Europe 'Regaining Ground'? Nope. #EuropeImploding Is More Like It

Takeaway: Implosion risk is rising across the pond.

We stumbled across a misleading MarketWatch headline this morning.


Europe 'Regaining Ground'? Nope. #EuropeImploding Is More Like It - mktwatch 7 7




Sure, most European stock indices are up between 0.8% and 1.6% this morning. But "regain ground"? That's a bit of a stretch. Many European equity markets are still in crash mode. Like Germany, Hedgeye CEO Keith McCullough writes in a note sent to subscribers this morning:


"How many bear market bounces of greater than +1% have European Equity bulls chased since the DAX topped 2015? A: too many; DAX +1.3% this am to 9493 with a risk range of 9208-9770; remains in #crash mode (-23.4% from 2015 Global Equity #Bubble high) and a great short selling opportunity at top-end of my range"





That's right. Today, at 11AM ET our Macro team will be hosting our Q3 Macro Themes Call. #EuropeImploding is one of our top three themes. Here's additional analysis from McCullough: 


"Moving away from staring at yesterday’s news, I’ll spend time on our Themes call discussing the rising risk of #EuropeImploding from within; with all eyes on British Pound Devaluation, there’s a much bigger picture to discuss linking European #GrowthSlowing (from the 2015 cycle high) to political zeitgeist via this young currency experiment."


More to be revealed. 


(Email for access to our institutional Q3 Macro Themes Call.)

Déjà Vu: Stocks Higher On Bone-Dry Volume

Takeaway: Volume dries up on up days. Down days? An entirely different story.

A lack of conviction in stock "up" days? Yes.


Total U.S. market volume was bone dry yesterday. More specifically, it was down -12% versus the 1-month average and down -13% versus 3-month average. Contrast this with the post-Brexit selloff two weeks ago when total equity market volume ripped. It was up 65% versus the one month average.


Déjà Vu: Stocks Higher On Bone-Dry Volume - volume 7 7


Déjà Vu: Stocks Higher On Bone-Dry Volume - volume 6 27


Not a good sign for stock bulls.

Déjà Vu: Stocks Higher On Bone-Dry Volume - Volume cartoon 08.12.2014

We’ll be hosting our Q3 Macro Themes Call at 11AM EST:

Client Talking Points


Moving away from staring at yesterday’s news, I’ll spend time on our Themes call discussing the rising risk of #EuropeImploding from within; with all eyes on British Pound Devaluation, there’s a much bigger picture to discuss linking European #GrowthSlowing (from the 2015 cycle high) to political zeitgeist via this young currency experiment.


How many bear market bounces of greater than +1% have European Equity bulls chased since the DAX topped 2015? A: too many; DAX +1.3% this am to 9493 with a risk range of 9208-9770; remains in #crash mode (-23.4% from 2015 Global Equity #Bubble high) and a great short selling opportunity at top-end of my range.


WTI down -4% in the last month (vs. Gold +10%) and I’m still much more bullish on Gold than Oil – Oil’s volatility (OVX) backed up to 41 again yesterday and what I call my long-term TAIL support level remains 35-36; having missed the move off the 3yr low, I thought long and hard about getting long Oil/Energy for the Q3 Macro Themes call and decided no.

Asset Allocation

7/6/16 60% 0% 0% 10% 26% 4%
7/7/16 58% 0% 0% 10% 27% 5%

Asset Allocation as a % of Max Preferred Exposure

7/6/16 60% 0% 0% 30% 79% 12%
7/7/16 58% 0% 0% 30% 82% 15%
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

Since equity markets peaked last summer, TLT has been a resilient and less volatile source of absolute alpha, and the good news is that spotting the opportunity requires a daily data grind and a wrestling with reality more than a sky-high IQ:

  • S&P 500: +0.1% Y/Y
  • TLT: +22.0% Y/Y

Brexit, Frexit, Yuan devaluation – whatever the story, investors are paying higher premiums for the safety and appreciation potential of the long bond, a source of long-standing outperformance in this #GrowthSlowing environment. Moving into 2015, net futures and options positioning shows that traders had the largest net short position in the 10-year Treasury of the entire cycle, as most were positioned for rate hikes and a “lift-off economy."


