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The Macro Show with Keith McCullough & Energy Policy analyst Joe McMonigle Replay | August 24, 2016

CLICK HERE to access the associated slides.

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

Nice New Homes Sales print yesterday, let’s see how Existing Homes do this morning…

Client Talking Points


Has been smashed (on the front end) alongside US Equity Volume (-26% yesterday vs. 1yr avg); there have only been 5 trading days in the last 30 with a VIX move of +/- 0.5%, but we like to wait on selling US Equity Beta around VIX 11-11.5 #patience; #TradeTheChop.


#WickedChop continues w/ Oil Volatility (OVX) tracking higher (again) this am off 34-35 support; WTI failed @Hedgeye TAIL risk resistance of $52.12 (again); our Energy Policy analyst Joe McMonigle had a very timely note up intraday yesterday saying fade the Iranian “freeze” noise (I’ll have him on The Macro Show this morning).


Air strikes and tanks making legitimate news this morning; Turkish stock market -1.8% after failing @Hedgeye TREND resistance of 79,007 on the ISE National 100 Index; from a GIP Model perspective Turkey remains Quad 3 (teetering on Quad 4) too.

Asset Allocation

8/23/16 49% 4% 6% 12% 17% 12%
8/24/16 52% 3% 5% 12% 16% 12%

Asset Allocation as a % of Max Preferred Exposure

8/23/16 49% 12% 18% 36% 52% 36%
8/24/16 52% 9% 15% 36% 48% 36%
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

See update on TLT below.


#Stagnation. With that being said there were small but marginal Euro tailwinds against a U.S. retail sales report and PPI release that was likely dovish on the margin (USD -~20bps on Friday and -~60bps on the week). 


In line with our #EuropeSlowing theme, Q2 preliminary GDP slowed across the Eurozone to +0.3% vs. +0.6% in the prior quarter and +1.6% Y/Y for Q2 which was flat on a rate of change basis from Q1.

Looking at specific country results:

  • German (0.4% vs 0.7% sequentially) GDP accelerated to +1.8% Y/Y from +1.6% which was probably a minor Euro FX tailwind
  • Italian GDP came in at +0.7% Y/Y which was a deceleration from +1.0% in Q1
  • Greece GDP accelerated to contraction again, printing a measly -0.1% Y/Y from -1.3% in Q1

The Southern Eurozone states continue to implode.


Recall that a strong retail sales report for June, driven by a positive trend in goods consumption, was a large contributor to our GDP revision for Q2. The headline number, for June, was up +0.6% sequentially with the sequential acceleration in the control group accelerating +7.2% (annualized). #Deflation  

Three for the Road


OIL: fails (again) @Hedgeye TREND resistance, down another -1.7% after yesterdays headfake Iran "news" @JoeMcMonigle



“Ambition is the path to success. Persistence is the vehicle you arrive in.“

-Bill Bradley


Eli Manning has 294 career TD's in the NFL.

the macro show

what smart investors watch to win

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.

CHART OF THE DAY: Complacency At All-Time Highs?

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. 


"... Looking a little deeper into how the latest all-time high in SPY has become:

  1. VOLUME: yesterday’s Total US Equity Market Volume (including dark pool) crashed -26% vs. its 1yr avg
  2. VOLATILITY: remained like a ball-under water (sub 14-15 on front month), sucking everyone back to VIX 10-11
  3. PRICE: SPY has only moved > +/- 0.5% in 5 of the last 31 trading days (will day 27 of complacency be today?)"


CHART OF THE DAY: Complacency At All-Time Highs? - 08.24.16 chart

Artistic Narratives

“No one can see in the work of the artist how it has become.”



With long-term bonds yields down (Long Bond Up) and Oil Up yesterday, the SP500 took another peak at all-time highs. Perfect. If ole Nietzsche was still kicking around he might have warned that “with everything perfect, we do not ask how it came to be.”


Or, for the many who are in the business of being long-only anything (or everything) - stocks, bonds, commodities, etc. – who really cares about auditing the narrative on why? As long as the clients don’t ask any questions … all good.


I have to take the other side of the German philosopher on “no one can see.” The poor guy didn’t have Google, You Tube, or Twitter. You don’t have to look very hard to see how perma bull narratives have become. There’s one for every asset class, all of the time.


Artistic Narratives - TLT safewaters 10.15.14


Back to the Global Macro Grind


I didn’t wake up this morning reading Nietzsche. In fact, I do not enjoy quoting the man at all. His name is too artistic. I was just spell-checked into the boards on his name 3x in a row!


