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TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS

Takeaway: $XLF-While Europe continues to move modestly higher on talk without action, oil prices, Chinese steel prices and yield spreads flash danger.

Key Takeaways

 

Overall, there is more bad news than good in our risk monitor this morning. On a short-term basis, four of twelve measures deteriorated (Muni default probabilities, Chinese steel prices, yield spread, and Asia financial CDS), while just two measures improved (High yield, Euribor-OIS). On an intermediate and long-term basis, the trends remain net positive, for now. While the momentum of the market, and in Financials in particular, has clearly been higher since early June, we see storm clouds on the horizon in the form of higher commodity costs (fuel & food), lower Chinese steel prices, and tighter yield spreads.  

 

*  European bank swaps were mixed last week, with most markets showing only small changes on the margin. Meanwhile, equity prices for European financials were mostly higher. 

 

* The high yield and leveraged loan markets both pushed higher last week.

 

* Municipal default risk rose again last week, as measured by the MCDX, continuing the trend that started a few weeks back when news broke that Warren Buffett cut his exposure to the muni market.  

 

* Chinese steel in a major bear market - steel prices in China fell another 1.2% last week, or 43 yuan/ton, to 3506 yuan/ton, bringing the decline over the last four months to roughly 20%. 

 

* The yield spread (2-10) resumes its downtrend, compressing by another 8 bps this past week to 133 bps. This barometer of bank margin pressure continues to make lower lows and lower highs. 

 

* Our Macro team’s quantitative setup in the XLF is now Bullish TRADE and TREND, with 0.7% upside to TRADE resistance of $15.26 and 0.9% downside to TRADE support of $15.02. 

 

 

Financial Risk Monitor Summary  

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

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

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

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Summary

 

1.  American Financial CDS   Swaps were broadly tighter last week for all major U.S. financial reference entities. Interestingly, this was a divergence from their equity performance, which was modestly negative.  

Tightened the most WoW: GS, C, BAC

Widened the most WoW: MTG, AON, PRU

Tightened the most WoW: RDN, LNC, C

Widened the most/ tightened the least MoM: MTG, COF, GNW

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - American 2

 

2. European Financial CDS  European bank swaps were mixed last week, with most markets showing only small changes on the margin. Meanwhile, equity prices for European financials were mostly higher.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - European

 

3. Asian Financial CDS   Chinese and Indian bank swaps widened while Japanese bank swaps were mixed. 

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Asia 2

 

4. Sovereign CDS – Spanish and Italian credit default swaps showed notable degradation last week, rising 20 and 10 bps respectively. In contrast, Portuguese swaps tightened 20 bps. The other markets we track were largely flat, though Japan widened by 4 bps (5%) to 85 bps. 

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Sov Table

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Sov 1

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 8.3 bps last week, ending the week at 7.06% versus 7.14% the prior week.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 4.5 points last week, ending at 1709.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - LLI

 

7. TED Spread Monitor – The TED spread rose 1 bp last week, ending the week at 34 bps versus the prior week’s print of 33 bps.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 0.6 points to a new 52-week high, ending the week at -1.96 versus -2.5 the prior week. The relentless ascent of both fuel and food prices will not end well for the consumer. 

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Joc

 

9. Euribor-OIS spread – The Euribor-OIS spread tightened by 2 bps to 21 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.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - Euribor OIS

 

10. ECB Liquidity Recourse to the Deposit Facility – 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.  

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - ECB

 

11. Markit MCDX Monitor – Last week spreads widened 4 bps, ending the week at 154 bps versus 150 bps the prior week. The index, which measures municipal bond default probabilities, has been trending generally higher since the news two weeks ago that Warren Buffett was reducing his exposure to the market's default risk. While the index is only making lower highs thus far, we're keeping an eye on it to see if it takes out the mid-July highs of 167 bps. 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.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - MCDX

 

12. Chinese Steel - Steel prices in China fell another 1.2% last week, or 43 yuan/ton, to 3506 yuan/ton, bringing the decline over the last four months to roughly 20%. This index continues to reflect 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.

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - CHIS 2

 

13. 2-10 Spread – The yield spread resumes its downtrend - last week the 2-10 spread tightened 8 bps to 133 bps. We track the 2-10 spread as an indicator of bank margin pressure.  

