prev

Squeezy: SP500 Levels, Refreshed

POSITION: no position in SPY

 

No position. Waiting. Watching.

 

After selling my long US Dollar position (UUP) and covering my only remaining S&P Sector Short (XLB) late last week, that’s what I have been doing.  Sometimes you just need to let Squeezy The Shark strap on the old feedbag and rally to lower-highs.

 

No matter where we go this morning here, are the refreshed risk management lines that matter across Hedgeye’s durations: 

  1. Intermediate-term TREND resistance = 1320
  2. Immediate-term TRADE resistance = 1294
  3. Immediate-term TRADE support = 1259 

There’s no need to get whipped around by this. The market is behaving within rational boundaries of what we’d consider probable. Just be patient and prepared to start selling more aggressively again on the way up.

 

Hedgeye is 17 for 18 in June on closed positions (longs and shorts). We’re in no rush to do anything until hands look forced. We’re getting there.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Squeezy: SP500 Levels, Refreshed - 1


TALES OF THE TAPE: MCD, BWLD, DRI, CBRL, DIN, TXRH, PFCB, RUTH

Notable news items and price action from the restaurant space as well as our fundamental view on select names.

 

 

MACRO

 

“Deflating the Inflation” - U.S. wheat futures closed at a six-and-a-half-month low Monday as the advancing harvest increased inventories of the grain.

 

With corn planting now complete, 97% of corn in the top 18 producing states has emerged according to the USDA’s latest Crop Progress report released June 20.  70% of crops were in “good” to “excellent” condition, compared to 69% last week and 75% last year.

 

 

QUICK SERVICE

  • MCD UK say the introduction of Wraps  is the biggest introduction to its permanent menu in four years and says it has made more changes to its menu in four years than in the previous 30. The range includes a Grilled Chicken Salad Wrap and a Sweet Chilli Crispy Chicken Wrap, and has been packaged to make them easy to eat on the move. McDonald’s is also running a wrap of the day promotion offering one wrap at £1.99.

Hedgeye: Globally, MCD continues to try to build sales around the shoulder periods of lunch. 

 

 

FULL SERVICE

  • BWLD - Buffalo Wild Wings has pledged that if the players and owners compromise on their differences and come to an agreement to return to the field by July 20 - the first day players are scheduled to report to training camp - everyone who signs the "Save Our Season" petition will be awarded six free wings to be redeemed when the return of professional football is celebrated in September. 

Hedgeye:  I like this promotion, but it also tells you that sales trends without football are not going to be good. 

 

  • DRI - Interesting call out of Wells Fargo; Darden Restaurants estimates increased.  “Firm cites the new Seafood Feast promotion at Red Lobster and raises FQ1 and F12 estimates.”  As I wrote a few weeks back, the $15 price point at RL is an “extreme” discounting for that brand. 

Hedgeye: I know the SSS have accelerated, but the question remains about consumer preference for the promotion, especially given the double digit inflation the company is experiencing in seafood.

 

  • CBRL: Right when the company faces pressure from an activist investor CBRL names Coleman Peterson, apparently known as “America’s Top People Person,” to their Board of Directors. Previous executive experience includes time as the chief human resources officer for Wal-Mart Stores, Inc. 

Hedgeye: Maybe an indication the Mr. Woodhouse is just ignoring the thorn in his side.

 

  • DIN plans to expand IHOP to the Middle East.

 

  • TXRH gained on accelerating volume while PFCB and RUTH declined on accelerating volume. 

 

TALES OF THE TAPE: MCD, BWLD, DRI, CBRL, DIN, TXRH, PFCB, RUTH - stocks 621

 

Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - June 21, 2011

 

The USD down = Commodity and Stocks up, but lower-highs on low volume across the board.  Is the USD is back down for the week-to-date because:

 

A) Bernanke has his US Dollar Devaluation Presser in the next 48hrs?

B) Eurocrats are finding a way to hold $1.42 EURO/USD support?