It was another week of all-time lows in long-term Treasury yields and YTD highs in Gold (GLD), Treasury Inflation-Protected Securities (TIP), and Long Bonds (TLT is at a new all-time high!) as the rotation out of volatile equity markets continues. 


See above update on TLT/GLD.

Three for the Road


Too Late to Buy Gold and Treasuries?… via @KeithMcCullough $GLD $TLT #gold #markets #bonds



“Freedom means the opportunity to be what we never thought we would be.”  

-Daniel Boorstin


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JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

“We must adjust to changing times and still hold to unchanging principles.”

-  Jimmy Carter


AND THE BEAT GOES ON: Republicans believe charges should be brought against Hillary Clinton stemming from the FBI investigation of her private server as Secretary of State - at least they can unite behind something. House Oversight Committee Chairman Jason Chaffetz (UT) will hold a hearing later today featuring FBI Director James Comey. Chaffetz’s panel has been investigating Clinton's case parallel to the FBI, and up until now, Comey's office had not been forthcoming with the information as the investigation was pending. This has to be record time for arranging a hearing, which further demonstrates the intensity of Republicans when it comes to all things Clinton…looks like fireworks will continue for a few more days.


CLINTON HEADS DOWN THE SHORE: Not to gamble, but rather to bash Donald Trump in Atlantic City, NJ – the home of Trump’s many bankrupt casinos. Clinton hammered Trump’s promise to do for the nation what he did for his businesses – cautioning that it should be viewed as a warning, not an enticement. Trump’s legacy in Atlantic City is a rough one and Clinton made a killing. It includes four rounds of bankruptcy for the casinos he built there, costing workers, lenders, stockholders and contractors jobs and money. The verbal shots keep flying at the expense of falling credibility ratings for both – just sit back and enjoy the show.


TRUMP BUMP: For those of you keeping count, Trump raised $51 million in the five weeks through the end of June, collecting $26 million for his campaign and $25 million for the Republican party. Think back to just a few weeks ago when he had less than $1.3 million in the bank. The bump comes as a sign that his lagging fundraising efforts are finally starting to gain traction and should show Republicans on the Hill that he’s taking this more seriously and just in time for his meetings with them today.


KEEP THE FIRE BERNING: Clinton is now changing up her college-affordability plan in an effort to harvest Bernie Sanders supporters by proposing the elimination of public in-state tuition for students whose families make less than $125,000. This chalks up the second big win for the Sanders camp this week. Clinton’s shift toward Sanders’ proposal, which retains tuition-free college at public institutions, comes as she seeks to consolidate the senator’s backers in the last months of the election. Although Clinton has struggled with certain groups in the past (i.e. millennials), her recent shifts on healthcare and tuition may prove to help her case.


THE BACHELOR - TRUMP EDITION: Trump’s veepstakes has resembled a reality tv show as of late - he’s spent this week (it’s not even over yet!) with a different prospect each day. Senators Joni Ernst (IA) and Bob Corker (TN), Governor Mike Pence (IN), and former Speaker of the House Newt Gingrich have all split time with Trump as he traveled throughout the East Coast (we’re betting Governor Chris Christie is feeling a bit spurned right now). Although Corker and Ernst have all but withdrawn from consideration, we still expect the final rose ceremony – his veep selection announcement – to be sometime next week ahead of the convention.


BREAKING THE 11TH COMMANDMENT: The unwritten Reagan rule has been trumped by a number of stalwart Republicans; Trump has long been criticized for a wide range of his policy ideas, and his foreign policy stance has remained the most unpopular – so it must’ve hurt a little when news broke that several more Reagan and Bush foreign policy specialists announced they will support Clinton in November. The widespread skepticism within the Republican establishment toward Trump's ability to manage his campaign, let alone actual foreign policy, has made it difficult for Trump to attract both endorsements and campaign advisors.





CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality

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.

CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality - top three


CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality - 07.07.16 EL chart

Tangible Themes

“Sound was ethereal, not tangible.”

-Steven Johnson


Global Macro Themes are far from ethereal. That word is one Steven Johnson used to describe sound in How We Got To Now (“e-the-real: lacking material substance or extremely delicate and light in a way that seems too perfect for this world” –Merriam Webster).


