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Idea Alert: Shorting EWP

Positions in Europe: Short Spain (EWP); Long German Bunds (BUNL)


Minutes ago Keith shorted Spain via the etf EWP in the Hedgeye Virtual Portfolio. The etf is in a bearish formation, meaning the current price is below its immediate term TRADE and intermediate term TREND levels (see chart below).

 

Idea Alert: Shorting EWP - AAA. IBEX

 

We’ve detailed our thinking on Spain post Saturday’s €100B bank credit line announcement in our note publish 6/11 titled “Spain’s Cracked Credibility and Europe’s Bailout Messaging”. If you need a copy please email me at .

 

Below we've updated key risk signals for Spain. You'll note that since the introduction of the EUR the 10YR Spanish government bond yield is at its highest high at 6.726% as 5YR Spanish CDS trades just under all-time highs at 598bps!

 

Idea Alert: Shorting EWP - aaa. up and right

 

Matthew Hedrick

Senior Analyst


The Game

This note was originally published at 8am on May 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.

“The world is not the way they tell you it is.”

-‘Adam Smith’

 

That’s the opening sentence to one of my favorite books about markets, The Money Game, by George Goodman. He wrote it in 1967 under the pseudonym ‘Adam Smith.’ That was a metaphor for the anonymity of the game itself. It helped him tell it like it is.

 

When you call what it is that we do a “game”, most people feel something about that. Some people love it – some loathe it. But that doesn’t change the fact that, for me at least, this is the most competitive arena away from professional sport that I can find.

 

The irony is that this is a money game and money is the way we keep score. But the real object of The Game is not money, it is the playing of The Game itself. For the true players, you could take all the trophies away and substitute plastic beads or whale’s teeth; as long as there is a way to keep score, they will play.” (page 21)

 

Back to the Global Macro Grind

 

For those of us keeping score since Growth Slowing became obvious, globally in March, the game has largely been won by those who moved a significant amount of their asset allocation to Cash.

 

As a reminder, our Top 3 Global Macro Themes for Q2 2012 have been:

  1. Fed Fighting: The Last War (Growth Slowing)
  2. Bernanke’s Bubbles (Commodities)
  3. Asymmetric Risks (long US Dollar)

When you have Growth Slowing and Deflating The Inflation of Bernanke’s Bubbles (Commodities), at the same time, you get draw-downs in everything big beta (cyclical commodities, emerging market stocks, European bonds, etc.). You also see a “flight to quality” (i.e. low beta) like US Dollars, German Bunds, and US Treasuries.

 

Playing the game this way is not new. If you made this beta down-shift move at the end of Q1 in 2008, 2010, 2011, you won. At every Q1 turn, the Old Wall has been as dependable as the sun rising in the East in A) not taking down their GDP Growth estimates when markets implied they should and/or B) understanding the Correlation Risk associated with a Dollar up move.

 

So, while it’s fun to say “consensus is bearish”, it’s more fun when you say that at 1295. Winning is always more fun.

 

From a fundamental research perspective, consensus is not yet Bearish Enough on Growth. By the end of Q2 it might be. Market expectations change every day, so stay tuned. On that score, in the USA we’ll get 3 Big Hedgeye Mac-ro catalysts this week:

  1. Q1 2012 US GDP (to be revised well below Old Wall consensus that was running at 2.5-3% only 3 months ago)
  2. PMI and ISM readings for the month of May (expectations are high in the mid-50’s for both prints)
  3. US Employment Report (expectations are still relatively high for a 150,000 plus print on payroll adds)

From a quantitative risk management perspective in US Equities, here’s what I am looking for to register another buy/cover signal:

  1. VIX re-test of the 24-25 zone
  2. SP500 re-test of the 1283-1295 zone
  3. The II Bull/Bear Spread to narrow to +600bps wide or less (this morning it widened to the Bull side, back to +1500 bps wide as only 24% of those surveyed admit to being bearish – that’s called career risk management after an up week)  

Volume is another critical quantitative factor to consider relative to the games we’ve played coming out of Q1 2008, 2010, and 2011. The 2012 game has no volume on the rallies (most of those other years had volume).

 

Yesterday’s +1.1% up move in the SP500 to a lower-high (down -6.1% from the 1419 SP500 YTD peak) clocked a volume reading that was -26% below the average down day volume for the month of May alone.

 

Yes, that’s bad. So are the “flows.”

 

The flows are always key to the game. Sometimes I think they can be as important as any behavioral or quantitative risk management signal I can give you.

 

The flows (as in your money) are either flowing in or out of the market in real-time. Currently, in both commodities and equities, we have outflows, globally.

 

That’s where the run of the mill 2007-2012 Perma-Bulls get right whipped around buying high. They still think this is the 1990’s or the 2004-2007 period where money was easy (Greenspan and Bernanke) and the flows where rushin’ in.

