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CHART OF THE DAY: What Establishment Media Has Missed All Year Long

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.


"... I get it. Instead of truly trying to understand how we got to now (causal factor analysis across durations), what establishment media needs to do is hurry up some headlines on how they get ad revs up tomorrow.




Nah. This is Wall Street. And while we think we can get away with more and more and more of this behavior, The People are telling us (see equity fund outflows, fee compression, redemptions, etc. for details) that they don’t trust us anymore."


CHART OF THE DAY: What Establishment Media Has Missed All Year Long - 06.30.16 EL Chart

How We Got To Now

“It only adds. I don’t understand how it subtracts.”

-Richard Feynman


I’ve spent all of this week up at the lake house in my homeland with my growing family. This is a place that is free of Wall Street’s noise. There are no Washington politics here. There are no central-market-planners either. It’s a place where I can breathe and think.


Like yours, my story on how I got to now is different. We are all different. If you study where everyone around you came from, you’ll quickly realize that our collective experiences only add to life’s lessons. They do no subtract.


How we all got to now is also the title of a book I’ve been reading this week. Steven Johnson is the author. He also wrote a great thought leader’s book called Where Good Ideas Come From.


After the biggest 1-day loss of Global Equity market cap in world history (Friday June 24th, 2016), I sincerely hope many of you were proactively positioned with not only good ideas, but great ones.


If you weren’t, I think you’ve been given one of life’s most progressive opportunities – the opportunity to learn, evolve, and improve. How We Got To Now is called history. It’s neither yours, nor mine. It’s ours – something we’ll spend a lifetime trying to understand.


Back to the Global Macro Grind


And the bounce… in US Equities, that is… a two-day +3.5% S&P 500 v-bottom (on decelerating volume) into the beloved compensation period that is both Wall Street month and quarter end.


Although cash comp isn’t what it used to be (and how we got to now in 2016 will have a record number of macro narratives on why) … the most basic and truthful one is that in the last 6-12 months, both the economic and profit cycle slowed.


How We Got To Now - The Cycle cartoon 05.12.2016


If you’ve had that right, you wouldn’t have had to blame anything. Your accounts are happy.


If, however, you’re looking for the latest perma bull marketing case for being long “stocks” instead of what’s been really getting people paid (Long Bond, Municipal Bonds, Utilities, Gold, etc.), here’s yesterday’s consensus headlines:


  1. “Oversold Conditions” – true (SPX 1998 is the low-end of our current 1 immediate-term risk range)
  2. “Brexit Backtracking” – uh, ok… are they going to re-vote or something?
  3. “Pension Fund Rebal” – sure, I don’t doubt there’s always a “buy program” somewhere
  4. “Lehman Moment Skepticism” – lol, is that what the bull case was all along?
  5. “Fed On Hold” – now we’re talking! Based on all growth and profit cycle forecasts being wrong, of course
  6. “Fiscal Stimulus Hopes” – oh, yeah – now we’re really talking – time for some bridges and roads, baby!


Not one of these headlines has anything to do with real economic or profit cycle growth accelerating. They all have to do with either the risks that a complacent consensus didn’t forecast, or what “the worst case” isn’t (and how government can make it all better again).


I get it. Instead of truly trying to understand how we got to now (causal factor analysis across durations), what establishment media needs to do is hurry up some headlines on how they get ad revs up tomorrow.




Nah. This is Wall Street. And while we think we can get away with more and more and more of this behavior, The People are telling us (see equity fund outflows, fee compression, redemptions, etc. for details) that they don’t trust us anymore.


Should they?


With serious change in our collective behavior, I think they could. In fact, I think this might be the greatest growth opportunity that our profession has ever seen. But wow are we going to have to change both how we got to now before we have a chance to get there.


Ex-Energy, Ex-China, Ex-Brexit, the latest rate of change surprise in the US economy (next to #LateCycle employment and consumer credit growth slowing) is that US Housing’s gains from the 2015 highs are slowing.


In yesterday’s Pending US Home Sales report for the month of May, we saw signed contracts slow -4.7% month-over-month to negative (-0.2% year-over-year) for the 1st time in two years.


Since US Housing (and Autos) didn’t peak (in rate of change terms) until October of 2015, big ticket consumption is at risk of slowing from now until the US Election. Unless, of course, what happened to people’s net worth in June magically stimulates confidence…


If we want a confident population, we need to stop trying to centrally-plan stock market volatility and let The People’s hard earned currency become the strongest in the world. We need to stop lying to them about economic reality too.