He’s dog-eared in my Grit book where Angela Duckworth makes an astute point about our profession (anyone with an establishment of perceived wisdoms really) that “mythologizing natural talent lets us all off the hook. It lets us relax into the status quo.” (pg 39)


In hindsight, there’s no doubt that the status quo of a macro market price has a comfortable narrative that lulls everyone to a level of preceded complacency.


“You just have to buy stocks” (as long as they weren’t Chinese, Japanese or European)… because:


  1. Growth is slowing
  2. Rates are at all-time lows
  3. There’s no alternative


Ah, the artistry of that puck-head Mucker. Did I just slip one past the goalie there and start the narrative with the #1 thing very few asset management marketing decks mention as THE causal factor?


  1. What if US Growth didn’t slow?
  2. What if the Fed wasn’t forced to pivot back to dovish (multiple times) as a result?
  3. What if the Dollar didn’t stop going up, and Oil, Junk, etc. didn’t stop crashing?


Oh boy. I don’t think I would have been able to complement this morning’s all-time high in the Equity Beta Navel Gazer with Long Bond Up, Oil Up… would I?


Looking a little deeper into how the latest all-time high in SPY has become:


  1. VOLUME: yesterday’s Total US Equity Market Volume (including dark pool) crashed -26% vs. its 1yr avg
  2. VOLATILITY: remained like a ball-under water (sub 14-15 on front month), sucking everyone back to VIX 10-11
  3. PRICE: SPY has only moved > +/- 0.5% in 5 of the last 31 trading days (will day 27 of complacency be today?)


The price of an asset class, of course, is a function of its realized volatility. So… if you smash volatility, and hold it down there with “there’s no alternative to stocks”… and keep registering all-time highs on crashing volume, what is a short-seller to do?


Cover. Capitulate. Cry.


Yeah. Poor little hedgie, cry me a river. Life has been so hard that you have to deal with some adversity every 3-4 months before volatility ramps like a bat out of hell and you’re running reluctantly levered long again…


Seriously. From a price, volume, and volatility perspective… this has to be the best time to be a short seller of anything US Equity beta since … well, every time the VIX goes to 10-11!


That said, you do have to wait and watch for that 11 VIX handle. Mainly because the damn thing keeps going to 13 (sucking bears back in) and then backs right off, squeezing Style Factors like High Short Interest, High Leverage, High Beta, etc. in a hurry.


So what’s next?


I think you know what I think is coming next. But you also know that I don’t know when. Do you? Moreover, can you tell me what happens to stocks and long-term bonds if Oil is done going up for the next 3 months?


I say Long Bond Up, Gold Up, Low Beta-Safe Yield Up… and Low Quality Narratives Down.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.49-1.59%

SPX 2169-2192

VIX 11.06-14.35
EUR/USD 1.10--1.13
Oil (WTI) 42.18-49.45

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Artistic Narratives - 08.24.16 chart

Live Q&A Wednesday at 12:00PM ET | Credit Cards Lose Their Charge

Takeaway: The credit card industry faces an uncertain future—will it be able to weather the storm?





What's the outlook for the credit card industry? When you look at the central players up close--focusing, say, on the latest revenue and earnings numbers for the key network providers (V and MA)--the outlook appears pretty bright.


But when you step back and take a broader view, several large warning lights appear. Let's start upstream, where growing price competition for consumers and retailers is forcing acquiring banks to cut back on fees, thereby pinching margins. Tellingly, the most "premium" brand of all (AXP) is now in real trouble: Hip hop and HBO stars are no longer bragging about their titanium black card. Then let's focus on today's frozen credit cycle, which is depriving the acquirers of the "revolver" interest income they usually enjoy as the recovery matures. Finally, let's look ahead to the seemingly unstoppable growth in debit cards, prepaid cards, and ACH as a share of all noncash payments. Or further ahead to the even faster growth in mobile payments.


What about opportunities abroad? Sorry, that window is closing as well. Indeed, there is growing worry about threats from abroad. If there is one specter that wakes up credit card executives in the middle of the night, it is the image of millions of 30-year-old Americans tapping on WeChat (the English-language version of "Weixin," the single most used mobile app in China). Looking ahead, some analysts already prefer to talk not of the credit card industry but rather of the "payments" industry.


Pushing all of these challenges is a strong and adverse generational tide. Quite simply, as you go younger than the 1970 birthyear, you will increasingly find Americans who don't like credit cards, don't like banks, and in fact don't really care for much of the financial services industry. A revolution is brewing.


CLICK HERE to read the full report.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%