Q: How Should Investors Risk Manage Presidential Election Volatility?

Takeaway: Don't be distracted by political narratives and focus on the data.

With so many distracted by their own political spew, Long Bond Bulls roar ahead by focusing on the data. One thing is clear, neither Presidential candidate will be able to change our GDP tracker which is currently at 0.4% Q/Q for Q4.


So who do you love? Do you let your politics influence how you risk manage your portfolio? I predict volatility wins into election day; immediate-term risk range for front-month VIX = 12.01-18.78. I'm staying with Long-term Bonds, Utes, Gold, and Low-Beta as a style factor.



As I've said before, there's a ton of risk that could come out of Donald Trump's mouth between now and Election Day (see video below), not to mention more causal macro considerations like earnings season and continued U.S. #GrowthSlowing.


While I'm On #growthslowing...


Was the pre-Fed Day hyperventilation the last big fat pitch of a buying opportunity for those who have missed #GrowthSlowing and Lower-For-Longer on rates? I think so. US Treasury 10-year yield slammed back down to 1.56%; 10s/2s spread right back to the YTD lows at 81bps and Financials (XLF) -4.4% in SEP vs. our beloved Utes (XLU) +3.2% SEP to-date.


Q: How Should Investors Risk Manage Presidential Election Volatility? - buy bonds



Editor's Note: The snippet above is from a note written by Hedgeye CEO Keith McCullough and sent to subscribers this morning. Click here to learn more.

CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race?

Editor's Note: Below is a brief excerpt from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.


"... Going into last night’s brouhaha, the polls basically had the Presidential race at a statistical tie. In fact, at one point yesterday in’s now-cast simulator, which projects as if the election were held today, Trump was ahead of Clinton. At the moment in that same simulator, Clinton’s probability of winning sits at 52.1 and Trump’s is at 47.9.


How will last night’s debate alter the race?


No doubt, Hillary Clinton and Donald Trump dropped the gloves last night. The debate was much less about a discussion of policy, but rather personal attack after personal attack. As it relates to strictly grading the debate, it’s hard not to give Clinton the win as she was prepared, coherent, and largely stayed on point. As for The Donald, well, he was The Donald."


CHART OF THE DAY: How Will Last Night’s Debate Alter The Presidential Race? - EL trump clinton

Nike: What Investors Are Missing & Why We’re Bullish

In this brief excerpt from a HedgeyeTV video presentation, our Retail team explains why Nike remains a Best Idea Long heading into tomorrow’s earnings report. Analysts Brian McGough and Alexander Richards discuss an underappreciated bullish catalyst.

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 80.52%
  • SHORT SIGNALS 78.70%

Cartoon of the Day: Snail's Pace

Cartoon of the Day: Snail's Pace - growth slowing cartoon 09.26.2016


Why did the Fed put rate hikes on hold yet again? U.S. #GrowthSlowing.

Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities

Industry veteran and portfolio manager Michael Aronstein, CIO of Marketfield Asset Management, sat down with private investor Buddy Carter and Hedgeye CEO Keith McCullough in this edition of “Real Conversations.” The trio discussed critical developments facing investors right now and why the markets and economy look increasingly vulnerable.


Below is a transcribed excerpt from that discussion. (Click here to watch the video in its entirety.)


Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities - Aronstein Carter 9.22.16


Aronstein: When I look out my window in Manhattan and see what’s being built and the prices people are asking. It’s an anomaly and the type of thing that signals the terminal stage of a cycle. 


McCullough: Good point. It’s unique but you actually define the topping process as a surge in supply.


Aronstein: It is and it’s relentless. In 2003 to 2007, in the U.S., we were building 1 million extra homes a year because people thought it was like printing currency. But by the time mortgage conditions changed and the yield curve finally flattened there was no escape for anybody because you realized you had a lot more houses than there were people who wanted houses.


Carter: I see similarities today. Keith, you talk to private bankers. They are having the damnedest time appealing to people in any way shape or form because benign neglect has been so profitable. But the problem is that you don’t transition from rewarding benign neglect to being adroit in a single moment.


McCullough: Yes, it just doesn’t happen like that.


Carter: Michael said this to me many years ago. ‘People don't realize the difference in liquidity on the right-hand side,’ meaning past the peak, during the evidence of the new phase condition. The problem is if you are a little late in realizing you're past the peak it can be very expensive. But it's tough to spot. Like what we’re seeing in high-end real estate now. We haven’t seen it before. Not only is there more supply but it’s heavier supply.


McCullough: Heavier and at epic prices. Everything that you guys are talking about is captured in this chart that we show in the Macro deck. It shows household net worth as a percentage of disposable income. As you can see, this is the third of three epic peaks. Buddy, you keep citing Cisco Systems and, Michael, you’re talking about real estate into 2006-2007, I’m looking at this cycle and we have both.


Aronstein: How To Dissect Economic Cycles & Avoid "Terminal Stage" Vulnerabilities - slide


Now, I’m 17 years into this business so compared to you guys I’m a rookie. But I’m sitting here watching this one and saying ‘Oh my god.’ This has every component of every bubble I’ve ever seen but it has less liquidity. What do you think about that chart and the cyclicality?


Aronstein: As Buddy was saying, one of the things that tells you’re past the peak is when there are no transactions. The bid offer has gone to a point where it’s not even worth picking up the phone. There’s just too big a difference of opinion so the liquidity vanishes.


And so you first get a seizure in the market. Once the volume and transactional liquidity shows itself, that’s when you get the declines like 1987. You get these discontinuities and what has actually happened is that a few trades have pushed something down 10-15-20-25-30%.


McCullough: We like to explain risk this way. It’s like a riverbed that you don’t know what’s around the corner but you can start to measure and map the speed of the water and the rocks that may be around. Because by the time you do get to the waterfall everyone’s dead. 


*  *  *  * 

To watch the discussion in its entirety click on the video below.


WisdomTree: Stay Short The BoJ’s Failing Monetary Experiment

Takeaway: AUM balances are closing on their lows for the quarter and while rate of change is improving, fundamentals aren't.

Editor’s Note: With shares of WisdomTree (WETF) down -5% today, below is an excerpt from an institutional research note written by Hedgeye Financials analyst Jonathan Casteleyn last week. Since Casteleyn's original short call on WETF in December, shares are down -45%. To access our Financials research ping


WisdomTree: Stay Short The BoJ’s Failing Monetary Experiment - Kuroda negative penny 09.23.2016


WisdomTree assets-under-management (AUM) balances are closing on their quarterly lows for 3Q and are back to near year-to-date lows from June. The factors that have driven investor interest from currency hedged products remain intact including a continued sharp rally in the Japanese Yen and also a marginally positive Euro return.


The plight in Japan is most pertinent as an +18% rally in the Yen continues to be perpetuated by ongoing risk aversion with a failing monetary experiment by the BoJ. Margin balances across all three Japanese equity exchanges continue to deflate, and the -20% decline in leverage year-to-date has almost overlayed exactly with the +18% rise of the country's currency.


That said, margin balances are still nowhere near levels which historically have corresponded to a reversal of current trends and the current margin reading of ¥2.0 trillion Yen is still over a trillion Yen higher than levels which marked major currency reversals in 1998, 2002, 2008, and 2011.


Simply put Japanese leverage can fall by another -50% before reaching levels which have historically been a solid level for a reversal of current Yen strength.

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.