HEDGEYE
Early Look
User Guide
Dear Early Look subscriber,
It’s an unfortunate reality. You’ve seen it countless times… Wall Street chases the latest macro move higher... The financial media blindly follows the market’s flavor of the week... Investors get whipped around in all the misinformation and silliness.
Most of them lose.
What investors actually need is simple, accurate, emotionless insight (informed by a repeatable risk management process) about where global markets and economies are headed next.
Look no further. The Early Look is the brainchild of Hedgeye founder and CEO Keith McCullough—designed with one, singular purpose: to give you the consummate, daily distillation of the markets and economy with investable ideas.
Getting Started: How To Use The Early Look
How It Works
Our Macro analyst team – led by CEO Keith McCullough – actively tracks global economic and financial market data throughout the day.
Here’s a flavor for the Macro research covered in the Early Look:
1. Keith’s quantitative-driven Risk Ranges. These dynamic levels for stocks, ETFs and major market indices are used by investors to buy low and sell high across durations.
2. We measure and map economic data across countries around the world to identify key inflection points via our proprietary Growth, Inflation, Policy (GIP) predictive tracking algorithm. (We run our GIP model for the U.S. and also the top 50 economies around the world covering 90% of global GDP to produce growth and inflation forecasts for each.)
3. Our fundamental Macro research actively tracks asset class Volatility and Wall Street Consensus positioning to better understand what trades are becoming either crowded or oversold.
The Early Look distills all of this thoughtful research down to a concise daily newsletter, highlighting the moves you need to be watching that day.
CLICK HERE
to read our entire “Macro Playbook.”
What You Get With The Early Look
As longtime subscribers can attest, reading the Early Look weekday mornings helps ensure that you stay one step ahead of consensus. Each Early Look is broken down into three distinct sections.
The Big Picture
An irreverent take on the latest market developments.
The Macro Grind
Reviews and contextualizes key macro and market catalysts.
Risk Ranges
Quantitative buy low and sell high levels for major market indices.
The end goal? Helping you make the most-informed, best investment decisions possible.
If you have any questions whatsoever, please do not hesitate to email us at
support@hedgeye.com.
We look forward to working together!
Watch the video introduction:
About Hedgeye
Hedgeye Risk Management is an independent investment research and online
financial media company. Focused exclusively on generating and delivering
thoughtful investment ideas in a proven buy-side process, the firm combines
quantitative, bottom-up and macro analysis with an emphasis on timing. The
Hedgeye team features some of the most highly-regarded research analysts on
Wall Street, all with buy-side experience, covering Macro, Financials, Energy,
Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials,
Consumer Staples, Communications, Cannabis, Housing, Materials, Technology,
Demography and Washington policy analysis.
Early Look
User Guide
Identify Investable Market Trends
Wall Street has done a notoriously poor job forecasting future financial returns.
Unlike most of our competitors, Hedgeye actually has a repeatable risk management process. Fortunately, this research process has helped us get our subscribers on the right side of some of the biggest moves in markets – from warnings to raise cash ahead of the 2008-2009 financial crisis, to telling subscribers to buy stocks on accelerating U.S. economic data post-Donald Trump’s November 2016 Presidential victory.
The Early Look is your daily financial market strategy guide, providing fresh insight into the most important investable market trends.
Here’s the backstory behind why the Early Look was even created
After being fired as a portfolio manager at hedge fund Carlyle-Blue Wave in 2008 (for being too bearish!), Hedgeye CEO Keith McCullough started writing down his thoughts about the market each morning. This morning research note was sent to an small list of Wall Street contacts (a who’s who list of hedge fund managers and trading veterans). It was around this time that McCullough and his Hedgeye co-founders began kicking around the idea of creating a brand-new kind of investment research platform. The idea was simple: Hedge-fund quality research for everyday investors.
In 2008, Hedgeye was born. And McCullough’s morning financial market strategy email became the Early Look, Hedgeye’s flagship daily research note.
At its core, the Early Look is designed to contextualize the daily market moves inside our big picture Macro research calls to keep you ahead of what comes next.
Here’s how it works.
Early Look: How We Identify Investable Market Trends
Every morning our Macro team digs through financial market data for the top 50 economies around the world, covering 90% of global GDP. The Early Look distills the investable insights resulting from all of this number crunching.
