Dr. Copper's Diagnosis? Global #GrowthSlowing

Takeaway: Copper #Deflation resumes with a -1% decline back to $2.07/lb this morning.

Dr. Copper's Diagnosis? Global #GrowthSlowing - global growth.sick bull cartoon 08.24.2015


Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 


"At $1.47 GBP/USD, from an FX market @Hedgeye immediate-term TRADE signal perspective, a Remain vote is priced in. Copper – the Doctor appears to be heading for the exits ahead of the crowd on that; Copper #Deflation resumes with a -1% decline back to $2.07/lb this morning; WTI down -0.9% as Oil Volatility remains around 40."


A Remain vote is priced in

Client Talking Points


Pound Up, Dollar Down gave #Reflation the nod to ramp more than most things macro yesterday (CRB Index +1.1% vs. SPY +0.58%), but now the question remains what if my $1.47 signal level is right and they sell Pounds (cover USD) on the “news”?


The Doctor appears to be heading for the exits ahead of the crowd on that; Copper #Deflation resumes with a -1% decline back to $2.07/lb this morning; WTI down -0.9% as Oil Volatility remains around 40.


Brexit is newsier, but this Spanish Election (June 26) still matters – as does European #GrowthSlowing; Spain’s IBEX -0.15% after the 1-day bear market bounce remains in crash mode -27% from #TheCycle highs of 2015.

Asset Allocation

6/20/16 64% 4% 0% 10% 18% 4%
6/21/16 62% 4% 0% 10% 20% 4%

Asset Allocation as a % of Max Preferred Exposure

6/20/16 64% 12% 0% 30% 55% 12%
6/21/16 62% 12% 0% 30% 61% 12%
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

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 


To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.


There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road


"There are no traffic jams along the extra mile."

-Roger Staubach


Tom Glavine pitched 22 years in the MLB, his career ERA was 3.54.

The Macro Show with Keith McCullough Replay | June 21, 2016

CLICK HERE to access the associated slides.


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

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CHART OF THE DAY: Sell On The News Anyone?

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.


"... As the vote to Remain ramped, so have these bets. Going back to the week prior, the net SHORT position in GBP/USD hit its YTD high at -2.39x on a 1-year z-score.


And now, my immediate-term risk range process is implying that the asymmetry (in Pound terms) is to the downside with an immediate-term GBP/USD risk management range of $1.40-1.47.


Sell on the news anyone?"


CHART OF THE DAY: Sell On The News Anyone? - 06.21.16 Chart

Tendency To Stay

“People have a tendency to stay with what they have, at least in part because of loss aversion.”

-Richard Thaler


Don’t go all Brexit on me. You know that there’s a tendency to stay, right? That’s what we #Behavioral Economics people call the Endowment Effect – i.e. that people over value their stuff vs. other people’s stuff (see George Carlin’s “A Place For My Stuff” for the more graphic depiction of why you probably think your stuff is better than other people’s stuff).


As Thaler explains, “while loss aversion is certainly part of the explanation for our findings, there is a related phenomenon: inertia. In physics, an object in a state of rest stays that way, unless something happens. People act the same way: they stick with what they have unless there is some good reason to switch.” (Misbehaving, pg 155)


Are there some good reasons for Brits to exit? Sure. Are there more reasons to stay? Probably. At $1.47 GBP/USD (Pound vs. USD), that’s not my opinion. That’s what’s priced in. The tendency for The People of the UK to stay is already priced into both the Foreign Currency and US stock markets.


Tendency To Stay - Brexit cartoon 06.20.2016


Back to the Global Macro Grind


Oh Muddler, did you have to add that last part? Did you really have to remind me that if I was chasing the spooz at SP again yesterday that I was pricing in what’s already priced into both FX and Equity markets?


It’s not personal, bro. Most of the time, my stuff (multi-duration, multi-factor quantamental process, bro!) is better than the moving monkey stuff. We built Hedgeye on that.


One of the core behavioral risk management screens we’ve built to monitor what is (or is not) priced into consensus is looking at the rate of change in the big bets Institutional Investors are making in macro markets.


Looking at the most recent CFTC futures & options data, here’s what augments what I think is getting priced in:


  1. SP500 (Index + E-mini) net LONG positioning +117,566 contracts is the biggest net long position of the year
  2. USD net LONG position of only +4,681 contracts is well under its 3-to-12 month avg of +12,000-to-36,000
  3. GBP/USD net SHORT position of -33,972 dropped -30,719 from its net short peak last week


In other words, measuring where macro positioning is relative to itself (using 1-year z-scores):


  1. SP500 net LONG position = +2.63x
  2. USD net LONG position = -1.81x
  3. GBP net SHORT position = -0.54x


And this positioning was BEFORE yesterday’s squeeze in both Pounds and the SP500!


I’m not suggesting that neither the SP500 nor the GBP/USD can’t go higher (there’s always a chance!). What I’m telling you is that consensus was already positioning for both to go higher… and they did. #NiceCall


Yes, rate of change matters. As the vote to Remain ramped, so have these bets. Going back to the week prior, the net SHORT position in GBP/USD hit its YTD high at -2.39x on a 1-year z-score.


And now, my immediate-term risk range process is implying that the asymmetry (in Pound terms) is to the downside with an immediate-term GBP/USD risk management range of $1.40-1.47.


Sell on the news anyone?


No matter what the decision, on Friday morning we’ll all get to enjoy going back to risk managing what’s going on in the rest of the world’s markets and economies.


