CHART OF THE DAY: Brexit: 'Brits Don't Quit!'

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye Director Matthew Hedrick. Click here to learn more.


"... But will Brits actually vote themselves out of the EU?  We’ll reiterate here that we expect the Remain camp to prevail, but as the aggregate “Poll of Polls” below shows, it’s a split race (50/50).  In addition, recent results of individual polls show there’s a very sizable number of undecided voters, representing some 6% to 13%, depending on the poll, who we think will tip the balance marginally to Remain."


CHART OF THE DAY: Brexit: 'Brits Don't Quit!' - Brexit EL 1

EU’s Super Spotlight

“Brits Don’t Quit!”

-David Cameron


The vote for Brexit is upon us, TODAY!  And to boot, on Sunday Spain holds its second general election in the last six months to elect a government. 


Regardless of where you stand on the outcome of these risk events, today’s interconnected markets do force us all to constantly absorb new economic, political, and social events around the globe, sometimes more and sometimes less, as they impact our investment portfolios.  And this, of course, is what fuels what it is we do as global macro risk managers at Hedgeye!


Back to the Global Macro Grind


Brexit risk has been on the table for a while – after all, UK PM David Cameron set into motion the Brexit referendum (to give Brits the decision to Remain or Leave the EU) back on September 1st of last year.


But will Brits actually vote themselves out of the EU?  We’ll reiterate here that we expect the Remain camp to prevail, but as the aggregate “Poll of Polls” below shows, it’s a split race (50/50).  In addition, recent results of individual polls show there’s a very sizable number of undecided voters, representing some 6% to 13%, depending on the poll, who we think will tip the balance marginally to Remain.


EU’s Super Spotlight - Brexit EL 1


What Tips the Scales?  From the outset, the referendum vote has been an emotionally charged one rather than one grounded in indisputable facts and figures.   


Whether it’s Cameron and Co. banging the boards with Brits Don’t Quit!”, stating that the UK is economically strong and safer in the EU to Eurosceptics running with “Take Back Control” and spouting the benefits of sovereignty from Brussels and checks on immigration, this referendum has not been anchored in pure logic, fact based decision making.


It’s grounded in behavioral psychology!


As we’ve noted in previous work, the behavioral economist Richard Thaler, in his book Misbehaving, helps us understand behavioral factors influencing the British voter:


“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)


To our reasoning, there hasn’t been overwhelming evidence to switch course, and so we believe it follows that voters won’t choose to Leave. Inertia! 


Below we offer additional emotional-based factors at play that we suspect will further sway the undecided voter to the Remain camp:

  • Numerous perceived experts (from the IMF and World Bank to the Bank of England’s Mark Carney) have stated a strong case of economic harm if the UK leaves (coincidentally the “famed” investor George Soros recently said Sterling could plunge >20% on an exit). Experts, even if they’re wrong, can be emotionally easier to support.
  • The very recent terrorist attacks in Orlando, Florida on the 12th of this month combined with the terrorist attacks in Brussels on March 22, 2016 are fresh reminders of the globe’s safety concerns, which dovetails nicely with Cameron’s forceful and repeated messaging that a UK in the EU is safer than one out.   
  • Politically, we do not suspect the country is willing to risk a political power vacuum over this vote, as PM Cameron would likely have to step aside if Brexit prevailed.
  • The fear of the unknown looms large:  yes, new trade agreements could be arranged across the globe, but at what cost, and how soon?  The benefits and “ease” of the existing, established trade arrangements, especially with the EU as the UK’s largest trading partner, should stand front and center to support Remain.  
  • Unlike in the Eurozone, Brits have their own central bank and independent currency, which we think will marginally support Remain over Leave.
  • Even the soccer star/celebrity David Beckham is vocally supporting Remain!

Positioning Set-up?  Polls close at 10pm UK time so an indication of results could come late this evening eastern time, with a decision reached by early tomorrow morning.


The GBP/USD has been whipsawed by the referendum and has gained ~+4.5% to $1.4905 (its strongest level in five months) in the last week alongside the Remain camp gaining a slight advantage in polling, rising a full +1.3% intraday.  We expect a Remain decision to move the GBP/USD slightly higher, yet believe the bulk of the move has already been priced in.


And should Leave prevail, look out below!


Further, we believe European Stocks are about to make another lower-high within their bearish @Hedgeye TRENDs and that our 11-month old tendency to stay with our local and global #GrowthSlowing call will Remain.


EU’s Super Spotlight - Brexit EL 2


Spain to the Polls, Again!


Moving south on the continent, Spaniards are set to go to the polls on Sunday, and with it create another political “event” on the continent this week!   

