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WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Neutral / 3 of 10 improved / 3 out of 10 worsened / 4 of 10 unchanged
  • Intermediate-term (MoM): Negative / 1 of 10 improved / 7 of 10 worsened / 2 of 10 unchanged
  • Long-term (150 DMA): Negative / 1 of 10 improved / 5 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - summary

 

1. US Financials CDS Monitor – Swaps were mixed across domestic financials last week, widening for just 9 of the 28 reference entities and tightening for the other 19.

Tightened the most vs last week: BAC, PRU, GNW

Widened the most vs last week: ALL, CB, TRV

Tightened the most vs last month: SLM, PRU, GNW

Widened the most vs last month: ALL, CB, TRV

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - US cds

 

2. European Financials CDS Monitor – In Europe, banks swaps were similarly mixed.  Swaps widened for 20 of the 39 reference entities.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - euro cds

 

3. Sovereign CDS – Sovereign CDS rose less than one basis point on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - sov CDS

 

4. High Yield (YTM) Monitor – High Yield rates rose very slightly last week, closing at 8.39 on Friday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit a new high, rising 8 points to close at 1564.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - levered loan

 

6. TED Spread Monitor – The TED spread backed up late in the week to close at 20.2.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index fell half a point, closing at 25.1 on Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose slightly, ending the week 22 bps above the prior week’s close.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - greek bond yields

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads increased sharply last week, closing at 195 bps, 13 bps lower than last week.     

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - MCDX

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 10 points to close at 200.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - baltic dry index

 

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.9% upside to TRADE resistance, 2.4% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 20, 2010


As we look at today’s set up for the S&P 500, the range is 13 points or -0.64% downside to 1236 and 0.41% upside to 1249.  Equity futures are trading mixed to fair value as investors keep an eye on events on the Korean peninsula where tensions threaten to escalate after South Korea went ahead with its drill with live ammunition. Treasuries and the dollar are benefiting as investors apply safe haven trades. European markets are frozen amid some pretty awful weather which has shut much of the continent's transport systems, with the UK particularly badly hit. Elsewhere, news flow is thin in what looks like being a quiet run in to the festive break assuming the situation in Korea does not escalate beyond current tensions

  • Constellation Energy Group (CEG) said COO Michael J. Wallace plans to retire in April
  • Illinois Tool Works (ITW) may rise as it introduces new products and expands into Asia Barron’s said, citing analysts
  • Invesco (IVZ) may rise as much as 20% as one of the “best value” asset managers, Barron’s reported, citing analysts
  • SLM (SLM) may rise to the “high teens” during next 18 months and could attract a buyer, Barron’s says, without attribution
  • Sunstone Hotel Investors (SHO) said Arthur Buser has resigned as president and CEO

PERFORMANCE

  • One day: Dow (0.06%), S&P +0.08%, Nasdaq +0.21%, Russell +0.38%
  • Last Week:  Dow +0.72%, S&P +0.28%, Nasdaq +0.21%, Russell +0.34%
  • Month-to-date: Dow +4.41%, S&P +5.37%, Nasdaq +5.79%, Russell +7.22%
  • Quarter-to-date: Dow +6.52%, S&P +9.00%, Nasdaq +11.58%, Russell +15.29%
  • Year-to-date: Dow +10.20%, S&P +11.55%, Nasdaq +16.47%, Russell +24.65%

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 346 (-726)  
  • VOLUME: NYSE 2018.78 (+103.95%)
  • VIX:  16.1 -7.36% YTD PERFORMANCE: -25.69%
  • SPX PUT/CALL RATIO: 2.45 from 1.10 +123.09%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 20.64 0.406 (2.005%)
  • 3-MONTH T-BILL YIELD: 0.13% -0.01%  
  • YIELD CURVE: 2.81 from 2.85

COMMODITY/GROWTH EXPECTATION:

