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Q1 2012 MACRO THEMES AND PRESENTATION

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Materials:"Q1 2012 THEMES"

                 
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Q1 THEMES & PRESENTATION:

STRONG DOLLAR = STRONG CONSUMPTION, DEFLATING THE INFLATION II & GROWTH SLOWING'S BOTTOM

 

Topics will include:

   

  • Strong Dollar = Strong Consumption - Our King Dollar thesis continues to strengthen and with it the outlook for U.S. consumption, roughly 70% of GDP, and U.S. consumption-related equities.
  • Deflating the Inflation II - Alongside the strengthening of the King Dollar and the continued high inverse correlation of commodities to the U.S. dollar, we expect to see commodity inflation continue to subside. Winners include: domestic and international consumers. Losers include: commodity producers and emerging market currencies as their central banks ease monetary policy.
  • Growth Slowing's Bottom - One standard bearer of global macro markets is that they revert to the mean.  As economic growth bottoms out, certain equity markets, notably China, Germany, and the U.S., look set to outperform.

 

ABOUT HEDGEYE

Hedgeye Risk Management is a leading independent provider of real-time investment research. Focused exclusively on generating and delivering actionable investment ideas, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts - united around a vision of independent, uncompromised real-time investment research as a service. For a complete listing of our sector head bios, please click here: https://www2.hedgeye.com/pages/team

 

Please contact if you have any questions.  

Regards,

   

 

The Hedgeye Sales Team

 
HEDGEYE RISK MANAGEMENT                                                       
111 Whitney Avenue
New Haven, CT 06

www.hedgeye.com
 


THE HBM: YUM, GMCR

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Gasoline Use

 

According to MasterCard Inc., U.S. Gasoline demand fell by 1.4% WoW and 4.1% YoY to the lowest level in more than seven years of records.

 

 

Comments from CEO Keith McCullough

 

Romney wins big and continues to be a Stable/Strong US Currency trade. Obama is going to have to deal w/ that too:

  1. HANG SENG – in my core multi-factor model, this index carries a heavy-weight as a leading indicator – so seeing last night’s follow through buying (on volume, ahead of more Chinese data this week) is just bullish. Hang Seng +0.8% to 19,151 matters because it’s an explicit confirmation of an intermediate-term TREND breakout > 18,616 support. China Growth Slowing at a slower pace.
  2. COPPER – the Doctor is in the Global Macro house this morning! Ringing the alarm clocks on the bears early (and loudly), up +1.1% isn’t the point as much as an intermediate-term TREND breakout > $3.45/lb – we’ll see if that holds (still below TAIL resist of $3.98), but Copper likes what it sees out of China all of a sudden.
  3. TREASURIES – literally the only major leading indicator in my macro model that has not yet confirmed bullish immediate-to-intermediate-term slopes of growth and inflation readings. TRADE line support for 10yr yields = 1.96% (so we’re above that), but the TREND up at 2.03% is the biggest line in the sand that has not yet been traversed. Stay tuned.

Ron Paul won the youth/change vote (18-27 yr olds) again last night on Hayekian economics.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: YUM, GMCR  - subsector fbr

 

 

QUICK SERVICE

 

YUM: Yum! Brands’ Taco Bell chain is in the news today as details emerge about its new menu aimed at taking share from Chipotle.  Mike Brugamin, a former Yum! Brands senior project manager and Taco Bell store-owner, was quoted by Bloomberg as saying “they have a tough road ahead of them… [Taco Bell] has always been about value.”  Such a turnaround obviously required capital in order to produce the new menu items and that can be expensive for franchisees.  In our view, the company’s efforts are aimed at improving brand perception. As the Bloomberg article states, Taco Bell scored the lowest in food quality and atmosphere among limited-service Mexican eateries, including Chipotle and Qdoba, according to a September survey by Nation’s Restaurant News and consultant MD Partners.

 

YUM: Yum! Brands is adding 100 KFC restaurants to its Africa division, opening up in seven new countries.

 

GMCR: Green Mountain will report 1QFY12 earnings on February 1st, after the market close.

 

THE HBM: YUM, GMCR  - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP – January 11, 2012


As we look at today’s set up for the S&P 500, the range is 25 points or -1.48% downside to 1273 and 0.46% upside to 1298. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - onefinal

 

THE HEDGEYE DAILY OUTLOOK - two

 

THE HEDGEYE DAILY OUTLOOK - three

 

EQUITY SENTIMENT:


TREASURIES – literally the only major leading indicator in our macro model that has not yet confirmed bullish immediate-to-intermediate-term slopes of growth and inflation readings. TRADE line support for 10yr yields = 1.96% (so we’re above that), but the TREND up at 2.03% is the biggest line in the sand that has not yet been traversed. Stay tuned.

