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Bullish TAIL: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY)

 

For the 2nd time in the last 3 months, the SP500 is making a valiant effort to close above my long-term TAIL line of 1268. The last time this happened, I shorted the SPY (October 28th). This time I’m not.

 

Everything that really matters in our Macro Model occurs on the margin. And, on the margin, the high-frequency data points out of the 3 major regions (Asia, Europe, USA) are more bullish today than they were in October. In December, Asian Growth appears to have slowed at a slower rate; European monthly data was better than toxic; and the USA’s confidence/employment data is being empowered by a Strong Dollar.

 

Across all 3 durations in our risk management model, here are the lines that matter most: 

  1. TAIL support = 1268
  2. TRADE support = 1258
  3. TREND support = 1213 

To be clear, this Bullish Formation (bullish TRADE/TREND/TAIL) can turn bearish (on a drop back below 1258) as fast as it turned bullish. But until that happens, the market’s last price is the right price to manage your risk around.

 

If it doesn’t happen, I’ll keep sending emails titled Bullish TAIL.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish TAIL: SP500 Levels, Refreshed - SPX


European Banking Monitor

Positions in Europe: Short France (EWQ)

 

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"

 

If you'd like to receive the work of the Financials team or request a trial please email .

  

We’d note that the TED spread declined by one basis point (57.1 bps) vs. last week's value of 58.1 bps, however we're hesitant to read much into this as it is essentially unchanged and reflected a quiet week. Euribor/OIS showed similar trends with that metric coming in at 97.4 bps this week vs. 97.3 bps last week.

 

The most current data from the ECB’s SMP shows €19 MM in secondary sovereign bond buying in the week ended 12/23, the smallest amount in nearly five months since the ECB resumed buying in early August. In the week ended 12/16, the ECB bought €3.361B.  We continue to maintain that while the SMP and the extension of the LTROs should be additive to capital market gains, we don’t see the programs carrying sustained gains over the intermediate term for European capital markets.  Italian 10YR yields, which reached 6.95% today, are but one indicator of this opinion. 

 

Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone.  The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk.  The Euribor-OIS spread widened by less than 1 bp to 97 bps.

 

European Banking Monitor - 1. OIS

 

 

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.   The Liquidity Recourse hit a new all time high on Tuesday but has since fallen.

 

European Banking Monitor - 1. ECB 2

 

 

European Financials CDS Monitor – Bank swaps were wider in Europe last week for 30 of the 40 reference entities.  The average widening was 0.4% and the median widening was 1.4%.

 

European Banking Monitor - 1. banks 3

 

 

Security Market Program – The ECB's secondary sovereign bond purchasing program bought €19 MM in the week ended 12/23 vs €3.361 Billion in the week prior to take the total program to €211.0 Billion.  No data has been released for the week ended 12/30.  

 

European Banking Monitor - 1. SMP 4

 

 

Matthew Hedrick

Senior Analyst

 

 

 


Welcome In 2012 With Hedgeye Happy Hour

Join us in welcoming another winning NEW YEAR on January 12th from 6:00 to 9:00 PM. The celebration will take place at the Sake & Shochu Lounge at Zengo Restaurant, located on 622 Third Avenue at 40th Street, New York NY.

 

For furthers questions and RSVPs please contact us at .

 

Best Wishes,

The Hedgeye Macro Team


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.

THE HBM: SBUX, CMG, YUM, JACK, MSSR

THE HEDGEYE BREAKFAST MONITOR

 

MACRO

 

Comments from CEO Keith McCullough

 

Squeeze me, please me – its 2012, here we go!

  1. SQUEEZE – in both Asian and European Equity squeezage (yesterday + today) there actually was some economic data supporting it; China (which I bought on last day of 2011) printed a 50.3 on its PMI for DEC and Germany’s unemployment rate dropped in DEC to 6.8% vs 6.9% last month, with both economies proving you don’t need Keynesian fear-mongering to generate a solid employment base.
  2. EUR/USD – get the US Dollar’s daily direction right and you’ll get most things beta right; that’s not a perpetual correlation, but it certainly still matters this morning. Euro’s new TRADE range = 1.28-1.31, so we’re dead cat bouncing this thing right back up to the top end of the range and Gold (which has a stunning -0.91% inverse cor to USD right now) pops for a +1.5% gain (covered our GLD short at $1538/oz)
  3. COMMODITIES – as important to watch as European equities as they test their TAIL lines of resistance in early 2012 will be Copper and Oil testing their TAIL lines of resistance of $111.61 (brent) and $3.99/lb, respectively.

 

Don’t be stuck bullish or bearish in 2012. Be right.

 

Game on.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: SBUX, CMG, YUM, JACK, MSSR - subsector fbr

 

 

QUICK SERVICE

 

SBUX: Starbucks is raising prices by an average of roughly 1% in the U.S. Northeast and Sunbelt regions today.  Major cities being affected include New York, Boston, Washington DC, Atlanta, Dallas and Albuquerque. Spokesman Jim Olson said that the hike is coming as a result of “balancing the cost of doing business with competitive dynamics in the markets”.  Starbucks expects high prices for coffee, milk and fuel to cut into profits this year. 

