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Farmers Fight

This note was originally published at 8am on July 09, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Farmers are good fighters but poor politicians.”

-Victor Davis Hanson

 

I spent last week with my family up on the big lake they call Gitchee Gumee. It was a much needed vacation where I was finally able to dig into a book that has been recommended to me multiple times, The Soul of Battle, by Victor Davis Hanson.

 

The first part of the book focuses on a Theban general Cicero called “The First Man of Greece” (Epaminondas) and the epic story of how he led a bunch of Boeotian farmers to crush the Spartans. These were not King Leonidas’ warriors from the movie “300” who held Thermopylae in 480BC. These were the tired and passionless troops of 371BC Sparta who fought for politicians.

 

Since introducing our Q2 Global Macro Theme of The Last War: Fighting The Fed, we have been pounding our pitchforks into the keyboards reminding you that an end to a politicized US Dollar could bring about the return of the King. Since April, that King has been Cash. The People who use US Dollars as their currency will continue to fight alongside us.

 

Back to the Global Macro Grind

 

Last week’s highlight in the Global Macro matrix was the US Dollar’s charge to fresh YTD highs. This is a currency war, so the other team (Europe’s currency) losing matters. With the Euro down -3.2% on the week, the USD Index closed up +2.1% to $83.38.

 

Strong Dollar Deflates The Inflation – some of us who like to buy things on red enjoy that. It allows us to invest some of our hard earned Dollars at better prices. With the US Dollar up last week, here’s how some of the week-over-week price deflation looked:

  1. WTIC Oil = -0.9%
  2. Gold = -1.3%
  3. Silver = -1.8%
  4. Copper = -2.2%
  5. Cotton = -1.9%
  6. SP500 = -0.5%

Behold, a 50 basis point deflation in the US stock market. Call in the cavalry, we need Qe5!

 

Let’s get real here folks. If the US stock market can’t sustain taking a few shots from the only thing that will save her in the end (a strong and credible currency backed by conservative fiscal and monetary policy), America will be looking just like Europe in no time.

 

That’s the long-run. In the shorter-run, given the US equity market’s manic depressive state, we can’t assume that Strong Dollar = Stronger US Consumption and Stronger/Sustainable Growth at the flip of a switch. Getting people off the Qe4 expectation drugs will take time; so will deflating food and energy prices.

 

In the meantime, the market has to deal with 3 very big things aligned with economic gravity this week:

  1. US Growth Slowing (both ISM reports and the unemployment update last week were terrible)
  2. China Growth Slowing (all of the June and Q2 data due this week)
  3. Q2 Earnings Season

Ah, the ole earnings season – what will the “fundamentals” bring?

 

It wasn’t long ago (March-April) that the bull case for US stocks was “growth is back, earnings are great, and stocks are cheap.” Therefore, assuming the bull case isn’t solely based on bailouts, it stands to reason that we should wait and watch for the reaction to #GrowthSlowing, earnings deteriorating, and stocks being valued on the right (instead of hopeful) numbers.

 

What’s already been discounted? I do not know.

 

Do you?

 

All I can tell you is what I have been telling you since we shorted Industrials on March 12th – you do not want to be buying pro-cyclical Sectors (Industrials, Energy, Basic Materials) at the top of another cycle.

 

Industrials (XLI) are already down -1.3% for July (versus the SP500 -0.55%), so I am not going to be willfully blind to the idea that some of the slowdown hasn’t already been priced in. But neither am I going to blindly accept forecasts from politician like CEOs that today’s outlook hasn’t changed dramatically from the conference calls they hosted in April.

 

Farmers Fight about the weather forecast too. But sometimes it’s pretty clear that everyone is getting wet while it’s raining.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1551-1587, $96.90-103.02, $82.42-83.49, $1.22-1.25, and 1346-1360, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Farmers Fight - Chart of the Day

 

Farmers Fight - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 23, 2012


As we look at today’s set up for the S&P 500, the range is 28 points or -1.15% downside to 1347 and 0.91% upside to 1375. 

