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Don't Let Them Crush You Again

Takeaway: It's a global gong show out there. Keep your head up.

Did you see?

 

...what stocks, bonds, and commodities did on one Fed voter (Boston's Eric Rosengren) ramping his rate hike rhetoric on Friday?

 

 How about eviscerating all the no-volume “gains” of the SPY’s summer on a +46.5% volatility (VIX) spike?

 

Don't Let Them Crush You Again - z vix

 

As I've said many times before, "risk happens slowly at first, then all at once."

 

SPX broke my immediate-term TRADE momentum line of 2171 support and didn’t look back with volatility (front month VIX) ramping. My risk range is now 2115-2170, so I’ll register this as a buy/cover day. The constitution of the bounce will be critical to analyze. (Get my Daily Trading Ranges here.)

 

Remember... Every seven years or so, most investors get royally crushed by these centrally-planned bubbles, by Old Wall Street and its head-in-the-sand research analysts, and by the woefully blind financial media supporting it.

 

Don't let them crush you again. Don't be a sheep.

 

Don't Let Them Crush You Again - z cons


POSITION MONITOR

POSITION MONITOR - Chart 1

 

RECENT NOTES

9/08/16 GENERATIONAL DINING | A LOOK INTO THE CONSUMER’S MIND

9/7/16 PLAY | THE SLOWDOWN HAS COMMENCED

9/7/16 CMG | THIS IS WHY I PLAY

8/25/16 MCD | THE SLOWDOWN CAN NOT BE IGNORED

8/23/16 ZOES | THE COLLAPSE WAS FAST

8/18/16 BWLD | THE LATEST RESTAURANT WALK OFF

8/15/16 RESTAURANTS MACRO NOTE | SALES TRENDS | EMPLOYMENT

 

SECTOR PERFORMANCE

Casual Dining and Quick Service stocks that we follow outperformed the XLY last week. The XLY was down -2.8%; top performers on a relative basis from casual dining were BBRG and KONA posting performance of +10.8%, +8.6%, respectively, while CMG and WEN led the quick service group this week up +5.7% and +4.3%, respectively.

POSITION MONITOR - Chart 2

POSITION MONITOR - Chart 3

 

CASUAL DINING RESTAURANTS

POSITION MONITOR - Chart 4

POSITION MONITOR - Chart 5

POSITION MONITOR - Chart 10

 

QUICK SERVICE RESTAURANTS

POSITION MONITOR - Chart 6

POSITION MONITOR - Chart 7

POSITION MONITOR - Chart 11

 

COMMODITIES

POSITION MONITOR - Chart 8

POSITION MONITOR - Chart 9

 

ARTICLES OF INTEREST

COSI | COSI HIRED TURNAROUND FIRM AS INTERIM CFO

In an effort to recover from years of financial losses, Cosi Inc. has hired The O’Connor Group to advise on financial and strategic matters.

CMG | CHIPOTLE IS ACKMAN’S NEXT BIG BET

Bill Ackman’s hedge fund has taken a 9.9% in the embattled chain, believing that the company is undervalued and still an attractive investment.

SUBWAY RESTAURANTS | BOLSTERS DIGITAL ASSETS

In an effort to build its digital presence, the Subway has acquired assets from Avanti Commerce, a Canadian e-commerce company. This purchase comes after Subway organized its digital technology under a single group called Subway Digital.

JIMMY JOHN’S | ROARK CAPITAL TAKES MAJORITY STAKE IN JIMMY JOHN’S

Private equity group, Roark Capital Group, has acquired a majority stake in Jimmy John’s Sandwiches, one of the nation’s fastest-growing chains.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst


JT TAYLOR: ELECTION UPDATE: Call Invite with Charlie Cook of the Cook Political Report

Hedgeye Potomac is hosting a call with Charlie Cook - one of the nation’s leading authorities on American politics and U.S. elections, and founder of the Cook Political Report.

 

Cook will share his outlook on the presidential race, discuss the state of play for House and Senate elections, and give a preview of the upcoming presidential debates later this month.

 

The call will take place on Tuesday, September 20th at 2:00 PM EST with prepared remarks from Cook followed by Q&A.

