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Weak Volume Beggars

WEAK VOLUME BEGGARS

 

 

CLIENT TALKING POINTS

 

LOOKING AT TREASURIES

US Treasuries have been something like a bucking bronco these days. Traditionally known as a safe haven, the 10-year is starting to trade like the S&P 500 with the VIX at 35. We’re seeing a big drop here as the yield heads straight down to the 1.62%. Yes, 1.62%. Remember when it was at 1.8% the other week? What gives? It snapped TRADE support of 1.65% like a hot knife through butter, is what gives. Today’s US GDP report may have a temporary effect on the yield but as things guess worse, the “safe haven” play will kick back in and that yield will drop like skydiver.

 

 

WEAK VOLUME BEGGARS

The weak volume beggars you may recognize. It may be the guy working the sales trading desk at the bulge bracket firm that used to be a top player in the mid-2000s but now has jack for products. It may be the broker-dealer who promised low rates when things were high-flying and the VIX was way up and is now snarling at his commission checks. Whoever it may be, realize that these are Old Wall, Weak Volume Beggars. The volume has dried up and it isn’t coming back to equities anytime soon. If your desk can’t realize and absorb that, then you’re going to have a problem on your hands.

 

 

THAT ‘70s SHOW

Skip the Ashton Kutcher and Mila Kunis – we’re talking about monetary policy in the 1970s. Back then, Fed Chairman Arthur Burns was debauching the dollar just like Bernanke was, minus the pomp and circumstance on TV and in print. I guess the power of the Internet and media these days is just too much to resist. We’re doing the same thing we did back in the 1970s and look where it got us. At this point, it probably wouldn’t hurt to put the brakes on the QE and lowering rates further.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                  UP

 

U.S. Equities:   DOWN

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

NIKE INC (NKE)

Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“FRENCH PM SAYS STABILIBITY MECHANISM 'MUST' BE IMPLEMENTED NOW. need some work on those desperation vibes” -@zerohedge

 

 

QUOTE OF THE DAY

“It is better for civilization to be going down the drain than to be coming up it.”–Henry Allen

                   

 

STAT OF THE DAY

1.7%. The rate at which US GDP grew in the second quarter of 2012.

 

 


Fair or Foul?

This note was originally published at 8am on August 15, 2012 for Hedgeye subscribers.

“Fair is foul, and foul is fair.”

-Witches, Act 1, scene i

 

Today in 1057, Macbeth died. This global stock market, meanwhile, is quietly channeling its inner Shakespeare. Tragedy.

 

How else can you explain markets that are being cheered on to whoever will listen to the complete opposite of what the bull case was for stocks in March? What does it mean when markets go up for 6 straight weeks on no volume, and no one cares?

 

Fair economic news is now seen as a headwind for stocks and commodities, because the real bull case from here is foul.

 

Back to the Global Macro Grind

 

Foul? Indeed. If the bull case for America is more debt, inflated food/energy prices, and bailouts from policies that perpetuate #GrowthSlowing, that’s got a nasty short-term smell to it. It reeks of one of the darkest tragedies in US economic history - the inability of American leaders to learn, change, and evolve our policy making process.

 

Headline: “Romney/Ryan See Fed QE As Inflation Risk”

 

Really? C’mon now white boys – stop scaring the gold bugs. You may as well throw granny off her wheel chair while you are at it. There hasn’t been a Republican or Democrat ticket that has explained the relationship between a country’s currency and its People’s Purchasing Power since Margaret Thatcher taught us how to wear the conservative economic leadership pants.

 

Upward and onward with your centrally planned day…

 

The SP500 hasn’t gone up for 2 days, primarily because the US Dollar stopped going down for the last 2 days. China didn’t provide begged-for stimuli, Eurocrats are on vaca, and USA is about to have a real economic debate.

 

Is that Fair or Foul? And, for who?

  1. It’s foul for anything that’s highly correlated to what the US Dollar does in the immediate-term
  2. It’s fair for those of us who still believe in a free market’s ability to price all of our emotional baggage

Can the US stock market handle another 1% down day? How about another 10% draw-down like we saw from the March top to the June lows? All I can tell you is that yesterday’s -0.25% move “off the highs” felt like 1 ton of dog doo in a 10lb bag.

 

That’s what happens to a market that’s pinned up on short covering, has zero inflows, and is plainly hoping for another plan out of central casting. Once the shorts have all covered, short-term political tragedy is back in play.