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF is now Bullish TRADE and TREND, with 0.7% upside to TRADE resistance of $15.26 and 0.9% downside to TRADE support of $15.02. 

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - XLF macro setup

  

Margin Debt - July: +0.61 standard deviations 

NYSE Margin debt fell  to $278 billion in July from $285 billion in June. We like to to look at margin debt levels as a broad contrarian sentiment indicator. For reference, our approach is to look at margin debt levels in standard deviation terms over the period 1. Our analysis finds 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 significant risk in the equity market. The preceding two instances were followed by the equity market losing roughly half its value over the following 24-36 months. 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 July. 

 

TUESDAY MORNING RISK MONITOR: YIELD SPREAD, COMMODITY PRICES AND CHINA ALL FLASH WARNING SIGNS - NYSE margin debt

 

Joshua Steiner, CFA

 

Robert Belsky

 

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Fore!

This note was originally published at 8am on August 21, 2012 for Hedgeye subscribers.

“Golf is a game in which one endeavors to control a ball with implements ill adapted for the purpose.”

                -Woodrow Wilson

 

Yesterday I took a few of my colleagues out to play in a charity golf tournament at The Course at Yale.   For those of you who haven’t played it, the Yale course is not for the faint of heart.  It has some incredibly challenging holes replete with hazards in the most untoward places.  The more we became engrossed in golf yesterday, and marginally removed from stock market operating, the more I actually began to see the parallels between the two.

 

Now as anyone will tell you, I am far from a great golfer.  But just as a broken clock tells time twice a day, every round I pull a few shots out of thin air that make me look like a veritable Arnold Palmer, albeit a younger and more Canadian version.  In between my great shots, of course, were many less than spectacular shots.  The bad shots, though, made me think more strategically about the game and I realized that if I could stay out of trouble – avoid the sand traps, out of bounds, and water hazards – I could still score reasonably well.

 

In short, the key parallel between golf and investment management: avoid the looming hazards and you will remain competitive.  The caveat to this point is that in golf there are hazards that are not so obvious to the casual observer.  The wild card hazard yesterday on the course was my colleague, and Hedgeye’s Asia Analyst, Darius Dale.

 

Darius is a novice golfer but was a lineman in college and still has the strength of a few normal men.   Needless to say, when he winds up on the tee, it’s best to hide behind your cart if you are within a few fairways.  Being the risk manager he is, Darius is not afraid to yell - fore!  Collectively, we appreciated this risk management aspect of his golf game.

 

Speaking of avoiding hazards, the rumors coming out of Europe this morning imply that the Europeans hope to avoid any future sovereign debt sand traps.  This morning the Telegraph is reporting that Jorg Asmussen, Germany’s director at the ECB, is supporting unlimited purchases of peripheral debt.  This plan is in line with Draghi’s plan, though is in conflict with the German Bundesbank.  This article also re-stated the report from Der Spiegel on the weekend that suggested the ECB was studying plans to cap Spanish and Italian yields.  (It seems both Greece and Portugal have been all but forgotten!)

 

Purportedly, the key criteria to trigger this plan is a formal request from Spain for a bailout from the EFSF/ESM and agreeing to the fiscal terms therein.  On a positive note, the market appears to be of the view that Spain will get onside as the Spanish bond auction yesterday was seemingly successful.  Specifically, Spain sold its maximum target of €4.51 billion of 12-18 month bills this morning. The 12-month average yield was 3.070% versus 3.918% on July 17th, 18-month average yield 3.335% versus 4.242% on July 17th.  Further, the bid-to-cover was a veritably euphoric 2.4x.

 

In the Chart of the Day today we show Spanish 10-year yields going back one year.  The Spanish 10-year has backed off of its highs, so it seems that the rumors the ECB may change the lay of the course and bring out some bigger clubs (The Bazooka Driver?), which have had at least a marginally positive impact on Europe’s debt woes.  The history of the last couple of years has indicated that any proposed solution in Europe has typically been short term in nature and never quite as good as the rumors in Der Spiegel.  Of course, perhaps this time is truly different . . .

