Below is a detailed summary of our active Macro Themes. The analysis below is largely sourced from our Global Macro Risk Monitor notes. Please email  if you aren’t yet receiving that work and would like to be added to the distribution list. Please note, however, that access is expressly reserved for key client relationships.

#Quad4, Then 3:

  • 7/11: US Inflation Can’t Comp the Comps; #Quad4 Next:
  • 7/11: Bullard/Clarida/Powell Engineer Reflation Will It Last?:
  • 7/26: EARLY LOOK: What If Fed Cuts = #Quad4? (Keith):
    • Maybe it’s easier to show you what a Quad 4 sensitive US Equity portfolio looked like yesterday:
      • Energy Stocks (XOP), which are core Quad 4 Shorts, led SECTOR STYLE losers at -3.0% on the day
      • HIGH BETA, as a Factor Exposure, was down -1.7% on the day (we shorted SPHB on FOMO day, fortunately)
      • Biotech (IBB) and US Retailers (XRT) deflated -1.4% and -1.1% on the day, respectively
      • Consumer Staples (XLP), which are core Quad 4 Longs, were +0.1% in a sea of red US Equity Beta
      • Housing Stocks (ITB), which are one of our fav LONGS for Quad 4 in Q3, were up a big +2.0% on the day
    • That’s not a relative performance # for Housing (ITB). That’s an absolute return day of +2.0%. If you were short HIGH BETA Energy and Biotech names against it, you made lots of money when the crowd was losing theirs. Unlike a FOMO chart like Semis that some people were forced to chase higher in the session prior, Energy (XOP), Biotech (IBB), and Retailers (XRT) have been absolute and relative dogs since US “stocks” bounced off their May lows. Remember, it’s what you don’t own that matters most. Get The Quads right, you get your Sector Exposures right.
    • “So”… what if the Fed cuts rates next week and both the US economy and her stock market remain in Quad 4 throughout the rest of Q3? We haven’t even finished 1/3 of the quarter and lots of people want to believe it’s already “priced in.” Uh, what if FOMO is already “priced in” and so are Dovish Fed expectations?
  • 7/26: 2Q GDP: Mr. Market Had It Right All Along:
    •  GDP Stabilization: The meaningful revisions to the 2017-18 GDP cycle – including a now-appropriately deep plunge into #Quad4 in Q4created a dramatic flattening out of the NTM slope of the 2yr comparative base effects curve. Recall that the prior slope was up-and-to-the-right through at least 1Q20E. The net result of the aforementioned flattening means that the most probable path forward for the YoY rate of change of Real GDP growth is similarly sideways. We are divergent from economist consensus with respect to that view, as the Street is calling for a persistent deceleration in domestic economic growth over the NTM. The delta lies in the difference in modeling approaches – theirs (deterministic); ours (stochastic). All told, we are more or less in line with consensus for 2H19E, but investors should brace for a slight upward revision cycle in growth expectations throughout 1H20E to the extent economist consensus has to come our way on growth then.
    • GIP Destabilization: Ironically (or not-so-ironically if you’re a data sycophant like myself), the likely stabilization of US Real GDP growth beyond the current quarter means the dots on our US GIP Model are hugging the line throughout and the associated accelerations/decelerations will undoubtedly create consternation surrounding each subsequent Quad outcome in real-time. It’s the time series equivalent of going from smooth sailing in rate of change terms to experiencing minor turbulence. Fortunately, we’ll have our nowcast model guiding us throughout and when you analyze the probable path forward for several of the key high-frequency indicators that are featured in that framework, the bottom up data are likely to confirm what the top-down comparative base effects imply – i.e. #Quad4 in 3Q19E and #Quad2 in 4Q19E. Our #Quad3 forecast for 1Q20E remains intact and today’s advance 2Q19 data gives us visibility on #Quad1 in 2Q20E from a comparative base effects perspective. We’re highly skeptical of that #Quad3 forecast because when you look at the probable path forward for the top-10 drivers of our dynamically re-weighting, 30-factor predictive tracking algorithm for US Real GDP growth pretty much everything is likely to bottom out in the fall of 2019 and grind higher from there through the middle of next year. As such, fixed income investors would do well to brace for Mr. Market starting to price in what could materialize as two consecutive quarters of #Quad2 at some point over the next couple of months. Recall that #Quad2 is the most hawkish environment for interest rates. 2020 rate cut expectations will have to be revised lower (i.e. less monetary easing) to the extent that outlook proves prescient.
    • No Rest for the Weary: If you thought figuring out the market throughout 2019 was hard, the sequence of 4-2-3-1 will be even more difficult for investors to risk manage given that each subsequent Quad in the sequence is the polar opposite of the prior regime. This means that instead of making wholesale shifts in asset allocation/portfolio construction terms, investors would do well to stick with/overweight assets that work well in the then-current and pending Quadrant and out of/underweight those that tend to do poorly. There’s a lot of PnL to be lost getting too cute making wholesale changes in an untimely fashion.

