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AN: Covering Trade

 

Keith covered AN in the Hedgeye virtual portfolio at $33.98 (please note correction on price) for a nice gain managing risk and trading the range this morning.

 

We continue to be concerned near-term with CapEx having doubled back to levels more in-line with investment prior to AN shrinking to half its size from ’05-’10 and is on pace to increase even higher as a % of sales this year. Returning to prior levels to offset deferred investment will impact FCF and the company’s ability to buy back shares and manage earnings near-term.

 

AN: Covering Trade - AN 11 25 11

 

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 25, 2011

 

As we look at today’s set up for the S&P 500, the range is 42 points or -0.67% downside to 1154 and 2.94% upside to 1196. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 1125

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -2332 (-708) 
  • VOLUME: NYSE 876 (-.025%)
  • VIX:  +33.98 -2.85% YTD PERFORMANCE: +91.44%
  • SPX PUT/CALL RATIO: 1.67 from 1.76 (-5.1%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 49.64
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.92 from 1.88    
  • YIELD CURVE: 1.65 from 1.86

 

MACRO DATA POINTS (Bloomberg Estimates):

  • No U.S. economic data releases scheduled
  • Italian borrowing costs surge at bill, coupon auctions

 

WHAT TO WATCH: 

  • Many retailers opened on Thanksgiving Day, others at midnight, as Black Friday marks traditional beginning of holiday-shopping season; discounting more widespread than last year as retailers try woo shoppers spooked by global economic uncertainty, stagnant job growth
  • AT&T said yesterday will take $4b charge, pulled application from FCC to buy T-Mobile USA to focus on DOJ clearance
  • Microsoft yesterday said to sign non-disclosure agreement with Yahoo
  • Chevron yesterday was blocked from drilling in Brazil while government probes recent spill
  • Olympus’s former president Michael C. Woodford pledges to work with board to try and avoid delisting after 3 executives implicated in scheme to hide losses resigned
  • India approves allowing overseas companies to own as much as 51% of retailers selling more than one brand, paving the way for global cos. such as Wal-Mart Stores and Tesco to own stores
  • Hungarian bond yields rise most since February 2009 after Moody’s cuts rating to junk
  • ECB’s Coene says rate cut probable if current trends continue
  • Egypt’s ruling military council asks former Prime Minister Kamal el-Ganzouri to form new government
  • German Chancellor Angela Merkel yesterday ruled out joint euro-area borrowing, expanded role for ECB in fighting debt crisis
  • Italy meets max target of EU2b zero coupon auction, borrowing costs surge.
  • No IPOs expected to price

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Bank Commodity Staff Turnover Seen Gaining as Rules Tighten
  • Record Gold Hoard Spurs Bullish Bets From Traders: Commodities
  • Copper Falls, Heads for Weekly Drop on Europe Borrowing Costs
  • Oil Heads for Second Weekly Loss on Europe; Mirae Sees Iran Risk
  • Gold Declines as Investors Turn to Dollar for Haven From Europe
  • Wheat, Soybeans Slide Amid Concern Crisis Will Weigh on Demand
  • Sugar Slides to Five-Month Low on Indian Exports; Cocoa Falls
  • Aluminum Traders Probably Added to Wagers on Declining Prices
  • Fonterra Aims to Double China Sales by 2020, CEO Spierings Says
  • First Beef Bonds in Two Years Set For Market: Argentina Credit
  • Copper Shortfall Likely to Remain in 2012, OZ Minerals Says
  • No Coal Rebound Seen in Asia on Power Price Curb: Energy Markets
  • Global Rubber Demand to Grow 4% Through 2020 on Emerging Markets
  • Vale’s Puts at Record as China’s Iron Ore Demand Slows: Options
  • India May Permit More Sugar Exports After Assessing Crushing

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES

 

KING DOLLAR – big long-term TAIL breakout in the US Dollar continues to hold its gains this morning as the Euro moves to immediate-term TRADE oversold at 1.32. If the Germans aren’t going to cooperate with the Bailout Beggars, Draghi is going to move towards more aggressive ECB rate cuts = bearish for the Euro, bullish for the USD (intermediate-term TREND)

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

ITALY – complete mess as the Italians sell €10B of 6mth fiat at 6.50% vs 3.53% last; that’s just a monster jump in funding costs and both the Italian bond and stock markets continue to have this right. Markets don’t lie; politicians do. MIB Index moves to immediate-term TRADE oversold at 13,711.

