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Taking Issue With Oil

TAKING ISSUE WITH OIL

 

 

CLIENT TALKING POINTS

 

TAKING ISSUE WITH OIL

We put out a note on our website this week discussing oil sentiment and how the current price of WTI crude oil was rather high. We then noted that there would be a good opportunity to short oil soon and sure enough, a few hours later, oil fell fast and hard taking WTI down several dollars. Some claim the drop was due to rumors regarding the Strategic Petroleum Reserves being opened but the way we see it, the issue is correlation risk. Move the US dollar and it’ll move commodities, including oil, in turn. It doesn’t take a massive move in one asset class to greatly affect another.

 

 

OBAMA IN NOVEMBER

Our Hedgeye Election Indicator put up a +220 basis point increase in Obama’s chances of being reelected yesterday, propelling the odds to 63%. This is an all time high for the HEI and in line with InTrade standings. It is beginning to look like Obama will cruise into November and will nab a second term as Commander-In-Chief. It certainly doesn’t help that someone recorded Mitt Romney at a private fundraiser with Mitt speaking off the cuff. Like we’ve said before: if only Mitt would focus on strengthening the US dollar and getting rid of Ben Bernanke more, then he might have a real shot and Obama’s odds wouldn’t be at all time highs. Unfortunately, it may be too late for Mitt…

 

 

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ASSET ALLOCATION

 

Cash:                  Flat

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

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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            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • 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

  

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THREE FOR THE ROAD

 

TWEET OF THE DAY

“JP Morgan's strategists are smart, but they can garble English as well as any analyst. This week: "exhibits stationary" for "doesn't move”” -@jmackin2

 

 

QUOTE OF THE DAY

“The world is a tragedy to those who feel, but a comedy to those who think.” –Horace Walpole

                       

 

STAT OF THE DAY

UK inflation for August slows to 2.5%, in line with expectations.

 

 

 


THE M3: GENTING SELLS ECHO STAKE

The Macau Metro Monitor, September 19, 2012

 

 

GENTING SINGAPORE TO SELL ENTIRE 4.8% STAKE IN AUSTRALIA'S ECHO ENTERTAINMENT Dow Jones

Genting Singapore is selling its entire 4.8% stake in Echo Entertainment Group Ltd. (EGP.AU) for about 131.7 million Australian dollars (US$137.5 million) in a move to rationalize its investment portfolio.

 

GENT will sell its 33 million Echo shares through a block trade at A$3.99 per share, it said in a filing to the Singapore Exchange on Wednesday.


 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 19, 2012


As we look at today’s set up for the S&P 500, the range is 28 points or -0.91% downside to 1446 and 1.01% upside to 1474. 

                                            

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 09/18 NYSE -341
    • Increase versus the prior day’s trading of -1137
  • VOLUME: on 09/18 NYSE 632.88
    • Decrease versus prior day’s trading of -4.96%
  • VIX:  as of 09/18 was at 14.18
    • Decrease versus most recent day’s trading of -2.81%
    • Year-to-date decrease of -39.40%
  • SPX PUT/CALL RATIO: as of 09/17 closed at 1.49
    • Up  from the day prior at 1.33 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 28.24
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.79%
    • Decrease from prior day’s trading of 1.81%
  • YIELD CURVE: as of this morning 1.54
    • Down from prior day’s trading at 1.55 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am MBA Mortgage Applications, Sept. 14 (prior 11.1%)
  • 8:30am: Housing Starts, Aug. est. 767k (prior 746k)
  • 8:30am: Building Permits M/m, Aug. est. 796k (prior 811k)
  • 9:45am: Fed’s George at jobs conf. in Kansas City, Missouri
  • 10am: Existing Home Sales, Aug. est. 4.56m (prior 4.47m)
  • 10:30am: DoE Inventories
  • 11am: Fed to purchase $1.5b-$2b notes due 2/15/2036-8/15/2042
  • 7pm: Fed’s Fisher speaks on economy and policy in New York

