CHART OF THE DAY: Long 2010 Brunello Vs. Short $QQQ

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.


"... For those of us who have been investing in real estate, private companies, gold, platinum, wine, an NHL team, etc., that’s an easy question to answer. With Italian wines in particular, #EuropeImploding has provided for some fantastic buying opportunities this year.


If you want a primer on investing in IGW (Investment Grade Wines), the aforementioned quote comes from a great book that my wife Laura got me, titled Investing In Liquid Assets. As David Sokolin likes to say, “with wine, there’s no such thing as a losing investment”… if you’re underwater, you eventually win by drinking it! Long 2010 Brunello vs. Short QQQ."


CHART OF THE DAY: Long 2010 Brunello Vs. Short $QQQ - 07.26.16 chart

Liquidate Pleasurably

“Whenever you wish, you can liquidate pleasurably.”

-David Sokolin


Since I’ve been both generating and raising cash as of late (Hedgeye cash flows without helicopters and I’ve been booking some gains in my biggest position, the Long Bond), in investor meetings I keep getting asked (sometimes told) “if there’s any alternative to stocks?”


For those of us who have been investing in real estate, private companies, gold, platinum, wine, an NHL team, etc., that’s an easy question to answer. With Italian wines in particular, #EuropeImploding has provided for some fantastic buying opportunities this year.


If you want a primer on investing in IGW (Investment Grade Wines), the aforementioned quote comes from a great book that my wife Laura got me, titled Investing In Liquid Assets. As David Sokolin likes to say, “with wine, there’s no such thing as a losing investment”… if you’re underwater, you eventually win by drinking it! Long 2010 Brunello vs. Short QQQ.


Liquidate Pleasurably - wine


Back to the Global Macro Grind


I guess the people who are in the business of marketing “stocks” for their long-term-compensation-run might say that you can #drink every time you’ve bought the all-time high in SPY for the last 17 years too. That’s cool, if you do it with other people’s money.


Otherwise, I think that big secular shifts in technology, transparency (bid/ask spreads in wine are readily available on LIVEX in London), and information have really opened up opportunities for people to truly invest for the long-run, across cycles, and asset classes.


Truly investing? Yes. To be able to buy low, sell high, and compound returns (without sucking up epic draw-downs), across asset classes… you need to pay for the truth. What you watch on CNBC is free for a reason.


As Ray Dalio would ask: “what is the truth” this morning, according to the people with no skin in the game (central planners)?


  1. BOJ (Bank of Japan) – is now backing off on the helicopter comments in exchange for the “double fiscal thrust” ones?
  2. BOE (Bank of England) – is now seeing most anti-money printing hawks, capitulate to CTRL+Print
  3. Italian Banks – are now seeing “bank rescue” moneys from Italian Pension Funds


Macro market reaction to that?


  1. JAPAN - Yen Up +1.5%, Nikkei Down -1.4% (and remains in #crash mode, -21.7% from the #BeliefSystem 2015 high)
  2. UK – Pound Down -0.3%, FTSE +0.1% as the FTSE now has an inverse correlation of -0.78 to GBP/USD (3-month duration)
  3. ITALY – EUR/USD flat, MIB Index Down -1.8% (and remains in #crash mode, -31.9% from 2015 Global Equity #Bubble high)


Yeah, for people who have “no alternative to stocks” as a mantra, hopefully they’re not lying to you and suggesting that “stocks” no longer include Global Equities. Not that it matters to them, but June 24 was the biggest 1-day loss in Global Equity Market Cap, ever.


And ever, in truthful terms, remains a long time.


For a very long time, as long as I have been in this profession really (17 years), brokers and academics have tried to sell me on trailing returns instead of the draw-down risks associated with buying the peaks in those returns.


When some people read that, they’ll immediately call me something nasty… like a “market timer”… or maybe a wussy who isn’t willing to book gains before losing 20-70% of my hard earned money, every 5-7 years.


Oh well, there’s a lot of bull in the political market of calling people names, I guess.


