prev

End of the World?

Client Talking Points

End of the World?

While the world of Old Media wrings its hands and furrows its brow over the situation in Cyprus, we don’t for a second think it’s the end of the world by any means. Here’s some context. In the last year, the market’s down 62%; in the last three months, it’s off 16%; and in the last month it’s down 8% in the last month. In other words, this is not news. It’s been happening for a while.

There Goes the VIX

The US Equity Volatility index was down 10.2% last week to a fresh five-year weekly closing low of 11.30. It’s also down 41% since the last time many could have freaked out, Italian Election Day on February 25. So, don’t get too freaked out today about the situation in Cyprus.

Asset Allocation

CASH 40% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“If you were a Cypriot, would you prefer a) deposit tax of 7-9% or b) a Venezuela style devaluation of 40%?” – HedgeyeDJ, our own director of research, Daryl Jones

QUOTE OF THE DAY

“Mr. Dimon’s failure on this score comes from the hubris of having too much power in his hands.” – John Liu, the New York City Comptroller on the way JP Morgan’s CEO Jamie Dimon handled the London Whale trading losses

STAT OF THE DAY

12.14%, the year-to-date change in the Russell 2000


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 18, 2013


As we look at today's setup for the S&P 500, the range is 32 points or 1.65% downside to 1535 and 0.40% upside to 1567.  

                                                                                                                             

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.70 from 1.74
  • VIX  closed at 11.30 1 day percent change of 0.00%

MACRO DATA POINTS (Bloomberg Estimates):

  • U.S. Rates Weekly Agenda
  • 10am: NAHB Housing Market Index, March, est. 47 (prior 46)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. Treasury to sell $35b 3M bills, $30b 6M bills

GOVERNMENT:

    • Senate to consider continuing resolution to keep govt funded past March 27
    • Boehner says mtgs w/ Obama didn’t ease budget standoff
    • Senate Judiciary Cmte holds hearing on immigration law, 2pm
    • U.S., U.K., France, China, Russia and Germany meet w/ Iran to review a proposal presented last mo.; sides will meet in Istanbul to discuss confidence-building steps
    • ITC Judge Thomas Pender releases findings in an infringement case by Dover’s Knowles Electronics against Analog Devices over microphones in digital devices
    • Washington Week Ahead

WHAT TO WATCH

  • Europe braces for more turmoil; Cyprus deposit levy at risk
  • Anastasiades seeks support from Cyprus political parties
  • Cypriot bank levy “ominous” for bondholders: Barclays
  • Banks raise cross-border lending by least in 13 yrs: BIS
  • Fed’s Fisher says too-big-to-fail banks should be broken up
  • Airbus said to win order for >200 planes from Lion Air
  • SpiceJet weighs switch to Airbus from Boeing on tech, cost
  • Chesapeake must meet w/BNY Mellon over weekend on call trial
  • SAC’s Plotkin may have been tipped by convicted SAC analyst
  • Office Depot Mexico sale talks said to go past deadline
  • Panasonic considers selling its health-care business
  • Dex One, SuperMedia file for bankruptcy to complete merger
  • AMR CEO Horton’s $20m severance draws U.S. objection
  • Boeing boosted CEO’s pay 20% year before Dreamliner grounding
  • AB InBev, U.S. seek lawsuit delay as Modelo talks progress
  • DuPont sued by retailers on price-fixing claim for pigment
  • Idemitsu, Mitsui consider U.S. petrochem plant on cheap gas
  • “Oz” leads NA box-office sales a second week w/ $42m
  • Osborne plans austere U.K. budget as political attacks ease
  • Li urges paring China state role to fuel 7.5% growth to 2020
  • Xiao quits Bank of China to head up securities regulator
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • Eco Week Preview: Homebuilding probably climbed w/ sales
  • FOMC, Obama in Israel, U.K. Budget, HP: Wk Ahead March 16-23

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodities Slump as Cyprus Sparks Declines From Oil to Copper
  • Bullish Bets Jump Most Since July as Gold Rebounds: Commodities
  • Cocoa Deficit Lasting Two More Years on Pest, Disease, ICCO Says
  • Gold Advances Above $1,600 for First Time This Month on Cyprus
  • Copper Touches 4-Month Low as Cyprus Rescue Fuels Crisis Concern
  • WTI Drops From Three-Week High on Cyprus; Libyan Pipeline Shuts
  • Wheat Drops for Second Day as Global Supplies Set to Increase
  • India’s Cabinet to Consider Ending State Curbs on Sugar Mills
  • Russia Adopts Texas Drilling to Revive Soviet Oil Fields: Energy
  • Ivory Coast Holds Cocoa Farmer Price and Sets Mid-Crop Start
  • AngloGold Ashanti Loses 20,000 Ounces in South African Power Cut
  • Palm Oil Declines as Malaysian Export Tax Seen Curbing Demand
  • Japan’s Bid to Enter Trade Talks Opens Export Route for U.S. LNG
  • Stronger U.S. Dollar May Not Limit Commodities: Morgan Stanley

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 


Commodity Gap

This note was originally published at 8am on March 04, 2013 for Hedgeye subscribers.