  • CRB: 320.62 +1.03% (up 1.81% last week)
  • Oil: 88.02 +0.36% (up 0.26% last week)
  • COPPER: 415.90 +1.04% (up 1.14% last week, up three weeks in a row)
  • GOLD: 1,371.70 -0.02% (down 0.96% last week)

CURRENCIES:

  • EURO: 1.3188 -0.34% (down -0.29% last week)
  • DOLLAR: 80.373 +0.24% (up +0.38% last week)

OVERSEAS MARKETS:

 

EUROPEAN MARKETS:

  • European markets trade higher in thin trading with gains capped by worries over the EuroZones debt crisis and increased tension in the Korean peninsula as South Korea held a live fire drill.
  • There was little significant economic news, M&A remained a focus.
  • Greece a big mover to the downside -2.69%
  • Autos and basic resources lead advancing sectors, with retail and travel & leisure the leading decliners as pre-Christmas snow and ice disruption across Europe weighed.
  • Advancing sectors lead decliners 14-4.
  • Germany Nov PPI +4.4% y/y vs consensus +4.5% and prior +4.3%
  • CBI sees UK 2011 GDP +2.0%, 2012 +2.4%, expects slow start to 2011, cuts is Q1 q/q growth to +0.2%, says risk of double dip recession remains low. Expects 2011 inflation to be higher than prior forecast and the BOE will start to normalize monetary policy in the spring with interest rates gently rising through mid 2012

ASIAN MARKTES:

  • Asian markets were lower today on concerns about European debt sparked by Ireland’s rating’s being cut by Moody’s, and South Korea’s decision to go ahead with an artillery drill.
  • Hong Kong slipped -0.56%, weighed on by China’s performance down 1.41%.
  • Unsurprisingly, South Korea fell -0.30%on worries about exacerbated geopolitical tensions, but defense-related shares Victek and Speco climbed 2% and 8%, respectively.
  • Australia gave up early gains down -0.56%.  Perpetual tumbled 15% when KKR terminated takeover talks.
  • Japan fell -0.85% with some high-priced issues dumped in profit-taking, while small- and mid-caps were bought.  Toyota fell 1% after the Japan Automobile Manufacturers Association predicted lower demand in Japan for 2011, but Honda rose 1% after saying it is targeting sales growth of 12% y/y in China for 2011. Canon Electronics rose 3% on raising its FY outlook.
  • China fell on concerns that access to funds may shortly get more difficult, though it recovered half its losses from its intraday low.
  • Japan revised October composite index of economic indicators (1.3 points) m/m vs preliminary (1.4 points) m/m. November convenience store sales +1.1% y/y vs prior (5.9%). November department-store sales (0.5%) y/y. Tokyo November department-store sales +0.3% y/y.

Howard Penney

Managing Director

 

THE DAILY OUTLOOK - levels and trends 1220

 

THE DAILY OUTLOOK - S P 1220

 

THE DAILY OUTLOOK - vix 1220

 

THE DAILY OUTLOOK - usd 1220

 

THE DAILY OUTLOOK - oil 1220

 

THE DAILY OUTLOOK - gold 1220

 

THE DAILY OUTLOOK - copper 1220


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 80.65%
  • SHORT SIGNALS 78.64%

Fashionable Consensus

“Nothing is more obstinate than a fashionable consensus.”

-Margaret Thatcher

 

You’d think that some of the sell side’s finest would have learned something from being unanimously bullish on the US stock market in December 2007. Think again. It’s December of 2010 and, after a few minor bailouts and major bonus seasons, the bulls are back.

 

Don’t wince. Without a Fashionable Consensus, how else would we generate long term absolute returns? This weekend’s edition of Barron’s “Outlook For 2011” may be one of the finest gifts of Groupthink that we’ve been offered in years.

 

As Barron’s themselves reminds risk managers (not in the cover story article), the SP500 has only seen double-digit gains for 3 consecutive years twice since World War II (1951 and 1994). Looking at the bullish 2011 predictions for US stocks that way, maybe consensus is contrarian!

 

Will 2011 mark a 3rd year in a row of double-digit gains?

