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Commodities Cornered

If you look at the chart below, you can clearly see the effects that Ben Bernanke and the Federal Reserve have had in commodity markets since implementing quantitative easing. This is the work of your central planners at work, folks. Since April 2009, you've had to feel the effects at the pump and the grocery store. Commodity prices will continue to climb higher as long as the US dollar stays depressed. 

 

 

Commodities Cornered - spcommod


Sellem! SP500 Levels, Refreshed

Takeaway: For now, I say Sellem!

POSITIONS: none (SPY or Sector ETFs)

 

Maybe I’ll come back and say buyem! at 1430 again. We’ll see what the process instructs. I wake up, every day, embracing uncertainty.

 

For now, across our risk management durations, here are the lines that matter to me most:

 

  1. SELL TRADE = 1449 (getting lower-highs of resistance)
  2. BUY TRADE = 1430
  3. BUY TREND = 1419

 

In other words, my intermediate-term risk range is tight (1) and we have not yet tested the low-end of that range. If #EarningsSlowing becomes the market’s main concern in the coming weeks, we should test 1.

 

What should happen isn’t what will happen. We’ll see. For now, I say Sellem!

KM

 

Keith R. McCullough
Chief Executive Officer

 

Sellem! SP500 Levels, Refreshed - SPX


Global Central Planners

GLOBAL CENTRAL PLANNERS

 

 

CLIENT TALKING POINTS

 

TWIN PEAKS

Skipping the acclaimed David Lynch television series and going straight to the market for our peaks. When cycles peak and stocks appear to be “cheap,” it’s easy to want to buy into them. We sell into peak cycles because cheap gets cheaper and right now, one of our finest shorts is Caterpillar (CAT), which appears to be the epitome of the aforementioned thesis.

 

 

GLOBAL CENTRAL PLANNERS

There are two kinds of central planners out there. One kind is keen on Keynesian economics and does what the US and Japan have been doing a lot of: printing money. Some people think that works but take a look at the Nikkei in Japan and its performance since March of this year and you’ll begin to think twice. The other kind of planner is one like that of Glenn Stevens, the Reserve Bank of Australia’s chief banker. He’s raised rates and cut rates where appropriate and it seems to have worked out nicely for everyone. Remember when you could go into a bank and actually get yield on a CD or a savings account? Those were the days and Australians have plenty of those days ahead of them.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  UP

 

Int'l Currencies: UP  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • 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

 

UNDER ARMOUR (UA)

This company’s on track to post $3Bn in revenues by ’14 – impressive given a $1.5Bn print in 2011. Perhaps more impressive is the breadth of growth drivers that will get it there – women’s, accessories, new underwear platform etc. in addition to footwear. UA is gaining share in both apparel and footwear quarter-to-date. While some may be concerned over the loss of UA’s SVP/Sourcing we’re 8% ahead of the Street in the upcoming quarter and buyers on weakness.

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Anti momentum market continues, Fade every move higher and lower” -@MissTrade

 

 

QUOTE OF THE DAY

“Never be afraid to laugh at yourself, after all, you could be missing out on the joke of the century.” -Dame Edna Everage

                       

 

STAT OF THE DAY

ISM U.S. factory Index rose to 51.5 in September from 49.6 a month earlier.

 

 

 


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President Obama's Reelection Chances

After a run up to an all-time high of 63%, President Obama’s odds of being reelected dropped 60 basis points week-over-week to 62.4%. It’ll be interesting to see what next week’s data holds after the debates. Can Mitt Romney make a daring comeback? We’ll soon find out.

 

Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.

 

Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.

 

President Obama’s reelection chances reached a peak of 63% on September 17, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.

 

President Obama's Reelection Chances - HEI


Whatever They Want

This note was originally published at 8am on September 18, 2012 for Hedgeye subscribers.

“These guys can do whatever they want, whenever they want.”

-Neil Barofsky

 

Sounds like the American Dream, right? Right. That, and the Fed proclaiming their mystery of faith this morning that “unemployment would be close to 7%... if it wasn’t for consumer doubt”, will get you a free scratch-and-sniff at the Washington Sticker Institute of fair play.