  • ADVANCE/DECLINE LINE: 1633 (+821) 
  • VOLUME: NYSE 840.83 (16.48%)
  • VIX:  20.69 -1.80% YTD PERFORMANCE: -11.58%
  • SPX PUT/CALL RATIO: 1.40 from 2.03 (-31.03%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 57.44
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.95 from 1.98
  • YIELD CURVE: 1.71 from 1.74

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Applications, Jan. 6 (prior -4.1%)
  •  8:40am: Fed’s Evans speaks on U.S. economy in Illinois
  • 9:00am: Fed’s Lockhart to speak on economy in Atlanta
  • 10:30am: DoE inventories
  • 12:30pm: Fed’s Plosser speaks on economy in Rochester, NY
  • 1:00pm: U.S. to sell $21b 10-yr notes (reopen)
  • 2:00pm: Fed’s Beige Book

 

WHAT TO WATCH: 

  • Mitt Romney wins New Hampshire primary, Ron Paul finishes second; South Carolina primary next
  • Microsoft said 4Q industry PC sales will probably be lower than analyst est. on Thailand flooding
  • Geithner meets with Chinese officials, encouraged by comments on growth; due to meet Japanese PM Yoshihiko Noda
  • MetLife to shut its home mortgage-origination operation, costing at least $90m; most of 4,300 units employees to lose jobs
  • CFTC may vote on Dodd-Frank Act proposal that would limit proprietary trading by banks, limit hedge fund investments
  • CEOs of Deutsche Boerse AG, NYSE Euronext meet in NY today as they seek to overcome opposition to exchange combination
  • MF Managing Director Christine Lagarde to meet with French President Sarkozy after meeting with German Chancellor Merkel yday. Merkel, Italian Prime Minister Monti give news conference ~7am ET
  • Supervalu releases earnings at 8am; watch gross margin, forecast
  • Lennar releases earnings at 6am; watch orders, traffic, mortgage availability
  • No IPOs planned

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


COPPER – the Doctor is in the Global Macro house this morning! Ringing the alarm clocks on the bears early (and loudly), up +1.1% isn’t the point as much as an intermediate-term TREND breakout > $3.45/lb – we’ll see if that holds (still below TAIL resist of $3.98), but Copper likes what it sees out of China all of a sudden.

  • U.S. Wheat Expanding From Century Low as Glut Looms: Commodities
  • Coal Set to Rebound After Worst Year Since 2005: Energy Markets
  • Oil Falls From Near One-Week High After German Economy Shrinks
  • China’s Gold Imports From Hong Kong Reach Record on Demand
  • Soybeans Fall as Cooler Weather in South America May Help Crops
  • Cocoa Retreats by 3.1% on NYSE Liffe, Erasing Earlier Gains
  • Copper Trades Unchanged at $7,740 a Ton in London, Erasing Gain
  • Thailand to Buy Rubber at Above-Market Rates After Protests
  • Red Kite Evangelicals Reap 47% Sowing Bet on China Copper Market
  • Rio, Fortescue Halt Ore Loading, Ports Shut as Cyclone Nears
  • Exxon, Vitol Said to Sell Nigeria Oil Supply to Bharat Petroleum
  • Russia Resumes Crude Oil Deliveries to China Via Kazakh Pipeline
  • Iranian Nuclear Scientist Killed in New Attack Against Program
  • COMMODITIES DAYBOOK: U.S. Wheat Acreage Expands Most in 3 Years
  • Gold Climbs to 4-Week High on China Demand, Europe Debt Concerns
  • Rapeseed May Advance 5.9% in Retracement: Technical Analysis
  • Australian Ports Shut for Cyclone Export 41% of Global Ore Trade

 

THE HEDGEYE DAILY OUTLOOK - four

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - five

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - six

 


ASIAN MARKETS


 HANG SENG – in our core multi-factor model, this index carries a heavy-weight as a leading indicator – so seeing last night’s follow through buying (on volume, ahead of more Chinese data this week) is just bullish. Hang Seng +0.8% to 19,151 matters because it’s an explicit confirmation of an intermediate-term TREDN breakout > 18,616 support. China Growth Slowing at a slower pace.

