“Repetition, confidence, and passion. The trinity of Lombardi’s football success…”
-David Maraniss (“When Pride Still Mattered”, page 225)
You didn’t have to look too far to find some losers on Wall Street or in Washington yesterday. In many respects those two compromised and conflicted constituencies are now, sadly, one and the same. US GDP Growth is slower than Wall Street’s “smartest” thought, and Big Government Intervention continues to amplify market volatility.
At Hedgeye, we’re focused on winning. Instead of angling for incremental “edge” on when the next round of Quantitative Guessing is going to be unleashed; instead of taking on some orange jumpsuit risk for a super secret piece of information; instead of not evolving the risk management process – that’s it – we’re just focused on winning.
Winning’s Trinity here in New Haven, CT is no different than Vince Lombardi’s process: Repetition, Confidence, and Passion. What’s increasingly fascinated me about this profession is that the older I get, the less I find myself needing to explain these principles to a larger community of people. The said “leaders” out there who don’t get these things yet probably never will.
Back to the Global Macro Grind…
First, let’s focus on the good news.
- US Equities we’re finally immediate-term TRADE oversold yesterday
- Chinese stocks only closed down 3 basis points overnight (0.03%)
- Congress is going on vacation
As for the bad news – well, this globally interconnected market had already signaled for you to get out of US and European Equities before yesterday’s capitulation, so today’s risk management signals in those markets are basically just a reminder of the same:
- SP500 intermediate-term TREND line = 1319 (broken)
- Russell2000 intermediate-term TREND line = 825 (broken)
- UK’s FTSE TREND line = 5955 (broken)
- German DAX TREND line = 7123 (broken)
- Italy’s MIB TREND line = 20655 (broken)
- Spain’s IBEX TREND line = 10269 (broken)
Why are all of these stock markets “broken”? I can assure you it’s not because my pre-schooler pulled up a 1-factor point-and-click chart of 200-day Moving Monkey averages. The answer is multi-factor and multi-duration. And everyone in this business who didn’t blow up in 2008 knows exactly what I mean by that.
In any multi-factor model, GROWTH should carry a heavy weighting. Economic Growth is either Accelerating, Slowing, or Unchanged. The biggest calls I’ve ever made in my young career of making “Macro” calls haven’t been on the long or the short side – they have been on the margin. And I don’t mean by levering myself up with margin – I mean calling the turns.
In my model, there are 3 STAGES in calling the turns:
- Identifying when the acceleration slows
- Asserting when the slowdown is accelerating
- Recognizing the deceleration of the slowdown
As of this morning, I am going to call these 3 STAGES Hedgeye’s Winning Trinity of global macro risk management.
This is a cool model because all of the tired Keynesians can try it at home. You know, whip some top-line assumptions around. Try some fractal math. And generally, just stop whatever it is that they were doing to completely botch calling both the 2008 and 2011 turns in global economic growth.
Now, Timmy Geithner, we know you are interviewing at an investment bank right now, so don’t spend too much time on this model until you are done making excuses for the last 47% of your born life in US government perpetuating America’s debt and deficit problems. We want you as a client, so we’ll save you some time here and tell you we are currently in STAGE 2.
In Japan, Europe, and the US, I don’t see a catalyst for moving to STAGE 3 (a deceleration of the slowdown) until at least Q4/Q1. In China we see this coming in Q3/Q4. That’s why we’re long Chinese Equities before we buy American.
Ours is a process that requires Repetition, Confidence, and Passion. Most of you wouldn’t be where you are today if you didn’t get the focus, discipline, and repetition part. In terms of the confidence and passion part, don’t be shy – if you find it, live it out loud.
My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $93.15-96.29, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP - August 3, 2011
And while I don’t think anyone who really understands what we do thinks we sell fear, I can tell you yesterday was the busiest day of what we call “new subscriber demand” – probably a contrarian indicator. As we look at today’s set up for the S&P 500, the range is 4 points or -0.16% downside to 1252 and 0.16% upside to 1256.