 

HUNGARY – small country but they all matter in this game of dominos; Hungary is begging for an IMF bailout and Moodys decided to cut their credit rating to junk this morning = -4.6% drop in Hungarian stocks and the story just moved to #1 on Bloomberg most read.

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 

 

 


Powerful Turbulence

This note was originally published at 8am on November 22, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“In a time of turbulence and change, it is more true than ever that knowledge is power.”

-John F. Kennedy

 

Contextualizing market moves within the scope of Global Macro fundamentals is as critical right now as it’s ever been. That’s why we built a firm around our multi-factor, multi-duration, Global Macro risk management process.

 

Every morning we wake up at the same time and do the same thing. We Embrace Uncertainty. Functionally, what that means is that price, volatility, and volume factors strike our models on a real-time basis – and we accept them for what they are.

 

Much like the rain and tide pounding the contour of an ocean line, what you end up seeing is what you get – patterns. Time and patterns create a series of probabilities, scenarios, and ranges. This is how we apply Chaos Theory to markets.

 

Back to the Global Macro Grind

 

This morning’s embrace of uncertainty issued me a not-so-friendly risk management kiss. I’m in a hotel room on the road – and that’s not cool coming from a laptop. But I guess that’s too bad for me – the market doesn’t care about how I am positioned.

 

I am long the US Dollar and short the Euro.

 

The Germans decided to support the Euro this morning by telling the rest of the world’s Bailout Beggars to go pound sand. This isn’t the kind of sand in Benoit Mandelbrot’s fractal model (falling one grain at time). This is the big beachhead of fluffy expectations stuff.

 

“We don’t have any new bazooka to pull out of the bag… we see no alternative to the policy we are following… we need to tell markets very clearly – and this must be done soon – that there is no other way forward than the one we’re pursuing.” –Michael Meister

 

Meister, one of Merkel’s senior guys, went on to add that if Italian and the French central planners don’t like that, they can go pound some more sand, and “sit tight through the turbulence.”

 

The Euro finally bounced on that (I know – how dare the Germans defend the common currency and purchasing power of their people!), rallying straight back up to an immediate-term TRADE zone of resistance ($1.35-1.36).

 

In turn, the US Dollar sold off, holding immediate-term TRADE support of $77.07 (US Dollar Index).

 

Thankfully, it will take more than one morning, week, or month of Powerful Turbulence to take me out of this globally interconnected game of risk. Pursuing its outcomes is what I love to do. And I love being long our King Dollar theme on red.

 

Dollar Down = reflation of some of yesterday’s deflation. Dollar up = Deflates The Inflation.

 

Since 71% of US GDP = Consumption, that’s what we need to see more of to bring growth back in the country – not another super-committee of central planners. Newt has that part of it right.

 

Strong Dollar = Strong America. Period.

 

While that may create some Powerful Turbulence in the stock market in the short-run, in the long-run most of our children and grandchildren won’t be dead.

 

The short-run performance of the stock market doesn’t reflect the long-term health of the country – full employment and price stability do.

 

US stocks are down -12.5%, -7.6%, and -5.6% from their April, October, and November highs, respectively. Volatility (VIX) is up +120% since April’s SP500 price of 1363. Unemployment in America hasn’t moved off of 9%.  

 

Having learned the 1920s lessons of structural unemployment and price volatility the hard way, maybe there’s a part of this that the Germans have right for the long-run too.

 

My immediate-term support and resistance ranges for Gold, Oil, German DAX, and the SP500 are now $1684-1722, $95.35-98.42, 5567-5769, and 1186-1203, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Powerful Turbulence - Chart of the Day

 

Powerful Turbulence - Virtual Portfolio


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Scarce Vision

“Capitalism isn’t scarce; vision is.”