 

Well, let’s go through that…

 

Let’s start with a level. My immediate term TRADE zone of resistance for the SP500 into year-end is 1. Giving year-end bonus and mark-up season the bullish benefit of the doubt, let’s use the top end of that range and round the number up to 1256.

 

Since a +10% or better gain in the SP500 for 2011 (versus 1256) = 1382, let’s take a gander at who is more bullish than that:

  1. Deutsche Bank = 1550
  2. Goldman Sachs = 1450
  3. JP Morgan (formerly known as partly Bear Stearns) = 1425
  4. Barclays (formerly known as Lehman) = 1420
  5. Bank of America (formerly known as partly Merrill) = 1400

Now, to be fair, we’ll need to provide some disclosures (it’s a sell side thing)

*the aforementioned 2011 targets are from last week’s Bloomberg survey and subject to revision

**some of these estimates are the mid-point of Big Broker’s internal range (that’s a CYA thing)

***some estimates are from economists and bond strategists (yes, on Wall Street, cops are sometimes firefighters for commission)

 

The only person we can find who is more bullish than Binky Chada at Deutsche Bank isn’t a sell-sider, but he was equally as Bullish As Binky back in 2008. Don Luskin called for a +30% move in US stocks when I debated him on Kudlow on Friday night. Luskin’s made for YouTubing estimate implies a +377 point move in the SP500 to all-time highs in 2011 to 1633.

 

Now let’s not get caught up in what’s going on in the rest of the world this morning (Global Growth Slowing, Inflation Accelerating, and Interconnected Risk Compounding). Chinese stocks closed down for the 4th straight session to -13% for 2010 YTD and the CRB Commodities Index level of 320 is +25.5% inflated since the beginning of July.

 

Per the US stock market centric bulls, these interconnected global economic realities don’t matter, until they do.

 

Let’s get back to the US stock market’s 2011 Fashionable Consensus and dig a little deeper into its tapestry.

  1. Everyone loves Tech
  2. Everyone (except Doug Cliggott at CS) hates Healthcare
  3. Everyone has no short ideas

Most risk managers realize that doing what everyone else is doing isn’t a great idea (especially if you want to charge your clients 2 and 20). That’s why I’m short Tech (XLK) and Industrials (XLI) going into year-end. Both are reaching extreme levels of being intermediate-term TREND overbought.

 

I’m bearish on US Equities (SPY) and US Bonds (SHY). I’m bullish on the US Dollar (UUP).  As a result, I’m bullish on building up a large cash position as we head into what I think is going to be at least a 7% correction in the next 3-6 months (SP500 downside target = 1168).

 

No, I’m not reckless enough to give you my “year-end target” for the SP500 (that’s what unaccountable Big Brokers do). But I will tell you what I think every day between now and then. I’ll tell you what my upside/downside probabilities are across my 3 investment durations (TRADE, TREND, and TAIL), and I’ll take a long or short position that I’m accountable to.

 

If I’m wrong on US Equities in the next 3-6 months, I think some combination of the scenario laid out by Jeff Knight at Putnam (buy side PM) and Doug Cliggott (ex buy-sider at Credit Suisse) has the highest probability. Upside in the SP500 to the 1 range with the two sectors that I think auger best to an environment of US style Jobless Stagflation (Energy and Healthcare) outperforming.

 

My immediate term TRADE lines of support and resistance lines for the SP500 are now 1236 and 1249, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fashionable Consensus - thatcher


MACAU SLOWS SLIGHTLY

With table revenues at HK$8.0 billion through the 15th we are now projecting HK$17.0-17.5 billion in total revs for the full month of December. 

 

 

Our new projection range represents YoY growth of 55-60% - still strong but a slight slowdown from the first 10 days of the month.  Our projection takes into account slot revenue and the number of weekend days and weekdays.  Market shares are shown in the table below.  We continue to highlight Wynn’s impressive bounce back in market share and MGM's elevated share.  We think both will continue.

 

MACAU SLOWS SLIGHTLY - macau34



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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