 

The aforementioned quote comes from Chapter 3 of Neil Barofsky’s Bailout, where he explains how Hank Paulson and Tim Geithner got a “blank check” to bailout GM, AIG, etc. “Well, the good news is that we didn’t approve an illegal transaction as our first official act…” (page 50)

 

At the highs, market volumes and equity fund inflows are dead right now because the America’s trust in the political system is. Both Bush and Obama have signed off on giving un-elected central planners like Ben Bernanke un-precedented powers to do Whatever They Want.

 

Back to the Global Macro Grind

 

For Obama, evidently that’s working. His probability of winning the US Presidency just hit a new high in our weekly Hedgeye Election Indicator. Week-over-week Obama just picked up another +220 basis points in our model, taking him to 63%. Romney is in trouble.

 

What does another Obama Administration mean for the US economy? Is there still a chance that Obama loses? How do you dynamically risk manage this binary event if and when the probabilities change in the coming weeks?

 

Last night, our Director of Research, Daryl Jones, and I enjoyed a dinner with pollster Scott Rasmussen. Daryl will have a more detailed note on Rasmussen’s current election thoughts tomorrow. The bottom line is that he still sees this one too close to call.

 

What isn’t too close to call is what the rest of the world’s interconnected risks are doing in the face of Ben Bernanke devaluing the US Dollar and ripping inflation higher (India consumer price inflation hit +10.03% this morning) for the sake of short-term political votes.  

 

Across our durations in our risk management model, here are some key Global Equity market callouts:

  1. Asian Equities continue to make lower-highs versus those established before growth slowing started, globally, in March
  2. Chinese Equities, down 3% in 2 days this wk, continue lower as China won’t “stimulate” during Bernanke commodity inflations
  3. Japanese Equities (down -11% since the March top) continue to languish as their 20yr experiment with Keynesian economics fails
  4. European Equities (EuroStoxx50), down -1.2% this morning, are now making lower-highs versus those established in March
  5. Italian Equities (MIB Index), down -1.8% this morning, are leading today’s decline; no Spanish bailout imminent for them
  6. Russian Equities (like Japan, down -11% from the March top), are getting tagged for a -1.7% decline this morning (Oil down)

Did something bad happen in the last 24 hours; what’s all the economic gravity and commotion about?

 

It’s called Correlation Risk to the US Dollar. Sadly, those two words are not part of the Washington, D.C. central planning narrative. And yes, dear Keynesian academics, we get that sometimes (like now) causality (monetary policy) perpetuates correlation.

 

All it took to get things like Oil and Russian Equities down was stopping the US Dollar from going down. The US Dollar Index remains the other side of the Ben Bernanke trade. He can do and say whatever he wants until that massive asymmetric risk goes the other way.

 

What would happen to stocks and commodities if the US Dollar recovered its last 6 weeks of losses? What if there was political leadership on the fiscal or monetary side to drive the US Dollar Index back to its July high of $84?

 

I don’t know. What I do know is that $84 on the US Dollar Index is +7% higher than where Bernanke Burned The Buck to yesterday – and that if a +0.14% move off the lows gets you this kind of constipation in Global Equity markets this morning, he may be spending more time in the men’s room than Paulson did in October 2008.

 

Since the speculation that Bernanke will do Whatever He Wants pre-election has found its way into commodities (and commodity linked stocks and currencies) more so than anywhere else, it’s going to be critical to monitor our immediate-term TRADE duration risk in things like oil in the coming weeks and months.

 

Across durations, here’s how Brent Oil looks in our risk management model:

  1. Immediate-term TRADE line = $114.69/barrel
  2. Intermediate-term TREND support = $105.85/barrel
  3. Long-term TAIL risk line = $111.47/barrel

In other words, the Ball Under Water trade (Dollar Down) just stopped going down, and Oil’s immediate-term TRADE line of momentum snapped almost instantly. If anything real drives the Dollar up +3-6%, our TAIL risk line for the Oil price comes into play, fast.

 

That, of course, would be good for Consumers, globally. But, perversely, it will be very bad for the stock market (and Obama’s chances), in a hurry. If you didn’t know Obama has already figured this out, now you know. He’s smart. And for the next 50 days his boys will say whatever they want to tell you Dollar Down, Oil Up is about everything other than what the Fed is doing when you aren’t looking.

