year. It’s not a position I’ve treasured. It’s an analytical position I’m proud to say we stuck with in the face of establishment economics adversity.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.64-1.81%

SPX 2055-2120
RUT 1110-1181


VIX 12.62-16.89
USD 93.25-96.01

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Janet's Jobs Beliefs - 06.06.16 EL Chart

JT TAYLOR: Capital Brief


JT TAYLOR:  Capital Brief - JT   Potomac banner 2


CLINTON'S CONUNDRUM: Hillary Clinton needs less than 30 delegates to secure the nomination – a sure bet after looking to amass a large chunk of delegates in tomorrow’s primaries in NJ, CA, MT, NJ, NM, ND, and SD. All in, CA remains the biggest prize as Clinton and Bernie Sanders remain neck and neck. If she’s able to edge it out, she’ll hand Sanders a lethal blow – but then what’s in it for Sanders? Sure – he’s corralled and electrified the masses, but his future steps are immensely important. Clinton’s lead in the general election polls over Donald Trump remains slim and when Sanders decides to hang it up – expect Clinton’s numbers to climb – but she’ll need his help getting there.


TRUSTING TRUMP?: The Donald Trump trust factor may be the biggest issue facing the Republican party this year and though many Republican leaders have taken their seats aboard the Trump train they know there will be many opportunities for a derailment or two. Senior Republicans are calling Trump’s recent criticism of a Hispanic judge the last straw after promising to make an effort to “lighten” his choice of words when speaking of minorities as Goldwater flashbacks keep them up at nights. If Republicans believe they have a fighting chance this November,  they’ll need to mitigate their trust in Trump to do the right thing – and fast.


PROCRASTINATION NATION: With summer recess nearing and an unfinished budget still looming, Congress returns this week to a full plate. Zika funding has been sitting before Congress for more than three months – House and Senate bills are yet to combine due to political reasons. Puerto Rico is still sinking but sees a glimmer of hope as legislation will hit the Rules Committee later this week, followed by a vote in the House later in the week. With this hanging over Congress’ head, remember – it’s also Appropriations season and we’ve only got five weeks until Congress skips town for a loonnnngg summer recess.


BERNIE BANGS THE DRUM: Although Bernie Sanders will not be able to nab the Democratic presidential nomination, he’s created quite an iconic image that he could certainly leverage when he returns to the legislative arena. Sanders has long been known for his opposition to bipartisan agreements, but without public support, his tiffs remained meaningless. Look for Sanders to ruffle feathers on the Puerto Rico debt deal and other landmark bills in the future.


REMEMBER RUBIO?: Once revered as a Republican “golden boy,” Marco Rubio finds himself at a crossroads about his future. His fall from grace during the presidential primary was relatively quick and unexpected, and his announced retirement from the Senate premature.  If Republicans want to retain his FL seat - and the Senate - they’re going to need to do a better job of convincing him to stay .


VIETNAM, TPP, AND GEOSTRATEGY IN ASIA: Our Geopolitical Analyst LTG Dan Christman offered his insights into Vietnam, TPP, and Geostrategy in Asia “Vietnam, TPP, and Geostrategy in Asia


PENTAGON CONFIRMS IT STILL INTENDS TO BUY 2,443 JOINT STRIKE FIGHTERS: Check out our Senior Defense Policy Advisor LtGen. Emo Gardner’s insight on the Pentagon’s confirmation to Congress that it intends to buy 2,443 F-35s through 2038 “LMT, UTX, NOC, BAE, TXT: Pentagon Confirms It Still Intends to Buy 2,443 Joint Strike Fighters


BREXIT: SHOULD I STAY OR SHOULD I GO?: Join us for a call this Wednesday with Alexander Nicoll, a consulting member of the UK-based International Institute for Strategic Studies, as he discusses the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU. Please email us for dial-in information.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


Takeaway: Today, Monday June 6th, we will host a call to review the key issues RL needs to answer to become one of the best stocks in retail - again.

Today, Monday June 6th at 1PM ET we will release a deck and concurrently host a call to present what we believe to be the key issues headed into Ralph Lauren’s first ever Investor Day, which it is hosting tomorrow (Tuesday June 7th).  We don’t claim to have all the answers – yet – but sometimes half the battle is simply knowing the critical uncertainties for a stock – especially one with such a high level of opacity as RL. 


Call Details:

Toll Free:


UK: 0

Confirmation Number: 13638699

Materials: CLICK HERE

Live Video: CLICK HERE



To be clear, we definitely have a positive bias toward the stock and think that there’s asymmetric upside with the stock under $100. This is a company that just 18 months ago was thought – quite confidently by the Street – to have $10+ in EPS power for this year alone. And now in the midst of overlapping restructuring plans and management changes we’re looking at $6.50, at best. So we went from a peak multiple on (unrealistic and unachieved) peak earnings, to a trough non-recessionary multiple on trough earnings with short interest at all-time highs (outside of the Great Recession).  All in, we’re inclined to think that EPS starts with an $8 before it starts with a $5. In other words, we’ve likely seen bottom.


We’ll outline the key issues on Monday that Ralph needs to show to give us confidence that this could be one of the biggest stocks in retail over the next 18 months.



KATE | The Forest and The Tree

Takeaway: Reason for pullback over past week loses the forest for the trees. Story still on track for 3yr CAGR of 50%+. Not easy to find in US Retail.

KATE shares ended the week down 5%, capped off by a -7% move over the final two trading days of the week. The catalyst for the move was negative commentary at investor meetings about traffic-induced headwinds in the US outlet channel. Before we say here ‘we go again’, let’s put that commentary into context.