“For thousands of years after Neanderthal singers gathered in the reverberant sections of the Burgundy caves, the idea of recording sound was as fanciful as counting fairies… no one had imagined capturing sounds directly. Sound was ethereal, not tangible.” (pg 90)


Obviously, as a macro-economics profession, we’ve moved beyond being baboons. But for whatever reason, Old Wall Consensus has had a very difficult time capturing data (both economic and real-time market data) and contextualizing it within longer-term cycles. That’s how you generate tangible Macro Themes. Instead of lacking substance, that’s how we try to make tangible calls.


Tangible Themes - Macro themes call cartoon 07.06.2016


Back to the Global Macro Grind


No. Not all of our Macro Themes end up playing out. But we have built Hedgeye on a Research & Risk Management #Process that tends to be better than bad. The long-term goal, of course, remains excellence.


Turning tangible Macro Themes into big Global Macro Asset Allocation calls is the current manifestation of our #Process. Inspired by Bayesian Probability Theory, our best forecast for tomorrow perpetually evolves from what we just learned today.


Yes. Measuring and mapping TRENDING rates of change is a grind. It takes a disciplined and independent Research Team to both execute on that process (for 50 economies and their stock, bond, currency, etc. markets) and respond objectively to its messaging.


Once that’s done, across durations (TRADE, TREND, and TAIL @Hedgeye), the hardest thing to do is wait and watch…


Patience isn’t only one of the hardest things to have (because we are living in 21st century of “everything needs to happen now”)… but we also have a burgeoning client base of investors who operate with different investment mandates and durations as well.


Since we can’t be everything to everyone, I’ve determined that being who we are is the best place to start.


So I’ll start with that on this morning’s Q3 Global Macro Themes conference call (and @HedgeyeTV video presentation). If you’d like access to our 88 slide deck, ping .


Our Q3 Macro Themes are as follows:


  1. #ProfitCycle
  2. #ConsumerCredit
  3. #EuropeImploding


Hashtag them. Timestamp them. Call them names. In case you haven’t noticed, we do not poach, borrow, or apologize for our original content. Our themes are born out of our #process, and we roll with them until we realize we are wrong.


When they’re right (that is the goal of the game!). We let them ride. Because that’s what cycles do.


That’s why I’m gravitating towards making the easiest call Theme #1 (i.e. an extension of the call we’ve been making for a year now). Theme #2 is the one with the most contrarian pop, validated by more recent data. And Theme #3 is some kind of big bang thing.


Since themes are born (and die) in probability space, what that means is:


  1. Theme #1 is already high probability (> 66% chance and rising towards 80-90%) because it’s already happening
  2. Theme #2 recently crossed the threshold of high probability (instead of a coin toss it’s at least 66% and rising)
  3. Theme #3 is at the threshold, but potentially has a longer-term duration to the idea/theme playing out


That’s the thing with super-long-term ideas (our new Sector Head of Demography, Neil Howe, calls them “Super TAILs”), like real-time market risk… they can happen slowly, or all at once. You need to be humble enough to embrace uncertainty with those.


Back to Themes #1 and #2 (again with the preponderance of the recent data showing a rising probability of them being right, faster, than Theme #3), the “calls” I’m going to make at 11AM are going to be:


  1. LONGS: Slower-and lower-for-longer (no need to change the view on the Long Bond, Rates, Gold, Utilities, etc.) #LetThemRide
  2. FINANCIALS: reiterated as our favorite underweight, adding US consumer credit exposures to the table pounding
  3. CONSUMER DISCRETIONARY: (especially “high end”) is going to be an exposure to short on bounces, with impunity


Then, like the #BeliefSystem (breaking down) call we made on our Q1 2016 Macro Themes call, we have a bigger bang theory on this grand-central-market-planning-experiment called the Eurozone and her young ethereal currency they call the Euro.


I’m looking forward to not only presenting what we view as developing truths, but engaging in post call debates with clients, worldwide, on where we could be right or wrong. Collaboration is a long-term tangible theme for modern day risk managers too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.29-1.50%



VIX 14.11-25.29  
EUR/USD 1.08-1.12

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Tangible Themes - 07.07.16 EL chart

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