To get you quickly up to speed on the ins-and-outs of our Macro process (and help turbocharge your own investing process), we’ve produced an exclusive 14-minute video hosted by Hedgeye CEO Keith McCullough. In the video below, McCullough will walk you through everything from:
• How we model the top 50 economies around the globe
• How our quantitative risk range model helps investors buy low and sell high
• How we help investors beat Wall Street by tracking consensus positioning
We encourage you to watch this primer on our repeatable risk management process. You’ll quickly understand why the Early Look features some of the sharpest investing insights money can buy.
Understanding Hedgeye's Macro Process
Early Look
User Guide
Risk Manage the Big Picture
If you’ve followed Hedgeye for a while, you know prudent risk management is engrained in our DNA.
• Our risk management models signaled bearish ahead of the Great Recession
(click here).
• Our risk management models signaled bullish in 2009, right near the bottom of a truly epic bull market
(click here).
The hallmark of our fundamental research process is our Growth, Inflation, Policy (GIP) model, the output of which features prominently in the Early Look each morning.
Here’s a brief primer on our GIP process (which helped save investors a lot of grief during the Great Recession – more on that below):
We find two factors to be most consequential for forecasting future financial market returns: economic growth and inflation.
We track both on a year-over-year, rate of change basis to better understand the big picture, then ask the fundamental question: Are growth and inflation heating up or cooling down?
From there, we get four possible outcomes, each of which is assigned a “quadrant” in our Growth, Inflation, Policy (GIP) model and the typical government response as a result (neutral, hawkish, in-a-box or dovish):
1. Growth accelerating, Inflation slowing (QUAD 1);
2. Growth accelerating, Inflation accelerating (QUAD 2);
3. Growth slowing, Inflation accelerating (QUAD 3);
4. Growth slowing, Inflation slowing (QUAD 4)
After building this base of knowledge, we can now select what we “like” and “don’t like” based on our historical back-testing of the different asset classes that perform best in each of the four quadrants.
“In QUAD 1, for instance, where growth is accelerating and inflation is slowing, that has historically been really positive for both equity and credit data across all sectors of the U.S. economy”. “Whereas when you think about QUAD 4, in which growth and inflation are slowing concomitantly, that has historically actually been quite negative for both equities and credit.”
Understanding How We Model the U.S. Economy
Our Risk Management Process & The Great Recession
To demonstrate just how serious we are about risk management, we back-tested our current GIP model to look at how it would have performed during the Great Recession. The results are impressive in their predictive value.
Here is a brief note plus the key findings:
Why Hedgeye Macro?
Clients in NYC and Chicago have asked us some version of the question, “How do long-term investors like us incorporate your macro views into our process?”
Our primary goal is to help our subscribers avoid getting blown up by the big stuff. If we can help steer you into our preferred factor exposures on the long side, that’s great too, but we assume most investors have already developed a robust process.
The most relevant risk management exercise in our firm’s history is having helped investors risk manage 2008 by being appropriately bearish
into and throughout the bear market.
As you may know, CEO Keith McCullough started the firm in 2008 after getting fired from Carlyle in late-07 for being “too bearish”. Obviously we didn’t have the same degree of computing power then, but the modeling premises were indeed the same – i.e. Bayesian inference, comparative base effect driven, etc.
As such, we had our model(s) generate an out-of-sample U.S. Growth, Inflation, Policy (GIP) Model outlook for CY08:
Here are the three most important callouts from this analysis:
1. The model perfectly explains the epic short squeeze seen from mid-AUG through early-OCT of 2007 (i.e. #Quad1);
2. Our forecasts were, at the very least, directionally accurate from a rate-of-change perspective throughout 2008; and
3. Bloomberg consensus was out to lunch on growth – particularly when then sh!t hit the fan in 2H08. The #OldWall would’ve had investors completely offsides for the pending financial market carnage.
This exercise highlights the importance of having a repeatable and robust modeling framework that doesn’t just extrapolate recent trends in the data. While we might not nail GDP or CPI prints to the basis point 3-4 quarters into the future, we can at least have a reasonably accurate estimates that are even more accurate once directionality is factored into the equation. There’s an enormous difference between telling clients to anticipate #Quad1 in 3Q08E (our competitors) and helping them proactively prepare for #Quad4 (us).