From a realistic set of expectations, most humans can start to believe in how they can get to tomorrow. Trust is earned, not allocated. How most great families, companies, and countries got to now understand that. It only adds to progress.


Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND Research Views in brackets):


UST 10yr Yield 1.40-1.60% (bearish)

SPX 1 (bearish)
RUT 1087-1142 (bearish)

NASDAQ 4 (bearish)

Nikkei 140 (bearish)

DAX 9106-9758 (bearish)

VIX 15.19-25.84 (bullish)
USD 94.73-97.01 (bullish)
EUR/USD 1.09-1.12 (bearish)
YEN 101.10-105.38 (bullish)
Oil (WTI) 46.66-51.21 (bullish)

Nat Gas 2.56-2.91 (bullish)

Gold 1 (bullish)
Copper 2.05-2.20 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


How We Got To Now - 06.30.16 EL Chart

The Macro Show with Christian Drake Replay | June 30, 2016

CLICK HERE to access the associated slides.


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

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JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2


"Life is never easy. There is work to be done and obligations to be met— Obligations to truth, to justice, and to liberty.



ELEPHANT IN THE ROOM: Many unknowns remain ahead of the Republican convention in a few weeks - dozens of prominent Republicans have backed out, speakers are not yet confirmed, corporate sponsors have withdrawn support, and rumors of rebellion (and even riots) continue to rise. Convention organizers have unveiled a sparkly new stage and a massive LED big screen so that no one will miss a thing, but there’s growing concern that the convention will lack a coherent approach to substance and policy. Donald Trump will need to make a major shift to beef up his convention strategy and policy platform if he wants to move forward with any type of momentum and close the gap with Clinton.  


PROMESA KEPT:  A rare win last night for Speaker Ryan and Majority Leader McConnell who prevailed with the White House over the objections of hardliners in both parties as the Senate passed the Puerto Rico debt restructuring bill aka PROMESA on a vote of 68-30. Ultimately, the bill is not a bailout - and the island may still default on their biggest payment to date. The bill does, however, provide the ability to cut some debt, but more importantly, it places a hold on bondholder lawsuits that could jeopardize its ability to pay for schools, police officers and health care. Refloating the island will take some time, but the advancement of the bill is a step in the right direction.


AND PROMISES BROKEN: Just when we thought Trump was pivoting in the right direction for a few precious days, he unleashed a stream of invective against his former Republican primary rivals for not endorsing and supporting the party’s nominee as they all pledged to do back in 2015.  He even went as far as to say they should be permanently banned from running for office in the future. This is a surefire way to win them over...  


REPUBLICAN RESOURCES: Funds are starting to trickle in for Trump and endangered Republican candidates in the battleground states of OH, FL, PA, NV, and NH - all seeing a steady uptick in ad buys. The NRA has pledged more than $2 million on an ad featuring a Benghazi survivor urging people to support Trump - in the wake of the somewhat listless Benghazi report and the latest battle over guns - giving Trump a conservative boost. The Senate Leadership Fund, a super-PAC that works with Senate Majority Leader Mitch McConnell, has also set aside nearly $40 million for ad buys aimed at the five contested Senate races in the fall.


WARRIOR OF WALL STREET: MA Senator Elizabeth Warren continues to throw shade at Wall Street, rolling out a fresh derivatives regulation bill with VA Senator Mark Warner in a progressive response to Republican’s recent Dodd-Frank reform plans. The bill strengthen derivatives oversight by directing the CFTC to collect user fees from financial firms to cover its budget and help the commission manage its rigorous Dodd-Frank oversight responsibilities. Though the bill won’t see the light of day in this Congress, Warren’s message is clear - she’s going to continue to be a burr under Wall Street’s saddle.


CAMPAIGNER-IN-CHIEF: With growing concerns that Donald Trump will be competitive this fall, Hillary Clinton and the Democrats have decided to pull out the big guns. President Obama is making plans to hit the campaign trail, touting Hillary Clinton’s experience as a Senator and Secretary of State while berating Donald Trump as a fake and a fraudster. Don’t assume that's his main message - he wants the conversations centered on Clinton, why she’s right for the job, and what she will do to complete their party’s missions. Look for Obama to be the one to channel Clinton’s inner enthusiasm when the Democrats kick of their convention next month.