                                            

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 07/20 NYSE -1007
    • Down versus the prior day’s trading of 109
  • VOLUME: on 07/20 NYSE 1002.57
    • Increase versus prior day’s trading of 35.52%
  • VIX:  as of 07/20 was at 16.27
    • Increase versus most recent day’s trading of 5.31%
    • Year-to-date decrease of -30.47%
  • SPX PUT/CALL RATIO: as of 07/20 closed at 1.99
    • Up from the day prior at 1.24 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 37
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.40%
    • Decrease from prior day’s trading at 1.46%
  • YIELD CURVE: as of this morning 1.19
    • Down from prior day’s trading at 1.26 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 am: Chicago Fed Nat Activity Index, June (prior -0.45)
  • 11am: Fed to purchase $4.25b-$5b notes due 7/31/18-5/15/20
  • 11:30am: U.S. to sell $30b 3-mo., $27b 6-mo. bills
  • 4pm: Weekly crop progress report
  • 7pm: Fed’s Raskin speaks on community banking in Colo. 

GOVERNMENT:

    • House, Senate in session
    • Competing bills by Democrats, Republicans on how to extend expiring Bush-era tax cuts in position for floor consideration this week
    • Supreme Court not in session
    • Intl. meeting on how to treat HIV/AIDS; speakers include Bill Gates, Pres. Bill Clinton
    • U.S. International Trade Commission hearing begins against LG Electronics brought by Taiwan’s science agency over backlight modules in computers and televisions 

WHAT TO WATCH: 

  • NRG Energy to buy GenOn in deal valued at $1.7b
  • Nasdaq boosts payout in Facebook IPO to $62m cash
  • China central-bank adviser forecasts growth slowdown to 7.4%
  • Apple, Samsung go to trial in Australia over patents
  • Universal Music Group’s plan to acquire EMI Music said to be facing doubts by European antitrust regulators: WSJ
  • Spanish yields jump to records on region aid concern
  • Greece re-takes focus at center of euro crisis this week as intl. creditors arrive in Athens tmw
  • Boeing said fault with Rolls-Royce engine gear part limited to 5 planes, wouldn’t affect operators beyond All Nippon Airways
  • DreamWorks Animation agreed to acquire Classic Media for $155m
  • AT&T reached tentative agreement with Communications Workers of America in contract talks for 18,700 land-line employees
  • CVR Energy’s 60-day sale process expires
  • Citigroup, Commonwealth Bank of Australia received Australian retail sales data for March ~18 min. before general public because of mix-up at statistics bureau, documents showed
  • Forest Labs-Almirall’s aclidinium bromide to treat chronic obstructive pulmonary disease, COPD, faces FDA decision, with Pdufa date est. to be today by Bloomberg Industries
  • Rupert Murdoch resigns from U.K. newspaper boards
  • Germany’s Roesler “very skeptical” Greece can be rescued
  • Penn State sanctions due as CBS says $60m fine possible

EARNINGS:

