A Cautionary Note On The Putin Pop In Oil Prices

Takeaway: Putin's production freeze comments sent oil markets into hyper-drive. But Russia is essentially telling OPEC: you go first.

A Cautionary Note On The Putin Pop In Oil Prices - oil russia


The World Energy Congress got underway in Istanbul today creating another opportunity for OPEC ministers and Russia to talk up oil prices on the heels of last month’s Algiers “deal” to limit production.


President Putin attended the opening day and used his appearance to promote the OPEC Algiers deal. Putin said “Russia is ready to join in joint measures to limit output” but added that “we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”


The Russian President’s comments sent oil markets and headline writers into hyper-drive on Monday. But a closer examination of the situation should provide some caution.


Earlier on Monday Russia’s energy minister Alexander Novak said Russia would prefer to freeze its output at current levels rather than make reductions. The production freeze theme was echoed by Gazprom’s deputy CEO Alexander Medvedev who also said on Monday “Freeze not contraction.”


The freeze play is not insignificant since Russia’s current October production is at a post-Soviet record of 11.2 million barrels a day.


Still Russia is not taking any unilateral action to stabilize prices as President Putin said it defers a decision if an OPEC deal in November “will materialize.”  It does not seem that Russia is too confident in the prospects for an OPEC deal. Russia is essentially telling OPEC: you go first. 


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Buy Textron ... 4 Key Discussion Points

Takeaway: Textron shares are pricing-in ongoing weakness. investors don't appreciate its sales pipeline, new products and restructuring opportunities.

Buy Textron ... 4 Key Discussion Points - txt


Hedgeye will host a call October 11th (at 11:00 a.m. ET) to review our LONG thesis on Textron Inc. (TXT).


We will be collaborating with Hedgeye Potomac Defense Policy head LtGen Emerson "Emo" Gardner USMC ret. to provide a multifaceted view of Textron's longer-term prospects. LtGen Gardner brings unique insight into key TXT programs, like the V-22 and V-280.


  • Favorable Asymmetric Set-up: With key segment results already depressed, TXT shares appear to price in ongoing weakness, missing what can go "right".
  • Significant Aftermarket Sales, Existing Orders, FMS Potential: TXT should benefit from a well-developed installed base and sales pipeline.
  • Restructuring Underway: Management is already focused on opportunities within Industrial & Systems segments, with modest charges expected in 2H16.
  • Strong Platforms For Growth: New product introductions and potential product development, like tiltrotor drones, should add to TXT's already strong franchises. 


Lieutenant General Emerson N. Gardner, USMC, (ret.) is a recognized expert on the Department of Defense programming and budgeting process. He is the Senior Defense Analyst at Potomac Research Group in Washington, DC and has an independent consulting practice.


From 2007 to 2010 LtGen Gardner was the Principal Deputy Director and acting Director of Cost Assessment and Program Evaluation for the Office of the Secretary of Defense. In this billet he led independent evaluations of all major defense programs and managed the development of the Department of Defense's $3 Trillion, six year Future Year Defense Plan. In his book "Call to Duty", Secretary of Defense Robert Gates cited General Gardner as his "go to guy on the budget." Gardner had previously been the Deputy Commandant of the Marine Corps for Programs and Resources where he was directly responsible for the development and execution of all aspects of the Corps' $33 Billion annual budget.


For more information please go to


Attendance on this call is limited. Please note if you are not a current subscriber to our Industrials research there will be a fee associated with this research call and related material. Ping for more information.

A Week Of Wall Street Hopes, Dreams & Fairy Tales

A Week Of Wall Street Hopes, Dreams & Fairy Tales - fairy tale



Everyone from the Fed to Wall Street to the White House tried to call Friday's jobs report "good enough," with total nonfarm payroll employment increasing by 156,000 in September. But that's just spin. (It should be noted that Wall Street's non-farm payroll estimates have come down 25-30% this year.)


More importantly, as we highlighted on Friday, jobs growth (year-over-year) continues to slow from its cycle peak hit in February 2015. Simply put, employment is slowing along with U.S. economic growth


With that in mind, back to economic fairy tales. Here's a recap of last week’s headscratchers:


  • Cleveland Fed head Loretta Mester: "It's a solid labor market report... it makes sense to move up the [fed funds] rate another 25 basis points." (10/7/2016)
  • Fed Vice Chairman Stanley Fischer said holding rates steady in September was a "close call" and expect "gradual increases" in interest rates, even though productivity growth is "exceptionally poor." (10/9/2016)
  • Then this gem from Jason Furman, chair of the White House Council of Economic Advisers, "I don't think you're late cycle... I just don't believe in the concept of late cycle." (10/7/2016)


We crowned Furman’s statement “the most glaringly irresponsible” of the week but Fischer and Mester certainly gave him a run for his money. 


We'll say it again... the U.S. economy is slowing. 


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CHART OF THE DAY: The Profit Cycle Peak Is In (An Economic Cycle Reality Check)

CHART OF THE DAY: The Profit Cycle Peak Is In (An Economic Cycle Reality Check) - 10.10.16 EL Chart


The Chart of the Day above shows the peak in S&P 500 corporate profits (hit in the second half of 2014). As you can see, once the peak is in, there's no coming back as the top always predates the next recession (red bar in the above).


As Hedgeye CEO Keith McCullough wrote in today's Early Look (our daily morning newsletter to subscribers) Wall Street remains way behind the curve in understanding our call on the peak in corporate profits. But reality continues to be priced into markets.