-Sam Walton

 

Get GDP Growth and the US Dollar right and you’ll get mostly everything else right. Happy Thanksgiving.

 

The US Dollar is up another +0.5% this morning to $79.52 on the US Dollar Index, taking its week-to-date gain to +1.7%, and its cumulative gain since Bernanke signaled the end of Quantitative Guessing II to +8.9% (since April).

 

Given the generationally high inverse-correlations between the US Dollar Index and everything else, we continue to see what we’ve coined as a Correlation Crash across asset classes as a direct result of this bullish Buck Breakout.

 

This morning’s Global Macro Grind amplifies the deep simplicity of this risk management point:

  1. S&P Futures are down another 9 handles to 1150 = down -15.6% since the US Dollar stopped going down in April
  2. EUR/USD testing its early October lows of $1.32
  3. European Equities selling off, across the board, to down -22-42% since February-April (pick your country)
  4. Asian Stocks continuing their crash (down > 20% from their YTD highs) with HK and India down -27.5% and -23.5%
  5. Commodities breaking down toward their October lows as the CRB Index’s correlation to the USD = -0.82
  6. Gold is down another -1.1% to $1679 = down -11.6% from its all-time high in August

Correlation does not always imply causality. We get that.

 

But A) sometimes it does and B) it can be very reflexive in the immediate to intermediate-term.

 

Keynesian economists/strategists try to avoid Soros’ concept of “Reflexivity” in markets and economies as much as Global Macro investors are avoiding the Hungarian-American’s birthplace this morning (Hungary’s stock market trading down -4.6% after Moody’s cut Hungary’s credit rating to junk).

 

Academic types have a hard time using markets as leading indicators because they have no experience managing real-time market risk. That’s a problem - a really big problem with US economic policy.

 

Policy = Causality.

 

That’s why you’ve never heard Ben Bernanke or Tim Geithner use these 2 words - Correlation Risk – to attempt to explain anything about nothing that’s happening in either Global Macro markets or the economies that underpin them.

 

Accepting responsibility for causality, after all, would be an admission of failed policy. At least Greenspan admitted this in 2008. Maybe Bernanke will by the time he is retired from the Fed too…

 

The Germans kind of get this. That’s primarily because they have to. The German People will not give the fiscally conservative leadership of the Bundesbank a hall pass on forgetting the history of hyper-inflation. At least not yet.

 

German stocks are down another -0.54% this morning, taking the DAX down to 5398 (down -28.2% since the US and German stock markets put in their 2011 YTD highs). If the SP500 was down that much from its April 2011 closing high (1363), it would be trading at 979 this morning. The German People aren’t as hyper about their stock market as our manic media culture is.

 

If I’ve said this 100 times in the last 4 years, I’ve written and/or said it 1000 times – the immediate to intermediate-term moves in a country’s stock market does not exclusively reflect a country’s long-term health. Currency stability, inflations/deflations, and employment levels are, collectively, much better long-term barometers for purchasing power and prosperity.

 

I could write a book about that – and maybe I will – but that’s not going to happen in the remaining 10 minutes I have to finish this note this morning. So hopefully it continues to provide a basis for long-term economic debate.

 

The Scarce Vision that policy makers in this country have displayed over the course of the last decade is not what we should be thankful for this Thanksgiving. What we should all be thankful for is a generational opportunity in America to change that.

 

My immediate-term support and resistance ranges for Gold (bearish TRADE and TREND), Brent Oil (bearish TRADE and TREND), German DAX (Bearish Formation) and the SP500 (Bearish Formation) are now $1, $105.13-109.98, 5, and 1154-1196, respectively. With the US Dollar immediate-term TRADE overbought today, plenty of market prices will be oversold.

 

Happy Thanksgiving to you and your loved ones,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Scarce Vision - Chart of the Day

 

Scarce Vision - Virtual Portfolio



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