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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 18, 2012


As we look at today’s set up for the S&P 500, the range is 28 points or -1.78% downside to 1319 and 0.31% upside to 1347. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1A

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 6/15 NYSE 1149
    • Down from the prior day’s trading of 1229
  • VOLUME: on 6/15 NYSE 1513.30
    • Increase versus prior day’s trading of 94.17%
  • VIX:  as of 6/15 was at 21.11
    • Decrease versus most recent day’s trading of -2.63%
    • Year-to-date decrease of -9.79%
  • SPX PUT/CALL RATIO: as of 6/15 closed at 1.72
    • Up from the day prior at 1.23 

CREDIT/ECONOMIC MARKET LOOK:


BONDS – US and European bond markets continue to front-run manic equity traders; both didn’t change TREND last wk, and this morning you are seeing Spanish 10s shoot back above 7% as UST 10yr remains in Growth Slowing formation at 1.59% (Yield Spread in the US (10s -2s) was down 6bps last wk, despite the no volume rally in stocks. 

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.56
    • Decrease from prior day’s trading at 1.58
  • YIELD CURVE: as of this morning 1.28
    • Down from prior day’s trading at 1.72 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: NAHB Housing Market Index, June, est. 28 (prior 29)
  • 11am: Fed to purchase $1.5b-$2.25b notes in 2/15/2018-5/15/2042 range
  • 11:30am: U.S. to sell $30b 3-mo., $27b 6-mo. bills
  • 2pm: Fed to sell $8b-$8.75b notes in 5/15/2013-11/30/2013 range 

GOVERNMENT:

    • President Obama attends G-20 Summit in Mexico
    • House, Senate in session
    • AFSCME union holds convention, elects successor to President Gerald McEntee (through Thurs.)

WHAT TO WATCH: 

  • Samaras begins bid to form Greek coalition to stop crisis
  • Euro leaders signal softening on Greek austerity
  • Spain 10-yr yield surges past 7% to new record
  • Hollande’s Socialist party wins control of French parliament
  • Melrose in talks over $2.3b offer for CVC’s Elster
  • China May home prices fall in record number of cities on curbs
  • FDA staff reports due for 6/20 advisory committee meeting on Sanofi’s semuloparin for prevention of blood clots in chemotherapy patients, ONXX/LGND’s carfilzomib for 3rd-line multiple myeloma
  • Orbis will back Vodafone’s bid for Cable & Wireless
  • Microsoft, B&N may unveil e-reader/tablet: TechCrunch
  • Fairfax Media to cut 1,900 workers as readers migrate to web
  • G-20 said to be discussing mix of global stimulus if needed
  • Weekly agendas for finance, energy, health, real estate, transports, industrials, technology, consumer, media/entertainment, Canada mining, Canada oil & gas
  • Greek Election, G-20 Summit, Fed Meeting: Week Ahead 

EARNINGS: 

    • IHS (IHS) After-mkt, $0.94
    • Platinum Underwriters (PTP) After-mkt, $1.16 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

GOLD – no bailout or Monday morning money printing (yet) is pressuring Gold – will be interesting to watch it as a leading indicator into the FOMC meeting on Wednesday and whatever Geithner begs for at the G20 all the while (he wants the US (IMF) to bailout Spanish banks). Sold our long Gold position; shorted the Euro and bought cattle on Friday. 

  • Hedge Funds Boost Bullish Bets on Stimulus Outlook: Commodities
  • Oil Little Changed as European Debt Woes Outweigh Greek Optimism
  • HKEx Shares Tumble as ‘Expensive’ LME Bid Seen Passing Regulator
  • Wall Street Gas Bears Squeezed by Utility Buyers: Energy Markets
  • European Union Says Iran Oil Embargo on July 1 Will Go Forward
  • Copper Seen Advancing as Greek Vote Eases Debt-Crisis Concern
  • Gold Set for First Decline in Seven Days After Greek Elections
  • Cotton Area in India to Drop 10% This Year as Prices Slump
  • Gazprom May Offer China Lower Gas Price With Advance Payments
  • German Clean-Dark Spread Declines as 2013 Power Contract Drops
  • Solar Boom Heads to Japan Creating $9.6 Billion Market: Energy
  • U.K. Natural Gas Advances as Norwegian, Dutch Flows Decline
  • Noda Ends Japan Nuclear Freeze, Risking Backlash at Polls
  • Funds Add Bullish Bets on Stimulus Outlook
  • Iran Nuclear Offer Fails to Stall EU Oil Embargo at Moscow Talks
  • Corn Climbs After Greek Election Eases Concern Over Euro Crisis
  • Angola to Boost August Daily Crude Exports to Six-Month High

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


SPAIN – Greece is the tree, Spain/Italy/Japan is the forest; markets get that – they also get that “coordinated action” means they can’t be fully invested (hedged), which is just sad to watch; Spain’s IBEX and Italy’s MIB down -1.8% and -1.5% this morn in un-coordinate reaction to whatever remains (both continue to crash, down -26% and -23% from YTD tops).