"Last I checked Wells Fargo (WFC) still has to report their new business reality on Friday... And I guess that brings me back to trying to find a bottom in the US corporate profit cycle. As you can see in today’s Chart of The Day, it’s coming off its all-time highs. And… for those who tried to “buy the bottom” during the last two economic cycle recessions (2000 and 2008), they better believe in the concept of cycles."


Getting ahead of major shifts in the economic cycle is how investors generate excess returns and avoid massive drawdowns. So just to recap, here's how the U.S. economic cycle has played out thus far…


  • 2H 2014: Income growth, corporate profits, and S&P 500 margins peak;
  • 1H 2015: Employment growth, consumption growth, consumer confidence, business confidence, net domestic investment and forward multiples peak;
  • 2Q/3Q 2015: Global equity markets peak;
  • 4Q 2015: M&A peaks and the bankruptcy cycle and credit market dislocations begin;

(Click here to watch a brief video of Hedgeye CEO Keith McCullough discussing U.S. economic growth in "An Animated History of U.S. #GrowthSlowing.")

Bottom Line:

Stay ahead of economic reality or get run over. No matter Wall Street's latest permabull narrative, the U.S. economy is past peak.

REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.


Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)




1. Peterson: How to Trade Fear, Groupthink & Your Own Biases (10/9/2016)



In this excerpt from a broader “Real Conversations” interview with Hedgeye CEO Keith McCullough, Dr. Richard Peterson explains how “fear” filters into his mathematical model (“fear for a biotech stock is good, but fear for American Airlines is bad”) and how the algorithm helped his firm successfully trade fade Brexit groupthink. McCullough and Peterson also discuss their constant struggle to override their own biases.


Want more? Click here to watch the entire interview with Peterson.


2. ‘Macro Mentoring’ Session 5: Macro Factors, Asset Allocation, The Cycle & More (10/8/2016)



In this week’s edition of ‘Macro Mentoring’, Hedgeye CEO Keith McCullough highlights the outlook for the U.S. Dollar , walks you through his asset allocation model as well the importance of knowing where we are within the cycle.


3. McCullough: Why Mainstream Media Is Wrong About Today’s Jobs Report (10/7/2016)



In this no-punches pulled excerpt from The Macro Show, Hedgeye CEO Keith McCullough explains what the media missed about today’s jobs report. 


4. Stockman: The Larry Summers ‘Jackass Scenario’ (10/7/2016)



In this excerpt from a “Real Conversations” interview with David Stockman, the former Reagan budget director discusses what the Federal Reserve would look like with Larry Summers at the helm. He explains to Hedgeye CEO Keith McCullough why “Summers is one of the greatest jackasses in the Western world” and how his appointment would lead to a long overdue examination of Fed politicization. 


5. McCullough: An Update On Our Q3 Macro Themes (10/6/2016)



In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough reviews how our analysts’ Q3 macro themes fared, and offers a glimpse of what lies ahead in the current quarter.


6. The Fiscal ‘Boa Constrictor’ On U.S. Families (10/6/2016)



In this excerpt from a “Real Conversations” interview, industry veteran and portfolio manager Michael Aronstein, CIO of Marketfield Asset Management, sat down with private investor Buddy Carter and Hedgeye CEO Keith McCullough to discuss the growing fiscal drag on U.S. families.


7. David Stockman Unplugged: ‘Casino Capitalism Fueling Mutant Markets’ (10/5/2016)



Outspoken former Reagan budget director and bestselling author David Stockman chats with Hedgeye CEO Keith McCullough in this no-holds-barred discussion about his new book, “Trumped.” Stockman pulls no punches on what believes is an out-of-control Federal Reserve, mutant markets and a vulnerable economy. According to Stockman, “The Fed has fallen so far down the Keynesian rabbit hole, it can’t see daylight.”


8. McCullough: ‘One of the Best Books I’ve Read’ (10/4/16) 



Hedgeye CEO Keith McCullough discusses why Wharton School of Business management professor Adam Grant’s new book “Originals: How Non-Conformists Move the World” is a must read during this excerpt from The Macro Show.


9. Steiner: Deutsche Bank’s $50 Trillion Problem (10/3/2016)



In this brief excerpt from The Macro Show earlier today, Hedgeye Financials analyst Josh Steiner explains why Deutsche Bank is a massive financial market risk that’s underappreciated by investors.


10. McCullough: Shame On You, Ben Bernanke (10/3/2016)



In this brief excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough explains why “it’s not different this time” and former Fed head Ben Bernanke is to blame.


Click here to subscribe for free to our YouTube channel.

Peterson: How to Trade Fear, Groupthink & Your Own Biases

In this excerpt from a broader “Real Conversations” interview with Hedgeye CEO Keith McCullough, Dr. Richard Peterson explains how “fear” filters into his mathematical model (“fear for a biotech stock is good, but fear for American Airlines is bad”) and how the algorithm helped his firm successfully trade fade Brexit groupthink. McCullough and Peterson also discuss their constant struggle to override their own biases.


Dr. Richard Peterson, a board-certified psychiatrist and CEO of MarketPsych, is among the foremost leaders in the area of applied behavioral finance. His team has developed an algorithm that crunches data from more than 2,000 media outlets and 800 social media sites to interpret investor sentiment and suggest trading opportunities. Based on that data, they put together a market-neutral social media-based hedge fund that beat the S&P 500 by more than twenty-four percent—through the 2008 financial crisis.


Want more?


Watch this edition of “Real Conversations” in its entirety below.


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.