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PREMIUM INSIGHT

REPLAY | Special Free Edition of The Macro Show with Hedgeye CEO Keith McCullough

REPLAY | Special Free Edition of The Macro Show with Hedgeye CEO Keith McCullough - km3.1.16

Did you miss this special (free) edition of The Macro Show? No Worries ... watch the replay here!


PREMIUM INSIGHT

Why Exact Sciences Has More Upside (Even Though It’s Up 20% Today)

Why Exact Sciences Has More Upside (Even Though It’s Up 20% Today) - thumbnail Healthcare Exact Sciences 1 9 16 TT NO TEXT

“We think the marketing opportunity here and execution opportunity here could be big, given that [Cologuard] tests are pretty good and we’ve got a lot of good feedback from physicians,” Tobin says.


ICYMI: Brexit Fears Overdone, Buy British Pound

 

"We're leaving. We're coming out. We're not going to be a member of the EU any longer."

–U.K. Prime Minister Theresa May

 

Prime Minister May made the comment above in an interview on Sunday, dismissing entirely the possibility that the UK might "keep bits of membership" to the European Union. The British Pound was down more than -1% on that news this morning. Investors feared  the repercussions of a long, drawn-out “hard Brexit” from the European Union.

 

We believe those fears are overdone.

WHAT TO BUY

We think this is an opportunity to get long the British Pound (FXB). We suggest investors buy the pound on pullbacks, like today, and sell on days when the pound rises in value. The immediate-term risk range (our proprietary ranges that change daily) today is $1.21 – 1.24. Essentially, when the pound hits the low-end you buy and at the top-end you sell. Simple.

 

Another reason to buy the pound? Wall Street consensus is still short.

 

As you can see in the video above, institutional investors are net short pounds by -60,109 contracts (futures and options), according to data from the CFTC. Just three months ago, consensus was short pounds by -90,000 contracts before getting squeezed out of those positions. The pound rose 5% from mid-October to the December highs of $1.27. Wall Street was forced to cover shorts.

 

As we pointed out recently, the British economy grew +2.2% year-over-year growth in the third quarter. That was even better than the USA’s +1.7% year-over-year growth rate. Despite Brexit fear-mongering, we think the U.K. economy will continue to grow and Wall Street capitulates (once again) on these short positions. 


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This Radical Change is Reshaping the Restaurant Industry… Here’s What It Means for Domino’s | $DPZ

 

Change is coming to the restaurant industry that will reshape how diners order food. In the coming years, food delivery will be “the most disruptive change in the restaurant industry in this generation,” says Hedgeye Restaurants analyst Howard Penney.

 

The winners and losers of this trend are becoming more apparent with each day. So far, early adopters like pizza chain Domino’s Pizza (DPZ) have been the prime beneficiaries. In the past year, shares of Dominoes are up 46%, with the company’s innovative food delivery technology bolstering the bottom line. Delivery accounts for 29% of the company’s business and annual digital sales total about $4.7 billion.

 

However, Domino’s competitive edge is fading fast.

 

There has been a spread of third party delivery services like DoorDash and Postmates which have received considerable venture funding, and partnered with many independents and large national chains. Historically, GrubHub has merely been an aggregator of orders. But now it’s diving into the delivery space.

 

Even more traditional restaurant chains like Panera Bread are getting in on the action, Penney explains in the video above. The bakery-café fast casual restaurant has been investing immense amounts of capital to push out their “Panera 2.0 initiative,” which is nearly completed in company-owned stores next frontier is delivery. The company anticipates it will be in 15% of units by the end of 2016, and ramping to 35% - 40% of the system by the end of 2017.

 

“We have no particular call on Domino’s right now,” explains Penney, “but the more money that’s invested in this business, and as long as companies like Panera continue to go on TV and start talking about delivery in their advertising, it’s going to change the story around the Domino’s business longer-term.”

 

It will be tough to unseat Domino’s as top-dog in delivery over the short-term. Over the long-term, the company will feel the pressure of competition. This should benefit new entrants, like Panera (PNRA), while squeezing companies with lofty delivery goals, like GrubHub (GRUB).

 

We are keeping  a close eye on this trend.


ICYMI: Are You Bullish On The U.S. Dollar Yet?

 

“Mr. Macro Market is reading today's Jobs Report as bad for long-term bonds, Gold, etc. It’s bullish for the US Dollar, Higher Beta and Cyclical Stocks, etc.”

–Hedgeye CEO Keith McCullough

 

The December Jobs Report released today showed the U.S. economy added 158,000 net new jobs. On a year-over-year basis, jobs growth was 1.51%. In other words, the growth rate slowed from 1.58% for the month of November. This is a continuation of the downward trend for jobs growth (which peaked at 2.3% in February 2015).

 

Still, the number may be reaching an inflection point, in which the growth rate bottoms or even reaccelerates (click here to read more). The labor market is one of the only economic indicators not accelerating.

 

In other words, if the bottom is coming, that’s a bullish signal for #GrowthAccelerating macro positions. 

WHAT TO BUY

Plain and simple… buy the U.S. Dollar (UUP). It will trade up too on stronger U.S. growth.

 

(Note: A stronger dollar also lifts U.S. equities. Check out the 0.78 positive correlation, over the past 90 days of trading, between the dollar and the S&P 500 in the video above. This means they generally trade up (or down) together.)


McCullough: This Book Is The ‘Bible’ of Financial Market Knowledge

 

Need to get up to speed on the complex, inner workings of financial markets?

 

We’ve got the book for you. Check out The Misbehavior of Markets by deceased mathematician and deep-thinker Benoit Mandelbrot.

 

“Read this one slowly,” says Hedgeye CEO Keith McCullough.

 

Mandelbrot is the father of fractal geometry (a field of mathematics that attempts to define how complex systems change as they get larger in scale). His theories applied to markets tries to make sense of states of seeming randomness.

 

If all of this sounds daunting don’t worry, Mandelbrot’s style is accessible and laden with insight. He also dissects what works and doesn’t work in financial markets. And Mandelbrot never shies away from taking to task current Wall Street orthodoxy. Take this excerpt for instance:

 

“The financial industry has developed other tools. The second-oldest form of analysis, after fundamental, is “technical.” This is a craft of recognizing patterns, real or spurious – of studying reams of price, volume, and indicator charts in search of clues to buy or sell. The language of the chartists is rich: head and shoulders, flags and pennants, triangles (symmetrical, ascending, or descending. The discipline, in disfavor during the 1980s, expanded in the 1990s as thousands of neophytes took to the internet to trade stocks.” -The (Mis)Behavior of Markets (pg 8)

 

McCullough calls The Misbehavior of Markets the “bible for understanding fractal math and non-linearity” in financial markets. It’s definitely worth checking out.


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