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The Joker

This note was originally published at 8am on March 30, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I’m a joker

I’m a smoker

I’m midnight toker

I get my loving on the run.”

-The Steve Miller Band

Technically speaking today is the last business day before April Fool’s Day.  Last year, as some of you remember, I pulled off a decent prank as I removed Keith from his post as CEO of Hedgeye and we replaced him with the The Most Interesting Investor In The World. 

For those of you that missed last year’s joke, I’ve posted the mock video of The Most Interesting Investor In The World directly below.  Our readers that are in tune with popular culture will recognize that it is a spoof of Dos Equis Most Interesting Man In The World:

http://www.youtube.com/watch?v=z0ZwtSaAlR8

In my opinion, although perhaps it is because I wrote the script for the You Tube video above, the best line is:

“He shorts naked, with his clothes on.”

But to be even more fair, April Fool’s Day jokes can at times completely miss their mark, especially in times like this when global macro markets really need our utmost focus.  So, this year, we are putting April Fool’s to the sidelines.

Ironically, or perhaps not, Steve Miller is from Wisconsin, which, setting aside the Republican primary battle, is really the current battleground of U.S. politics.  As ABC News wrote this morning:

“While the national media attention has been focused on the upcoming GOP primary in Wisconsin, there’s another political battle gearing up in the Badger State, and it involves both Democrats and Republicans.

On Friday, the Government Accountability Board of Wisconsin is expected to certify the 1 million petitions turned in in January to recall Republican Gov. Scott Walker. With a special gubernatorial election pending, Democrats and Republicans in the state are bracing for a tight race ahead.

A special election is tentatively scheduled for June 5, with a Democratic primary to take place four weeks earlier, on May 8. (Those dates will be made official after the recall is certified.)  Three Democrats have declared their candidacies – former Dane County executive Kathleen Falk, Wisconsin secretary of state Doug LaFollette and state senator Kathleen Vinehout.”

On many levels, the June 5 election will be a critical leading indicator for President Obama’s re-election chances.

On that front, President Obama currently has a 60.4 probability of getting re-elected based on InTrade.  This correlates very closely with the Hedgeye Election Indicator (HEI), which currently shows a 62.3 chance of Obama getting re-elected.  Our proprietary index is based on rigorous back testing.  In effect, we’ve determined that there is a short list of real time market-based indicators that move ahead of President Obama’s position in conventional polls.

Setting all joking aside, in the Chart of the Day, I’ve flagged a note passed along yesterday by my colleague Darius Dale in which he wrote:

“Broadening our read-through on volatility as a measure of investor complacency, we’ve created a proprietary cross-asset class volatility index that uses an unequally-weighted average of the following volatility indices:

CBOE SPX Volatility Index (VIX);

Merrill Lynch U.S. Treasury Option Volatility Estimate Index (MOVE);

CBOE Oil ETF Volatility Index (OVX);

JPMorgan G7 FX Volatility Index; and

JPMorgan EM FX Volatility Index. 

On this score, the Hedgeye Global Macro VIX is at levels last seen since early OCT ’07. Note: that date is coincident with the all-time peak in U.S. equities amid consensus faith that “shock and awe” interest rate cuts and other modes of central planning would ultimately prove effective in delivering a shallow, manageable domestic growth slowdown.”

So The Chart of the Day, no joke, shows that volatility, per Darius’s point, is at a very complacent level.  In fact, this is a level that previous flagged both U.S. equity market and global equity tops.

The global macro action this morning is once again in Europe.  Eurozone Financial Ministers are meeting in Copenhagen today (beginning at 11:30am GMT) and tomorrow to discuss strengthening the region’s firewall via EFSF/ESM.  As well, Rajoy will present Spain’s 2012 budget this afternoon with a statement expected around 12pm GMT (deficit target 5.3% of GDP down from 8.5% last year).

If there is one key red flag this morning in Europe it is from Germany.  Specifically, German February retail sales came in weaker at -1.1% month-over-month versus the estimate of +1.1%.  Now, clearly, this is but one data point, but Germany is definitely the positive bell weather in Europe to focus on. Well, until Germany turns negative.

As it relates to our negative thesis on the Yen, this morning we had two supportive data points:

1. Japan Industrial production unexpectedly fell as strengthening yen hurt outlook for exporters earnings; and

2. Japan February consumer prices unexpectedly increased +0.1%  year-over-year versus -0.1% estimates.

But data points, as always, are only data points.  So, this morning I will leave you with one last quote from Steve Miller:

“The question to everyone’s answer is usually asked from within.”

Indeed.

Our immediate-term support and resistance ranges for Gold, Oil (Brent), and the SP500 are now $1652-1688, $122.25-124.67, and 1391-1416, respectively.

Keep your head up and your stick on the ice,

Daryl G. Jones

Director of Research

The Joker - Chart of the Day

The Joker - Virtual Portfolio