 

Switching clubs briefly, our Energy Analyst Kevin Kaiser recently did an update on the key factors he sees as supporting the price of oil and wrote the following:

 

“The fundamentals (read: supply and demand) warrant lower oil prices, but expectations for easier monetary policy and fears of supply disruptions (geopolitical risk) have lifted prices recently.  Note that the oil market has shrugged off actual data in favor of events that may or may not occur – the Fed has not gone to QE3, Europe has yet to implement a comprehensive solution to its debt crisis (if there is one), and there has been little aside from increased rhetoric out of Iran and Israel – yet oil continues to trade higher in expectation of some or all of those events.” 

 

On the last point, it seems the rhetoric is at the very least heightening, especially according to reports from The Times of Israel this morning.   Well it is quite possible this is saber rattling by the Israeli government, the report was very specific and as such we wanted to highlight it below (emphasis ours):

 

“Israel’s Prime Minister Benjamin Netanyahu “is determined to attack Iran before the US elections,” Israel’s Channel 10 News claimed on Monday night, and Israel is now “closer than ever” to a strike designed to thwart Iran’s nuclear drive.

 

The TV station’s military reporter Alon Ben-David, who earlier this year was given extensive access to the Israel Air Force as it trained for a possible attack, reported that, since upgraded sanctions against Iran have failed to force a suspension of the Iranian nuclear program in the past two months, “from the prime minister’s point of view, the time for action is getting ever closer.”

 

Asked by the news anchor in the Hebrew-language TV report how close Israel now was to “a decision and perhaps an attack,” Ben-David said: “It appears that we are closer than ever.”

 

Obviously, the Israel government makes statements to the media for strategic reasons and much of this could well be rhetorical.  That said, one thing I’m pretty sure of is that at a VIX of 14.02, the tail risk of an Israeli strike on Iran is not even remotely priced into the U.S. equity markets.  To some, my emphasis on the article above may be construed as fear-mongering, but in reality it is just like golf – you need to be aware of the hazards on the course.

 

Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1614-1628, $113.21-115.49, $82.21-82.81, $1.22-1.24, 1.74-1.88%, and 1408-1419, respectively.

 

 

 

Keep your eye on the ball,

 

Daryl G. Jones

Director of Research 

 

Fore! - Chart of the Day

 

Fore! - Virtual Portfolio


LV STRIP: JULY DECEPTION

Gaming revenues were likely up solidly in July but should anyone get excited?

 

 

The answer is no.  Our opinion likely won’t stop the initial euphoria that Vegas is back, baby.  When Nevada releases July statistics in the middle of next week, gaming revenues will look strong.  However, we think even a cursory review of the underlying metrics will reveal yet another soft month.  July faces a very easy hold comparison on both slots and tables.  We continue to believe that slot volume is the most important barometer of Strip health, and this metric will likely show another YoY decline.

 

We are projecting gross gaming revenues to increase 14-18% assuming normal slot and table hold percentages.  However, we expect slot and table volume (ex baccarat) to fall YoY.  Slots held at only 6.5% last year versus a normal 7.0% - mainly due to the accounting quirk of month end falling on a weekend.  July 2012 will benefit from a June accounting catch up where the month ended again on a weekend.  Meanwhile, table hold was only 10.3% against a normal 12.0%. 

 

Despite the lower gaming volumes, July wasn’t a disaster.  July 2012 is down a Friday and a Saturday.  However, we do think investors may overreact positively to the initial revenue print and the Vegas stocks, particularly MGM, will trade off following the initial euphoria.

 

We were positive on MGM late last year and at the beginning of 2012 on improving slot volumes.  However, the slot business turned negative in April and so did we.  July should represent the 4th straight month of declining slot volumes in a period where the Strip should be in recovery mode.  Not good.

 

LV STRIP: JULY DECEPTION - FF


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 4, 2012


As we look at today’s set up for the S&P 500, the range is 18 points or -0.54% downside to 1399 and 0.74% upside to 1417. 