GOVERNMENT:

    • Washington Day Ahead
    • House, Senate in session
    • Bernanke meets privately with Senate Finance Committee to discuss economy, automatic spending cuts, tax increases set to take effect in January, 4:30pm
    • CME Group President Terrence Duffy, SEC Commissioner Daniel Gallagher among speakers at Georgetown University conference on financial market quality
    • FDA advisory panel meets to consider using cell lines derived from human tumors for vaccine manufacture, 8am
    • U.S. Trade Representative Ron Kirk participates in Global Services Summit
    • House Oversight holds hearing on effectiveness of trade- adjustment assistance, 11am
    • Secretary Janet Napolitano testifies at Senate Homeland Security hearing on threats, agency responses, 10am

WHAT TO WATCH:

  • Bank of Japan unexpectedly expands asset-purchase fund by $126b
  • Goldman names Schwartz to succeed CFO Viniar
  • Samsung loses bid to lift Galaxy sales ban in Apple dispute
  • U.S. housing starts probably climbed to four-year high
  • ThaiBev supports Heineken bid for Fraser & Neave’s beer business
  • China resumes buying U.S. Treasury securities as trade surplus widens
  • Apple, publishers offer to shun price-fixing to end EU probe
  • Google joins Amazon, Facebook in new internet lobbying group
  • Anschutz plans to sell L.A.-based live event promoter AEG
  • Apple iPhone 5 praised for speed, faulted on maps by reviewers

EARNINGS:

    • Cracker Barrel Old Country Store (CBRL) 7am, $1.30
    • AutoZone (AZO) 7am, $8.40
    • Ascena Retail Group (ASNA) 7am, $0.29
    • General Mills (GIS) 7am, $0.62 - Preview
    • Steelcase (SCS) 4:01pm, $0.18
    • Adobe Systems (ADBE) 4:05pm, $0.59
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.02
    • Clarcor (CLC) Aft-mkt, $0.69

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – get the Dollar right, you get Oil right, evidently. No, that wasn’t a fat finger on Monday; that was a man operating a machine that decided to sell Oil ahead of the USD’s 1st two-day up move in almost 6wks; Oil under price momentum pressure now that my immediate-term TRADE line of $113.95 broke (that’s why we got longer US Equities yesterday).

  • Lithium Boom Spurs Production From California Brine: Commodities
  • Oil at $100 No Spur Yet to Release Stockpiles: Energy Markets
  • Oil Extends Losses as Signs of More Supply Offset Japan Stimulus
  • Gold Seen Gaining From Six-Month High as Stimulus Spurs Demand
  • Soybeans Climb as Price Slump May Draw Importers and Investors
  • Copper Seen Advancing on Japanese Stimulus, Lower Stockpiles
  • Sugar Falls on Signs of Ample Supplies From Brazil; Cocoa Gains
  • BHP Says Pace of China Iron Ore Demand Has Slowed by Half
  • Farmer’s Daughter Haugerud Reaps Riches on Drought-Struck Corn
  • B2Gold to Buy CGA for $1.13 Billion to Add Philippine Mine
  • Saudi Arabia Acting to Reduce Oil Price, Gulf Official Says
  • Platinum Holdings Expand to Record on Mine Disruptions, QE3
  • Milk Powder Prices Advance to Five-Month High Amid U.S. Drought
  • China Sugar Output Seen Curbing Imports
  • Rebar in Shanghai Rises for Second Day on Ore Price, Cash Market
  • Chinese Ore Imports Seen Falling 24% as Australia Cuts Forecast
  • Uranium Recovery Postponed as Price Drops to 2-Year Low: Energy

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

 

EUROPEAN MARKETS


ITALY – watch this Italian Equity market closely as it diverges negatively vs Spain this wk (Italy has to beg for their bailout later); MIB index just snapped my immediate-term TRADE line of 16,239 as it makes lower-highs vs March.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