 

We will get more bullish on Global Equities (China in particular) if the USD strengthens and we Deflate The Inflation - not the other way around.  As we look at today’s set up for the S&P 500, the range is 32 points or -1.51% downside to 1259 and 0.99% upside to 1291.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +1069 (+296)  
  • VOLUME: NYSE 786.44 (-50.99%)
  • VIX:  19.99 -8.51% YTD PERFORMANCE: +12.62%
  • SPX PUT/CALL RATIO: 1.65 from 2.03 (-18.51%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 22.12
  • 3-MONTH T-BILL YIELD: 0.03%
  • 10-Year: 2.97 from 2.94
  • YIELD CURVE: 2.59 from 2.56 

 

MACRO DATA POINTS:

  • 7:45 a.m./8:55 a.m.: ICSC Retail/Redbook Retail
  • 10 a.m.: Existing home sales, est. 4.8m (-5.5% M/m)
  • 11:30 a.m.: U.S. to sell $58b in 4-wk bills
  • 4:30 p.m.: API inventories

WHAT TO WATCH:

  • Germany June ZEW economic sentiment (9.0) vs consensus (2.0) and prior +3.1;Germany June ZEW current conditions 87.6 vs consensus 89.5 and prior 91.5
  • Greek Prime Minister George Papandreou faces a confidence vote in his government
  • Jon Huntsman to announce he’s running for president
  • Spain Sells 2.4b Euros of 6-Month Bills - Avg 6-mo. yield 1.776% vs 1.766% at May auction.

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Copper Imports by China Slump 47% as Consumers Prefer to Drain Stockpiles
  • Oil Gains a Second Day as Euro Crisis Eases, U.S. Crude Supplies Seen Down
  • Copper Rises From One-Week Low on Reduced Concern About Greek Debt Default
  • Pork Prices in China Seen Staying at Highs as Domestic Shortage Persists
  • Raw Sugar Falls on Forecast for Increased Thai Production; Cocoa Advances
  • Corn Gains After Slump as Flooding Threatens China Crop Amid Rising Demand
  • Gold May Advance as Weaker Dollar, Greek Debt-Default Concern Spur Demand
  • Qaddafi Tanks Deprived of Diesel as Ships Shunning Libya: Freight Markets
  • Australia Keeps Sugar Forecast as Cyclone Damage Offsets Increased Acreage
  • Russia Fails to Win Back Egypt, World’s Biggest Wheat Buyer, After Halt
  • Rubber in Tokyo Declines to One-Month Low on Concern Demand Remains Slow
  • Rubber Production in India Jumping 22% as Car Sales Fuel Demand for Tires
  • Crude Supplies Fall in Survey as Gasoline Output Increases: Energy Markets
  • China’s Rare Earth Quotas May Limit Supply to Japan, Europe, Lifton Says

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: green across the board, but on low-volume to lower-highs; DAX back above my 7139 TREND line; Spain and Greece below TREND lines
  • S&P reaffirms view it would likely treat voluntary debt restructuring for Greece as a default, Moritz Kraemer, head of European sovereign ratings tells Die Welt

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: green across the board, with China (which we just bought) up +1% and India finally stopped making lower-lows, +0.33%.

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Boston Harbor Smiles

This note was originally published at 8am on June 16, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I'm just ready to move forward.”

-Tim Thomas

 

After watching a generational win for the Boston Bruins last night in Game 7 of the playoffs, I am sitting here in my hotel room watching a gorgeous sunrise in the Boston Harbor. It must be Lord Stanley’s way of smiling.

 

Was I smiling yesterday? Am I smiling this morning? Big time. We love winning here at Hedgeye. And we support anyone who has a transparent, accountable, and winning attitude. Our vision for American Optimism is as old as America itself.

 

Yesterday’s price action in markets did nothing but solidify our conviction in our Global Macro Themes:

  1. Growth Slowing (bearish on Wall Street/Washington US GDP Growth estimates) 
  2. Deflating The Inflation (bearish on housing, stocks, and commodities)
  3. Indefinitely Dovish (bullish on long-term Treasuries, UST Flattener, and Gold – TLT, FLAT, and GLD)

We’re not celebrating the other team’s losses - someone always has to lose (Goldman is bullish on commodities; JP Morgan is bullish on Equities, etc). We are championing a winning Risk Management Process that’s saving our clients from losing money in 2011.

