prev

REMINDER: WELCOME IN 2012 WITH HEDGEYE HAPPY HOUR NEXT THURSDAY

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


THE HBM: EAT, RT, CBRL

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Jobs

 

The Change in Nonfarm Payrolls came in at 200k versus 155k consensus with gains in retail, manufacturing, construction, transport and others.  The unemployment rate came in at 8.5% versus 8.7% consensus.  The labor force participation rate was unchanged at 64% in December. 

 

 

 

Comments from CEO Keith McCullough

 

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

  1. JAPAN – down -1.2% last night puts Japanese Equities into the cellar of the major/liquid markets for the 1st week of the year. Away from being grounded by Keynesian policy, Japan has more issues than Time Magazine – so watch this market (because consensus isn’t). Japan needs to rollover 31.2% of its sov debt in 2012 – that’s 3 TRILLION Yens (a lot of yens = $566B USD)
  2. GERMANY – both bunds and stocks starting to act like the fiscal champ Germany has become; no matter what the fanfare and/or finger pointing is here in the US re the Europeans, Germany’s employment and fiscal position is better than USA’s and now the DAX is holding TRADE and TREND lines of support. Haven’t bought it yet, but I will.
  3. TREASURIES – let the masses focus on whatever it is they flip to day to day; today, I’ll be focused on 1 line in the sand and that’s the intermediate-term TREND line of 2.03% resistance on the 10yr UST; a sustained close > than 2.03%, combined w/ repeated closes > 1267 for the SP500 will have me doing more of what I have been doing for a month (buying stocks, selling bonds).

 

Sold my Growth Slowing position in Fixed Income yesterday (US Treasury Flattener – FLAT = +28% gain). I’d held that position for a year and felt all warm and fuzzy about the buy-and-hold on conviction thing. Onto the next.

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: EAT, RT, CBRL - subsector fbr

 

 

CASUAL DINING

 

EAT: Brinker is one of JPM’s Thomas Lee’s Best Ideas for 2012.

 

RT: Ruby Tuesday reported 2QFY12 EPS last night after the close.  Comps came in at -4.2% at company-owned restaurants while EPS was -$0.02 versus consensus -$0.05.  The company is now moving to a sale leaseback strategy and plans to close 5-7 company restaurants and 15-17 franchise restaurants in FY12. For the year, the company now expects EPS of $0.55 to $0.65 versus consensus of $0.59 for FY12.  3QFY12 EPS is expected to come in at $0.12-$0.16 versus consensus of $0.25.

 

CBRL: Cracker Barrel was downgraded to Market Perform at Raymond James.

 

THE HBM: EAT, RT, CBRL - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Believe The Evidence

This note was originally published at 8am on January 03, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“A wise man proportions his beliefs to the evidence.”

-David Hume

 

If there’s one thing that Hume, Hayek, and Hedgeye may have had in common, it’s that free-market pricing bears evidence of the truth. That’s my 2012 Global Macro Strategy - Believe The Evidence.

 

For Global Macro investors managing risk across asset classes in 2011, evidently US Treasuries outperformed mostly everything else. With Global Growth Slowing and the 10-year UST Yield dropping -43% on the year (from 3.31% to 1.88%), America’s long-bond zoomed higher as the MSCI All-World Stock Index and the 19 component CRB Commodities Index dropped -7.2% and -8.1% respectively.

 

In the USA, primarily due to a +9.9% rally in the US Dollar Index (from testing a 30 year low post QE2), the last 8 months of 2011 were very different from the first 4 months of 2011. While US Dollar strength may have been what Keynesians fear-mongered as a “deflationary force” on certain stock and commodity market prices, it provided the tail-wind needed for the largest part of the US Economy – Consumption.

 

Believe The Evidence: C + I + G (EX – IM) = GDP. And 71% of the US GDP number comes from the C, Consumption.

 

From a Q1 of 2011 low of 0.36% US GDP growth (and an unemployment high of 9.2%), US GDP growth recovered to 2.0% by Q3 of 2011 (and unemployment fell to 8.6%). *Note to Bernanke: stay out of the way, it’s working.