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - U.S. GIP Model

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - US GROWTH

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - US INFLATION

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Our Risk Management Overlay is Rules Based


  • 7/12: Singapore’s Q2 GDP Is Suggestive Of Global Economic Weakness Spilling Over Into 2H19E:
  • 7/30: EARLY LOOK: Is It All Priced In? (Keith):
    • Moves I #timestamped yesterday in Real-Time Alerts were:
      • Sell-some gross exposure to REITS (XLU) and Utes (XLU)
      • After covering lower, I re-shorted High Yield (HYG) and added to Junk (JNK) shorts
      • I booked a big win on the short side of NSP and re-shorted NFLX
    • “But stocks aren’t going down on bad news…” Huh? NSP (Insperity) is a Best SHORT Idea @Hedgeye and it was down -25% on the day yesterday. Netflix (NFLX) obviously got crushed on missing for the 1st time in a long time, so shorting more on the bounce was the opportunity there.
    • Then there’s a broad basket of things from cyclicals (that had already been guiding down for, in some cases, almost a year now) to growth stocks that are getting hammered this morning:
      • McDermott (MDR) crashing -32% after bouncing off the May lows
      • Mohawk (MHK) -18% crashing (again) after bouncing off its December lows
      • Beyond Meat (BYND) -14% this morning from its bubbled up highs
      • SS&C Technology (SSNC) -22% this morning after being up a ton “year-to-date”
      • Rambus (RMBS) -10% this am post the v-bottom in Semis from their December lows
    • I know, I know. I admit cherry picking on Rambus. It’s an oldie from what was “priced in” as The Cycle was peaking in the year 2000 and plenty were forced to chase, cover, and capitulate on Semis… Almost every Tech analyst at the hedge fund I was at was fired by 2001.
    • “So”… what’s really priced in? I didn’t mention classic cyclicals like Terex (TEX) indicated down -15% this morning or something boring like Cooper Tire (CTB) down -10% on earnings yesterday… because… evidently the bad news wasn’t priced in.
    • Bottom line: get The Cycle, The Quads, and your Single Stock Picks right… and you’ll beat a lot of people making sweeping “feel” based assumptions on what’s “priced into” a cycle that most people they read didn’t call at the turn to begin with.

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Earnings Better Than Expected Thus Far

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Industrial Recession   Earnings Recession 2.0

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Inventory Overhang   Down Investment and Down Margins


  • 7/19: The China Stabilization Narrative Is Remarkably Unstable:
  • 7/25: Global #Quad4 Is Not Good For EM Carry Trades:
    • Every global strategist’s favorite idea not named “US cyclicals” likes emerging markets right now, but our still cautious tone on EM continues to be rewarded by Mr. Market. Isolating the near end of our intermediate-term TREND duration and US equities as a proxy for global risk appetite, investors should note that the EEM is underperforming the SPY by a full 520bps (-2.5% vs. +2.7%) over the past 3-months. It should be further noted that this underperformance is fairly broad-based, as 11 of the 21 EM equity ETFs we track are registering negative absolute performance over that duration and another three countries have negative relative performance as well.
    • Why are EM assets continuing to languish despite consensus FOMO surrounding the “globally coordinated easing” theme we authored a few months back? That’s simple – because investors who are neither inclined nor incentivized to chase the SPY’s “YTD” return know very well the undue risk associated with increasing one’s exposure to carry trades into a deepening global slowdown. The risk of the consensus market narrative shifting to from easing to extend the cycle to too little; too late continues to rise.
    • All told, with the US economy tracking in #Quad4 and the global economy at large threatening #Quad4 here in 3Q19E, we continue to suggest that investors would do wait for our “all clear” signal to go overweight EM assets. We should have some credibility in this discussion after having authored the bear call on EM at the start of last year (EEM down -18% from its JAN ’18 peak). Whether you look at this from the perspective of our US GIP Model backtests OR from the perspective of our country-specific EM GIP Model backtests, one fact is clear – #Quad4 is not kind to EM asset returns. Much like with Energy and Tech here in the US, we think you’ll get an opportunity to back up the truck on the long side of EM equity, credit, and currency risk at more attractive prices at some point over the next 2-3 months.
  • 7/25: Draghi Gives the Market What It Wanted and It’s Not Enough:
    • Today’s far-worse-than-expected market response across the pond all but ensures that Mario Draghi will strap on the QE bazooka at the ECB’s September 12th meeting. Another driver is the rancid Eurozone economy itself, which continues to pervasively deteriorate per this week’s leading survey data.
    • Today’s forward guidance out of the ECB means the ducks are officially lined up for ‘Mr. Whatever It Takes’ to out-dove ‘PE Powell’ this fall. We are, however, inclined to treat that catalyst as a “sell the news” event with respect the bullish biases we’ve had on pan-European rates for over a year now, insomuch that we’re inclined to treat it as a “buy the news” event for the EUR/USD cross with respect to the bearish bias we’ve had on the euro since then.
    • Why? The answer is simple: we continue see developing risk of a “QE Tantrum” emerging across European FICC markets in Q4. Markets are forward-looking and the ECB is notoriously late to the party, twice hiking at the onset of crises in mid-2008 and mid-2011. The commencement of ECB QE came in March 2015 – just ahead of the European economy shifting into #Quad2 in 2Q15.
    • Recall that QE + #Quad2 is arguably the most hawkish thing that can happen to the long end of any sovereign debt yield curve and that’s precisely what occurred:
    • All told, while the 2015 market analog affords us a convenient narrative to discuss with clients, we’d be doing that anyway ahead of #Quad2 in the two quarters ended 1Q20E for the Eurozone economy. Stay in it to win it on the long side of European rates until then, however.

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Waiting for Godot or a Bottom in Global Growth

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - No Recovery in Chinese Demand   No Recovery In Global Growth

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - ... But Easing Comps Don t Equal Easy Comps

Hedgeye Global Macro Risk Monitor:

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Global Macro Risk Monitor

CLICK HERE to download the table in Microsoft Excel format.

Latest Key High-Frequency Global Economic Data:

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Chart 12

Monthly Macro Themes Monitor: Reviewing the "It" in the "Is It All Priced In?" Debate - Chart 13

Keep your head on a swivel,


Darius Dale

Managing Director