 

ABOUT CHARLIE COOK

 

Charlie Cook is the Editor and Publisher of the Cook Political Report and a political analyst for National Journal magazine, where he writes a twice weekly column. Charlie is considered one of the nation’s leading authorities on American politics and U.S. elections. In 2010, Charlie was a co-recipient of the American Political Science Association's prestigious Carey McWilliams award to honor "a major journalistic contribution to our understanding of politics." In the spring semester of 2013, Charlie served as a Resident Fellow at the Institute of Politics at the Kennedy School of Government at Harvard University.

 

Charlie founded the Cook Political Report in 1984 and became a columnist for Roll Call, the newspaper of Capitol Hill, in 1986. In 1998 he moved his column to National Journal. Charlie has served as a political analyst or election night analyst for CBS, CNN and NBC News and has been a frequent political analyst for all three major broadcast news networks and has appeared on Meet the Press and This Week.

 

The New York Times has called Charlie “one of the best political handicappers in the nation" and has said the Cook Political Report is "a newsletter which both parties regard as authoritative." The late David Broder wrote in the Washington Post that Charlie was "perhaps the best nonpartisan tracker of Congressional races," while CBS News' Bob Schieffer called the Cook Political Report, "the bible of the political community."

 

CALL DETAILS

 

Toll Free:

Toll:

UK: 0

Confirmation Number: 13645449


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Isn’t raising rates into a slow-down (again) a great low-volatility idea?

Client Talking Points

UST 10YR

Globally, yields are up (again) on the long-end this morning, but it looks tame to me within the context of what’s been happening in the last year; JGB 10YR is up 1 beep this am at -0.01%; German 10YR +3bps to 0.04% and UST 10YR +1 beep to 1.69% with an immediate-term risk range of 1.51-1.70%; #breathe and buy bonds.

Gold

Either doesn’t believe the Fed hikes or believes that a hike would be the most dovish catalyst of all – either way, Gold beat stocks last week, closing +0.6% w/w in a sea of cross-asset allocation red; up +0.1% this AM to +25.4% YTD

SP500

Risk happens slowly, then all at once… SPX broke our immediate-term TRADE momentum line of 2171 support and didn’t look back with volatility (front month VIX) ramping +46.5% on the week; risk range is now 2115-2170, so we'll register this as a buy/cover day; the constitution of the bounce will be critical to analyze.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/11/16 58% 3% 5% 7% 25% 2%
9/12/16 52% 6% 5% 7% 27% 3%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/11/16 58% 9% 15% 21% 76% 6%
9/12/16 52% 18% 15% 21% 82% 9%
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
GLD

No update this week.

TLT

No update this week.

VYM

After a relative pull-back in large cap, low beta, liquid names (an exposure we’ve like for the balance of the year). We can now buy back that exposure lower. As you can see in the style factor table below, high debt, high beta, and small cap stocks in the S&P 500 have outperformed over the last month. As Keith McCullough wrote to II subs Friday:

 

“We've seen plenty a one-way chart chaser lose lots of other people's money doing it otherwise (they are chasing what’s worked recently). VYM has a 3% Yield and is signaling immediate-term TRADE oversold within our bullish intermediate-term @Hedgeye TREND view.”

Three for the Road

TWEET OF THE DAY

OIL: fails @Hedgeye TREND resistance (again) -1.7% to $45.08 pic.twitter.com/qXJIN4mMzW

@KeithMcCullough

QUOTE OF THE DAY

“The little hand says it’s time to rock and roll…”

-Bodhi

STAT OF THE DAY

Jimmy Garoppolo threw for 264 yards and 1 TD last night in a win against the Arizona Cardinals.


CHART OF THE DAY: Janet Yellen's Favorite Indicator (Is Red)

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

 

Doesn’t this set up nicely for another positive “surprise” by Janet to pivot back to dovish, right before the election? As you can see in the Chart of The Day (her former “favorite” indicator – the Change In Labor Market Conditions Index), it’s very red.

 

And, again, on Friday so was what’s become her new fav indicator – the stock market. Very very, you-gely, red.

