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This note was originally published at 8am on November 02, 2012 for Hedgeye subscribers.

“I will have naught to do with a man who can blow hot and cold with the same breath.”

-Aesop

This is the coldest morning the East Coast has had to deal with since Sandy. My prayers go out to the children, sick, and elderly who have to go through this with no power or heat.

Back to the Global Macro Grind

Get’em while they are h-h-ot! That’s what the perma-bull marketers said yesterday as US stocks were having their 1st legitimate up day in the last 7 trading sessions. It’s been a long 1.5 month drought. Literally everything that didn’t work in October went straight up. All the pundits nailed it. Welcome to November.

In other “recovery rally” news – the headlines from the manic media changed, suddenly, this morning:

  1. “Anger As Fuel Shortage Hampers Recovery” –BBC World News
  2. “Scope of Sandy’s Devastation Widens, Death Toll Spirals” –Reuters
  3. “Power Restoration May Take Longer Than Expected” –New York Times

But don’t worry – there a plenty of Keynesians who still believe in Broken-Window Economics who will be out peddling stories this morning about how America is seeing a jobs and hurricane recovery.

We have no idea what this morning’s US Employment Report will bring. Only a moron would have a “forecast” for a number that the government makes up. China gets that – so they are going to start making up their numbers a little faster too.

China Daily noted that the National Bureau of Statistics said China will “revise its GDP accounting methods” in line with international standards. Perfect. So the China recovery is going to get really h-h-ot now!

As our hawk-eyed Asia analyst Darius Dale wrote to our Institutional Clients yesterday, this is the “most bullish data point emanating from China today – inclusive of the sequential acceleration in Manufacturing PMI and the PBOC’s record $6B injection into Chinese money markets this week.”

“From what we’ve noticed, international standards for GDP accounting = shoot first; ask questions later (i.e. report the most positive headline figure you can and subsequently revise it down 1-3 times in the coming months/years). This bodes well for a sequential uptick in China’s YoY GDP growth in 4Q12E!”

In other economic “recovery” news out of Europe:

  1. Spain printed a PMI reading of 43.5 for OCT vs 44.6 in SEP
  2. Germany’s slowdown stayed the same in OCT with a PMI reading of 46.0
  3. Italy’s PMI remained well below the “50 recovery” line at 45.5 OCT vs 45.7 SEP

No worries there. Markets in Europe were relatively hot this week (other than in Greece). These poor Greek guys are having a heck of a time reconciling the media’s “recovery” rumors with economic reality. Greek stocks dropped -15% from October 22nd’s YTD high to yesterday’s close, leaving this -11% down week as the worst week for the Athex Index in 4 years.

Across asset classes, as always, there are plenty of Hot & Cold risk management signals to consider this morning:

  1. SP500 climbed back above its 1419 TREND line of support; but remains below its TRADE line of 1432 resistance
  2. US Equity Volatility (VIX) closing at 16.69 remains in a Bullish Formation; could go to 20 if this jobs report is bad
  3. US Dollar Index continues higher this morning, +0.35% to $80.32; bullish on both our TRADE and TAIL durations
  4. EUR/USD trades down to the low-end of our immediate-term $1.28-1.30 risk range (bearish TAIL remains)
  5. Hang Seng +1.24% last night makes it the 1st major index in Asia to make higher-highs
  6. KOSPI, Nikkei, Sensex were all up > 1% too, but are all making lower-highs, not confirming the Hang Seng
  7. Germany’s DAX and France’s CAC making lower-highs versus September, again
  8. Russia’s RTSI Index remains under crash-test assault, -0.3% this morning (-18% from #GrowthSlowing’s to in MAR)
  9. CRB Commodities Index remains in a Bearish Formation at 296 (Bernanke’s Bubble)
  10. Copper, down -0.5% this morning to $3.47/lb remains in a Bearish Formation as well
  11. US Treasury 10yr Bond Yield of 1.73% remains bearish TRADE and TAIL w/ resistance at 1.75% and 1.91% respectively

And, finally, US Equity Fund outflows (ex-ETFs) continued last week with another -$1.4B yanked. So, was yesterday’s 1-day move a head-fake? Are you feeling hot or cold?

I’ll let the market answer the 1st question for me today. If we confirm 1419 in the SP500 and the VIX snaps 15.54, that would be bullish. On the second question, my arthritic hockey knuckles are officially numb as I sign off from a chilly Westport, CT.

Out immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1691-1728, $107.49-109.96, $79.68-80.47, $1.28-1.30, 1.70-1.75%, and 1391-1432, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Hot & Cold - EL

 

Hot & Cold - ELVP