 

The flows are like the fans of The Game. You can have the best game of your life, but if no one is watching, buying popcorn, and planning on coming back to the next game, who cares?

 

That’s why I have been so focused on the leadership principles of Transparency, Accountability, and Trust ever since I put on a Hedgeye jersey in 2008. I believe in the deepest part of my being that if we don’t, as a profession, get our free-market principles back – we’re not getting The People’s trust back.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1538-1568, $104.62-108.08, $81.87-82.91, $1.24-1.26, and 1316-1337, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Game - Chart of the Day

 

The Game - Virtual Portfolio


THE M3: S'PORE GDP FORECAST

The Macau Metro Monitor, June 13, 2012


 

S'PORE ECONOMY MAY GROW 3% THIS YEAR:  MAS SURVEY Channel News Asia

According to the latest Monetary Authority of Singapore (MAS) survey of 25 professional economists, the Singapore economy will grow 3% in 2012, up from 2.5% previously.  Growth in the accommodation and food services sector was revised from 3.8% to 4.5%.  The economists also upgraded 2Q GDP growth from 2.5% to 2.8%.  S'pore inflation is expected at 4.2%, up from 3.5% in the previous survey. 


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The Real Test

“The real test is how you behave when the crowd is roaring the other way.”

-George Goodman

 

Question: from an expectations perspective, have markets really changed since George Goodman penned The Money Game in 1968? As the weak whisper and the manic chase, that question has been on my mind for the last few weeks. Just a question.

 

While I’m at it, here’s another question: are you #Fedup yet? This morning’s Most Read (Bloomberg) headline = “US Stocks Gain Amid Speculation of More Fed Stimulus.” That’s awesome, right?

 

Right, right. And so is eating yellow snow.

 

Back to the Global Macro Grind

 

Maybe Bernanke should read something from the late 1960’s and early 1970’s. Actually, wait a minute, Fred Kelly wrote in 1930 that “the crowd always loses”, so maybe Bernanke did read that. The man knows the 1930’s!

 

The Real Test in this game is not whether you are a student of one window of history. It’s whether or not you can beat the crowd. If Bernanke thinks he can thread the needle here into and out of next week’s FOMC meeting (June 20th), I say godspeed to him on that. He’s got the crowd right addicted to the drugs at this point, so how this all ends is anyone’s guess.

 

That said, I bought Gold and took my US Equity exposure up from 0% to 6% on red yesterday morning. Heck, why not roll the bones with The Bernank? This guy is a genius. Or at least that’s what the Washington crowd says.

 

Obviously I don’t play this game like roulette. That’s what some other people do (with other people’s money). The moves I make on red and green are based solely on my process. That investment process has 2 big parts:

 

A)     The Research View

B)      The Risk Management View

 

To be crystal clear, research and risk management are two very different things.

 

Quite often, as is the case with evaluating Fed Policy, what our research says Bernanke should do (nothing) and what he might do (something) are opposing thoughts.

 

When that happens, The Real Test is to remain sane and press the right buttons at the right time.

 

Timing? Yep, it matters.

 

In a market that’s being driven by a Correlation Risk that’s going to 1, timing matters, big time. Get the daily direction of the US Dollar right, and you’ll get a lot of other things right. With the USD down -0.35% yesterday, the best performing sector in the SP500 was the commodity heavy Basic Materials sector (XLB) at +1.9%.

 

Here’s an update on that (correlation risk between the US Dollar Index and everything else on a 2-month duration):

  1. SP500 = -0.92
  2. Euro Stoxx600 = -0.94
  3. CRB Commodities Index = -0.93
  4. WTI Crude Oil =  -0.95
  5. Gold = -0.78
  6. Rubber = -0.93

I really hope you haven’t been long Rubber for the last 2 months.

 

Hope, of course, is not a risk management process. Neither is whining about “valuation” while ignoring the Correlation Risk. When it matters, it matters – and your Real Test as a real-time Risk Manager is to solve for that.

 

This is why I have been so hard on Bernanke and Geithner. If we get their dogmas and policies out of the way, we’re making the 1stcritical (causal) step in getting expectations for more USD driven correlation risk out of the way.

 

I know, it makes simple sense. What is not simple is that short-term political career risk (admitting they’ve had this all wrong since going to Qe2) gets in the way of the truth.

 

The truth is that Big Government Intervention policy expectations drive market expectations. That’s not free-market capitalism. That’s just really screwed up.

 

Maybe I’ll be long Gold for an hour. Maybe I’ll be long it for a week. Maybe I’ll be long it to $2,000 an ounce. I have no idea. And I shouldn’t, because I have no idea what this un-elected central market planner is going to do next.