    • Hasbro (HAS) 6am, $0.24; Preview
    • Coca-Cola Enterprises (CCE) 6:30am, $0.73
    • Eaton (ETN) 6:32am, $1.08
    • Halliburton (HAL) 6:56am, $0.75
    • Bank of Hawaii (BOH) 7am, $0.87
    • RPM International (RPM) 7:30am, $0.61
    • McDonald’s (MCD) 7:58am, $1.38; Preview
    • VMware (VMW) 4pm, $0.66
    • Vantiv (VNTV) 4pm, $0.28
    • J&J Snack Foods (JJSF) 4pm, $0.98
    • Woodward (WWD) 4pm, $0.43
    • BancorpSouth (BXS) 4:01pm, $0.20
    • Fidelity National Financial (FNF) 4:03pm, $0.48
    • Hexcel (HXL) 4:03pm, $0.39
    • Waste Connections (WCN) 4:04pm, $0.36
    • Health Management Associates (HMA) 4:05pm, $0.21
    • Zions Bancorp (ZION) 4:10pm, $0.35
    • StanCorp Financial Group (SFG) 4:12pm, $0.58
    • CoreLogic (CLGX) 4:15pm, $0.37
    • Rent-A-Center (RCII) 4:19pm, $0.71
    • Texas Instruments (TXN) 4:30pm, $0.34
    • Baidu (BIDU) 4:30pm, $1.13
    • Idex (IEX) 4:35pm, $0.71
    • FNB (FNB) 4:35pm, $0.20
    • ST Micro (STM IM) 4:42pm, EUR(0.03)
    • United Stationers (USTR) 4:45pm, $0.63
    • Brookfield Canada Office Properties (BOX-U CN) 5pm, C$0.37
    • Owens & Minor (OMI) 5pm, $0.49
    • Helix Energy Solutions Group (HLX) 6pm, $0.42
    • Olin (OLN) 6pm, $0.53
    • Steel Dynamics (STLD) 6pm, $0.20
    • Celanese (CE) Post-mkt, $1.39
    • Crane (CR) Post-mkt, $0.94 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Bulls Ascendant as Wagers Climb to Three-Month High: Commodities
  • Breadbaskets of Last Resort See Once-in-a-Lifetime Crop Prices
  • Hedge Funds Increase Gas Bets as Surplus Shrinks: Energy Markets
  • Power Dearth Threatens Indonesia Smelter Bids: Southeast Asia
  • Commodities Slump Most in One Month on Greece, China Slowdown
  • Corn Falls From Record as Soybeans Drop on Outlook for Slowdown
  • Copper Drops as Concern About Greek Euro Exit Bolsters Dollar
  • Gold Declines in London as Europe’s Debt Crisis Boosts Dollar
  • Sugar Falls With Commodities on Speculation Prices Rose Too Far
  • Goldman Sees $9 Corn and $20 Soybeans on Scorched U.S. Crops
  • Oil Plunges to Four-Day Low as European Debt Turmoil Intensifies
  • China Refined Copper Imports at 10-Month Low as Exports Slump
  • Vale Seen Posting Best Mining Profit Surprise: Corporate Brazil
  • Lead Stockpiles Fall to 10-Month Low as Shortage May Be in Works
  • China Bauxite, Nickel Ore Imports Slump After Indonesia Ban
  • Doubling Orders for Copper Supply Signal Rally: Chart of the Day 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


USD – get the Dollar and Growth right, and you’ll get a lot of other things right. The UST yield has had this nailed for weeks as US Equities drifted higher on no volume. New lows for the 10yr yield at 1.41 mean the Yield Spread hits a YTD low at 120bps wide. If that goes flat and the USD > 85, we’ll look really right on shorting oil last Thursday.

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


ITALY – consensus focused on Spain/Greece this morning (both stock markets down over -4% after getting hammered on Friday), but the real concern here is how does Italy functionally get a bailout without German Parliament voting on it until September 12th? IBEX and MIB crashing, down -33% and -26% from YTD tops. Big move in the last 2 days.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


ASIA – got globally interconnected #GrowthSlowing? Yep, markets do – from Japan (down -1.9%, taking its swoon since March to -17%) to the Hang Seng getting tagged for a -3% drop overnight; signals in both the Shanghai Comp and KOSPI have been crystal clear – and so is the data. There is no Bernanke Bailout for Chinese or South Korean demand.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 8

 

 

The Hedgeye Macro Team


MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD

Key Takeaways

 

* Money center banks (JPM, BAC, C, WFC) and the large domestic global brokerages all saw their credit default swaps widen on renewed EU and growth slowing fears. 

 

* Spanish and Italian bank and sovereign swaps were wider week over. In contrast, German bank and sovereign swaps tightened

 

Steel prices in China fell 3.7% last week, or 147 yuan/ton, to 3,799 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.  

 

* The 2-10 spread widened 1 bps to 125 bps last week, but this morning it's hitting a new YTD low at 120 bps.


* Our Macro team’s quantitative setup in the XLF shows 0.4% upside to TRADE resistance ($14.43) and 1.1% downside to TRADE support ($14.21).