Our goal isn’t to cherry-pick. It’s to hammer home the point that we make in meetings with clients: differentiated processes lead to differentiated perspectives… and differentiated perspectives help investors generate alpha.
Timing matters big time.
Early Look
User Guide
Hedgeye's Macro Playbook
Our goal is to give you a foundational understanding —start to
finish—of the basics of how we analyze financial markets and
identify compelling risks and opportunities. We believe it will
amplify your use of all of our investing research products and
tools.
This Macro Playbook explains our quantitative models – like our
proprietary risk ranges and GDP predictive tracking algorithm – as
well as how we select our top investing ideas (stocks, bonds or ETFs).
Our repeatable research process has been carefully crafted and
refined throughout our decade in the independent research business.
Armed with this framework, we are confident you will make better
investing decisions.
Click here
to read our Macro Playbook
Early Look
User Guide
Meet Our Research Team
We are obsessed with delivering superior investment ideas. You likely
know this by now.
Our hybrid investing approach combines:
- 1. proprietary quantitative analysis
- 2. bottom-up sector research
- 3. top-down macro research with an emphasis on duration.
The end result is an intelligent, high-octane suite of products that
draws on insights from over 40 research analysts. We cover everything
from Global Macro and Retail, to Energy, Restaurants and Washington
Policy research.
Our unique research team at Hedgeye is composed of some of the
most highly-regarded analysts in the industry. Our quantitative
models and fundamental research teams complement one another.
Here’s how.
1. QUANTITATIVE RISK RANGES
Our quantitative Risk Range model was developed by CEO Keith McCullough
during his years as a hedge fund manager.
This Risk Range model is utilized throughout the entire suite of
Hedgeye research products to augment our 40+ person research team’s
fundamental views. Think about it. All investors have some basket of
core investing ideas (stocks, bonds, ETFs or all of the above).
Identifying those investing ideas is tough enough, then you have to
deal with the uncertainty of markets.
When CEO Keith McCullough built his proprietary Risk Range model the
aim was simple: Create a quantitative risk management tool to help
investors actually
buy low and sell high.
The model uses three core inputs – price, volume and volatility – to
determine the likely daily trading range for any publicly-traded asset
class. These risk ranges are dynamic. They change as the data changes.
At its core, you sell at the top end of the range, and buy at the
low end.
Our team of 40+ fundamental research analysts pride themselves on
identifying non-consensus investing ideas. We understand that the
path from non-consensus investing idea to top-performer is far from
linear. The ultimate aim of our Risk Ranges model is to help investors
risk manage our analyst’s favorite investing ideas.
2. BOTTOM-UP SECTOR RESEARCH
Our investment research team is headquartered in Stamford, Connecticut.
It is made up of research analysts with buy-side and sell-side
experience. Our policy research team in Washington D.C. is composed
of seasoned veterans with many decades of experience. They possess
high-level experience and contacts having worked in a variety of
influential positions over the years.
Our goal is simple. Since “Day One” more than ten years ago, our
focus has been to build the most thoughtful and thorough team on Wall
Street. We seek to translate our unique, combined knowledge into
successful investment opportunities for all of our subscribers—big
and small.
Our collective investment experience includes time at Carlyle
Blue-Wave, Ardsley Partners, Buckingham Research, Morgan Stanley,
Dawson-Herman Capital, Wells Fargo Securities, to name a few, while
our combined policy experience includes time at the U.S. Court of
Appeals, U.S. Energy Department, U.S. Office of Defense, U.S. Federal
Reserve, U.S. Chamber of Commerce, and more.
3. TOP-DOWN MACRO RESEARCH
In addition to a deep bench of 19 fundamental equity and Washington
policy research teams, our Macro team measures and maps economic data
for the top 50 economies around the world, covering 90% of global GDP.
We run predictive tracking algorithms for both growth and inflation
for each of these economies to forecast the likely path for financial
markets.
Bottom Line: Our Macro team is focused on generating investable ideas
based on this research that combines their deep study of market
history, the tracking of Wall Street consensus positioning and the
volatility signals embedded in futures and options markets.
(We encourage you to dig deeper by reading our
“Macro Playbook.”
)
The combined knowledge of 1) proprietary quantitative analysis 2)
bottom-up sector research 3) top-down macro research makes your
Hedgeye subscription the best bang-for-your-investing-research-buck
out there.