 

Therefore, the most contrarian bullish call we can make on US GDP Growth in 2012 is that the US Dollar continues to strengthen. Not to be confused with what the US stock market or commodity markets do, employment and economic growth is what really matters. Any sniff of a QE3 implementation will drive inflation higher and stymie whatever real (adjusted for inflation) growth Americans can look forward to.

 

Back to the Global Macro Grind

 

With 13 consecutive booked gains in the Hedgeye Portfolio into the final day of the 2011, I’m feeling as good as I can feel about our risk management process. The goal in December was neither being bearish or bullish – it was simply to keep moving as prices did and to be right.

 

Rather than give you a reckless wire-to-wire “2012 Outlook” call this morning, I’ll give you our positioning (Hedgeye Asset Allocation Model):

  1. Cash = 61% (down from 70% before last week’s Global Equity and Commodity selloff)
  2. Fixed Income = 18% (Long-term Treasuries and a Treasury Flattener – TLT and FLAT)
  3. Int’l Currency = 12% (US Dollar – UUP)
  4. US Equities = 6% (Consumer Discretionary – XLY)
  5. Int’l Equities = 3% (China – CAF)
  6. Commodities = 0%

FYI: I haven’t worked alongside or know one top performing Portfolio Manager from the 2008-2011 period that deals with his or her Portfolio Strategy on a trivial duration of exactly 12 months starting January 1st.

 

Leading Portfolio Managers of the Wall Street 2.0 era have learned to be:

  1. Multi-duration
  2. Multi-factor

As the evidence changes, they do.

 

Absorbing all that’s new in my trusty notebook this morning, here’s how I think about the evidence in market pricing related to our aforementioned positioning:

 

1.   TLT and FLAT: Whether I look at the Bloomberg Consensus US GDP estimates or the 10-year trading at 1.94% this morning, it’s all signaling the same thing to me again this morning. Consensus has finally appropriately priced in the 2011 Growth Slowdown and now we can deal with Growth’s Pricing Signals day-to-day. A breakout > 2.03% on 10-year yields would have me sell TLT and FLAT.

 

2.   UUP: Strong Dollar = Strong Consumption = Stronger Employment. Rinse and Repeat. Whoever (Obama or his Republican challenger) figures this basic economic relationship out in 2012 is going to have a good shot at becoming the next President of the United States. US Dollar Index is in a Bullish Formation with its first line of immediate-term support = $79.37.

 

3.   XLY: There should be no confusion as to why I had a 0% asset allocation to US Equities in either July of 2008 or July of 2011. I fundamentally Believe The Evidence that debauching the dollar kills US Consumption (and confidence). Strengthen and stabilize the currency of a country and the volatility of its economic cycle (and how markets price it) will break down; equities then break-out.

 

4.   CAF: Pardon? Yep. TimeStamp us as being long Chinese Equities as of 3:19PM on December 29th, 2011. Call us the scions of “valuation” intellect buying a legitimately “cheap” Global Equity market or just call us names, we’ll either not sell this position for a few years or we’ll sell it tomorrow and smile either way. Strong Dollar = Deflating The Inflation (bullish for Chinese Consumption).

 

5.   COMMODITIES: Zero means zero. With the Gold price up for 11 consecutive years and Oil prices up for the last 3 in a row, I have zero problem calling a 0% asset allocation to this asset class as contrarian right here and now.

 

While Cyprus, Greece, and Egypt seeing their stock markets evaporate on the order of -72%, -52%, and -49%, respectively in 2011 has our eyes open to “value” opportunities outside of Chinese Equities, this morning there’s reason to believe that cheap can get cheaper. Poor Cyprus is down -4% to start 2012, and I’m going to Believe The Evidence rather than believing I’m smarter than Mr. Macro Market.

 

My immediate-term support and resistance ranges for Gold (covered our short position last week), Oil (Brent), and the SP500 are now $1580-1594, $107.86-110.26, and 1249-1270, respectively.

 

Best of luck out there this year,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Believe The Evidence - Chart of the Day

 

Believe The Evidence - Virtual Portfolio


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.


Locking Horns

“No one in our age was cleverer than Keynes nor made less attempt to conceal it.”