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team



Our Saviors

“Our mediocre and bankrupt elite, concerned with its own survival, spends its energy and our resources desperately trying to save a system that cannot be saved.”

-Chris Hedges

 

This weekend I finished reading Death of The Liberal Class. It’s my kind of book. Not because I agreed with everything in it, but because it made me think outside of my comfort zone. Chris Hedges was fired by the New York Times for having a point of view.

 

Some people call Hedges a socialist; others call him a libertarian. I’ll call him one of the many men and women who need to be heard. You don’t have to agree with everything someone says to be empathetic to their perspective. That’s a democracy.

 

The perspective of almost every politician making central planning calls on the fly right now is that of their own political career risk. In the short-run (this morning), that means they might need a “coordinated action” for the market’s un-coordinate reaction. In the long-run (the next 3 years), doing more of what has not worked will make their political careers dead.

 

Back to the Global Macro Grind

 

Let’s start with what markets are not doing this morning – going up. This is coming off the 2nd Bailout Sunday in a row where the S&P Futures opened 15 handles higher than where they wound up come Monday morning.

 

Got expectations? Markets do. Sadly, Our Saviors don’t. From Obama’s Spanish bank bailout man Tim Geithner to Italy’s Mario Monti, these people don’t have a clue as to what they are building into this globally interconnected market’s set of expectations.

 

Big Government Intervention policies (causality) drive currencies. Currency moves drive asset price inflation/deflation (correlation). For now, that is the deep simplicity of what anyone who manages real-time risk has to deal with in real-time. Fun.

 

With the US Dollar DOWN for the 2nd consecutive week, Global Equity and Commodity prices went UP last week:

  1. US Dollar Index = -1.5% in the last 2 weeks to $81.63 (from $82.89, the weekly YTD closing high)
  2. CRB Commodities Index = +1.5% in the last 2 weeks to 272
  3. SP500 = +5.0% in the last 2 weeks to 1342 (from 1278, the weekly YTD closing low)

Now, while some might say the last few weeks of stocks and commodities rising were based on “fundamentals”, I’ll remind you that is a crock.

 

Never mind Europe, last week’s US economic data was as weak as any we have seen in 2012:

  1. US Retail Sales missing on Wednesday had stocks selloff hard on the news (Consumer stocks down -1.6% on the day)
  2. US Jobless Claims rising to 386,000 (20% higher than where the data was in March), got Qe3 whispering back “on”
  3. US Consumer Confidence (University of Michigan survey) dropped like a rock in June to 74.1 (vs 79.3 in May)

#GrowthSlowing

 

So, you buy stocks and commodities on that, right?

 

Right. Right.

 

The only reason why you’d do that (and more of it was short covering, by the way, because volume in this stock market has gone bone dry) is because you were either begging for (or fearing) more bailouts and easing.

 

Is that what Our Saviors have reduced our markets to? Begging and fearing? This is all turning out to be as pathetic and sad as each and every rally looks to lower long-term highs, on lower and lower volumes.

 

To be fair, some of the options brokers in currency and commodity markets are seeing some flow (the flow is what you get paid when customers pay you a commission to transact). Chucky Evans from the Chicago Fed loves getting a piece of that flow. Who said a politicized man at the Fed can’t be bought and paid for? Can you pay me $25,000 to speak at a road-show lunch?

 

To get a little more granular on the commodity “speculation” side of the flow, here’s how last week’s CFTC flow data looked:

  1. CRB Commodities net long contracts = +9.1% week-over-week (to 587,327 contracts)
  2. Silver net long contracts = +12% week-over-week
  3. Farm Goods net long contracts = +21% week-over-week

Yeah, bro. You get Chucky up there talking down the Dollar and we’re going to dance. Especially as global demand slows, bro. Because we are absolutely and positively paid to speculate on policy, not fundamentals, bro.