The rub this time around appears similar to when Spaniards went to the polls in December 2015:

  1. There’s a lack of trust in Mariano Rajoy, leader of the Popular Party that currently leads in polling, as he has tolerated corrupt officials and dealings under his leadership as PM, and
  2. There appears a high likelihood that the political parties will once again not be able to agree to form a viable, strong majority coalition.

Current polls suggest the conservative Popular Party (PP) garners the most support at 29%, followed by the anti-austerity Unidos-Podemos (26%), the Socialists (PSOE) at 20.5%, and the liberal Ciudadanos party with 14.5%. As our special economics contributor and Spanish national Daniel Lacalle (who will appear on tomorrow’s Macro Show) has also highlighted in his research, the risks for the coalition appear as follows:

  • The vast majority of Spanish citizens will vote for moderate, center parties (PP, PSOE, and Ciudadanos)
  • Neither (PP + Ciudadanos) nor (PSOE + Podemos) will reach a clear majority
  • A Grand Coalition (PP + PSOE + Ciudadanos) appears unlikely to form

Will this time be different?  We suspect the answer is no, and therefore another hung parliament is likely. And so this political instability should lead to more economic instability and further support our #EuropeSlowing macro theme.


Our immediate-term risk ranges (with intermediate-term TREND research view in brackets) are now as follows:


UST 10yr Yield 1.55-1.75% (bearish)

SPX 2058-2105 (bearish)
RUT 1125-1170 (bearish)

NASDAQ 4 (bearish)

Nikkei 157 (bearish)

DAX 91 (bearish)

VIX 16.38-23.06 (bullish)
USD 93.13-94.88 (bullish)
EUR/USD 1.11-1.14 (bearish)
YEN 103.08-106.60 (bullish)
Oil (WTI) 46.18-50.72 (bullish)

Nat Gas 2.45-2.82 (bullish)

Gold 1 (bullish)
Copper 2.01-2.16 (bearish)

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

“He serves his party best who serves the country best.”

                                           – Rutherford B. Hayes


DONALD, THE DISCIPLINED: Donald Trump is pressing the reset button with the intention of setting a new tone for his campaign. In his first rebuttal speech to Hillary Clinton’s assault, Trump sharply hit Clinton with distinct blows – labeling her a status-quo candidate and sacking the Clinton Foundation, but also spent time emphasizing his path forward while looking composed, softening his tone, and showing early signs of change…for the most part. There’s no assurance that this disciplined approach will last and we’ve all seen it before - although he did refrain from six scheduled interviews to avoid drowning out his message. But if he’s looking for a lasting way to right the ship, he’ll need to prove that this maneuver will last more than one day to major donors, elected party leaders across the country and the RNC and repair previous ruptures. The move comes in the nick of time as efforts by anti-Trump factions to disrupt the convention are picking up steam.


CAN CLINTON COMPETE COUNTRYWIDE?: To compete in all 50 states, Clinton will need all the help she can get – cue: meeting with House Dems. Her theme was simple - unity. Clinton emphasized the importance of her efforts to unify Democrats in ‘08 following her primary battle and loss to then-Senator Barack Obama, even though her supporters urged her to continue in opposition. Clinton and the Democrats are nowhere close to the circling firing squad the Republicans are facing with Donald Trump, but she still must arduously work to pursue Sanders’ progressive wing of the party. While Sanders had only a fraction of Clinton's support among House Democrats, party leaders are well aware that they will all need Sanders’ supporters come November.


RUBIO REDUX: FL Senator Marco Rubio has finally decided to throw his hat back into the ring, pitching himself as the key to keeping either Clinton or Trump in check by staying in his seat. Rubio views himself as one of the few people who can effectively deal with and stand up to Trump, as well as someone who can coach his fellow colleagues along the way. This is not going to be a cakewalk for Rubio - so expect an extraordinary amount of attention, money and advertising to go into FL as it’s both a lynchpin for holding onto the Senate and recapturing the White House.


SANDERS SUPPORTERS STILL SEARCHING: While Bernie Sanders vowed to help Clinton defeat Trump in November, he has yet to endorse her - and more importantly - his supporters are still waiting on the sidelines. There is still a lingering distrust of Clinton among the Sanders crowd, viewing her as too establishment-friendly, hawkish, and concluding that she is beholden to too many special interests. Clinton’s scant support among Sanders voters still has the opportunity for growth, but don’t expect it to be easy - many supporters still claim they could never support her - and a whopping 22% of them say they’ll support Trump according to Bloomberg.