-Roy Harrod

 

That quote typifies the best thing I can say about John Maynard Keynes – he was a world class storyteller. This characterization provides context at the start of Chapter 7 in Wapshott’s “Keynes Hayek” for what was undoubtedly the closest time in history that Hayek ever came to taking Keynes down (1931).

 

That’s why Wapshott titles his chapter “Return Fire – Keynes and Hayek Lock Horns, 1931.” This was a unique time in Western Academic History where the “governing ethos at Cambridge was to profit from argument” (page 95).  This was also a very different time than what I’m observing from my office on an Ivy League Campus in New Haven, CT today.

 

Today, there is no legitimate debate between Hayekian and Keynesian thought at either the Whitehouse or in the hallowed halls of the source code that gets paid by it (the Economics Departments of Harvard, Princeton, Yale, etc.). That’s not new. And that’s just plain sad. America is better than that. In order to Re-think, Re-work, and Re-build, our said leaders have to change this.

 

Back to the Global Macro Grind

 

Dominating the debate is what we all wake up thirsting for here at Hedgeye Risk Management. No, that doesn’t mean that we always do – but it provides an excellent compass for us every morning.

 

Expecting to win is a culture. So is being held accountable for our mistakes.

 

We’ve been Locking Horns with Keynesiasn, Sell Side Strategists, and Media Pundits for the better part of the last 4 years on the functional matter that is called the purchasing power of a US Dollar.

 

Yesterday, the US Dollar Index rose another +1.1% to make a new intermediate-term closing high of $80.95 = up +11% since the likes of Bernanke and Geithner have been relegated to basically getting out of the way.

 

Central planners, meet your new King.

 

Now a lot of people (and I mean a lot - almost all of Western Keynesian Academia and mostly every “professional economist” in Washington) will quibble with me on the causality of it all.

 

But to be clear, I don’t want whispering and quibbling – I want to pick a fight.

 

So today, since I am in a bit of a fired-up mood here in the Haven, I am formally challenging anyone and everyone with a Senatorial title in Central Planning to Lock Horns with me on why a Strong Dollar is not great for Americans?

 

Strong Dollar = Stronger Employment, Confidence, and Consumption. Period.

 

You saw that in the US Consumer Discretionary stocks again yesterday with the XLY outperforming the SP500 by another 50 basis points. You saw that in the weekly jobless claims numbers remaining below our critical level of 385,000 resistance. You saw that in the Bloomberg weekly Consumer Comfort Index improving from -47.5 to -44.8 week-over-week.

 

Keynesians, do you see the impact of your being able to do nothing fiscally and monetarily now?

 

Surely, they’ll have some political form of a back-slapping session after whatever this morning’s US Employment Report brings. Heck, they were back slapping when they were providing “stimulus” that didn’t work!

 

What could go wrong from here?

 

A lot; particularly with both Congress and the Fed coming back from vacation.

 

The biggest risk from here is that Bernanke and/or Geithner come back into our lives with the broken promise that their next central plan (like the housing forgiveness thing for Bank of America yesterday) is going to provide us with the elixir of a mediocre life.

 

Recognizing this American Zeitgeist for what it is will either provide President Obama with his greatest opportunity for re-election or it will prove to be his Waterloo.

 

This isn’t a Republican vs Democrat thing – this is an evolution thing. Both parties have had a bi-partisan agreement on 1 thing for the last decade – Keynesian Economics in their policy making. When The People want that to change, what do you do Sirs?

 

Let the Locking of The Horns begin.

 

My immediate-term support and resistance ranges for the Gold, Oil (Brent), EUR/USD, Shanghai Comp, German DAX, and the SP500 are now $1, $111.61-113.96, $1.28-1.30, 2150-2211, 5, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Locking Horns - Chart of the Day

 

Locking Horns - Virtual Portfolio


THE M3: CHINA LOANS

The Macau Metro Monitor, January 6, 2012

 

 

CHINA'S BIG FOUR BANKS MADE CNY210 BILLION OF NEW LOANS IN DECEMBER 21st Century Business Herald

A representative of a major Chinese bank said the CNY210 BN was higher than expected due to a sharp increase in deposits in the last week of December.  For 2011, new loans by all financial institutions are estimated to total CNY 7.4 TN.


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next