But in all seriousness, if you have no idea on the timing of economic, profit, and credit cycle risks (early-cycle, mid-cycle, late-cycle), Buy- And-Hold in something you really believe in makes a lot of sense. I don’t “trade” my Hedgeye Equity, for example.


If you don’t do any rate-of-change analysis, you’d never care about “buying opportunities”, right? As long as you had “flows” (other people’s money), you’d just buyem’, every day, month, and year, no matter what the price. And eventually, #drink heavily.


Don’t do that.


And I’m not telling you to chase charts and just “buy, buy, buy” in many of the things we’ve liked for the past year either:


  1. Long-term Government Bonds continue to signal immediate-term overbought
  2. Municipal Bonds (MUB) have had a heck of a move and aren’t where I’d buy more yet either
  3. Utilities (XLU) are signaling the same at +22% YTD


You see, I’m a little polarizing to the Old Wall because I go both ways. In its purest definition, I am a free-market liberal. I’m conservative and entrepreneurial. And I really don’t give a damn if I’m not nailing everything all of the time, at all-time highs.


When I look at my world of investing opportunities, I don’t think there’s ever been a time in my life when I’ve been so excited. Whether it’s investing in Malaysian Equities (EWM) or big cap, low-beta, Energy Stocks (OXY) with safe-yields, there’s so much to do on sales.


One of the most exciting things of all is watching bubbles balloon up into the skies of a #BeliefSystem that is starting to go bad. Looking back, there have been so many epic buying opportunities born out of bubbles imploding that I can hardly wait for the next one.


When they don’t wish, they will liquidate. As a long-term investor, I have plenty of patience to wait pleasurably for that!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.46-1.63%

SPX 2129-2179

Nikkei 150

VIX 11.72-16.69
USD 96.31-97.99
YEN 103.15-107.31
Oil (WTI) 42.28-45.13

Gold 1311-1354


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Liquidate Pleasurably - 07.26.16 chart

Helicopters down and bank bailouts not resonating?

Client Talking Points


Heli-Ben IV ran out of fuel overnight – Yen ramped +1.5% to $104.23 and the Nikkei resumed its crash, closing down -1.4% to -21.6% from the Global Equity #Bubble high of 2015. Reiterating the short on Japanese Equities; fighting the BOJ continues to work as the #BeliefSystem continues to break-down.


“so”… ze pension funds of Italy are going to provide around 500M Euros in ze “bank rescue” money… cool – remember when Hank Paulson realized he needed a bigger bazooka (and it scared markets instead of propping them up?); Italy’s stock market smoked another -1.8% on the “news”, taking its crash to -31.7% from 2015 Global Equity high.


Complete amnesia required for the Dollar Down, Oil up, Earnings “have bottomed” narrative … Oil down another -1% WTI this am signals immediate-term TRADE oversold, but this remains a bearish TREND call @Hedgeye vs. Long Gold.

Asset Allocation

7/25/16 67% 0% 3% 10% 12% 8%
7/26/16 64% 2% 4% 12% 10% 8%

Asset Allocation as a % of Max Preferred Exposure

7/25/16 67% 0% 9% 30% 36% 24%
7/26/16 64% 6% 12% 36% 30% 24%
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

Gold (GLD) = Protection from global currency devaluation and inflation/down USD – You can travel anywhere on earth and get a quote in local currency.


Long Bonds (TLT) = #GrowthSlowing, yield curve compression.


Treasury Inflation-Protected Securities (TIP) = Combination of the above exposures.

Three for the Road


FLASHBACK | $WAB: Adding Short Wabtec To Best Ideas List… via @HedgeyeIndstrls



“Success is not final, failure is not fatal: it is the courage to continue that counts.”

-Winston Churchill


Mark Teixeira is batting .184 this season.  

investing ideas

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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2


                                     “He who knows best knows how little he knows.”