 

If you don’t think Draghi, Rajoy, and Obama have some serious skin in the “but the market is up game” you are, at a bare minimum, unaware of what’s really going on backstage in this world’s political market theater. If you do, you’re probably like me – expecting the foulest of foul political moves to keep markets propped up.

 

“Fortune, on his damned quarrel smiling,

Showed like a rebel’s whore.”

-Captain, Act I, scene ii

 

In other news: 

  1. Chinese stocks dropped another -1.1% overnight and are down -2% for the wk as growth continues to slow
  2. Spanish stocks are down this morning after making lower-highs versus their August 7-8 short squeeze top
  3. Russian stocks are down -1.3% this morning as Oil struggles to make new highs (US Dollar up)
  4. CRB Commodities Index failed to overcome long-term TAIL risk resistance (307)
  5. Dr. Copper continues to be a card carrying Chinese growth slowing party member (Bearish Formation)
  6. US Treasury Bond Yields are debating the growth bulls as to whether or not this time is really different

For central planners attempting to “smooth” economic gravity, to grow, or not to grow – remains the question.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and SP500 are now $1597-1611, $110.98-115.33, $81.88-82.98, $1.22-1.24, 791-803, and 1396-1406, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fair or Foul? - Chart of the Day

 

Fair or Foul? - Virtual Portfolio


THE M3: OKADA SUES WYNN; PERMIRA SELLS STOCK IN GALAXY

The Macau Metro Monitor, August 29, 2012

 

 

JAPANESE PACHINKO MOGUL SUES WYNN RESORTS IN TOKYO AP

Universal Entertainment said that it is seeking damages for harm caused to its share price and business due to Wynn's decision to remove Okada as a board member and reclaim the $2.77 billion of shares in the company owned by Universal Entertainment.  The lawsuit filed in Tokyo this week is demanding 11 billion yen ($140 million) in damages.  

 

PERMIRA SELLS STAKE IN GALAXY ENTERTAINMENT Macau Business

Permira Advisers has sold 278.8 million shares at HK$21 (US$2.7) each, which represented 6.7% of the share capital of Galaxy Entertainment and close to 53% of Permira’s stake.  The source added that the shares were sold to a small number of investors, including existing Galaxy Entertainment shareholders and new investors, as well as long-only funds and hedge funds.  The deal raised an estimated HK$5.85 billion.


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Weak Dollar Crowd

“The fact that this policy failed spectacularly in 1973 did not deter the weak-dollar crowd.”

-Jim Rickards

 

If my sell-side competition thinks I am going to back down on how Dollar Debauchery has perpetuated the US and Global Economic slowdown via commodity inflation in 2012, they better think again.

 

The Weak Dollar Crowd’s case for “strong exports” and an “up market” (on no volume or fund flows) is weakening. The Strong Dollar, Strong America solution I introduced in December 2011 (when I was bullish on US growth and stocks) is strengthening.

 

Make no mistake, I am at war with the Keynesians – it’s what Jim Rickards has coined the Currency War, “The Making of The Next Global Crisis.” Jim will be doing a conference call with our Global Macro Team today at 11AM EST (email for access).

 

Back to the Global Macro Grind

 

With a Navajo chant, shots were fired from New Haven on August 16th, 2012. That’s when we said sell stocks and buy bonds. If the Weak Dollar Crowd bought stocks at 1426 SPX and sold bonds with the 10yr US Treasury yield at 1.89%, they should feel shame.

 

But they don’t. In fact, some of these strategists and economists from the Old Wall are shameless. That’s not being rude – that’s the truth. How else should I describe their March 2012 consensus US and Global GDP estimates being off by 45-70%?

 

Oh, but “stocks are up” for the YTD, so you don’t have to get anything fundamental right about growth or how money printing infects it to take a half-baked victory lap in this business at short-term tops, right?

 

That’s ending folks. The People don’t trust broken sources. Market volumes speak louder than their words.

 

Got data to support the Weak Dollar Crowd weakening?

  1. GROWTH: this morning you’ll get Q2 2012 US GDP growth reported down at least 60% from where it was in Q4 2011 (4.10%)
  2. INFLATION: real-time inflation that drives down real (inflation adjusted) Consumption Growth is ripping, sequentially, in August
  3. CONFIDENCE: yesterday’s US Consumer Confidence number for August was down -8% month-over-month vs July’s 65.9 reading

That’s right “stocks are up” fans, the US stock market is up over +2% for August… and the American People don’t care. That’s because of the math – when Growth Slows and Inflation Accelerates, real consumers get squeezed.