 

My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1739-1785, $112.49-116.86, $78.56-79.99, $1.28-1.31, 1.73-1.87%, and 1439-1474, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Whatever They Want - Chart of the Day

 

Whatever They Want - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 2, 2012


As we look at today’s set up for the S&P 500, the range is 21 points or -1.00% downside to 1430 and 0.45% upside to 1451. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 10/01 NYSE 718
    • Increase versus the prior day’s trading of -658
  • VOLUME: on 10/01 NYSE 672.31
    • Decrease versus prior day’s trading of -19.22%
  • VIX:  as of 10/01 was at 16.32
    • Increase versus most recent day’s trading of 3.75%
    • Year-to-date decrease of -30.26%
  • SPX PUT/CALL RATIO: as of 10/01 closed at 1.68
    • Down from the day prior at 2.01 

CREDIT/ECONOMIC MARKET LOOK:


TREASURIES – bonds still don’t seem to care about the daily flicker of S&P futures; the 10yr yield hasn’t moved more than a beep in the last 48hrs; long-bond remains in a Bullish Formation as 10yr yields look like they could easily test YTD lows.

  • TED SPREAD: as of this morning 27.42
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.63%
    • Increase from prior day’s trading of 1.62%
  • YIELD CURVE: as of this morning 1.40
    • Up from prior day’s trading at 1.39

MACRO DATA POINTS (Bloomberg Estimates)

  • 9:45am: ISM New York, Sept. (prior 51.4)
  • 11am: Fed to buy $1.75b-$2.25b Treasury debt due 2/15/2036-8/15/2042
  • 11:30am: U.S. Treasury to sell 4-week bills

GOVERNMENT/POLITICS:

    • House, Senate not in session
    • Obama, Romney make preparations for first presidential debate tomorrow
    • News conference on latest Quinnipiac poll. NPC. 10am
    • SEC hosts discussion on automated-trading technologies. 10am
    • FAA advisory panel holds second day of meetings to review air-traffic control procedures. National Harbor. 8:30am
    • Early voting begins in Ohio

WHAT TO WATCH:

  • U.S. auto sales seen advancing 9.5% in September
  • SEC to investigate high-frequency trading
  • Samsung says Apple iPhone 5 infringes eight patents in lawsuit
  • Former SAC Capital manager tells FBI fund used insider information
  • SAIC loses protest of $4.6b contract awarded to Lockheed
  • Juniper said to cut 500 jobs to reduce costs amid competition
  • U.S. retail sales growth may slow to 4.1% during holiday season
  • Manhattan home inventory falls to 7-yr low
  • Value Investing Congress includes presentations from David Einhorn

EARNINGS:

    • Mosaic (MOS) 7am, $1.16
    • Acuity Brands (AYI) 8:19am, $0.93

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Palm Oil Slumps Most Since October 2008 to Lowest in Three Years
  • Rubber Bulls Back as Exporters Cut Most Since 2009: Commodities
  • Soybeans Reach Lowest Price Since July on U.S. Harvest Progress
  • Oil Trades Near One-Week High as U.S. Manufacturing Expands
  • Gold Set to Gain for Second Day After Fed Renews Stimulus Pledge
  • Cocoa Falls as Concerns Ease Over Ivory Coast Industry Changes
  • Iron-Ore Swaps Little Changed as China Holidays Slow Trading
  • Countries Must Refrain From Banning Food Exports, FAO Says
  • Zinc Price Softens in 3Q on Surplus, 9.3% Rise Expected in 4Q
  • Cargill to Stop Using Fuel-Inefficient Ships to Curb Emissions
  • Nuclear Output Seen Falling to 3-Year Low on Refueling Shutdowns
  • Rothschild’s Bashed Bumi Offers ‘Great Trade’: Chart of the Day
  • Rubber May Advance 28% on Ichimoku Chart: Technical Analysis
  • Copper May Gain for Fourth Day on Global Central-Bank Stimulus

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


EUROPE – after European Equities got slammed last wk (Spain and Italy -6% each), seeing day2 of the bounce; plenty of rumoring going around about when Spain asks for bailouts and reminds the world they’ve been lying about pretty much every number that matters #classy; should end well.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


JAPAN – top 3 economy in the world is now seeing both its stock market and economic data collide; after a bearish Tankan yesterday, Nikkei closed down again overnight, taking the draw-down since the global #GrowthSlowing top (March) to -14.3%; #KeyenesianEconomics.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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