                                                        - Thomas Jefferson


BRIDGES OVER TROUBLED WATERS: Despite the “united together” theme, day one at the Democratic National Convention got off to a very rough start, but ended on high note as Democrats moved swiftly to head off dissention in their ranks before it subsumed their four-day brotherly lovefest. After much gloating and finger wagging at Republican disarray last week, Democrats began their convention with the news of a Trump bump in the polls, a Russian email scandal and the DNC Chair’s subsequent resignation. Though the protests that have ushered in the week are larger and more vocal than those in Cleveland, they were more than offset by powerful speeches by First Lady Michelle Obama, Senator Cory Booker, progressive icon Elizabeth Warren - and Bernie Sanders doubling down on his endorsement of Hillary Clinton. We expect the healing process to continue with speeches by President Bill Clinton tonight and President Obama on Wednesday evening.  


FROM RUSSIA WITH LOVE: Emails have been a recurring nightmare for Democrats all year long - this time with DNC Chair Debbie Wasserman Schultz in a starring role resigning under pressure after thousands of internal emails revealing a coordinated effort to stop Bernie Sanders were uncovered and released by suspected Russian hackers, creating an uproar within the party and initiating an FBI probe to boot. She’s been a scapegoat for Democrats on a number of fronts, even though her supporters point to the good she’s accomplished for the party – including raising record sums of money and working tirelessly in FL and across the country on behalf of Obama’s re-elect. Team Clinton has been swift and authoritative in trying to turn the page, but the outrage felt by Sander’s most fervent supporters won’t go away overnight and our friends in the media likely won’t let it.


BARNBERNER: Fissures in the Democratic ranks continued to show as Sanders supporters were welcomed to Philly by a new dumpster fire with the DNC email expose and revelations of manipulation by party officials, the selection of Senator Tim Kaine and residual unease with Clinton. Proving he’s no Ted Cruz, Sanders energized the delegates by delivering a barnburner of a speech on behalf of his ideals and Hillary Clinton. But we think there’s more work to be done and expect Sanders to make more appearances this week and throughout the campaign this fall. Featuring progressive speakers like Sanders, Warren, and Michelle Obama was a prescient kickoff strategy and we think that it will quell most - but not all - of the anger that still burns on the far left.  


TRADE R.I.P.: Clinton’s and Trump’s veep picks have long been pro-free traders and have praised the Trans Pacific Partnership as well as other trade pacts (as recently as last week). But in this unconventional election year (and bleeding into 2017), corporate America should brace itself for a continued assault on trade deals as Kaine and Governor Mike Pence are already whitewashing their pro-trade pedigrees and Trump is expected to relentlessly paint Clinton and Kaine as pro-free traders in an effort to win over voters in the Rust Belt and will gloss over any difference he has with his own running mate.


DISSECTING THE PARTY PLATFORMS: The Republican Convention concluded last week and the Democratic Convention officially kicked off last night. We put together a comparison of each party’s platform to help you better understand the differences and similarities in the policy agendas for the coming year. You can read the comparison here.


THE PACE OF PAYMENT REFORM QUICKENS; CMS ANNOUNCES THREE NEW BUNDLED PAYMENT MODELS: Our Healthcare Policy Analyst Emily Evans shared her insight on the new payment models, their focus on cardiac care and hip/femur fractures, and CMS’s signal for more models to come. You can read her piece here.


STAYING FOCUSED ON NEUSTAR’S LEGAL FIGHT WITH TELCORDIA: Our Telecommunications-Media Policy Analyst Paul Glenchur shared his insight on the FCC approval of a major contract, shifting it from Neustar to Telcordia, and why investors should keep the legal battle on the radar. You can read his piece here.


USAF TO DRAMATICALLY CHANGE ITS PLANNED FUTURE PROCUREMENTS: Our Senior Defense Policy Advisor LtGen Emo Gardner shared his thoughts on the United States Air Force’s conclusion that it is not capable of defeating its adversaries in 2030, completely revamping its program of record. You can read his piece here.


STICK A FORK IN IT: HEALTH INSURANCE MERGERS HEAD TO $2.85B BREAK-UP FEE END: Our Healthcare Policy Analyst Emily Evans shared lessons learned from recent healthcare mergers, including reimbursement leverage becoming not as important as innovation, and how the scale through horizontal integration did not get a warm reception. You can read her piece here.