For starters let’s remember the cardinal rule when it comes to corporate communication at KATE… watch what they do, not what they say. While the communication issues are much improved over the past 12 months – it’s still a risk to the story – which came to fruition last week. However, the proof has been in the pudding for this company as it has continued to print best in class/industry comp growth. Talking up outlet headwinds could be a strategy as simple as management trying to keep expectations grounded. Current Street estimates call for a 13.5% comp this quarter, or a 220bps deceleration on the 2yr trend. We think that’s beatable, and that KATE will put up a mid-teen comp and $0.16 in EPS.


Let’s also remember that the company has been open about the traffic and ticket issues plaguing the outlet channels -- especially in tourist centric centers over the past two quarters. In other words, this is nothing new – and it put up a 19% comp last quarter alone.  In addition, the continued softness in the outlet channel was baked into guidance for FY16, and b) conditions in this channel haven’t gotten material softer since the company communicated with the street a month ago.  To those worried about softness across the rest of retail – we’d note that KATE has been the one name we can point to that has bucked the comp slowdown. And it hasn’t been about geographic diversification, mind you, as the company’s NA exposure has actually gone up 500bps over the past 2 years.


KATE | The Forest and The Tree - KATE 6 5


We think the reason for the pullback over the past week is losing the forest for the trees. More important to the KATE story, is the fact that this company has lost money every year since 2007. Despite having strong sales momentum over the past three years, it had no EPS, and only a convoluted non-GAAP Adjusted EBITDA number that was impossible to model. When the ‘handbag space’ melted down – KATE’s brand was fine, but its stock was annihilated because it had zero earnings/cash flow and valuation support. Well, that ends now. When all is said and done, we’re at $0.85 this year and a 3-year CAGR of 54% through 2018. Even if we’re wrong and KATE ‘only’ earns the consensus, we’re still looking at a 44% CAGR. We can count on one hand the number of companies that will put up that kind growth in US Retail.


KATE | The Forest and The Tree - KATE 6 5 2

Vietnam, TPP and Geostrategy in Asia



President Obama's multi-venue visit last week to Asia was both emotion-laden and politically charged, highlighted by his visit to Hiroshima. But no stop on the president's six-day tour was more strategically significant than his visit to Vietnam. For more than half a century, America's views on Vietnam have been refracted through multiple lenses. Vietnam War combat vets like myself initially viewed that country painfully. Memories have understandably blurred over time but are impossible to forget.

  • As a personal aside, I was privileged to return to Vietnam in 1995 with the U.S. Secretary of State to participate in the raising of the flag at our newly established embassy in Hanoi. From the moment we landed, my perspectives on Vietnam changed almost immediately; I began, as did many veterans, to view that country through a different lens - one that reflected Vietnam's enormous economic progress despite a ruling regime that stifled political dissent. The Vietnamese people with whom we interacted -- military and civilian, government bureaucrats and small business entrepreneurs -- clearly wanted to draw closer to the United States.

Our two governments have kept pace with these changes. Vietnam has continued its robust transition to a market economy, despite continuing challenges with state-owned enterprises and the business regulatory framework; the economy is expected to grow by nearly 7% this year. Further, US-Vietnamese official ties continue in the same positive trajectory demarcated by the establishment of formal diplomatic relationships in 1995. And this trajectory has enjoyed bilateral US political support: A US-Vietnam bilateral Trade Agreement was inked in 2001, Permanent Normal Trade Relationships (PNTR) were established in 2006, and Vietnam entered the rules-based World Trade Organization (WTO) in 2007.


2016, however, is a watershed year for this burgeoning relationship, and it explains the president's visit last week. In February, Vietnam was one of 12 signatories to the Transpacific Partnership (TPP), an historic economic undertaking that, if ratified by participants, will stitch together 40% of the global economy in a high-standards trade deal. For US businesses seeking to export to Vietnam, the winners will likely be agriculture and pharma; but as US Trade Representative Michael Froman has highlighted, Vietnam has some "heavy lifting" to do to satisfy TPP requirements, especially in establishing and enforcing high-standard provisions on intellectual property, the environment, and labor. The President's Hanoi visit confirmed Vietnam's commitment to do just that.


But what makes a forthcoming TPP vote in the US Congress so crucial is not limited to the economic sphere. For more than two years China has been aggressively pushing claims in waters off Vietnam's coast, asserting, for example, with the flimsiest of legal bases, that virtually 90% of the 1.4 million square miles of the South China Sea constitutes its "territorial waters."

  • In an attempt to cement these claims, the PRC has undertaken an island-reclamation project that, in 24 months, has created over 3000 acres of artificial "Chinese territory." Understandably, Vietnam, Malaysia, Brunei -- all signatories to the TPP agreement -- as well as other countries in the region not yet parties to the deal -- The Philippines and Indonesia, for example -- are looking increasingly to the US. Despite Chinese rhetoric about its "peaceful rise," US friends in the region view PRC behavior very differently; they are rightly asking: "Will the US be with us? Can we count on Washington?"   

In light of the security issues now unfolding in this vital part of the globe, there is thus another lens through which to view the US-Vietnam relationship: geo-strategy. If US politicians and analysts are concerned about Chinese president Xi Jingping's expanding military footprint and over-the-top territorial claims, as are Vietnam and most of its neighbors, then passing TPP is a geo-strategic necessity.  It's why Secretary of Defense Ash Carter has called TPP the equivalent of another US aircraft carrier for the region, and why a Vietnamese general has said TPP "has more value for Vietnam than buying 10 submarines."  A rejection of this key trade deal by Congress would rank as one of the most damaging foreign policy decisions in generations - akin to the disastrous Congressional passage in 1930 of the Smoot-Hawley tariff bill that contributed to the deepening of the Great Depression a few short years later. It also would tell allies and new friends in Asia like Vietnam, who have drawn closer to the US and labored to bring their business policies in line with global standards, "GET LOST."  




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%