 

CMG: Chipotle Mexican Grill was raised to “Buy” at Deutsche Bank.  The twelve month price target is $390 per share.

 

YUM: The Malay Chamber of Commerce Malaysia said it is prepared to outbid CVC Capital Partners Ltd. for control of the nations KFC franchise operator as it seeks to keep the business in local hands.

 

JACK: Jack In The Box was raised to Top Pick versus Outperform at RBC.

 

 

CASUAL DINING

 

MSSR: Landry’s announced today the successful completion of its tender offer for all of the outstanding shares of common stock of McCormick & Schmick’s Seafood Restaurants at a price of $8.75 per share.  Landry’s now owns, together with its affiliates, roughly 88% of the outstanding shares of MSSR.

 

THE HBM: SBUX, CMG, YUM, JACK, MSSR - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK

Highlights from this week's Risk Monitor

* The TED spread declined by one basis point (57.1 bps) vs. last week's value of 58.1 bps. We're hesitant to read much into this as it is essentially unchanged and reflected a quiet week. Euribor/OIS showed similar trends with that metric coming in at 97.4 bps this week vs. 97.3 bps last week. For reference, intra-week the measure peaked at 98.8 bps. These are important gauges of perceived risk among interbank participants. We continue to monitor these two measures closely for signs of improvement or further deterioration in participant confidence.   

 

 * Even Steven - Our macro quantitative model indicates that on a short term duration (TRADE), there is equal upside and downside in the XLF (3.2% downside vs. 3.2% upside).

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Neutral / 1 of 11 improved / 1 out of 11 worsened / 9 of 11 unchanged
  • Intermediate-term (MoM): Negative / 2 of 11 improved / 5 of 11 worsened / 4 of 11 unchanged
  • Long-term (150 DMA): Negative / 1 of 11 improved / 9 of 11 worsened / 1 of 11 unchanged

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - summary 3

 

1. US Financials CDS Monitor – Swaps widened for 14 of 27 major domestic financial company reference entities last week.            

Widened the most vs last week: C, COF, RDN

Tightened the most vs last week: ACE, TRV, AGO

Widened the most vs last month: C, AXP, AIG

Tightened the most vs last month: MTG, RDN, AGO

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - CDS  us

 

2. European Financials CDS Monitor – Bank swaps were wider in Europe last week for 30 of the 40 reference entities. The average widening was 0.4% and the median widening was 1.4%

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - CDS  europe

 

 3. European Sovereign CDS – European sovereign swaps remained relatively flat over last week. Irish sovereign swaps widened by 1.3% (+10 bps to 726) and Spanish tightened by 3.1% (-12 bps to 410).

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - Sovereign 1

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - Sovereign CDS 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 6 bps last week, ending the week at 8.86 versus 8.92 the prior week.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - HY

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 5 points last week, ending at 1583.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - LLI

 

6. TED Spread Monitor – The TED spread fell 1 basis point last week, ending the week at 57.1 this week versus last week’s print of 58.1.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index fell less than a point, ending the week at -23.9 versus -23.6 the prior week.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - JOC

 

8. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk.  The Euribor-OIS spread widened by less than 1 bp to 97 bps.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - Euribor OIS

 

 9. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.   The Liquidity Recourse hit a new all time high on Tuesday but has since fallen.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - ECB liquidity facility

 

10. 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 six 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. We track the 14-V1. Last week spreads tightened, ending the week at 180 bps versus 182 bps the prior week.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - MCDX

 

11. Baltic Dry Index – Data on The Baltic Dry Index was not available at time of publication.

 

12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread tightened to 164 bps, a decline of 10 bps from a week ago.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - 2 10

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 3.2% upside to TRADE resistance and 3.2% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - XLF setup

 

Margin Debt in November

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which retraced back to +0.43 standard deviations in September, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in October and November’s print of +0.78 and +0.55 standard deviations.  But overall, this setup represents a material headwind for the market.  

 

One limitation of this series is that it is reported on a lag.  The chart shows data through November.

 

TUESDAY MORNING RISK MONITOR: NOT MUCH CHANGED LAST WEEK - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser. 

 

 

 


THE M3: DEC GGR; S'PORE GDP; S'PORE HOME PRICES

The Macau Metro Monitor, January 3, 2012

 

 

MONTHLY GROSS REVENUE FROM GAMES OF FORTUNE DSEC

December GGR came in at MOP23.608 BN (HKD22.92 BN, USD2.95 BN), up 25% YoY.

 

SINGAPORE'S Q4 GDP GROWS BY 3.6% ON-YEAR, CONTRACTS BY 4.9% Channel News Asia

Singapore's economy grew by 3.6% YoY in 4Q 2011.  On a quarter-on-quarter basis, the economy contracted by 4.9%, following the 1.5% gain in the previous quarter.

 

INCREASE IN PRIVATE HOME PRICES CONTINUES TO MODERATE Strait Times

Singpoare private residential property index rose from 205.7 points in 3Q 2011 to 206.2 points in 4Q 2011.  This represents an increase of 0.2%, compared to the 1.3% increase in the previous quarter.  This is also the 9th consecutive month of slowing growth. 

 



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