 

Winning starts with not losing. It’s pretty difficult to lose if you don’t get scored on. Swedish offensive skills of the Sedin Sisters last night aside, defense won The Stanley Cup. Bruins goalie Tim Thomas was as focused as any professional athlete I have seen in a long time.

 

Focus, discipline, confidence – you either have it, or you don’t.

 

I certainly don’t have it all of the time. But the challenge isn’t to overcome my emotional capacity. The goal is to build a team and process that can pick me up when I am down. And Lord Stanley knows I’ve had my fair share of downs in life.

 

“I’m just ready to move forward.”

 

Yesterday’s wins are over with. Today we have to deal with today. It’s time to play the game that’s in front of us.

 

From a risk management process perspective, before we move forward, we always look back. We need to absorb what’s been priced into market expectations so that we can handicap what the probabilities are for prices to change.

 

From an immediate-term TRADE perspective, oversold lines in Global Equities are now as follows:

  1. SP500 = 1261
  2. Nadaq = 2613
  3. Russell2000 = 771
  4. Japan’s Nikkei = 9367
  5. China’s Shanghai Composite = 2661
  6. India’s Sensex = 18,066
  7. UK’s FTSE = 5662
  8. Germany’s DAX = 7011
  9. Spain’s IBEX = 9811
  10. Brazil’s Bovespa = 61,109

From an immediate-term TRADE perspective, oversold lines in Commodities are:

  1. WTIC Oil = $94.70
  2. Copper = $4.07
  3. Gold = $1520

From an immediate-term TRADE perspective, oversold line in US Treasury Yields are:

  1. 2-year UST Yield = 0.36%
  2. 10-year UST Yield = 2.91%
  3. 30-year UST Yield = 4.15%

The corollary to oversold bond yields, of course, is overbought bond prices – so, while it’s popular for US stock market centric pundits to trash anyone who isn’t Perma-Bullish on “stocks for the long run”, we’re quite happy that they wake up every morning thinking that way. There’s always risk to be managed somewhere. Being bullish on bonds yesterday was a big win.

 

There are winners and whiners in this profession. We subscribe to the principles of the former. Being Perma-Anything generally doesn’t work. In the last few years I have written a few Early Look notes about Bears and Bruins:

  1. Bullish Bruins” = April 17, 2009  (when we went bullish on US Equities – bought SBUX April 21, 2009)
  2. Ragingly Bullish Bears” = May 5, 2011 (when we pressed the short case for Growth Slowing)

What’s interesting about the timing of the “Ragingly Bullish Bear” note is how quickly sentiment has changed. In that May 5, 2011 missive I highlighted the following sentiment setup in the II Bullish-to-Bearish survey:

  1. Bulls up 100 basis points week-over-week to 55%
  2. Bears down 200 basis week-over-week to 16.5%
  3. The Spread (Bulls minus Bears) widened by 150 basis points week-over-week to +38.2% for the Bulls

Again, relative to itself, there are a few critical risk management callouts in this long-dated survey to consider:

  1. Bulls are not ragingly bullish
  2. Bears are not allowed to be bearish
  3. The Spread between Bulls and Bears is only 200-300 basis points from its all-time wides (all-time is a long time)

“All-time “wides” is risk management locker-room speak at Hedgeye for something you don’t want to mess with – kind of like being a man dressed in orange last night drinking a smoothie with your i-pod on in the bowl of the Boston Garden – it’s just a bad position to be long of.”

 

Back to today…

 

The only worse position to be “long of” was probably a Blue/Green Canucks jersey at a bar in Boston last night. This morning, the good news for Perma-Bulls (US stocks) is that this morning the II Bullish-to-Bearish Spread has narrowed to +11% for the Bulls (37% of people now admit to being Bullish and 26% being Bearish).

 

That’s a huge narrowing of an exceptionally wide spread. But my and the Boston Harbor’s Smiles are still beaming.