 

Pardon? What happened? Why didn’t people forget about needing to be up +13% (from here in the SP500) to get their 401k super stock market allocations back to break-even? Didn’t they make a 100% equity allocation to the AAPL ETF?

 

This isn’t funny anymore. Neither were the 1970s.

 

In the 1970s you had a less politicized version of Ben Bernanke (Fed Chief Arthur Burns, who didn’t do the TV and print thing) work towards Dollar Debauchery and Debt Monetization under both a Republican and Democrat boss (Nixon and Carter).

 

Today, it’s worse – and not because Bernanke did the same for Bush/Obama – more so because the Europeans have their own currency this time and are trying to do precisely what the Japanese did.

 

Overlay those conflicted and compromised political policy “plans” driving the Dollar, Yen, and Euro with what #BailoutBeggars are asking the Chinese to do next (“PRINT LOTS OF MONEY” – Paul Krugman to Japan 1997), and the weakness of the weak is looking weaker.

 

It’s not different this time. Currency Wars have always been global. Rickards will expand on that with us today.

 

In other news this morning:

  1. Chinese stocks fell another -1% last night, right back down to their YTD lows (-16.5% since May)
  2. Indian and Indonesian stocks both snapped their immediate-term TRADE lines of support, down -0.6% and -1.4%, respectively
  3. EuroStoxx50 finally broke its immediate-term TRADE (squeeze) line of 2466
  4. Germany’s DAX and Spain’s IBEX sliced through their respective TRADE lines of 7016 and 7416 as well
  5. Russian stocks lead decliners, down -1% this morning (down -19% from the March #GrowthSlowing top), with Oil down
  6. Spain’s 5yr CDS just peeked its head back over the 500 line (1st time since August 13th)
  7. Gold failed at its long-term TAIL risk line of 1679 resistance, again, and continues to make lower-highs
  8. 10yr US Treasury Yields have effectively collapsed (-14% in less than 2wks) back down to 1.62%
  9. US Treasury Yield Spread (10yr – 2yr) is down 18bps since our call on August 16th to buy bonds (that’s a lot)
  10. Draghi wrote an Op-Ed about something I can’t understand

This globally interconnected gong show of central planning rumors still looks Too Big To Bail to me. Weak (failed) policy makers are looking weaker. Strong real-time risk management processes are getting stronger.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, 10yr UST yield, and the SP500 are now $1, $111.54-113.98, $81.11-81.96, $1.24-1.26, 1.58-1.65%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Weak Dollar Crowd - Chart of the Day

 

Weak Dollar Crowd - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 29, 2012


As we look at today’s set up for the S&P 500, the range is 17 points or -0.52% downside to 1402 and 0.69% upside to 1419. 

                                            

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 08/28 NYSE 386
    • Increase versus the prior day’s trading of -149
  • VOLUME: on 08/28 NYSE 516.47
    • Increase versus prior day’s trading of 2.41%
  • VIX:  as of 08/28 was at 16.49
    • Increase versus most recent day’s trading of 0.86%
    • Year-to-date decrease of -29.53%
  • SPX PUT/CALL RATIO: as of 08/28 closed at 1.49
    • Down from the day prior at 1.80

CREDIT/ECONOMIC MARKET LOOK:


BONDS – hoowah! what a move in the US Treasury market – the 10yr yield looks like the Chinese synchro diving team here, dropping straight back down to 1.62%, snapping TRADE support of 1.65% like a knife through water – today’s US GDP report will remind the March 2012 “growth is back” bulls that stocks may have rallied for 6wks, but not for the growth reasons they called for back then.

