“We are made of the same stuff of which events are made.”
-Ralph Waldo Emerson
That’s the opening volley from astrophysicist Eric Chaisson in one of my favorite risk management books, Cosmic Evolution. What’s up with that? What’s up with a chaos theorist prefacing his ideas with the penmanship of a mid-19th century American essayist? It’s all about the storytelling folks. As Taleb recently wrote in Antifragile, “evolution does not depend on narratives, humans do.”
While finding the deep simplicity of the Global Macro point that matters can often feel like finding Waldo himself, Chaisson channeling Emerson is consistent with our discipline of Embracing Uncertainty. Emerson was labeled as a “transcendalist” – he preached individualism and self reliance; he did not support dogmatic and/or traditional organizations.
We’re human, so we want things about markets to make simple sense within our organizational boxes. But markets change, fast and slow. Sometimes they make sense. Sometimes they don’t. In the heat of a thermodynamic moment, does every phase change make sense to everyone? Does that change care if you understand it? Of course not. Best we can do is try to keep up.
Back to the Global Macro Grind…
Keeping up with the US stock market hasn’t been easy for the #PTCs (professional top callers). Every time the SP500 sells off to a higher-low (1540 on Friday), they claim victory. Every time we rally off those higher-lows to higher all-time highs, I hear crickets.
Crickets? What are crickets? Do you hear them on the floor of the NYSE? Crickets – you can hear the hum when something was supposed to happen, and didn’t. #crickets
While I am not entirely sure what kind of a risk management process top-calling is, it fits within the confirmation biases of consensus. My tally is up to 28 high profile PMs, strategists, pundits, etc. who are currently still trying to call the top in US stocks. Maybe this time is different – maybe they’ll all nail it, at the same time. Maybe not.
Quantifying sentiment in markets is probably the hardest thing to do – I’ve tested and trialed almost every voodoo signal I have been issued on this front, and I am left with very few that I’d actually act on. Let’s consider those few:
1. Sentiment Spread – the II Bullish/Bearish survey data doesn’t tell me much on most metrics other than its historical spread (ie Bulls minus Bears). This morning, that spread is +2990 basis points wide. Over a decade of my tabulating/monitoring this spread, a relatively safe sell zone is +3 basis points wide. A relatively safe buy zone is basis points wide.
2. Exhaustion (VIX vs SPX) – while plenty will quibble with this for theoretical reasons (“front month doesn’t reflect sentiment” … “term structure matters more”, etc. etc.), for me it’s just a signal that I’ve built for myself that works most of the time. The problem with it is that it’s not signaling all of the time. So I have to wait on it.
If you’ve studied thermodynamics, you’ll agree that waiting for a certain amount of entropy matters before you register a certain amount of consequential change (energy). That’s one way to conceptualize my VIX/SPX signal. What I am waiting on is:
A) SPX immediate-term TRADE oversold
B) VIX immediate-term TRADE overbought
Sounds simple, because it is – after you’ve incorporated multiple-factors across multiple-durations in order to contextualize that immediate-term moment. In other words, it’s a lot easier to roll with the conclusion after the process signals it.
I’m not submitting that I haven’t been run over by my signals once in a while. Nor am I suggesting that either the Sentiment Spread or the VIX/SPX signal are stand alone silver bullet signals. They are just two of the many tells I use instead of gnomes.
Just to roll through putting the aforementioned into action:
- On Friday morning, the SP500 was immediate-term TRADE oversold at 1540
- On Friday morning, the VIX was immediate-term TRADE overbought at 15.23
So, our #RealTimeAlerts (immediate-term signaling product) acted, aggressively on that, covering shorts and buying stocks (including the SPY itself). This is not about taking victory laps – this is about being accountable to what I do and why. I feel like putting my process out there like this makes it better. Sharp clients question it; so do my analysts internally. In the end, for me at least, that’s a win.