“Icy with anger, warm with satisfaction, sharp with concern”

-Emmet Hughes

 

Allegedly, that’s how President Eisenhower reacted to Russian intelligence briefings in July of 1956. While he didn’t sign off on the depth of the American U2 spy plane mission to begin with, “the President’s skepticism (about Russia) had been confirmed by just five days of aerial reconnaissance. The Bomber Gap was a myth.” (Ike’s Bluff, pg 215) The Russians didn’t have anything real.

 

Like the “missile gap” concerns that came thereafter, the Bomber Gap was part of the political fear-mongering that kept the American People on edge, building home bunkers, and buying canned foods – essentially preparing to be attacked. But freaking people out with a false story that’s based on logical premise isn’t new in this country. That’s how the #PoliticalClass gets paid.

 

Ultimately, knowing the truth (but keeping it to himself) became Dwight Eisenhower’s advantage in a world that was perpetually on the brink of war. When I see the emerging advantages of sequestration (Strong Dollar born out of fiscal spending sobriety), but hear politicians trying to scare people (when they should just get out of the way), I think about leadership. I also think about Ike.

 

Back to the Global Macro Grind

 

Does President Obama get what a Strong Dollar does for the US Economy? Did George Bush? Nixon and Carter didn’t. Reagan and Clinton did. A pervasively Strong Dollar gave the US Down Oil prices in the two most impressive growth decades since Eisenhower.

 

Last week, the US Dollar Index was up another full +1%. That was the 4th consecutive up week for the US Dollar. At the same time (and not ironically), Commodities (19 component CRB Index) were down for the 4th straight week. Commodity Deflation has been absolute (CRB Index -4.9% in 4 weeks), and now prices are finally scaring expectations.

 

To expect or not to expect Commodity Inflation, remains the question. Let’s look at last week’s CFTC futures and options net long positioning (hedge funds speculating on money printing, Bernanke Policies to Inflate, etc.) for some clues:

 

  1. The net long position in all of commodities collapsed another -16% last wk to 447,106 contracts
  2. Oil’s net long position dropped another -16% wk-over-wk to 175,211 contracts
  3. Farm Goods (think food) net long position crashed (again) another -24% to 145,564 contracts

 

Oh yeah, baby. Strong Dollar – we people who put gas in car, and food in mouth – we love you long time. But what, in this manic market, is a long time?

 

  1. March 2009? Yep. This is the lowest speculative net long position in CFTC contracts (commodity inflation) since 2009
  2. Corn contracts (down -20% last wk) are perpetuating the lowest food inflation expectations since, again, March 2009

 

For those of you still long the consumption related assets you bought after the March 2009 lows (we bought Starbucks, SBUX, at $11.52 in April of 2009, and still have it on #RealTimeAlerts; not a typo!), you are probably quite happy.

 

Freaking-out about the Commodity Gap now isn’t much different than freaking out about it then. I remember then almost like it was yesterday. People were pinging me with live quotes of “Dr. Copper crashing” saying the world was going to end. It didn’t. People who were long of Copper did.

 

Since the #PoliticalClass always asks for “solutions.” Why not try something no US President (under their Keynesian Economics regimes) has tried since the 1990s.  Why doesn’t the President of the United States hold a press conference today saying something like:

 

“Today, folks, is a great day in America. We finally cut spending and we are about to get this Bernanke character out the way on your savings accounts. Your currency is strengthening and your purchasing power is being restored. God Bless a free-market America.”

 

Anyone think that might happen? Bueller? Or does he really get this (and he’s just keeping it to himself)?

In the meantime, all I can tell you is this:

 

  1. WTIC Oil prices snapped our TREND line of $93.41/barrel support last week (-7% in the last month)
  2. Russian Stocks (which trade off oil expectations) snapped TREND of 1566 on the RTSI (-8% in the last month)
  3. Our immediate-term TRADE correlation between WTIC Oil and the US Dollar is now -0.99!

 

Enough of the #ClassWarfare speeches already. Mr. President, if you really want to help people who drive to work every day, tell the truth about Strong Dollar (+4% in the last month) and all its benefits as a real-time Tax Cut! Long live the Commodity Gap (down).

 

Our immediate-term Risk Ranges for Gold, Oil (WTIC), Copper, US Dollar, USD/YEN, UST10yr Yield, VIX, Russell2000, and the SP500 are now $1549-1589, $89.72-92.93, $3.48-3.57, $81.44-82.65, 91.85-94.68, 1.81-1.94%, 11.96-17.18, 901-930, and 1502-1534, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Commodity Gap - Chart of the Day

 

Commodity Gap - Virtual Portfolio


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

THE M3: PHILIPPINE INQUIRY

The Macau Metro Monitor, March 18, 2013

 

 

FBI INQUIRY OVER CASINO FOCUSES ON FILIPINO'S FEE Reuters

The F.B.I. and Philippine investigators investigating potential bribery related to Universal Entertainment’s bid to build a casino in Manila have zeroed in on a $25 million payment the company now says should never have been made.  Rodolfo Soriano, a consultant with ties to the former head of the gambling regulator in the Philippines, received the fee in 2010 to secure land rights for the $2 billion casino, Universal had said.  But records reviewed by Reuters show those rights were obtained free in 2009.