  • TED SPREAD: as of this morning 32.65
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.64%
    • Increase from prior day’s trading of 1.63%
  • YIELD CURVE: as of this morning 1.37
    • Unchanged from prior day’s trading

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Aug. 24 (prior -7.4%)
  • 8:30am: GDP Q/q (Annualized), 2Q, est. 1.7% (prior 1.5%)
  • 8:30am: Personal Consumption, 2Q, est. 1.5% (prior 1.5%)
  • 8:30am: GDP Price Index, 2Q, est. 1.6% (prior 1.60%)
  • 8:30am: Core PCE Q/q, 2Q, est. 1.8% (prior 1.8%)
  • 10am: Pending Home Sales M/m, July, est. 1% (prior -1.4%)
  • 10:30am: DoE Inventories
  • 11am: Fed to purchase $4.25b-$5b notes 8/31/2018-8/15/2020
  • 1pm: U.S. to sell $35b 5-yr notes
  • 2pm: Fed’s Beige Book

GOVERNMENT:

    • Republican National Convention, Day 3: Speakers include Paul Ryan; John McCain; Mitch McConnell; Jeb Bush; Tim Pawlenty; Condoleezza Rice
    • House, Senate not in session
    • SEC meets to consider eliminating prohibition against general solicitation, advertising in securities offerings, 10am
    • CMS holds semi-annual meeting of advisory panel on outpatient payments for hospitals, 9am
    • International Society of Air Safety Investigators holds annual seminar, with NTSB Vice Chairman Christopher Hart, 8am

WHAT TO WATCH:

  • Daikin buys Goodman Global for $3.7b to expand in Nth. America
  • Hurricane Isaac beginning to move into Louisiana, NHC says
  • G-7 countries call for increased oil output to meet demand
  • KKR said to be in talks to buy Renesas for $1.2b: Nikkei
  • Italy borrowing costs fall at 6m bill auction
  • Republican convention continues in Tampa; Paul Ryan speaks
  • Morgan Stanley, Citigroup delay valuation of brokerage JV
  • Wellpoint searches for new CEO as Angela Braly resigns
  • Apple’s request for Samsung ban to be heard Dec. 6
  • Swedish FSA says banks can lend more amid tougher rules

EARNINGS:

    • Joy Global (JOY) 6am, $1.89 - Preview
    • Fresh Market (TFM) 6am, $0.27
    • Jos A Bank (JOSB) 6am, $0.73
    • HJ Heinz (HNZ) 7am, $0.81
    • JA Solar (JASO) 7am, ($0.96)
    • Zale (ZLC) 7:30am, ($0.83)
    • Genesco (GCO) 7:31am, $0.26
    • Brown-Forman (BF/B) 8am, $0.63
    • Tivo (TIVO) 4pm, ($0.24)
    • Oxford Industries (OXM) 4pm, $0.63
    • Pandora Media (P) 4:02pm, ($0.03)
    • Vera Bradley (VRA) 4:02pm, $0.35
    • Greif (GEF) 4:07pm, $0.71
    • Canadian Western Bank (CWB CN) 6:48pm, $C$0.57

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • No Return to Dirty ’30s as Farmer Sees Drought Relieved by U.S.
  • Oil Falls From One-Week High on Isaac, G-7 as Gasoline Declines
  • Timah Restarts Tin Spot Sales After Advances, Sukrisno Says
  • Big Coal Faces Steel Slowdown Amid Shale-Gas Pain: Commodities
  • Southeast Asian Buyers Seek Cheaper Soybean Meal, Corn Supplies
  • Soybeans Rise for Second Day on Signs of Increasing World Demand
  • Monsoon Revival Brightens Prospects for India Rice, Cane Crops
  • Gold Seen Falling in London Before Bernanke Speech This Week
  • Aluminum Premiums in Japan Set for Record High as Supply Limited
  • Cocoa Rises as West Africa May Have Little to Sell; Sugar Gains
  • Gold ETP Assets Jump to Record to Overtake Italy’s Reserves
  • Lingerie Delayed as $517 Billion India Jam Idles Trucks: Freight
  • Platinum ‘Correction’ a Buying Opportunity: Technical Analysis
  • Gold Calls at 2008 High on Jackson Hole Bet
  • Tin Declines as Restart of Producer Sales Eases Supply Concern
  • Palm Oil Drops on Speculation Stockpiles to Increase in Malaysia
  • Gold Calls at 2008 High on Easing Bets for Jackson Hole: Options

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


EUROPE – lower-highs on lower volumes across the board in all of the major Eurocrat markets; finally, the apex of the short squeeze looks to be over as my most immediate-term TRADE lines of price momentum are all snapping (for the IBEX that line = 7416).

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


CHINA – it’s not just U.S. consumers who couldn’t care less about 6 wk U.S. stock market rallies to lower highs; Chinese and Indian consumers do not like food/energy prices up here and neither do their stock markets; Shanghai Comp -1%, back to YTD lows.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%
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