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Q3 KEY MACRO THEMES PRESENTATION: DIAL IN & MATERIALS

HEDGEYE MACRO: Q3 THEMES: Policy Pong, Risk Ranger & Chinese Cowboys

DIAL IN & MATERIALS

Today, July 15, 2011.

 

Valued Client,
 
5-10 minutes prior to the 11 AM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 639275#
  

Materials: "MACRO Q3 THEMES PRESENTATION"

                 
To submit questions for the Q&A, please email .

****************************************************************************** 
 

"MACRO Q3 THEMES PRESENTATION"    

Topics will include: 

  • Policy Pong - Between the debt ceiling debate, spiraling sovereign debt issues in Europe, and updated growth/inflation dynamics, the Fiat Fools will continue to play monetary and fiscal policy pong, which will inform the EUR/USD exchange rate.
  • Risk Ranger - Given the sharp oscillations in investor sentiment and the danger of Fiat Fool experimentation, many global asset classes are range bound and keeping these ranges in focus will be key to managing risk over the intermediate term.
  • Chinese Cowboys - In a marriage of research and timing, we are long China. We believe inflation and the pace of tightening in China will moderate in 2H and that fear has made Chinese growth cheap.

Please contact if you have any questions.  

Regards,

 

The Hedgeye Macro Team


TALES OF THE TAPE: SBUX, MCD, YUM, PEET, GMCR, CBOU, CBRL

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

 

 

MACRO

 

The CPI for food was 0.2% in June, half the pace seen in each of the previous two months and noticeably weaker than the 0.8% gain in March. Food prices were up 3.7% year-over-year in June, compared with 3.5% in May and the strongest since March 2009.

 

While YUM’s US business has plenty of problems specific to its businesses, management also pointed out that high gas prices are making the U.S. recovery harder.  Gas prices are down 8% from early May but have rebounded 4% from the low on June 29.

 

Restaurant stocks have been performing extremely strongly and food processors continue to underperform.

 

TALES OF THE TAPE: SBUX, MCD, YUM, PEET, GMCR, CBOU, CBRL - subsectors

 

 

QUICK SERVICE

  • SBUX will launch a JV with a Chinese coffee-growing company, the Ai Ni Group, later this year as the two sides signed an MOU Thursday.  Ai Ni Group is a coffee-growing and –processing firm in the southwestern province of Yunnan.
  • MCD has “adjusted” some prices in China after inflation has hit a three-year high.
  • YUM traded higher thanks to extremely strong reported China top-line trends.  Low quality EPS and down margins remain a concern.
  • The coffee concepts declined on accelerating volume.

 

CASUAL DINING

  • CBRL is almost certainly going to miss the quarter, in our view, as they announced news this morning that they are reducing management and staff positions.  The charge is estimated to be $0.14-$0.17.

TALES OF THE TAPE: SBUX, MCD, YUM, PEET, GMCR, CBOU, CBRL - stocks 715

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - July 15, 2011

 

Our Q3 Macro Themes call is at 11AM EST today – ping me if you still need the dial in info. Our presentation of European debt maturities might grab your attention.  As we look at today’s set up for the S&P 500, the range is 19 points or -0.75% downside to 1318 and 0.70% upside to 1318.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 715

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1732 (-2696)  
  • VOLUME: NYSE 925.21 (4.71%)
  • VIX:  20.80 +4.47% YTD PERFORMANCE: +17.18%
  • SPX PUT/CALL RATIO: 2.0 from 1.86 (7.89%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 24.47
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.98 from 2.92
  • YIELD CURVE: 2.60 from 2.55

 

MACRO DATA POINTS:

  • 8:30 a.m.: Consumer Price Index, M/m est. (-0.1%), prior 0.2%
  • 8:30 a.m.: Empire Manufacturing, est. 5, prior (-7.79)
  • 9:15 a.m.: Industrial production, est. 0.3%, prior 0.1%
  • 9:15 a.m.: Capacity utilization, est. 76.9%, prior 76.7%
  • 9:55 a.m.: UMich Confidence, est. 72.0, priopr 71.5
  • 1 p.m.: Baker Hughes Rig Count