 

What I do know is that if Obama gives Bernanke the political weaponry to debauch the Dollar one more time before the election, Gold and Oil are going to rip, and #GrowthSlowing is going to become the Research View of 2012.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1, $96.27-99.42, $81.98-82.56, $1.24-1.26, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Real Test - Chart of the Day

 

The Real Test - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 13, 2012


As we look at today’s set up for the S&P 500, the range is 36 points or -1.52% downside to 1304 and 1.19% upside to 1340. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 6/12 NYSE 1640
    • Up from the prior day’s trading of -1830
  • VOLUME: on 6/12 NYSE 723.91
    • Decrease versus prior day’s trading of -2.23%
  • VIX:  as of 6/12 was at 22.09
    • Decrease versus most recent day’s trading of -6.24%
    • Year-to-date decrease of -5.60%
  • SPX PUT/CALL RATIO: as of 6/12 closed at 1.47
    • Up from the day prior at 1.44 

CREDIT/ECONOMIC MARKET LOOK:


FED – we always find it funny to watch these cracker jack market politicians blame “speculators” on commodity inflation when the causality associated with what we have to speculate on is our expectations of their policy whispers. After listening to how conflicted/compromised Evans really is yesterday, Dollar fell and Gold/Oil/BasicMatStocks ripped. It’s the game we are in, sadly. So we’re playing it. 

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.68
    • Increase from prior day’s trading at 1.66
  • YIELD CURVE: as of this morning 1.39
    • Up from prior day’s trading at 1.37 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, June 8 (prior 1.3%)
  • 8:30am: PPI (M/m), May, est. -0.6% (prior -0.2%)
  • 8:30am: PPI Ex Food & Energy (M/m), May, est. 0.2% (prior 0.2%)
  • 8:30am: Advance Retail Sales, May, est. -0.2% (prior 0.1%)
  • 8:30am: Retail Sales Less Autos, May, est. 0.0% (prior 0.1%)
  • 10am: Business Inventories, April, est. 0.3% (prior 0.3%)
  • 10:30am: DoE Inventories
  • 11am: Fed to purchase $4.5b-$5.5b notes in 8/15/2020 to 5/15/2022 range
  • 1pm: U.S. to sell $21b 10-yr notes (Reopening) 

GOVERNMENT:

    • House in recess, Senate in session
    • Treasury Secretary Tim Geithner discusses state of economy at Council on Foreign Relations ahead of next week’s G-20 summit
    • Mitt Romney speaks to Business Roundtable at Newseum, 11:45am
    • U.S. Chamber of Commerce holds summit on jobs, growth, 12pm
    • Postal Regulatory Commission Chairman Ruth Goldway, Assn. of Postal Commerce President Gene Del Polito meet to discuss service, future of mail
    • Internet Corporation for Assigned Names and Numbers posts applications for top-level domains, first look at companies, organizations seeking “dot-brand,” other domains, 8am 

WHAT TO WATCH: 

  • JPMorgan’s Dimon testifies before Senate Banking Committee, 10am
  • Morgan Stanley CEO Gorman touts differences from Dimon on risk after JPMorgan loss
  • Italy’s borrowing costs surge at 364-day bill auction
  • Philip Morris plans to buy back $18b of shrs in next 3 yrs from Aug. 1, set qtrly div. of 77c/shr
  • J&J says $19.7b Synthes deal will add to earnings; Janssen unit in $12.9b accelerated buyback pacts
  • Philipp Hildebrand, who resigned as head of the Swiss central bank in Jan., is joining BlackRock as vice chairman.
  • ICANN to give a first look at Web domain wish list
  • Nasdaq exchange immunity may limit losses from Facebook claims
  • U.S. retail sales probably fell in May for 1st time in a yr as auto demand slowed, median forecast 0.2% decline
  • Wal-Mart efforts to buy Latin American assets from Carrefour said to have slowed
  • Rajat Gupta lawyers submit e-mails, wiretaps of Goldman’s Loeb
  • Vornado expects to sell at least $1b of assets
  • CBS is said to attract $2.7b in upfront advertising sales
  • U.S. Justice begins antitrust probe of cable industry on online video limits: WSJ
  • American Express, AIG, Legg Mason among cos. presenting at Morgan Stanley Financials Conference

EARNINGS:

    • Dollarama (DOL CN) 7:30am, C$0.51
    • Evertz Technologies (ET CN) 4pm, C$0.23

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

GOLD – so we bought that, for a trade. The new risk range for Gold is now $1, so we’ll probably sell it if we see the high end of that range as we think this Fed iQe4 upgrade thing is more about the expectation than Bernanke actually delivering on it next week. Stay tuned. We have no idea what Bernanke is going to do vs what he should do (nothing).

 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


GERMANY – Spain’s Rajoy idiotically wages “battle” vs the Germans this morning saying “I am waging it.” We couldn’t make that up if we tried, but these guys fighting about economic gravity is going to keep a lid on whatever is left of this European squeeze to lower highs. All European indices remain in Bearish Formations (bearish across all 3 of my risk mgt durations, TRADE/TREND/TAIL).

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


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