Gotta love the decelerating-volume month and quarter-end markups...

Client Talking Points


Reuters article, if true, could bring back another major – suggests PBOC is “willing to allow the Yuan to drop to 6.80” (vs. USD) – that’s another 4.5% as the USD is toying with another breakout; Shanghai Comp -0.1% overnight after signaling immediate-term TRADE overbought within our bearish TREND view.


Backing off its bear market bounce this morning with both IBEX (Spain) and MIB (Italy) backing off -0.3-0.5% - don’t forget that A) all of these economies were going to slow in 2H 2016 ex-Brexit anyway and that B) all of their stock markets remain in crash mode (DAX -23%, IBEX -32%, MIB -34%) from their 2015 economic cycle peaks.


With the entire edifice of consensus staring at the Pound (which has a crazy wide risk range of $1.30-1.39), the EUR/USD is looking more and more vulnerable by the day; if they can’t break it out > $1.13, $1.05 is in play on the downside – something to seriously consider within the context of more exits and #GrowthSlowing.

Asset Allocation

6/29/16 58% 0% 0% 14% 25% 3%
6/30/16 58% 0% 0% 12% 26% 4%

Asset Allocation as a % of Max Preferred Exposure

6/29/16 58% 0% 0% 42% 76% 9%
6/30/16 58% 0% 0% 36% 79% 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

In Great Britain, the people voted for freedom and not for the broken promises that central planners can bend and smooth economic gravity. The #BeliefSystem is breaking down and despite the fact that every central banker around the world was out Friday talking about “stepping in.”

As we’ve mentioned, the bond market has gotten the #GrowthSlowing call right all along.


Looking at other markets (yes there are other markets), maybe being long the Long Bond (TLT) for almost two years and sitting long of Gold (GLD) was too boring for some people, you have to ask yourself what you’re buying in broader equity indices with an ongoing earnings and cyclical slowdown. The second quarter of 2016 is setting up as the 5th consecutive quarter of Y/Y earnings declines for the S&P 500, the longest streak since the quarter ending in Q3 2009.


We want to be long of continued growth decelerating and inflation picking up from a GIP modeling perspective into the back half of 2016. TIPS are a great way to play both of these views along with our GLD (reflation) and TLT (growth slowing) positions.


The policy response globally will continue to be, currency devaluation and monetary easing with the intent to create inflation, and we take their commitment to this very seriously .

Three for the Road


Are 10 Million Americans About To Be Screwed Out Of Their Pensions? by @HedgeyeHWP investopedia.com/stock-analysis… #pensions pic.twitter.com/IL1jCvyQAl



“Every moment is a fresh beginning.”

-T.S. Eliot


Mike Trout has 156 career MLB homeruns, he is 24 years old.

Call Invite | Q3 2016 Macro Themes Conference Call (7/7/16 at 11:00AM ET)




We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, July 7th at 11:00AM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.



  • #ProfitCycle:  Embedded in the SPY’s lofty multiple are consensus estimates that forecast a return to positive earnings growth in Q2 and Q3, as well as a material ramp to near double-digit growth in Q4 – effectively implying Q1 was the end of the domestic corporate profit recession. Conversely, the confluence of our top-down and bottom-up analysis suggests earnings growth is likely to reach new lows in the Q2/Q3 timeframe. Moreover, earnings in over-owned sectors like Consumer Discretionary, Financials and Health Care are at risk of meaningful surprises to the downside due to the ongoing #LateCycle slowdown in consumption and employment growth.
  • #ConsumerCredit:  At the end of every economic expansion, the preponderance of investors have seemingly forgotten that #TheCycle actually does cycle. But as recent commentary from Synchrony Financial (SYF) and CarMax (KMX) has alluded to, the domestic consumer credit cycle has inflected to the downside and our work suggests said deterioration is likely to remain ongoing for at least the next few quarters. Moreover, this deterioration has wide-ranging implications for investors.
  • #EuropeImploding:  Brexit happened, but which other countries may leave the EU?  We’ll outline the countries that we believe have the largest political risk and quantify Europe’s cyclical and structural growth and inflation headwinds within our ongoing theme of #EuropeSlowing.  We’ll present why we believe fundamentals can fall further and why the Euro may hit new lows.



  • Video Access:
  • Toll Free:
  • UK: 0
  • Confirmation Number: 13636284
  • Materials: HERE 


As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,


-The Hedgeye Macro Team

the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.