                                            

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 08/31 NYSE 1174
    • Increase versus the prior day’s trading of -1294
  • VOLUME: on 08/31 NYSE 746.07
    • Increase versus prior day’s trading of 45.80%
  • VIX:  as of 08/31 was at 17.47
    • Decrease versus most recent day’s trading of -2.02%
    • Year-to-date decrease of -25.34%
  • SPX PUT/CALL RATIO: as of 08/31 closed at 1.84
    • Up from the day prior at 1.42

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 34.33
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.57%
    • Increase from prior day’s trading of 1.55%
  • YIELD CURVE: as of this morning 1.35
    • Up from prior day’s trading at 1.33

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:58am: Markit US PMI Final, Aug., est. 51.9
  • 10am: ISM Manufacturing, Aug., est. 50.0 (prior 49.8)
  • 10am: ISM Prices Paid, Aug., est. 46.0 (prior 39.5)
  • 10am: Construction Spending M/m, July, est. 0.4% (prior 0.4%)
  • 11:30am: U.S. to sell $32b 3-mo, $28b 6-mo bills
  • 4pm: USDA Crop-condition reports

GOVERNMENT:

    • Washington Week Ahead: Democrats to Rally for Obama in N.C.
    • Democratic National Convention: Re-nomination of Obama and Biden, speakers include First Lady Michelle Obama
    • House, Senate not in session
    • Clinton seeks unified Asean front to ease disputes w/ China

WHAT TO WATCH:

  • Merkel/Monti lead diplomatic push as Draghi plan takes shape
  • EU outlook cut by Moody’s on Germany, France, U.K. risks
  • Manufacturing in U.S. probably stagnated amid global slowdown
  • Light-vehicle sales rate may have climbed to 14.2m in August
  • Valeant to purchase Medicis Pharmaceutical for $2.6b
  • P&G directors face own challenges while keeping tabs on McDonald
  • Euro-Area July producer-price inflation holds at 2 1/2-yr low
  • Lufthansa cabin crew expand German strikes in salary dispute
  • ‘Posession’ claims top film slot on sales of $21.3m
  • Intel, eBay, Pandora present at Citi Tech conference

EARNINGS:

    • Smithfield Foods (SFD) 6am, $0.45
    • Campbell Soup (CPB) 7:30am, $0.38 - Preview
    • Finisar (FNSR) 4pm, $0.14
    • Francesca’s Holdings (FRAN) 4:01pm, $0.24
    • Forest City Enterprises (FCE/A) 4:02pm, $0.06
    • Guidewire Software (GWRE) 4:05pm, $0.04
    • Bloomin’ Brands (BLMN) After-mkt

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – never, in human history, has > $100 Oil not perpetuated real (inflation adj) growth slowing. Maybe this time is different. Its probably not. Yield Spread (10s-2s) moved back to +133bps wide this past wk, only 10bps away from its slowest growth (implied) since 2008.

  • Cotton Glut Extending Slump as Levi’s Costs Slide: Commodities
  • German Power Swings at 7-Year Low Curb Trading: Energy Markets
  • Dockwise Profits Aided by U.S. as Mine Sweepers Deploy: Freight
  • Soybeans, Meal Climb to Records on U.S. Drought, Stimulus Bets
  • Oil Advances to Highest Price in a Week on Stimulus Speculation
  • Gold Seen Rising on Prospects for Further Central-Bank Stimulus
  • Copper Seen Falling as EU Credit Rating Fuels Crisis Concern
  • Iron Ore Trading Rose to Record Last Month as Prices Plunged
  • Cocoa Rebounds as Supplies May Lag Behind Demand; Sugar Advances
  • Record Gold Sales to Iran Profit Lira Bondholders: Turkey Credit
  • India Rules Out Duty-Free Import of Raw Sugar on Local Supplies
  • U.S. Shale Glut Means Gas Shortage for Mexican Industry: Energy
  • Obama Gets Fossil-Fuels Boost After Green-Jobs Revolution Fades
  • Soybeans, Meal Climb to Records on Drought
  • Iron Ore Drops to Near Three-Year Low on China Growth Concerns
  • U.K. Lawmakers Urge 2015 End for EU Sugar Quotas Capping Output

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


EUROPE – lower-highs across the board in European squeeze tapes as the markets w/ less short interest (FTSE, Swiss, etc) fall first this morn; how many more rumors, plans, etc do they have? We will see, but the FTSE just snapped my 5781 TRADE line.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


CHINA – somewhere in between golf and time w/ the kids this weekend, China reminded us that PMI sub 50 remains and that they won’t deliver the stimuli drugs w/ Oil at $116/barrel. Shanghai down another -0.75% overnight (-17% since May).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team



No More

“And so he urged his countrymen: No more.”