On that broader signaling horizon, here are some things Mr. Macro Market is thinking about this morning:


  1. Dr. Copper being blasted for another -1% #deflation down day (post its “No Brexit” reflation day)
  2. Spanish Stocks (IBEX) leading the first batch of European stocks to go red (still in crash mode)
  3. Chinese Stocks (Shanghai Comp) showing no follow through, down another -0.4% overnight


Imagine “no Brexit” wasn’t priced in and it perpetuated a worldwide “bottom” in global demand? Lol. The dude who has been calling for “PMIs to bottom” for a year now will have officially nailed it using the wrong causal factor!


More realistically, what these 3 things might be signaling is that:


  1. USD is about to make another long-term-higher-low vs. GBP
  2. European Stocks are about to make another lower-high within their bearish @Hedgeye TRENDS
  3. Chinese Stocks still suck (-44% from last year’s high), no matter what gets newsy


And my vote on my 11-month old tendency to stay with our local and global #GrowthSlowing call will be to remain.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.54-1.72%

SPX 2056-2095


DAX 91

VIX 16.33-23.12
USD 93.12-95.04
EUR/USD 1.11-1.14
Copper 2.00-2.10


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Tendency To Stay - 06.21.16 Chart

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2 


“Divide and rule, a sound motto. Unite and lead, a better one.”

                                           ― Johann Wolfgang von Goethe


CLINTON COURTS MILLENNIALS: Now that Hillary Clinton has sidelined Bernie Sanders, she’s making a play for some of his most diehard supporters - millennials. The first of many Sanders staffers joined Clinton’s camp with the main objective of corralling and converting college students. More importantly, though, are the ongoing talks between both campaigns regarding how to best deploy Sanders as a Clinton surrogate later this year. Millennials rallied behind Sanders because they were inspired by his vision for change and political revolution. Clinton must determine where she too can foster change and promote those policies. For Clinton, targeting young voters is a critical element in unifying the part of the party’s base that turned out in record numbers to put Obama into the White House in ’08 and then again in ’12. Keep snapping those selfies, H.


TRUMP TURNAROUND PART FOUR?: One of Donald Trump’s first campaign hires, Corey Lewandowski, has departed amidst chaos in the Trump campaign following two particularly bad weeks. Firing your campaign manager five months out from Election Day is usually not the sign of a winning campaign. Trump needs to use this moment to change course and pivot away from the missteps and the resulting criticism his campaign has endured. He’ll likely pin the blame on Lewandowski and move on – hopefully for the Republican party - with a fresh approach. With his recent decline in national polls, and Hillary Clinton’s barrage of attack ads, change is a must – but whether it will actually occur is the real question. Trump now finds himself in an even bigger rut, lacking staff, organization and most importantly money - he has less cash-on-hand than Ted Cruz - and he dropped out of the race six weeks ago.


WARREN WARNINGS: Wall Street has a clear message for Clinton – don’t pick Senator Elizabeth Warren (MA) as your veep if you want our money. Harsh, but true. Warren’s war on Wall Street has been one of the largest political battles any sector has withstood in recent years. She was the driving force behind the CFPB and wants to break up big banks - even the mere mention of her name draws groans from the pinstriped crowd. Clinton is flirting with the left in her courtship of Bernie Sanders’ supporters – which Wall Street can stomach – but if she goes at it with Warren, she can kiss those checks goodbye.


OFF THE TRACKS: It has been almost 50 days since Trump was declared the presumptive Republican nominee, but you wouldn’t think it by the way his campaign has responded. With Trump’s general election campaign yet to start, Republicans are beginning to confront their destiny. The anti-Trump camp has begun holding calls with delegates and donors exploring other options – but in reality, the other options are much worse as Republicans are risking a civil war if they contest the will of primary voters at the convention. Trump won the primary election fair and square - and if he gets pushed off of the ticket - where would his supporters go?  Third party or stay home in disgust? Trump likes to point out that he pulled in a record number of votes for the Republican party during primary season - losing them would be a critical blow to their efforts this fall.


“REMAIN” INCHES AHEAD IN THE HOME STRETCH: With only a few days left before the “Brexit” referendum, a new series of polls indicate an increased likelihood of victory for “Remain,” reversing “Leave” momentum from last week and placating investors’ fears. Stocks and oil bounced upward while the pound saw it's largest single gain since 2008. Increasingly aggressive rhetoric from the “Remain” camp on the downside economic risks of leaving appears to have trumped immigration concerns and swayed undecided voters.


ELECTION PREVIEW WITH SCOTT REED: Join us today at 11:00 AM EDT as we speak with Scott Reed, one of Washington’s top political strategists, to discuss the efforts corporate America will be undertaking on behalf of pro-business candidates this fall – as well as the outlook for control of Congress, the Republican and Democratic Conventions and the state of the presidential race. You can find the dial-in information here.


NET NEUTRALITY RULING MAY ENCOURAGE ISP DIVERSIFICATION: Our Telecommunications-Media Policy Analyst Paul Glenchur shared his insight on tougher privacy rules coming for telecommunication and cable operators. You can read his piece here.


THE MODI “STRATEGIC MOMENT” – ARE WE THERE YET?: Our Geopolitical Analyst LtGen Dan Christman offered his insights on the Indian Prime Minister’s visit to DC last week. You can read his piece here.


HUNTED: THE F-35 PROGRAM AT FARNBOROUGH: Our Senior Defense Policy Advisor LtGen Emo Gardner hosted a call on the first ever appearance of the F-35 at the upcoming Farnborough International Airshow. You can listen to the replay here.


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