WHAT TO WATCH:

  • President Barack Obama told congressional leaders to report to him within two days on what debt-limit options members can support after yesterday’s talks
  • Treasury Secretary Timothy Geithner warned there’s no possible extension to time limit to raise debt ceiling as S&P joined Moody’s in reviewing U.S.’s top credit rating

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Pizza Demand in Asia Boosts U.S. Cheese Exports to Record, Kraft’s Costs
  • BHP Agrees to Buy Petrohawk for $12.1 Billion in Cash to Add Natural Gas
  • Crude Heads for First Weekly Decline in Three Weeks on U.S. Debt Concern
  • Gold Falls, Paring Weekly Advance, as Rally to Record Price Spurs Selling
  • Wheat Slides for a Second Day as Importers May Favor Russia Over U.S., EU
  • LME Doubles Minimum Delivery Rates for Warehouses Holding the Most Metal
  • Rice Exports From Vietnam May Beat Target on Bigger Harvests, New Markets
  • Copper May Gain on Reports Predicted to Show Stronger U.S. Manufacturing
  • Sugar Drops as Banking Stress Tests Weigh on Commodities; Cocoa Declines
  • China Is Tightening Rare-Earth Access Even as Sale Quotas Climb, EU Says
  • Glut of Natural Gas Produces Record U.S. Exports to Mexico: Energy Markets
  • Beef Contamination Spreads in Japan as Fukushima Radiation Taints Straw
  • Wheat Exports From Australia Climb as China Boosts Purchases After Drought
  • Oil May Advance Next Week on Speculation About Fed Stimulus, Survey Shows

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: plain ugly TRENDs continue to develop with Italy in crash mode (down -20% since February) and Greece is gone (down -31% since February)

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: solid is as solid does; China up for the 4th day in 5 (were long $CAF) and the rest of region continues to shape up (Korea, Indonesia)

 

THE HEDGEYE DAILY OUTLOOK - asia performance 

 

 

 MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Attention Students...

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THE M3: S'PORE JUNE HOME SALES; TPI

The Macau Metro Monitor, July 15, 2011

 

 

SINGAPORE PRIVATE-HOME SALES FALL AGAIN WSJ

According to the Urban Redevelopment Authority, Singapore's private-home sales dropped 25% MoM in June to 1182 units (May unit sales had dropped 13% MoM).

 

TOURIST PRICE INDEX FOR THE 2ND QUARTER 2011 DSEC

Macau's Tourist Price Index rose by 11.43% YoY but decreased by 1.42 QoQ.  The price of hotel accommodation had the most meaningful impact, up 29.82% YoY but down 12.1% QoQ.

 


Fiat Fools

This note was originally published at 8am on July 12, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Any fool can know. The point is to understand.”

-Albert Einstein

 

To truly embrace the analytical incompetence of central planners tasked with managing globally interconnected risk, one has to accept that these people are Fiat Fools. Sure, any one of them can know what happened yesterday. But can they proactively predict risk?

 

We introduced the term Fiat Fool during the initial stage of the European Sovereign Debt crisis (2010). To understand what the Fiat Fools are doing to economies and markets alike, all you have to do is pay attention.

 

Fiat Fools fundamentally believe that they can smooth economic cycles and tone down market volatility. I guess that’s what the IMF’s latest dudette in Chief, Christine Lagarde, was trying to do this morning when she proclaimed her mystery of faith that “some of the Italian numbers are excellent.”

 

Hedgeye’s long-term conclusion has been that the Fiat Fools do two things:

  1. They shorten economic cycles
  2. They amplify market volatility

That’s it. There is no smoothing and toning. There is no “price stability.” And there most certainly is no “full employment.” So, it’s time for La Bernank to unite with his Keynesian storytellers in Europe and admit who they are, and what they do. Greenspan did.

