C'est L'Asymmetry!

This note was originally published at 8am on May 07, 2013 for Hedgeye subscribers.

“C’est la dissymetrie, qui cree le phenomene.”

-Pierre Curie

 

Translated, what French Physicist (1859-1906) Pierre Curie meant by that was asymmetry creates evolutionary change. He and his wife, Marie Sklodowska-Curie, won the Nobel Prize in Physics in 1903. Their lesson needs to be re-learned by market participants, every day.

 

I’ve always been trying to re-learn. While you cannot tell by my last name, I’m French too. I’m at least half-francophone (French Canadian). My Mom’s side of the family is French as a first language (Les Thiboutots). I didn’t learn how to properly read, write, and do math in English until the 6th grade. That explains partly why I am slow to grasp British concepts like Keynesian economics.

 

Markets don’t care about what you or I know. They are going to do what they do, irrespective of our respective market positions. That, alongside the non-linearity of it all, humbles me, daily. C’est L’Asymmetry, mes amis. That’s de stuff we want to be looking for, eh.

 

Back to the Global Macro Grind

 

Professional Top Callers (#PTCs) have been calling for the top in stocks for a good 3-6 months now. To be fair, maybe when they said sell in May, they meant to tell you it was going to be from the all-time closing high of 1617 in the SP500 (yesterday). They nailed it. I’ll piggy back on their call and tell you to sell some too this morning (SP500 is immediate-term TRADE overbought at 1621).

 

Maybe they meant sell Treasuries in May? That would’ve been a more asymmetric call. Given that long-term US Treasuries just made another lower-high (vs her all-time closing high of November 2012), at least there’s a case to be made for the final Bernanke Bubble to start popping now; especially if we’re right on US employment, housing, and consumption #GrowthAccelerating.

 

Now that many of the well bandied about bearish “catalysts” of 2013 haven’t panned out (sequestration, Cyprus, etc.), our channel checks are revealing more creative ones like Cicadas (locusts). Hedgeye Senior Jedi Analyst, Christian Drake, reminded me yesterday that 2013 is year 17 in their seventeen year hibernation cycle. The cicada cacophony is set to potentially engulf the East Coast.

 

In other news, 2013 is also the 100 year anniversary of the Fed (US Federal Reserve Act of 1913). In order to celebrate:

  1. The US Dollar has finally had it with being devalued to a 40 year low (2011)
  2. The price of Gold has finally had it with going up (every year since 2001)
  3. The Japanese, Europeans, and now Australians are opting to devalue

I’ve written this many times before, but it’s worth mentioning again – if the US Dollar were to continue to breakout from her 40 year low, this will be the most asymmetric move you have seen in Global Macro since the 1990s.

 

So, you don’t want to miss that.

 

Markets certainly aren’t missing what was long considered the improbable (#StrongDollar) becoming increasingly probable. There are two causal factors driving this (absolute and relative) - both have had big news in the last 3 trading days:

  1. ABSOLUTE - #StrongDollar gets stronger as US employment growth surprises on the upside
  2. RELATIVE – the Australians joined the Europeans, cutting rates overnight to a record low (2.75%)

Hindsight is now becoming crystal clear and consensus is actually going to where the puck is going this morning:

  1. Australians cut rates
  2. AUS/USD breaks TREND support on the news (only 8 of 29 “economists” expected the cut)
  3. Gold falls -0.7% to the lows of the day ($1459/oz)

Makes sense. Or does it? And to who?

 

I see a lot of #AngryBugs (Gold Bulls) trying to justify their long gold position (which is -13% YTD) with the same thesis – “everyone is printing money.” Got it. But that’s not what really matters to Gold right now. What the market is saying matters is that if the Japanese, Europeans, and Australians devalue, that’s bullish for the US Dollar, and bearish for Gold.

 

If you disagree, that’s fine – that’s what makes a market. This is what the market is telling us on the USA vs Gold relationship:

  1. On a 6 month duration, the inverse correlation between USD and Gold is -0.72
  2. On a 6 month duration, as US Treasury Yields (10yr) have made higher-lows, Gold has made lower-highs
  3. On a 6 month duration, US employment, housing, and consumption growth have been inversely correlated to Gold too

Is it interconnected? What kind of asymmetry do you think you get if Hedgeye is right (and Bernanke wrong) on the US unemployment rate? Remember, the biggest risk to Bernanke’s policies has always been his forecast. He still hasn’t signaled to the market that the US economy could see a 6% handle on the unemployment rate in 2013-2014 (he’s forecasting 2016-2017).

 

I know. No one thinks anything about Fed policy will change until he leaks it to his boys. While that may be true, also remember that A) markets front-run the Fed and B) no one has an edge on delaying economic gravity. The US Dollar, Gold, Stocks (and maybe even Treasuries now that it’s May) are signaling it might be time for Bernanke’s policies to change. C’est L’Evolution!

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1417-1490, $99.04-105.95, $81.56-83.11, 97.61-100.43, 1.71-1.82%, 12.43-14.07, 942-963, and 1595-1621, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

C'est L'Asymmetry! - Chart of the Day

 

C'est L'Asymmetry! - Virtual Portfolio


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more