-Hampton Sides (Blood and Thunder)

 

That’s what the head of the Navajo warriors, Manuelito, said to his people before ultimately succumbing to General Sherman’s troops. Maybe we’re going down versus the Fed’s Bailout Beggars too, but it won’t be without one heck of a fight.

 

Last week ended with a Draghi bagging the Jackson Hole meeting and Ben Bernanke doing nothing that resembled what he was allegedly going to do only 2 weeks prior. Rumor versus reality is a widening spread.

 

“What is the truth (Ray Dalio)?” Stocks continue to make lower-highs as bonds continue to make higher-lows. I urge all of you to join me in calling for No More of what has not worked. Otherwise, you’ll have $130-150 Oil and 1970s stagflation all over again.

 

Back to the Global Macro Grind

 

Both US and Global Equities were down again last week (2 consecutive down weeks for the SP500, 1 month lows for Asia). Both Treasury Bonds and Commodities were up. The latter perpetuates #GrowthSlowing expectations in the former.

 

But no worries. Everyone who drives to work, eats food, and sends their kids to school this week understands the very basic P&L problem associated with cost of living rising as nominal wages are falling:

  1. American median incomes = down -5% since 2009
  2. US Dollar = down -5% since January 20, 2009
  3. Oil (WTIC) = +150% since January 20, 2009

Almost everyone, that is…

 

Mostly everyone else understands the concept of long-term lower-highs (stocks) and higher-lows (bonds) as well.  Here’s what’s happened in the last 2 weeks as we setup for risk managing September:

  1. US Stocks (SP500) = down -0.85% (from 1418) to 1406 on Friday
  2. European Stocks (Eurostoxx600) = down -1.8% (from 272) to 267 this morning
  3. Chinese Stocks (Shanghai Comp) = down -3.5% (from 2118) to 2043 this morning

All the while:

  1. US Equity Volatility (VIX) = up +30% from its YTD closing low (2wks ago)
  2. Commodities (CRB Index) = up +1.9% (from 303) to 309 this morning
  3. US Treasury Yields (10yr) = down -14% (from 1.81%) to 1.55% this morning

So, who on God’s good earth profits from this economic model? If you bought bonds, volatility, and commodities 2 weeks ago, you did. But what % is that of the global population? Did higher prices in those 3 things perpetuate economic growth, or slow it?

If you bought Gold 2 weeks ago (we didn’t because we didn’t think Bernanke would go to Qe4 – and he didn’t), that’s up +4.8%. Great trade! But what does that mean? It means that the purchasing power of US Dollars continues to be debauched.

 

Are institutional investors long Gold? You bet your Madoff they are – and with headlines dominating your every day like this: “Gold, Near 5mth High, Seen Gaining on Prospects for More Stimulus” (Bloomberg), why shouldn’t they be?

 

Weekly CFTC data implies Gold buyers ramped bets on Bernanke right back up to where they were before they started falling in March (+19% wk-over-wk to almost 132,000 contracts).

 

Those are called expectations. Instead of jobs and economic growth, that’s what Bernanke really stimulates and, in doing so, perpetuates the US growth slow-down via commodity inflation.

 

This is why our Global Macro Model continues to nail  #GrowthSlowing calls at these shortened economic cycle turns well ahead of consensus. Our models adjust, real-time, for Dollar Debauchery and Oil Inflation.

 

How long can inflation of market prices be masked as “economic growth”? Not for long. Each and every one of these Qe experiments gives markets shorter-term pops and more volatile reversals.

 

So, if you bought Gold (or Commodities) at the month-end markup of February 2012, or if you bought it there at lower-highs on Friday, the probability just went straight up (like the asset price did) that they will now come down again.

 

That’s called Deflating The Inflation. And while Bernanke wants you to believe that you’ll have no more of that (maybe ever), I’ll repeat what we all can’t afford any more of – policies to inflate asset prices that, in turn, slow growth.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1, $113.69-116.57, $81.11-81.91, $1.24-1.26, 1.55-1.64%, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

No More - Chart of the Day

 

No More - Virtual Portfolio


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