 

Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 3 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged  

• Intermediate-term(WoW): Positive / 7 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged  

• Long-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 6 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Summary

 

1. US Financials CDS Monitor – The money center banks (JPM, BAC, C, WFC) and the large U.S. brokers (GS, MS) all saw credit default swaps widen, primarily on renewed Europe and growth slowing fears. 

  

Tightened the most WoW: MET, ALL, HIG

Widened the most WoW: JPM, WFC, GS

Tightened the most MoM: RDN, ALL, AGO

Widened the most MoM: MTG, UNM, C

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - American CDS

 

2. European Financial CDS -  Spanish and Italian banks widened across the board while German banks mostly tightened. 3 out of 4 French banks widened. Overall, 24 of the 39 European financial reference entities we track saw spreads widen last week.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - European CDS

 

3. Asian Financial CDS -  11 of the 12 Asian financials we track saw swaps tighten last week. 

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Asian CDS 

 

4. Sovereign CDS – Italian, Spanish, and Irish sovereign swaps widened week over week. German, French, and Portuguese sovereign swap tightened over the same time period. German sovereign swaps tightened by 12.9% (-11 bps to 76 ) and Spanish sovereign swaps widened by 4.3% (25 bps to 592).

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Sov Table

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Sov 1

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 8 bps last week, ending the week at 7.31 versus 7.39 the prior week.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - High Yield

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 4.5 points last week, ending at 1683. Notably, this series continues to make new highs.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - LLI

 

7. TED Spread Monitor – The TED spread fell -0.6 bps last week, ending the week at 36.3 bps this week versus last week’s print of 36.9 bps.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - TED spread

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 4.5 points, ending the week at -7.88 versus -12.4 the prior week.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread tightened by 2 bps to 35 bps. 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 risk. 

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - Euribor OIS

 

10. ECB Liquidity Recourse to the Deposit Facility – The sharp drop from two weeks earlier reflects the ECB's deposit rate change to 0.0%. Since that time, the index has been roughly flat. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - ECB2

 

11. Markit MCDX Index Monitor – Municipal default swaps widened 4 bps last week, ending the week at 162 bps versus 158 bps the prior week. Frankly, we're surprised that this index is widening more given the spate of recent municipal bankruptcies. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. 

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - MCDX

 

12. Chinese Steel - Steel prices in China fell 3.7% last week, or 147 yuan/ton, to 3,799 yuan/ton. This index is reflecting significant weakness in China's construction market. Chinese steel rebar prices have been generally moving lower since August of last year. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.  

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - CHIS

 

13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread widened to 125 bps, 1 bps wider than a week ago, although this morning it's hitting new lows at 120 bps.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.4% upside to TRADE resistance and 1.1% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - XLF

 

Margin Debt - June: +0.72 standard deviations 

NYSE Margin debt rose in June to $285 billion from $279 billion in May. We like to to look at margin debt levels as a broad contrarian sentiment indicator. For reference, our approach is to look at it margin debt levels in standard deviation terms over the period 1. Our analysis shows that when margin debt gets to +1.5 standard deviations or greater, as it did in April of 2011, it has historically been a signal of extreme risk in the equity market. The preceding two instances were followed by the equity market losing roughly half its value. Overall this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  The chart shows data through June. 

 

MONDAY MORNING RISK MONITOR: SPAIN, ITALY, MONEY CENTER BANKS, YIELD CURVE, CHINESE STEEL ALL BAD - NYSE margin debt

 

Joshua Steiner, CFA

 

Robert Belsky

 

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Riding Horses

“Comanches adapted to the horse earlier and more completely than any other plains tribe.”

-S.C. Gwynne

 

Man is competitive. So am I. As a team, we wake up to this world every risk management morning looking for a better way. That’s progressive. That’s how we evolve as a people. Anyone in this profession who does not get this will be left behind.

 

The aforementioned quote comes from the American Indian history book I have recently cited, Empire of The Summer Moon. It’s a stiff reminder of how harsh life has been. Not every man who attempted to settle in 18th century Texas was given a sticker.

 

Since launching our Q3 Global Macro Themes in early July, we’ve been riding the same horse that has had us calling for #GrowthSlowing since March. Our horse uses modern day math and machines. We don’t ask the Old Wall for permission to make calls on the direction of Growth Slowing’s Slope. We let Mr. Macro Market tell us which way our horse needs to ride next.