 

Not sure on the bro thing, but I am certain that I have no idea what do in these markets any more than the next guy/gal who has the next Fed or Treasury or ECB whisper. Maybe that’s what Our Saviors consider the New Democracy.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $95.72-98.47, $81.58-82.26, $1.24-1.26, 6, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Our Saviors - Chart of the Day

 

Our Saviors - Virtual Portfolio


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THE WEEK AHEAD

The Economic Data calendar for the week of the 18th of June through the 22nd is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - 1A


Bad, Bad Data: SP500 Levels, Refreshed

POSITIONSLong Consumer Staples (XLP), Long Term Treasury Bond (TLT), US Dollar (UUP), Short Industrials (XLI), and Euro ETF (FXE)


“Bad, Bad Leroy Brown” is the title of a song written by folk singer Jim Croce.  The song was written in 1973 (before this analyst was born) and spent two weeks at the top of the Billboard Hot 100.  According to Wikipedia:

 

“The song is about a man from the south side of Chicago who, due to his size and attitude, has a reputation as the "baddest man in the whole damn town." One day, in a bar, he makes a pass at a pretty, married woman, whose jealous husband proceeds to beat Leroy brutally in the ensuing brawl.”

 

It’s not clear who the baddest man or woman in the whole damn global economy is at the moment, but what is clear is that the economic data is turning bad in the U.S.

 

We had a slew of economic data out this morning and the data was not good.  Certainly, government data is at best a coincident indicator and much of it is obviously a lagging indicator.  Nonetheless, when taken in aggregate government data can provide us some insight into the state of the economy.

 

This morning we had the following releases:

 

Michigan consumer confidence – At 74.1%, this reading of consumer confidence came in at the lowest level since December 2011. 

 

Empire State manufacturing – The Empire State manufacturing survey was negative across the board as future orders halved to 15.5, future shipments more than halved to 12.4 and future prices paid fell 24 points to 34.0.  General business conditions were positive at +2.3, though down fifteen points sequentially.

 

Industrial production – While not a total disaster, industrial production did come in worse than expected at -0.1% versus +1.1% last month.  Capacity utilization also ticked down to 79% from 79.2%.

 

In the three charts below, we show this data going back ten years.  The key take away from this view is not that we are necessarily in another “Great Recession”, but rather that the economy is at best stumbling at low growth rates, if not decelerating. 

 

Bad, Bad Data: SP500 Levels, Refreshed - 10yrcon

 

Bad, Bad Data: SP500 Levels, Refreshed - Empire

 

Bad, Bad Data: SP500 Levels, Refreshed - US.indust

 

Yesterday, the key driver of stock market action of course was the Reuters report that the world’s central bankers were ready and willing to providing liquidity as needed.  In effect, the global equity put remained in place.  Today’s U.S. market action, as a function of that report and the economic data above, is in word: confused.  Specifically, yields on 10-year bonds are down 1.37% to 1.587 (so bond prices are up) and equities are also up with the SP500 up 0.74% to 1,338.  Both the fear trade and the risk trade are in play today !

 

Bad, Bad Data: SP500 Levels, Refreshed - MyChart

 

Our SP500 levels are refreshed below and support this idea of confusion.  While the TAIL support line is holding at 1,309, the SP500 remains below TRADE resistance at 1,344 and TREND resistance at 1,365.

 

 

Daryl G. Jones

Director of Research 

 

Bad, Bad Data: SP500 Levels, Refreshed - SPX

 

 

 

 

 

 


HedgeyeRetail: COTD: Handbags at Wholesale


Sales through the wholesale channel account for nearly 50% of revenues at both KORS and VRA, but at FNP’s Kate Spade you’re looking at closer to 30% of revenues and a fraction of the door count. Such an underpenetrated presence at wholesale suggests the growth opportunity for Kate Spade isn’t just at retail. While VRA and KORS sell through 3,300 and ~2,700 wholesale doors respectively, COH is now at ~1,200 and Kate only ~400. A few considerations:

  • COH wholesale door productivity has declined over the last few years as competition for share among newer brands has increased.
  • While VRA appears to have far too many doors, Kate Spade is substantially underpenetrated at wholesale accounts.
  • If we assume that Kate Spade door growth doubles its door count to 800 from 400  and continues to increase its productivity from $320 to $450 per door over the next 4-years, FNP could add an additional 200-300bps to its total top-line growth that we have growing at a high-teens rate over that time period.

 

HedgeyeRetail: COTD: Handbags at Wholesale - COTD FNP KORS V2

 





 


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