JAPAN – what’s another 10T, amongst Keynesian friends? Currency War remains on as Japan expands money printing operations to 80 TRILLION yens; Dollar up, Yen down, Japanese stocks up +1.2% (still -10% since March).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


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The Death Of Yield

 The US Treasury is the all-important instrument that’s truly considered safe to invest in. Five years ago, you might have gotten a nice yield on as 10-year note or even the 30-year if you went further out on the yield curve. The problem now is twofold. Ben Bernanke has destroyed the current interest rate environment and everyone’s scared and flocking to Treasuries all the time. Both of these factors have pummeled yields so low that people are scratching their heads and going “what’s the point?” We can’t blame them, but we can blame Bernanke.

 

 

The Death Of Yield  - 10yr ytields


Manufacturing To Nowhere

This note was originally published at 8am on September 05, 2012 for Hedgeye subscribers.

“You can’t build a railroad from nowhere to nowhere.”

-Cornelius Vanderbilt

 

While I am sure some partisan politician had a rebuttal to one of America’s most successful businessman’s thoughts on the matter at the time, that remains one of the most poignant risk management quotes from 1873.

 

“The Panic of 1873 began shortly before 11AM on Thursday, September 18, when the Wall Street branch of the nation’s most prestigious private banking house, Jay Cooke & Associates, unexpectedly ushered its customers out and then literally closed its doors, signaling it was bankrupt.” (John Lubetkin, in Jay Cooke’s Gamble)

 

Yes, I know. We have centrally planned our way to never worrying about fundamentally flawed policies and business risks again in this country. Right?

 

Back to the Global Macro Grind

 

While the Keynesians are storytelling about needing “more time”, the fact remains that Policies To Inflate haven’t done a darn thing they were designed to do:

  1. Debauching the Dollar was supposed to generate “export and manufacturing growth”
  2. Economic growth slowing was supposed to be met with a “growth recovery” that lasted more than 3 months
  3. Corporate growth and earnings were supposed to remain at all-time highs; hiring would follow

Political theory versus economic reality: let’s fast forward to, well, yesterday:

  1. America’s ISM Manufacturing Survey for August slowed for the 3rd consecutive month to 49.6 (signaling economic contraction)
  2. The Prices Paid component of the ISM survey ripped higher month-over-month to 54 vs 39.5 in July (+37% sequentially)
  3. Fedex, a $28B US company, pre-announced another revenue and earnings miss after the market close

But no worries…

 

We need to beg for more of what has not worked – must do something – need more stimulus – need more time so that we can build elevated stock market prices, on no-volume, into the market’s risk matrix so that we can get from nowhere to nowhere, again.

 

To review what the aforementioned data points mean to real business people in this country in September 2012:

  1. Global Demand (yes, including Asia) slowed in August as inflation, on the margin, rose
  2. As inflation (prices paid by manufacturers, consumers, etc.) rises, on the margin, profits slow
  3. As profits slow, hiring slows – again

This isn’t a vicious cycle anymore. It’s just a sad one to watch. How definitively insane it is to watch people make the same mistakes over, and over, and over again?

 

I know, I know. After they are wrong on growth, and half-baked right on how bailout policies keep market prices up for 6 week intervals, perma-bulls say “the market is up and stocks are cheap.”

 

Well, there’s a little fibbing in that too. Since the 2007 top (1565 SPX) and lower 2012 high (1419 SPX) that followed it, stocks are down – and they’re expensive, if you don’t use the wrong growth and earnings numbers.

 

So where does the great Keynesian economic vision of building bridges and railway tracks to end demand that’s slowing take us? I don’t know. And, if they tell you the truth, neither do they.

 

My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1672-1699, $111.51-115.78, $81.19-81.98, $1.24-1.26, 1.54-1.63%, and 1398-1407, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Manufacturing To Nowhere - Chart of the Day

 

Manufacturing To Nowhere - Virtual Portfolio



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