 

CHART OF THE DAY: Janet Yellen's Favorite Indicator (Is Red) - el 09.12.16 EL Chart


Hiking Tip

“Remember, if you get lost in the woods.. stay where you are.”

-Hiking Tip

 

Worried about the Fed hiking into a slow-down again? No worries. Of all the data driven dovish catalysts in 2016, a rate hike now would be the most dovish of all. So stay the course with your #GrowthSlowing positioning.

 

Dovish? Uh, yeah. Did you see what stocks, bonds, and commodities did on a Fed voter (Rosengren) ramping his rate hike rhetoric on Friday? How about eviscerating all the no-volume “gains” of the SPY’s summer on a +46.5% volatility (VIX) spike?

 

Notwithstanding that Eric Rosengren has been crushing it at the Fed since 1985, remember that he has little to no credibility on forecasting. If his “data dependent” path is really SP500 dependent, boy did he go dovish over the weekend!

 

Back to the Global Macro Grind

 

Interestingly, but not surprisingly, post the pop in Fed Fund Futures from 20% to 34% (on the probability of a SEP hike), that probability has actually dropped back down to 30% this morning. That’s why I’m staying where I am, long Gold and Bonds.

 

Hiking Tip - Gold Bond cartoon 07.10.2014

 

Heck, even my friends at Cornerstone have realized that “the composite PMIs suggest global growth is now clearly slowing” at this stage of what’s clearly been super #LateCycle. If you have friends who’ve missed being long bonds, here’s their last chance.

 

That’s right. Don’t forget where the performance in 2016 has really been:

 

  1. Long Bond Proxy (TLT) +12.4% YTD vs. SP500 +4.1%
  2. Gold up +0.6% in a sea of stock/bond red last week to +25.4% YTD
  3. Utilities (XLU) +11.97% vs. Financials (XLF) +0.88% YTD

 

I know it’s a little unnerving to think about buying bonds (and safe-yield stocks that look like bonds) into a potential policy mistake. But that’s precisely what you should have done on the day that Yellen raised rates in December.

 

So why wouldn’t you stay where you are ahead of more US #GrowthSlowing data this week?

 

  1. Producer Prices (PPI) will be released on THUR alongside slowing Retail Sales and recessionary Industrial Production
  2. Consumer Prices (CPI) will be released on FRI alongside consumer confidence which recently hit a 4 month low

 

Doesn’t this set up nicely for another positive “surprise” by Janet to pivot back to dovish, right before the election? As you can see in the Chart of The Day (her former “favorite” indicator – the Change In Labor Market Conditions Index), it’s very red.

 

And, again, on Friday so was what’s become her new fav indicator – the stock market. Very very, you-gely, red.

 

As we’d been highlighting throughout the thralls of the summer, positioning into this recent Fed pivot to “hawkish” (their 6th hawkish/dovish pivot in 8 months) was that everyone was pretty much long everything.

 

Into this correction, both stocks and bonds have seen their net LONG positions correct:

 

  1. SP500 (Index + Emini) net LONG position down to +193,281 contracts last week = 1.79x (1yr z-score)
  2. 10YR Treasuries net LONG position = +128,954 contracts = 1.75x (1yr z-score)
  3. Oil’s net LONG position down -47,733 contracts last week = +0.27x (1yr z-score)
  4. Gold’s net LONG position up +40,842 contracts last week = +1.40x (1yr z-score)
  5. US Dollar’s net LONG position up small last week to +16,834 = -0.69x (1yr z-score)

 

In other words, most of Wall Street was positioned with the #GrowthSlowing data for a Dollar Down, Rates Down, Stocks Up scenario… and Rosengren messed things up, momentarily, on Friday. So now Yellen needs to come to the rhetorical rescue.

 

I’m not saying it’s up, up, and away for everything in the #GrowthSlowing Bubble (everyone’s long everything already). I’m just reminding you that any time you’ve been lost on this ‘hike or no hike’ expedition, staying where we’ve been has paid.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.51-1.70%

SPX 2115-2170

VIX 13.01-18.17
USD 94.40-96.50
Oil (WTI) 42.79-48.01

Gold 1

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Hiking Tip - el 09.12.16 EL Chart


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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