DASHINING THE NINE DASHED LINE: Our geopolitical analyst Dan Christman shared his insight on the Permanent Court of Arbitration’s announcement regarding Philippines/China disagreements over islands, shoals, and economic zones in the South China Sea and why it was momentous by any measure. You can read his piece here.


SUPREME COURT NET NEUTRALITY REVIEW UNLIKELY TIL 2017-2018 COURT TERM: Our Telecommunications-Media Policy Analyst Paul Glenchur discussed why he expects further lower court proceedings to delay Supreme Court action by a year, extending an unfavorable regulatory climate for ISPs. You can read his thoughts here.


REPLAY | BREXIT IMPLICATIONS – A 360° ANALYSIS: In case you missed it, we began a series of calls on post-Brexit implications. Our first call, in conjunction with the international law firm of Squire Patton Boggs, examined Brexit’s legal and procedural implications. You can listen to the replay here.


The Macro Show with Hesham Shaaban Replay | July 26, 2016

CLICK HERE to access the associated slides. 


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

The pace of payment reform quickens; CMS announces three new bundled payment models

Takeaway: The new payment models are focused on cardiac care and hip/femur fractures as expected and CMS has signaled more to come.

Readers of this page know that we have repeatedly noted the quick pace at which CMS has proposed changes to the Medicare payments system; how those changes are meant to encourage spill-over into the commercial payers; and how the next likely targets of their innovations would be cardiac procedures. On that last point, our prognostications were realized today when CMS released Advancing Care Coordination Through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model (CJR). What we did not imagine is the speed at which CMS would move. It has been just three months since the first mandatory bundled payment model - the Comprehensive Care for Joint Replacement (CCJR) - was implemented. We expected CMS to watch a little data come in on that program before moving on to the next proposal. So, we have to hand it to the Obama Administration. They are using every minute they have to put in place major reforms before they clock out in January.

The major outlines of the program follow. Deep dive will come as soon as we get through 906 pages and crunch some utilization numbers.

  • CMS will test three Episode Payment Models which would include models for episodes of care surrounding an acute myocardial infarction (AMI), coronary artery bypass graft (CABG), and surgical hip/femur fracture treatment excluding lower extremity joint replacement (SHFFT).
  • The EPMs would be tested for five years beginning July 1, 2017 and ending December 31, 2021.
  • Inpatient acute care hospitals will be the episode of care initiators (as is the case with the CCJR).
  • The Medicare payment will have a risk sharing components (as is the case with the CCJR)
  • The following MS-DRGs would be subject to the mandatory bundles payment:
    • MS-DRG 280-282 (AMI)
    • MS-DRG 246-251 (Percutaneous Coronary Intervention in an AMI event)
    • MS-DRG 231-236 (CABG)
    • MS-DRG 480-482 (SHFFT)
  • Episodes of Care would commence upon admission to the acute care hospital and end 90 days after discharge
  • The payment bundle would include all inpatient care, post-acute treatment and physicians services provided under Medicare Parts A and B.
  • CMS is also proposing a Cardiac Rehabiliation model that provides an incentive payment for hospitals paid under the bundled payment model for AMI and CABG and another incentive payment for hospitals that treat AMI and CABG but are not included in the mandatory bundle.
  • The bundle would be paid retrospectively with the actual payments reconciled against a target price.
  • For the CR incentive model, providers would be paid a $25 incentive fee for each of the first 11 CR services (as defined under the HCPCS codes). this amount would increase to $175 after the 11 services were billed.
  • The model will be implemented in 98 MSAs.
  • CMS estimates that the proposal will save $170 million over the life of the model.
  • It isn't over - CMS includes in the proposed rule a request for comment on new bundled payments to be considered in the future.

We continue to believe that bundled payments will pressure hospital internal costs (for such things as devices) and high cost post-acute providers. Nothing we see in a first skim of the proposed rule changes that view... but more to come.


As always, feel free to call to discuss.