 

THE HEDGEYE DAILY OUTLOOK - seven

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - eight

 

 

 

The Hedgeye Macro Team

 

 

 


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Locking Horns

This note was originally published at 8am on January 06, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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 $1591-1642, $111.61-113.96, $1.28-1.30, 2150-2211, 5976-6281, and 1267-1286, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Locking Horns - Chart of the Day

 

Locking Horns - Virtual Portfolio



Resenting Success

"America should be lifted up by our desire to succeed, not dragged down by the resentment of our success."

-Mitt Romney

 

In what I thought was the most progressive Strong Dollar, Strong America speech I’ve heard in the last 3 years last night, Mitt Romney hammered that Red, White, and Blue point home like maybe only Obama could. Strong.

 

Romney was alluding to crushing the “Most Popular” (most read) story on Bloomberg yesterday titled “Gingrich Attack Film Shows Romney As Ruthless Rich.” I don’t know one person (whose financial industry expertise I respect) who considered that Bain commercial anything short of a Michael Moore production. Apparently the State that says “Live Free, Or Die” agrees.

 

To be clear, I’m not a Republican or a Democrat. I simply want to get this country’s economics right. Clinton should have provided as much inspiration to President Obama to balance a budget as Reagan may have inspired Romney’s great hair. When it comes to the economic policy in America, Keynesian Academic Dogma failed both Bush and Obama. It’s time for change.

 

Can Obama be the change that Ron Paul is with the Youth/Change Vote in this country? Yes He Can. Will he? I have no idea. He’s certainly not going to get any non-groupthink ideas on economics from Tim Geithner. As of this Romney win in New Hampshire last night, this ½ Clinton ½ Reagan race to the US Presidency is officially on.

 

Back to the Global Macro Grind

 

Game on. I love this. I really do. I’m going to light up our 11AM EST conference call line like a Christmas tree this morning as Big Alberta and I officially roll out our Q1 Global Macro Themes for 2012.

 

Our clients already know what our Q1 Themes are, but if you’re new to this Canadian-American tire pumping game, here they are:

 

1.       Strong Dollar = Strong Consumption

2.       Deflating The Inflation, Part Deux

3.       Growth Slowing’s Bottom

 

Yesterday’s breakout in US Equities confirmed a lot of what we have been signaling for the last 3-4 weeks. We’ll go through this in depth (45 slides) on our call this morning, but the data doesn’t lie – perma-bulls forced to perma-change their bullish theses do. A Sustainably Strong and Stable US Dollar provides a coincident benefit to Employment, Confidence and Consumption.

 

That’s the fundamental research view – our quantitative risk management view supports this fundamental shift:

  1. SP500 closing above its October 29th, 2011 closing high of 1285 yesterday (1292 close) puts 1363 in play
  2. US Equity Volatility (VIX) is already down -11.6% for 2012 YTD (bearish TRADE and TREND)
  3. US Equity Volume studies are starting to change (up +31% day/day on yesterday’s up move, down on down moves)

Backcheck, Forecheck, Paycheck – that’s a PRICE, VOLATILITY, and VOLUME win in my model – and my model has not changed.

 

People who didn’t see our team make the shift from bearish to bullish on US Equities in early 2009 are still insecurely scrambling to put me on their Top 10 People Not To Listen To List of 2012 (some journalist from the Old Wall yesterday at Marketwatch). Why? They want to (or should I say need to) put me in the perma-bear box in which they need to think.

 

Thinking inside of a box is no way to live. Being perma bullish or bearish doesn’t work. What works is having a repeatable process that allows you to make money in both up and down markets.

 

What would make me go back to bearish on US Equities?

  1. President Obama not engaging in the ½ Clinton ½ Reagan strategy and imposing more of what didn’t work in 2011
  2. Ben Bernanke implementing a QE3, stoking inflation
  3. Geithner convincing his cronies of some socialized “mega refi” idea for US Housing (blowing up the MBS market)

Our desire to succeed in this country is based on having prior successes. If you’ve won a few games in your life, but have not yet won a Championship, you’re not thinking about the standard of success I am. America has an opportunity to be great again.

 

My economic strategy message should resonate as much with Democrats as it does Republicans. Both the US Currency and Equity markets are getting fired up about change in this country. That’s what real winners in real-life do. They don’t Resent Success.

 

My immediate-term support and resistance lines for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1, $111.91-116.01, $1.26-1.29, $80.55-81.53, 2, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Resenting Success - Chart of the Day

 

Resenting Success - Virtual Portfolio


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