The other side of the buy/cover signal is to have the discipline to sell/short on the bounce. We’ve seen that for a few days since the Friday lows, and now, as the SP500 makes another all-time high, we’ll get another SPX overbought/VIX oversold signal too.
Will that happen at VIX 12.21 and SPX 1576? I don’t know. And that’s the point. Embracing Uncertainty in a non-linear and dynamic ecosystem like this is what I do. Stuff Changes. So I need to change alongside it.
Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $103.86-107.78, $3.29-3.47, $82.23-83.34, 96.12-100.05, 1.71-1.82%, 12.21-14.51, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
The Macau Metro Monitor, April 10, 2013
U.S. SAYS OKADA'S UNIVERSAL IS TARGET OF CRIMINAL BRIBERY PROBE Reuters
In a Nevada state court filing, U.S. federal prosecutors sought permission to intervene in a lawsuit brought by WYNN against Okada to prevent disrupting an ongoing criminal probe into the bribery allegations. It was the first time U.S. authorities publicly acknowledged a criminal investigation of Okada and his companies - Japan's Universal Entertainment Corp and Aruze USA Inc - for possible violations of the Foreign Corrupt Practices Act, an anti-bribery statute dating to the 1970s.
The U.S. Department of Justice is seeking a temporary stay on discovery in the civil proceedings to allow for the criminal case to be developed. Wynn would consent to the motion while Okada would likely oppose it, according to the filing.
The government also noted in the filing that it has been conducting a criminal investigation into Wynn's donation in 2011 to the University of Macau Development Foundation. Okada has said Wynn's board turned against him for opposing the donation.
HIGH-ROLLERS FROM CHINA MAKE SINGAPORE CASINOS SEE RED Reuters
An examination of court documents by Reuters and a series of interviews with lawyers and industry executives reveal that several of the gamblers have run up millions of dollars in debt and then scampered back to China, where they are effectively untouchable.
When faced with bad debts, casinos negotiate with the gamblers, and as a last resort, file suits in court. But as gambling debt is considered a civil, not criminal, issue in Singapore, gamblers who fail to pay will not be arrested.
The two casinos have sued at least three Chinese gamblers to recover millions of dollars but court documents show they have not been able to get any money from them so far. Court documents also show that Marina Bay Sands has filed 84 claims for at least S$250,000 each at Singapore's top court since 2010, including 62 last year and 11 as of mid-March this year. Resorts World filed 11 cases in 2012 and one in 2010. These cases relate to all manner of claims, not just gambling debts.
Many of the suits filed in the Singapore court are against gamblers based in the country, but there are likely to be larger claims on Chinese high-rollers that are not pursued due to the "painful" process and the potential bad publicity, lawyers said.
Singapore does not have reciprocal enforcement of judgments with China, except for Hong Kong. This means that even if a casino obtains a judgment in a Singapore court, it also has to sue the gambler in China.
"If there is a lot of gambling debt and the gambler is in China now, usually the casinos can hardly get any cooperation from the Chinese government to go after them because gambling is illegal in China," said Huang Jing, director at the Center on Asia and Globalization at the Lee Kuan Yew School of Public Policy in Singapore, who advises China's policymakers.