RYAN’S RED PEN: House Republicans continued on their reform path, releasing their long-anticipated Obamacare replacement plan and sparking another round of fighting over healthcare policy. The plan repeals Obamacare and includes a range of standard Republican policy ideas, such as providing a tax credit to help people afford coverage making Medicare more market-based, and a cap on Medicaid payments and tax deductions for employer based plans. However, the plan has come under criticism as it lacks vital details needed for understanding its effect on coverage and the overall budget, including dollar figures for the tax credit. Speaker Paul Ryan, who spearheads the push for simpler and smaller government, defended the plan by insisting that it is a process and that further details will come to play in production.


ZERO HOUR FOR BREXIT: The day is upon us and we’ll  soon know the fate of the U.K.’s membership in the EU. With yesterday’s poll-of-polls showing a dead heat, both camps have redoubled their efforts to sway the U.K.’s 46.5 million registered voters — a record high — as the late momentum shift toward “Leave” appears to have stalled. Today’s vote will shape the future of Europe, pitching nationalist populism against political union and economic interests. Governments and financial institutions are bracing for the potential ramifications of a Brexit, though markets appear cautiously optimistic that “Remain” will prevail.


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Cartoon of the Day: Enough Already!

Cartoon of the Day: Enough Already! - Brexit cartoon 06.23.2016


It's nauseating how much the mainstream media talks about Thursday's U.K. referendum.

Fact Versus Fiction: Dispelling The Fallacy That Everyone Is Bearish

Takeaway: The most consensus position in macro right now is actually long the S&P 500.

Fact Versus Fiction: Dispelling The Fallacy That Everyone Is Bearish - consensus cartoon 06.21.2016


Consensus is as long the S&P 500 as they have been all year.


Here’s what Consensus Macro positioning looks like from a CFTC futures and options perspective:


  • SP500 (Index + E-mini) net LONG position of +117,566 contracts = +2.63x 1YR z-score


For those of you who are new to following us, we measure current macro positioning across multiple durations relative to where the positioning has been in the past. Anything plus or minus 2x tends to be a great contrarian indicator.


Fact Versus Fiction: Dispelling The Fallacy That Everyone Is Bearish - macro show consensus pos


Watch Hedgeye CEO Keith McCullough explain consensus positioning in the video below:


Capital Brief: The Numbers Behind Clinton Vs. Trump (Fundraising & Staffers)

Takeaway: Money Ain't A Thang; General Election Ground Game; Far Worse Than Fundraising; Clinton's Claims

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: The Numbers Behind Clinton Vs. Trump (Fundraising & Staffers) - JT   Potomac under 1 mb


“Status quo, you know, is Latin for 'the mess we're in'.”

― Ronald Reagan


Really - it’s not an issue for Donald Trump, but despite claims that he’s worth over $10 billion, the same can’t be said for his campaign. His war chest – if you’d even call it that - currently holds only $1.3 million. That’s about the size of a congressional campaign. Hillary Clinton, on the other hand, has outraised him by a long shot, boasting $42 million in cash, and climbing at an even faster rate than the primary, putting the Republican front-runner on ice with less than five months to go. Recent FEC filings also show that Trump’s campaign has rented his own venues, jets, and hotels, and that Trump continues to loan the campaign money – bringing the total amount of Trump loans to $45.7 million. If Republican pockets aren’t deep enough, Trump promises that he will personally fund his own campaign...


Clinton now holds early leads in four key swing states - FL, VA, MI, WI – further underscoring our point that having an organization really does pay off. If Trump wants to stay in it, he’s going to need boots on the ground – and fast. His campaign currently employs only 69 staffers, while Clinton woefully outnumbers him with 685. Trump boasts that he runs a lean, tight-knit campaign, but that won’t cut it. In states like battleground NC, Clinton employs around 100 staffers, while Trump counts 10. Though, with the race looking tighter in PA and OH, Trump has an opportunity to be competitive in two of the most critical states this fall.


When all is said and done, it’s not the money, organization, or events that people remember – it’s the message. “Make America Great Again” was a sturdy slogan during primary campaign –  something supporters could hang their hats on - but now, that message appears to be muddled. Though Trump held campaign rallies last week in five states run by Republican Governors (four were potential battleground states - AZ, NV, GA, NC) - not one of them appeared on stage with him. If that doesn’t sound the alarm, then what does?


Clinton cautioned voters of a “Trump recession” in a speech on the U.S. economy, implying that electing Trump, “the king of debt,” would send the economy into a tailspin. In a speech outlining what won’t make America great again, Clinton feels that she’ll be the one to unite the nation, moving the U.S. economy into prosperous times like never before. She’s taking her message to Capitol Hill today to strategize with House Democrats, while Trump is expected to counterpunch in a speech to badly-needed donors this afternoon.

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