My immediate-term support and resistance ranges for the Gold, Oil, and the SP500 are now $1520-1554, $94.70-99.58, and 1261-1281, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Boston Harbor Smiles - Chart of the Day

 

Boston Harbor Smiles - Virtual Portfolio



People Minimize Debt

“Unlike neoclassical macro theory, which assumes that private-sector corporations are always maximizing profits, it assumes that some companies may respond to daunting balance sheet damage by minimizing debt.”

-Richard Koo

 

I’m in the middle of reading Richard Koo’s revised edition of “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession.” The aforementioned quote summarizes Koo’s thoughts on what he coined in another book as a “Balance Sheet Recession.”

 

This morning, ahead of this Greek confidence vote, I want to do a little extending and pretending of my own with Koo’s conclusions – you know, just to get the intellectual juices going.

 

Let’s pretend for a moment that the American Consumer is Koo’s “private-sector corporation.” Then, let’s extend ourselves into the fictional land of nod and go as far as to assume that people, instead of companies, minimize debt when you scare the hell out of them.

 

I know, I know. This Mucker guy is coming up with some radical economic theory over here on the east side of Yale’s campus. But, seriously, I didn’t need to get into this academic institution to be told how to think.

 

Lessons from The Greek Gong Show: America needs to re-think, re-learn, and re-consider what makes this economy tick. It’s not that complicated. First, we need to stop what we are doing and get back to the basics of human behavior.

 

Behaviorally, if you want to scare the hell out of people, just fear-monger about “Great Depressions.” That’s Bernanke’s bailiwick. That’s why Washington loves him. That’s why he was appointed by a modern day Republican and cheered on by a modern day Democrat.

 

Modern day Western economics are partisan. Both Republicans and Democrats pin their hopes on Keynesian economists. Hope, alas, is not a long-term risk management process. Both Bush and Obama had to learn this lesson the hard way. Bernanke’s “confusion” and “frustration” with the economy is finally breeding contempt.

 

As Koo appropriately notes in the Preface of his 2009 Edition of “The Holy Grail of Macroeconomics”, “I realized that no constructive discussion could occur until I proved that some of the “lessons” from the Great Depression that underpin their views are themselves wrong.”

 

Koo’s realization is an extension of Nasim Taleb’s idea of a “Narrative Fallacy ( “The Black Swan”, 2007), where Taleb alludes to humans having a propensity to build stories around facts.

 

The fact of the matter is, and I’ll say this for a 3rd time this morning, when you scare the hell out of them, People Minimize Debt.

 

Again, people are different than countries – particularly socialist ones. Only a moron would look to solving his or her solvency problems by Piling More Debt Upon Debt, like Greece, Japan, and America have.

 

Back to this morning’s reality show of extend and pretend, here’s what the Fiat Fool in Chief of Greece had to say this morning ahead of the Greek confidence vote:

 

“We are determined as a country, as a government, to be on track with the program, to move forward, to do what is necessary, in order to put our country into a fiscally much more viable position.”

 

Seriously. This guy is serious about maximizing debt until he blows his country’s balance sheet, bond, and stock markets to smithereens.

 

Global Markets are obviously very nervous about lying Greek politicians. Never mind what the Greek stock and bond markets do today. Don’t forget that the Greek stock market was down -35.6% in 2010 and has crashed, again, down another -27% since rallying to lower-high in February 2011. Markets discount future events.

 

What got us here is something I have been writing about since 2007. What is going to get us out of it isn’t doing more of what’s imploding the Greek, Portuguese, and Irish markets – Politicians Maximizing Debt.

 

In the meantime, the entire world is watching and Global Growth Is Slowing. This is largely a function of people being afraid. In the real world, confidence matters.

 

That’s why US demand for mortgages, stocks, and commodity exposure is falling. That’s why US stock market volumes have been bone dry on this 3-day rally to lower-highs. It’s the Debt Maximization Experiment of the Keynesians, stupid.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1 (we remain long GLD), $91.29-97.63 (we remain on the other side of the Goldman Oil Bulls), and 1 (we have no position, but a bearish bias at the top end of the 1291 range).

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

People Minimize Debt - Chart of the Day

 

People Minimize Debt - Virtual Portfolio


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next