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TODAY’S S&P 500 SET-UP – April 10, 2013
As we look at today's setup for the S&P 500, the range is 15 points or 0.49% downside to 1561 and 0.47% upside to 1576.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 1.54 from 1.52
- VIX closed at 12.84 1 day percent change of -2.65%
MACRO DATA POINTS (Bloomberg Estimates):
- 7am: MBA Mortgage Applications, April 5 (prior -4.0%)
- 7:30am: Fed’s Lockhart speaks at Atlanta Fed conference
- 8:45am: Bloomberg U.S. Economic Survey, April
- 10:30am: DOE Energy Inventories
- 1pm: U.S. to sell $21b 10Y notes in reopening
- 2pm: Monthly Budget Statement, March
- 2pm: Fed releases minutes from March 19-20 FOMC Meeting
- 5pm: Fed’s Fisher speaks on economy in El Paso, Texas
- 9:30am: Senate Homeland Security Cmte hears from U.S. Border Patrol Chief Michael Fisher, acting Customs chief Kevin McAleenan
- 10am: House Ways and Means hearing on govt’s ability to keep operating if Treasury reaches statutory debt limit
- 10am: House Energy and Commerce panel hearing on Keystone bill intended to bypass the need for a presidential permit for the pipeline’s construction; TransCanada’s Alexander Pourbaix, NRDC’s Anthony Swift among witnesses
WHAT TO WATCH
- President Obama sends budget plan to Congress
- Universal Entertainment’s Okada under U.S. criminal probe
- Swap users win staggered delays in Dodd-Frank reporting rules
- Apple said to discuss closer mobile collaboration with Yahoo
- Citigroup hires McKinsey’s Chubak to help Corbat pare expenses
- Home prices to decline in some cities as rates rise: Zillow
- Exxon to seek second MTBE win in New Hampshire appeal
- Microsoft says Surface tablet 2-yr warranty follows China law
- Deutsche Telekom tallies MetroPCS votes to weigh higher bid
- UnitedHealth units to pay $500m over hepatitis doctor
- China exports miss forecasts as “absurd” data defended
- Toyota says Corolla surpassed Ford Focus in 2012 global sales
- Yahoo CEO Mayer puts Reses in charge of talent management, M&A
- UBS plans to expand Asia corporate advisory headcount by 10%
- Navistar accused in suit of misleading on engine compliance
- APA expects offers for Australian gas pipeline in next week
- Family Dollar Stores (FDO) 7am, $1.22
- Fastental (FAST) 7am, $0.37
- MSC Industrial (MSM) 7:30am, $0.90
- Constellation Brands (STZ) 7:30am, $0.45 - Preview
- CarMax (KMX) 7:35am, $0.46
- Progressive (PGR) 8:12am, $0.44
- Bed Bath & Beyond (BBBY) 4:15pm, $1.68 - Preview
- Novagold Resources (NG CN) Aft-mkt, C$(0.03)
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- WTI Halts Two-Day Advance as Supplies Rise to Three-Decade High
- Mine Town Rents Beating Manhattan Show Aussie Pain: Commodities
- Copper Drops as China Exports Fuel Concern Supply to Top Demand
- Gold Declines From One-Week High on Economic Recovery Outlook
- Wheat Drops as USDA Report May Show Higher Reserves; Corn Climbs
- Robusta Coffee at One-Week Low as Investors Sell; Cocoa Retreats
- Goldman Lowers Gold Price Forecast Through 2014 as Cycle Turns
- India Said to Consider Increasing Oilseed Prices to Boost Output
- China’s Crude Imports Fall to Lowest in Six Months in March
- Rebar Trades Near Two-Week High on Gain in Seasonal Demand
- Asian LNG Set to Rise as Premium at Two-Year Low: Energy Markets
- Gold in Yen Surges as Stimulus Erodes Currency: Chart of the Day
- Mechel Said to Consider Revising Plan to Sell Eastern Coal Asset
- Ex-Viterra Staff Join MAG Commodities to Trade Black Sea Grains
- China Gold Imports From Hong Kong Rebound on Decline in Prices
The Hedgeye Macro Team
Today we shorted the iShares MSCI Italy Index ETF (EWI) at $12.08 a share at 1:31 PM EDT in our Real-Time Alerts. Back to the well as Italy bangs the top end of our risk range - bearish on the intermediate-term TREND duration. We'll cover when our signals tell us to. It's about sticking to your process and we're doing just that.
The S&P 500 is enjoying a terrific bull run in 2013 and is up +10.2% year-to-date and up +13.6% over a one-year period. While the actions of various central banks have helped drive the index to a new all-time high, there other factors at hand that have helped boost the index. One has been the appreciation in value of the US dollar. Strong Dollar = Strong Consumption and consumption helps drive global growth.
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