 

Not that the Obama Administration wants to be held accountable for perpetuating Keynesian Economic Ideologies, but none of these political people who support Bernanke and Trichet should forget what their idol himself admitted to Henry Waxman (under oath) during the thralls of 2008.

 

HENRY WAXMAN: “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

 

ALAN GREENSPAN: “Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.”

 

No. I don’t think reminding professional politicians of context and causality is going to change them this morning. Sadly, these people are more concerned with their own career risk management than that of your markets and economy. So onto the next.

 

Back to the Global Macro Grind

 

Here’s our real-time risk management look at Global Equities:

  1. China was down -1.7% overnight to 2754, barely holding onto our immediate-term TRADE line of support = 2730
  2. India’s BSE Sensex dropped -1.8% to 18411, barely holding onto our immediate-term TRADE line of support = 18357
  3. Hong Kong got blasted for a -3.1% drop and remains bearish TRADE and TREND in our model (resistance = 22499)
  4. FTSE in London is breaking its intermediate-term TREND line of 5897
  5. DAX in Germany is breaking its intermediate-term TREND line of 7199
  6. MIB in Italy is crashing, down -22% since its February 2011 high (down another -2% this morning)
  7. IBEX in Spain looks awful (bearish TRADE and TREND)
  8. Greek stocks continue to crash (down -31% since their February 2011 lower long-term high), making lower 2011 lows today
  9. Russian, Norwegian, and Saudi stock markets are all breaking their intermediate-term TREND lines as Oil prices break down
  10. SP500 TREND line support is under attack in pre-open futures trading (Hedgeye’s line in the sand = 1317)

On the Commodity front, Deflating The Inflation remains our call:

  1. CRB Commodities Index (18 components) challenged TREND line resistance (349) last week and failed
  2. WTIC Oil’s TREND line remains at approximately $103/barrel (Goldman is the bull, Hedgeye the bear)
  3. Wheat and Corn prices are down another -2-3% this morning and have both broken TREND line support
  4. Cotton prices are getting slammed this morning (down -4%) and should alleviate some cost pressures out there
  5. Gold looks like a champ (as it usually does when real-interest rates are negative; UST Treasury yields plummeting again)
  6. Copper is the outlier on the bullish side, holding intermediate-term TREND line support of $4.20/lb

Currency and Credit Markets are all over the place:

  1. European Sovereign CDS in Spain and Italy are pushing toward (or above in Spain’s case) the critical Lehman Line of 300bps
  2. Italian Bond yield at Italy’s 12 month debt auction came in a lot higher sequentially versus last (3.67% vs 2.15%)
  3. EUR/USD is getting annihilated after breaking what we’ve called out as critical intermediate-term TREND support ($1.43)
  4. US Dollar Index is making a big bid for a TRADE and TREND breakout – this will continue to Deflate The Inflation
  5. US Treasury yields are all breaking down through TRADE and TREND line support (like they did in May-June)
  6. US Treasury Yield Spread continues to compress; 10-year minus 2-year yields = 250 basis points wide (long FLAT)

All the while, this morning’s high-frequency economic data was what I consider fine. Chinese Money Supply Growth (M2) came in at 15.9% (it’s been proactively cut in HALF by the Chinese since we got bearish on China at the end of 2009). Meanwhile German, French, and British Consumer Price Inflation (CPI) readings for June were benign enough to provoke Europe’s Fiat Fool in Chief to stop raising rates.

 

As for the Fiat Fools having anything in the area code of a modern day real-time risk management process, you can bet your Madoff that they don’t have one. Nor do they have any experience managing any of the aforementioned globally interconnected risk where it matters – on the tape.

 

My immediate-term support and resistance ranged for Gold, Oil, and the SP500 are now $1527-1558, $92.96-96.74, and 1297-1328, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fiat Fools - Chart of the Day

 

Fiat Fools - Virtual Portfolio



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 80.32%
  • SHORT SIGNALS 78.49%
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