The F.B.I. is involved because the payment originated with a Universal subsidiary based in Nevada. Both the F.B.I. and the Philippine National Bureau of Investigation have been looking into a total of $40 million in transfers to Mr. Soriano since last year as a possible case of bribery.

 

In a closed-door, three-day hearing with the Nevada Gaming Control Board that concluded Friday, directors of Universal, a Japanese company, were questioned about the payment.  Among those questioned was the company’s billionaire founder, Kazuo Okada.

 




Trusting Fear-Dwellers

“Let no such man be trusted.”

-Shakespeare

 

According to John Meacham (author of Thomas Jefferson: The Art of Power), that was one of Jefferson’s favorite passages from Shakespeare’s Merchant of Venice – the tragic comedy about a man (Shylock) lending to another man (Antonio) for a pound of his flesh.

 

Thank goodness for Portia – in the end, she reminded Shylock that he must remove Antonio’s “flesh” (not the blood) and warned him that if he went a hair beyond a pound, “Thou diest and all thy goods are confiscate."

 

Written at the end of the 16th century (between 1596 and 1598), these were some pretty serious times of debate about debt and default. But looking at today’s consensus fear-mongering about Cyprus screwing its depositors, what has changed? Is the world about to end, again?

 

Back to the Global Macro Grind

 

I realize that’s maybe a little too philosophical for the monkey getting whipped around by the futures this morning. As Meacham himself points out, “Plenty of philosophical men live in abstract regions, debating types and shadows.”

 

But, my friends, behold! “The rarer sort is the reader and thinker who can see the world whole.” (Jefferson: The Art of Power, pg 47) And our risk management duty this morning is not to freak-out Italian Election style; it’s to see the world for what it is, not what Fear-Dwellers who have been getting run-over shorting US stocks for all of 2013 want it to be.

 

“To be, or not to be”, scared out of your mind this morning - remains the question. Todd Jordan and I took our wives to see Paul Giamatti in Hamlet this weekend so, admittedly, I have the Shakes; please bear with me as you read the Top 3 Most Read on Bloomberg this morning:

  1. “CYPRIOT OUTRAGE COULD DERAIL EURO-AREA BAILOUT”
  2. “ASIA STOCKS DROP ON CYPRUS BANK LEVY”
  3. “GOLD, GERMAN BONDS RALLY ON CYPRUS”

I know, I know – this is some scary stuff. If you’d like to freak-out alongside Old Media (must have crisis for ratings to stop crashing), I have a new hash-tag for you: #EOW (End Of World).

 

All of this comes after the US Dollar had its 1st down week in the last 6 (one week does not a new intermediate-term TREND make) – so what is a man or woman to do this morning but look at everything else that’s born out of the horror that is Cyprus:

  1. German and British stocks (after hitting new highs last wk) are down a whole -1% and -0.7%, respectively
  2. The Euro is actually now up on the session (versus the USD) at $1.29
  3. Irish stocks are up on the day too

Irish stocks? Yes me friends – ‘twas Saint Patty’s day yesterday. So, if the world is going to end today, have another pint, and smile about it will ya!

 

To be sure, at some point we will actually see the end of the world (and that day I will not be writing an Early Look), so I don’t want to be too complacent here. But I don’t want you freaking-out at another lower-high for the VIX and higher-low in the US stock market either.

 

Contextualizing where people are freaking-out from is usually more important than the why (their storytelling) after the correction (it’s called mean reversion, and yes it happens after stocks are up for 10 of the last 11 weeks).

 

First, here’s the context of Cyprus’ stock market:

  1. Down -8% in the last month
  2. Down -16% in the last 3 months
  3. Down -62% in the last year

Evidently, aside from some Russian money launderers (who don’t do Macro) getting smoked this morning, someone down there in the Socialized South of Europe knew something was going on, for a while now.

 

Then, there’s the US stock market’s context:

  1. Immediate-term TRADE overbought line = 1567
  2. Immediate-term TRADE support line = 1535
  3. Intermediate-term TREND support = 1486

In other words, with US Equity Volatility (VIX) down another -10.2% last week to a fresh 5-yr weekly closing low of 11.30, the Fear-Dwelling (front-month VIX) is down -41% from the last day you could have freaked right out and sold low (February 25th, Italian Election Day). So you might not want to do that again today. After selling some on green last week, we’ll be covering shorts and getting longer again, on red.

 

Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000 and the SP500 are now $1, $107.27-110.17, $81.94-83.04, 93.64-97.39, 1.91-2.01%, 10.72-14.47, 938-958, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Trusting Fear-Dwellers - Chart of the Day

 

Trusting Fear-Dwellers - Virtual Portfolio


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.

next