Keith managing risk around one of our high conviction TREND and TAIL longs by selling WMT from the Hedgeye Virtual Portfolio.
WMT is immediate-term TRADE overbought; no change to the fundamental call.
THE HEDGEYE BREAKFAST MONITOR
Comments from CEO Keith McCullough
It’s February, welcome to round 2 of the inflation/deflation/reflation game of expectations:
After 4 consecutive down days in the SP500, we’re due for another low-volume bounce to another lower long-term high. Immediate-term resistance = 1323.
WEN: Wendy’s was cut to “Neutral” at Roth Capital.
JACK: Jack in the Box was initiated “Buy” at Lazard.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
WEN: Wendy’s traded down -6.4% on accelerating volume. See our note from Monday; this concept needs $3.7 billion to right itself and become competitive again.
MRT: Tilman Fertitta announced today that this wholly-owned company, Fertitta Morton’s Restaurant’s, Inc., has successfully completed a tender offer for all of the outstanding shares of common stock of MRT at $6.90 per share.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
BWLD: Traded up 2.2% a week ahead of earnings. We think the forward commentary will be bearish for the stock.
KONA: Traded down -13% on accelerating volume after appointing Berke Bakay as president and CEO
Keith adding JCP to the Hedgeye Virtual Portfolio again into yesterday's close. We’re on board with this one big time. It’s definitely time to short JCP again.
Per Keith – “JCP, shorting - Been a while for us on the short side here but finally my risk management setup is in line with McGough's catalyst (i.e. no more love-fest catalyst).”
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
In preparation for HOT's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
Starwood Says Hotel Conversion Opportunities in North America Expected to Rise in 2012 with Uptick in Portfolio Transactions (1/24/2012)
St. Regis Hotels & Resorts Continues Remarkable Global Growth with the Debut of The St. Regis Bal Harbour Resort & Residences (1/20/2012)
YOUTUBE FROM Q3 2011 CONFERENCE CALL
TODAY’S S&P 500 SET-UP – February 1, 2012
As we look at today’s set up for the S&P 500, the range is 15 points or -0.34% downside to 1308 and 0.81% upside to 1323.
SECTOR AND GLOBAL PERFORMANCE
CREDIT/ECONOMIC MARKET LOOK:
TREASURIES – kaboom! U.S. Growth expectations are getting hammered into the hole now with 10yr yields hitting YTD lows this morning at 1.81%. A lot of people will convince themselves that U.S. stock futures up is whatever they want it to be, but we see that simply as inflation expectations rising which, in turn, slow growth even further. The Yield Spread hitting its lowest YTD at 161bps wide – should put a lid on the Financials at $XLF 14.24.
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
GERMANY – just absolutely ripping this morning on a big breakout above my long-term TAIL line for the DAX of 6503. Germany’s stock market is now up +11.7% YTD! (vs SPX +4.3%) as the old Bundesbankers prove out that there is an economic model that resides right of left-center (Keynes).
CHINA – immediate-term growth expectations are coming down in a hurry now that commodity inflation expectations are rising – last night’s PMI print of 50.5 was not only a miss vs uninformed whispers (sad), but was a sequential deceleration in the slope of improvement (hard to beat the DEC v-bottom vs NOV). Chinese stocks closed down -1.1% on the news, and they should have.
The Hedgeye Macro Team
This note was originally published at 8am on January 27, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“This book is chiefly addressed to my fellow economists.”
-John Maynard Keynes
This morning’s Early Look is chiefly addressed to anyone looking for an alternative to the Keynesian Economic Dogma that’s failing us. The aforementioned quote is the opening sentence of Keynes’ “General Theory” on economic Storytelling of 1936.
After blowing up his personal accounts by levering himself up on the long side of commodities (rubber, corn, etc.) in the late 1920s, Keynes lost the confidence of not only The People, but of the politicians. The latter constituency is not easy to lose!
The “General Theory” ended up being an alternative for academic economists to opine on versus Marxism. It wasn’t a Global Macro market practitioner’s framework or anything that resembled real-world (or what we call Prices Rule) economics.
That’s why it’s so critical for Ben Bernanke to fear-monger politicians today with threats of the “alternative” scenario. That’s also why he, like Keynes, is losing The People. We can only watch people getting paid at The Great Davos Depression for so long until we figure out we’re the ones paying for the champagne.
Speaking of popping out of bed feeling a little bubbly, this morning I am going to formally start calling Ben Bernanke’s Japanese 2.0 policy The Bernank Tax.
Why am I calling it a tax? Because that’s exactly what it is – whether it’s a tax on the hard earned savings accounts (interest income) of Americans and/or a food/gas tax that a family in India is going to have to incur as a result of debauching the world’s reserve currency – it’s a tax on Global Consumption. Period.
Back to the Global Macro Grind…
The Bernank Tax was also a tax on YTD stock market returns yesterday. As the US Dollar fell, the Old Wall did exactly what Bernanke is daring them to do – bid up Inflation Expectations (Gold, Oil, TIPs, etc.). Stocks opened strong in the morning, then went red by the afternoon as Growth Expectations started to fall.
Get the slope of Growth and Inflation Expectations right, and you’ll get a lot of other things right.
What’s going to make this really interesting is that The Bernank Tax is going to become a hot potato for President Obama now in the General Election. Provided that Romney figures out the marketing message, what is Obama going to say if/when the US stock market starts going down on US Dollar down days?
That’s not part of the Keynesian playbook, fyi. But it’s measurable – in real-time. And maybe that’s why Obama is making the best decision I have ever seen him make from an economic leadership perspective – getting rid of his fiscal Dollar Debaucherer in Chief, Timmy Geithner.
Now I know that you know that my Storytelling on this matter is getting pretty tasty. This is my counterpunch to one of my investment mentors, Warren Buffett, and his “my poor Secretary should pay lower Taxes” thing. Where’s the fair-share in him only paying her $60k, by the way?
As is the case with all non-fiction Storytelling, here are the inverse correlations, across durations, between what the US Stock Market (SP500) has done versus the US Dollar Index (USD) in the last 3 years:
That sneaky little Mucker got them didn’t he!
Huh? What the math is telling you here (and yes we get these are correlations, but we also get that the longer-term causality of cheap money only amplifies my point) is that for the last 3 years, the Fed’s go-to move of debasing the US Dollar worked (dollar down = stocks up).
But a funny little thing started happening on the way to the Hedgeye forum in the last 4 months… Since the thralls of September 2011, as the US Dollar started to stabilize/strengthen (from a 40-year low), so did the US Employment, Confidence, and Consumption picture (also from 40 year-lows).
If you haven’t heard this story from a Paul Samuelson and/or any of the Keynesians who are still brave enough to parade their charlatan textbooks around an Ivy League campus yet, I can give you 50 million copies (textbook revenues) of reasons why.
Never mind the rest of the debate – this point about The Bernank Tax on the citizenry is very simple to understand. If you want to tighten your duration inside of the last 4 months on this, have at it. Here are more inverse correlations between SP500 and USD:
Yep. Instead of US stocks going up on dollar down days, they’re starting to go up on dollar up days. Makes sense. While, in the long-run, we may all be dead - in between now and then, we all have to pay for things with real dollars to live.
The Bernank Tax doesn’t yet cap what Charles Ketterring called the one thing no one has ever been able to tax, “thinking.”
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1677-1727, $110.57-112.41, $1.29-1.32, $78.91-80.26, and 1310-1333, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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