POSITION: Long Consumer Discretionary (XLY), Consumer Staples (XLP), Utilities (XLU) – Short Russell 2000 (IWM)
It’s healthy to see some European and American bank stocks struggle and, at the same time, see the market succeed. It’s about time economies (and their markets) are more about economies that the compensation mechanisms of the few.
Strong/Stable US Dollar = Stronger US Consumption, Confidence, and Employment. It also Deflates The Inflation that strangled Global Growth in 1H of 2011. That’s why I was bearish then and bullish now (from a price). Inflation adjusted growth matters in real-life.
Here are the 3 lines across my risk management model’s durations that currently matter most:
- Immediate-term TRADE overbought = 1302
- Immediate-term TRADE support = 1287
- Long-term TAIL support = 1267
While plenty of pundits and their perma-bull theses have changed over the course of the last 12 months, my process has not.
Cheers to a great start to 2012,
Keith R. McCullough
Chief Executive Officer
We have updated this note to better accomodate viewing the larger images- there is no change to the content.
@HedgeyeRetail was active on the twittersphere last week down in South Beach with notable commentary out of company presentations, management breakouts and Hedgeye sitdowns. Here’s a youtube of the team on Twitter throughout the course of the conference.
Of course, these are teasers for the masses. As Hedgeye clients, you get the full depth of our thought on any and all companies. Please ping us accordingly.
In addition to the @HedgeyeRetail Tweets, we have more detailed notes on many of the presentations and breakouts. We’ve also included a link to Brian’s Fast Money appearance on Wednesday afternoon regarding LIZ.
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Keith managing risk around one of our high conviction TREND and TAIL longs by selling WMT from the Hedgeye Virtual Portfolio. To put it in his words… “USD down, Oil up, and WMT immediate-term TRADE overbought at a lower-high. McGough remains bullish on WMT's intermediate-term TREND, from a price. KM”
Absolutely no change to our fundamental outlook.
No Positions in Europe
Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".
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. The Euribor-OIS spread tightened by 5 bps to 89 bps.
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 ECB said banks deposited €501.9 Billion overnight, a new record high.
European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 39 of the 40 reference entities. The average tightening was -6.7% and the median tightening was -9.9%.
Security Market Program – The ECB's secondary sovereign bond purchasing program bought €3.766 Billion in the week ended 1/12 versus €1.104 Billion in the week ended 1/6 to take the total program to €217.0 Billion.
THE HEDGEYE BREAKFAST MONITOR
The ZEW Center for European Economic Research in Mannheim said that its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to -21.6 from -53.8 in December to mark its second consecutive increase. “It seems the worst of the euro crisis is over”, said Michael Schroeder, head of ZEW’s financial markets department.
Comments from CEO Keith McCullough
Leading indicators for all 3 of these melt-ups have been crystal clear for 2 weeks:
- CHINA – Chinese stocks up +4.2% overnight and I’ll take that on the long side w/ a smile as Chinese GDP beats bombed out expectations w/ a +8.9% y/y Q4 print and, more importantly, a re-acceleration in Industrial Production in DEC to +12.8% y/y vs +12.4% NOV + a big re-accel in Singapore’s Exports to +9% y/y in DEC vs +1.4% NOV
- GERMANY – can you say ZEW? Biggest m/m pop in the German confidence reading ever – and ever is a long-time; DAX +1.7% to +7.2% for 2012 YTD! And finally immediate-term TRADE overbought here. Germany has done a great job, all things considered, keeping unemployment low and fiscal conservatism intact.
- COPPER – the breakout above my intermediate-term TREND line of $3.45/lb last wk helps bust a huge +3.1% meltup this morning to $3.75/lb; TAIL resistance remains overhead at $3.99, but this move should force capitulation on the short covering side.
The combination of Deflating The Inflation and Growth Slowing at a slower rate works for stocks (2 of our 3 Macro Themes for Q1).
PNRA: Panera Bread was raised to Overweight at Morgan Stanley.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
- CBOU: Continuing its strong performance from the ICR conference and lower coffee prices
- PNRA: We suspect that PNRA continues to benefit from falling wheat prices and strong sales trends.
- BAGL: Another beneficiary of lower wheat prices.
- DNKN: Since DNKN announcement about the new procurement and distribution agreement the stock has outperform the market by 300bps. If the agreement truly changes the landscape for growth in the “white space” we should expect acceleration in back log of new units. Additionally, DNKN opened its 500th Chicago location Jan. 14. According to the press release “the milestone restaurant will feature a new design, with updated colors and coffee buzz words adoring the walls, as well as retro-themed, comfortable seating options.” The latest Dunkin' Donuts will also include free WiFi and new electronic, interactive video menu boards. The company noted it does not discuss provider information regarding this technology. We would like to know what it cost to build the store and if development costs are increasing faster than sales or vice versa.
TXRH: Texas Roadhouse was downgraded to Equal Weight at Morgan Stanley.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
- RRGB: The stock is gaining despite downward EPS revisions over the past month
- BBRG: A small cap growth name in a sector where people are looking for growth
- RUTH: Very strong volume for a name with limited liquidity
- BJRI: Continues to struggle following the ICR performance
- BWLD: Despite the whispers of strong top line trends in 4Q, this is our favorite short for 2012.
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