SECTOR AND GLOBAL PERFORMANCE
“on a day like yesterday, I usually start hearing some of the most qualitative things I hear all year – “this guy blowing up… volume/OIS doing that… look at this” – yesterday, was nothing like the usual storytelling – more like oh my god” - KM
- ADVANCE/DECLINE LINE: -1750 (-1945)
- VOLUME: NYSE 1252.18 (+12.77%)
- VIX: 24.79 +4.78% YTD PERFORMANCE: +39.66put%
- SPX PUT/CALL RATIO: 2.10 from 2.41 (-12.97%)
CREDIT/ECONOMIC MARKET LOOK:
- TED SPREAD: 21.87
- 3-MONTH T-BILL YIELD: 0.06% -0.04%
- 10-Year: 2.66 from 2.77
- YIELD CURVE: 2.33 from 2.39
MACRO DATA POINTS:
- 7 a.m.: MBA Mortgage Applications, prior (-5.0%)
- 7:30 a.m.: Challenger Job Cuts, prior 5.3%
- 8:15 a.m.: ADP Employment Change, est. 100k, prior 157k
- 10 a.m.: ISM Non-Manf. Composite, est. 53.5, prior 53.3
- 10 a.m.: Factory Orders, est. (-0.8%), prior 0.8%
- 10:30 a.m.: DoE inventories
WHAT TO WATCH:
- Moody’s, Fitch affirm U.S. AAA ratings while warning of potential downgrades
- Swiss central bank unexpectedly cut interest rates in effort to stem surge in its “massively overvalued” currency
- Italian PM Berlusconi will address country, Senate in attempt to shore up confidence as bond yields hit euro-era records
- HEDGEYE LEVELS – away from Venezuela and Russia, there is not 1 global equity market that scores bullish on both TRADE and TREND on the COUNTRY style factor in the Hedgeye global macro model; that means you need to tighten up your net exposure on rallies
COMMODITY HEADLINES FROM BLOOMBERG:
- Commodities Fall for a Sixth Day on Concerns Economy May Slow
- Corn, Wheat Fall as Slowing U.S. Rebound May Cut Into Demand
- Coffee Rises for Fourth Day on Delayed Exports; Raw Sugar Gains
- China Soy Demand to Gain on Higher Hog Numbers, Boosting Imports
- Copper Declines 0.6% to $9,620 a Ton on London Metal Exchange
- Paulson, BlackRock, UBS Lead London Mining Analyst Hiring Spree
- Rubber Rallies as Much as 2% as Rain in Thailand May Cut Supply
- Egypt Seeks to Broaden Wheat Imports as Russian Prices Climb
- Iron Ore Swaps, Aided by Deutsche Bank, Surge Fourfold to Record
- Anchor Ship May Double Fleet to 50 on China’s Iron-Ore Demand
- Guangxi Steelmakers Halt Output on Power Shortage, Xinhua Says
- Diamond Jewelry Demand in India May Slow After Gem Prices Surge
- Global Gold Hedges Increased 4.1% in First Quarter, GFMS Says
- FAO Pares Record Rice Production Forecast for 2011 on U.S.n
- EUROPE: learn most on "recovery" days in a bear market; today’s shows the squeeze tapes up (Italy) and the pseudo quality (Germany) down = bad
- July final Services PMI - France 54.2 vs prelim 54.2; Germany 52.9 vs prelim 52.9; Eurozone 51.6 vs prelim 51.4; UK Jul Services PMI 55.4 vs consensus 53.2, prior 53.9
- UK Retail prices rose 2.8% YoY following a 2.9% in June according to BRC and Nielsen Co. On the month, prices fell 0.2% after increasing 0.5% in June.
- ASIA: CHINA – closed down a whole 3 basis points in the face of a sea of global equity selling; this is interesting not only because it registers as a positive divergence, but doesn’t tell you the world’s entire demand construct is imploding – at least not today
- Australian retail sales unexpectedly declined in June for a second straight month by 0.1%
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The Macau Metro Monitor, August 3, 2011
CHEAPER OUTBOUND FERRY SERVICES Macau Daily Times
According to Macau's Executive Council, the MOP 19 ferry departure tax charged to passengers will be removed to help attract visitors to the city. The council’s spokesperson Leong Heng Teng said the change will come into effect 30 days after the administrative regulation is promulgated.
MACAU RESIDENTS, FIRMS TO TAKE CHINA TAX HIT Macau Daily Times
Local residents and companies working in mainland China will have to pay the new social security contribution that is expected to come into effect in early 2012. Moreover, there is no sign the MSAR Government is seeking a deal with mainland China to give exemption to local residents and companies. The draft Social Insurance law is currently waiting for State Council approval.