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Japanese Yen Gets Aso'd

Early this morning, the Bank of Japan announced it would enter into an "open ended" asset purchase program and would "firmly" target 2% inflation. As a result, the Japanese Yen spiked over 1% on the news, much to the chagrin of those who were short the currency. Japan's Finance Minister Taro Aso and Prime Minister Shinzo Abe are determined to fight deflation, calling the move ""...a bold review of monetary policy, an epoch-making document." Timing is everything in this market. Our Global Macro Theme of #QuadrillYen rings truer than ever today.

 

Japanese Yen Gets Aso'd - DAYEN


Hedge Funds Chase Corn

Corn prices have inched upward after the recent World Agricultural Supply and Demand Estimates (WASDE) and Quarterly Stocks report showing an increase in demand and a lower harvest. Hedge funds have piled into long corn positions as they chase the uptick in price. Net positioning (net long positions/net short positions) remains bullish at 166%, well off the ’12 highs that we saw back in December (525%). We have no position in corn right now but remain bearish on the commodity.

 

Hedge Funds Chase Corn - corn1


HOUSING: Inventory Falls Lower

Existing home inventories fell further in December by 170,000 units, another positive data point for the housing market that falls in-line with our second Q1 2013 Global Macro Theme of #HousingsHammer. Don’t let the 1% month-over-month decline in existing home sales we saw print this morning get to you; the housing recovery is still underway and in full effect. It's worth noting that this morning's decline in inventory can act as a catalyst for driving home prices higher in the coming year.

 

HOUSING: Inventory Falls Lower - inventory 2 normal


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FNP: Kate in the Spotlight

Takeaway: Kate Spade was unofficially endorsed by the Obama fashionistas at Monday’s Presidential Inauguration.

The Kate Spade brand got a little kicker yesterday in the nation’s capital as Sasha Obama wore a Kate Spade dress and overcoat to President Obama’s second inauguration. While this isn’t exactly a stock moving event, we think it’s a brand validator given that the First Lady is arguably the most trend-setting First Lady since Jackie O fifty years ago. We’ve seen that thus far with brands like J Crew, and the addition of Kate Spade into the mix can’t hurt by any means. Again, this does little to alter our value for FNP today as it is minor in the grand scheme of things, but the underlying strength and value of Kate Spade is core to any investment thesis, and this is a nugget of evidence that it still holds true.

 

 

FNP: Kate in the Spotlight                 - FNP KatePI

 

 


HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING

Takeaway: Don't be confused by the knee-jerk reaction to today's existing home sales number. The inventory number was better, and that's what matters.

Focus on the Inventory Reading

While the media is focused on the headline sales print for December existing home sales declining 1% MoM and coming in below expectations, we're focused on the inventory number, which is down 23% vs. last December and carries with it very strong future pricing implications. 

 

As those who follow our pricing models know, a change of 1 million units in inventory affects future (11 months) HPI prices by 12.1%. As such, this morning's sequential decline in inventory of 0.17 million units equates to an additional 200 bps of upward pricing pressure in the coming year.

 

Similarly, on a month's supply basis, every one month of supply equates to a 4.1% delta over the coming year, so this morning's decline of 0.4 months works out to 164 bps of incremental (i.e. vs. last month's expectation) upward pricing pressure over the coming year. 

 

These are independent models so the fact that they arrive at similar, albeit slightly different, conclusions is important.

 

We're not concerned about the shortfall in the existing home sales number. More recent MBA volume statistics and the most recent pending home sales reports are better, more recent, indicators that show demand remains robust and growing. As a reminder, our thesis revolves around price reflexively driving demand, and that demand, in turn, driving price further.

 

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 2

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 3

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 4

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - sales

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - sales long term

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - median price

 

Joshua Steiner, CFA


European Banking Monitor: Data Remains Supportive For Now

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

* Sovereign CDS – Sovereign Swaps were mostly wider last week with Japan putting on a major move. Japanese CDS widened by 13 bps last week to 87 bps (a move of 17.8%). Meanwhile, the US also widened by 5 bps to 44 bps. This means the US now trades outside Germany (40 bps). Elsewhere in Europe, swaps were relatively unchanged. 

 

* On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.

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If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

 

Matthew Hedrick

Senior Analyst

 

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European Financials CDS Monitor – Swaps mostly widened in European Financials last week, though there was nothing especially noteworthy.

 

European Banking Monitor: Data Remains Supportive For Now  - cc. banks

 

Euribor-OIS spread – The Euribor-OIS spread was flat week-over-week at 11 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. 

 

European Banking Monitor: Data Remains Supportive For Now  - cc. euribor

 

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.  

 

European Banking Monitor: Data Remains Supportive For Now  - cc. facility


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