 

Back to the Global Macro Grind

 

Evidently, shorting the SP500 at its 1375 TREND level was a better than bad risk management decision to make. Friday’s -1% selloff in the US stock market came on the heels of both Spain and Italy closing down -6.3% and -4.7%, respectively, week-over-week.

 

Not to be confused with the fictional storytelling that global growth is “decoupling”, one of our most stealth front-running horses of Global Economic Growth, South Korea’s KOSPI index, told us the same story as structurally impaired Western Europe did. The KOSPI was down -4.3% week-over-week, testing its YTD lows.

 

This morning, neither Asian nor European Equities are telling you that anything about #GrowthSlowing has changed. Neither is the US bond market. Nor are corporate revenues. Neither are the prices of oil and copper.

 

Before I come back to touching dogmatic taboo of “growth is fine and earnings are great”, let’s grind through some of the aforementioned risk management signals:

  1. US Equity Futures down 14 handles
  2. Japanese Stocks (Nikkei 225) = -1.9% (down -17% since March, remaining in a Bearish Formation)
  3. Chinese Stocks (Shanghai Comp) = -1.3% (down -13% since May, remaining in a Bearish Formation)
  4. Hang Seng -3.0%, KOSPI -1.8%, and India’s Sensex -1.4% (all Bearish Formations)
  5. European Stocks (EuroStoxx50) = -2.2% (down -16% since March, breaking TREND again)
  6. Spanish Stocks (IBEX) = -4.3% (crashing, down -33% since March)
  7. Italian Stocks (MIB) = -3.3% (crashing, down -26% since March)
  8. Russian Stocks (RTSI) = -3.2% (crashing, down -23% since March)
  9. Oil (Brent) = -3.2% (backing off hard from where we shorted it on Thursday)
  10. Copper = -2.7% (backing off at its intermediate-term TREND line of 3.64/lb, much like the SP500 did)
  11. Treasuries (UST 10yr) = down another -5bps this morning to 1.41% (new lows)
  12. Yield Spread (10s minus 2s) = down another -6bps this morning to 120bps wide (narrowest YTD)
  13. Euro (vs USD) = down, again, testing $1.20 (after snapping its 2010 lows last week and now confirming)

I’ll stop there, at lucky thirteen.

 

How about that beloved “earnings season”? With almost 200 of 500 companies in the SP500 having reported, at least 50% of them have already missed on revenue expectations (worst quarter since 2008).  Two of the key Sectors in the SP500 (Financials and Industrials) look nothing like the “SP500 is flat for July” as they are down -1.8% (XLF) and -1.4% (XLI) for the month-to-date.

 

Oh, but never mind the revenues, ‘earnings are good.’ Really?

  1. Earnings are lagging indicator (not a leading one) anyway
  2. Revenues are leading indicators for Growth Slowing’s Slope

As our everything Financials guru, Josh Steiner, wrote in his research note to clients on Friday afternoon, the expectations mismatch between “reported” earnings and revenues is widening to the bearish side of Growth’s Slope:

 

1.   EPS: 17 out of 33 companies (52%) have beat consensus EPS estimates, while 11 were in line, and 5 have missed. Keep in mind that we are looking at the optical (unadjusted) numbers.

 

2.   Revenues: 6 out of 33 companies (18%) have beat consensus revenue estimates, while 20 were in line and 7 missed. For reference, we consider 2% or greater above the estimate a beat.

 

In other words, whether it’s GDP in Spain or the top line revenues of a company, get Growth’s Slope right, and you’ll get a lot of other things less wrong.

 

Oh, and if you’re in a performance foot race and want to be right instead of less wrong, ride a Global Macro horse.

 

My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $103.01-108.16, $83.18-83.99, $1.20-1.22, 5, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Riding Horses - Chart of the Day

 

Riding Horses - Virtual Portfolio


THE WEEK AHEAD

The Economic Data calendar for the week of the 23rd of July through the 27th 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 - WeekAhead


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