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Eye on the Prize

Client Talking Points

JAPAN

One thing that has USD up is Yen down. Of course, Yen down equals Weimar Nikkei up (even though in the end it's likely going to blow them up). That’s the central planning plan and they’re sticking to it! Nikkei surged +4.9% overnight, recapturing 13,081 TRADE support as the Yen fails at 96.05 TREND resistance (vs USD).

COPPER

Copper was smoked yet again on the potent cocktail of #StrongDollar and bad China data this morning. Chinese Export data got royally crushed to just +1% in May vs +14.7% April (They made up the number in April). Copper remains in a Bearish Formation with immediate-term TRADE resistance = 3.38/lb.

UST 10YR

The 10yr is holding last week’s gains at 2.16% this morning; still looks great to us (Treasury Bonds look bad – Financials look great, XLF). Meanwhile, there’s really no US economic data that matters until Thursday when Retail Sales will show that they grew again sequentially in May. US #GrowthAccelerating and no immediate-term resistance in the 10yr to 2.22%, then 2.41% on the TREND duration

Asset Allocation

CASH 18% US EQUITIES 32%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow.

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.

Three for the Road

TWEET OF THE DAY

If Jimmy Paulsen is out, does that make us the only hyper US stock market bulls left?

@KeithMcCullough

QUOTE OF THE DAY

"If they hate, then let 'em hate and watch the money pile up"

- 50 Cent

STAT OF THE DAY

20% of all divorce cases in the United States cite evidence found on Facebook as grounds for the disillusion of marriage


THE M3: MACAU LEGEND IPO

THE MACAU METRO MONITOR, JUNE 10, 2013

 

 

MACAU LEGEND'S IPO AIMS TO RAISE UP TO US$786 MILLION Macau Business

Macau Legend Development Ltd is looking to raise up to US$786 million (MOP6.3 billion) in its upcoming HK IPO.  Previous reports said the company was looking to secure US$600 million from the operation.  The company and shareholders Lam Fong Ngo and Grand Bright are selling 2.05 billion shares in the offering, of which 86.2% are new shares issued by Macau Legend, and the remainder existing stock from the two shareholders.


Macau Legend is offering the shares in an indicative range of HK$2.30 (US$0.3) to HK$2.98 each.  The listing is scheduled for June 27.  The proceeds will go to financing the redevelopment of the Macau Fisherman’s Wharf theme park.

 


June 10, 2013

June 10, 2013 - DTR

 

BULLISH TRENDS

June 10, 2013 - 10yrA

June 10, 2013 - spx

June 10, 2013 - dax

June 10, 2013 - dxy

 

BEARISH TRENDS

June 10, 2013 - VIX

June 10, 2013 - yen

June 10, 2013 - oil

June 10, 2013 - natgas

June 10, 2013 - gold

June 10, 2013 - copper

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 10, 2013


As we look at today's setup for the S&P 500, the range is 45 points or 1.18% downside to 1624 and 1.56% upside to 1669.     

                                                                                                                          

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.87 from 1.87
  • VIX closed at 15.14 1 day percent change of -8.96%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:50am: Fed’s Bullard speaks in Montreal
  • 11:00am: Fed to purchase $1b-$1.5b notes in 2017-2043 sector
  • 11:30am: U.S. to sell $30b 3M bills, $25b 6M bills
  • U.S. Rates Weekly Agenda

GOVERNMENT:

    • President Obama speaks on Equal Pay Act’s 50th anniv.
    • Jeff Chiesa, R-N.J., is sworn in as U.S. Senator
    • House, Senate in session
    • Senate Commerce Cmte votes on nominations of Penny Pritzker for Commerce Sec., Anthony Foxx for Transportation Sec.
    • Senate to vote on Leahy amendment to farm bill, S. 954, followed by final passage, 5:30pm
    • Fed issues interim rule on how to treat American branches of foreign banks for a section of Dodd-Frank that prevents bailouts of swaps dealers

WHAT TO WATCH

  • Google said to be buying Waze for $1.1b for social maps
  • Apple holds Worldwide Developers Conf.; to unveil new iOS
  • Elan board rejects raised $6.7b Royalty Pharma offer
  • AstraZeneca to buy Pearl Therapeutics for up to $1.15b
  • SoftBank’s clearance for Sprint deal confirmed by officials
  • China May industrial output rose 9.2% vs est. 9.4%
  • Marchionne says Fiat may acquire Chrysler stake before IPO
  • JBS said to agree to buy Seara food assets from Marfrig
  • Exide files for Chapter 11 bankruptcy after losing Wal-Mart
  • McDonald’s May global comp. sales seen gaining 1.9%
  • GE CFO Sherin said to take over finance arm as soon as summer
  • CBS said nearing $2.7b in upfront advertising commitments
  • Hawke horror film “The Purge” outsells Vaughn/Wilson duo
  • Japan revises growth to annual 4.1% in boost for Abe
  • Obama tells Xi that China must act against cybertheft
  • Pentagon’s cybersecurity plan calls for $23b through 2018
  • 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
  • Retail sales probably rose in May: U.S. Weekly Eco Preview
  • U.S. Retail Sales, BOJ, Iran, U.S. Open: Wk Ahead June 10-15

EARNINGS:

    • Navistar International (NAV) 4pm, $(1.20)
    • Lululemon Athletica (LULU) 4pm, $0.30
    • Diamond Foods (DMND) 4:01pm, (-$0.19)
    • Annie’s (BNNY) 4:06pm, $0.28
    • Pep Boys (PBY) 4:41pm, $0.09

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Trades Near Two-Week High on Economy; Sudan Oil Threatened
  • Gold Bull Bets Reach Seven-Week High Before Retreat: Commodities
  • China Approves Gold-Backed ETPs as Domestic Buyers Chase Bullion
  • Gold Declines to Two-Week Low in London on U.S. Stimulus Outlook
  • Corn Drops With Soybeans as Dry Weather May Aid Crop Conditions
  • Freeport May Declare Force Majeure If Grasberg Shutdown Extends
  • JBS Becomes Largest Chicken Producer With Marfrig Deal
  • Rupee Slump Set to Boost Costs for India Bullion Importers
  • Palm Oil Falls From Two-Month High on Concern India May Buy Less
  • Allana in Ethiopia Snubs Potash Supply Concern: Corporate Canada
  • Sudan Threatens to Shut South Sudan Oil Over Rebel Support
  • San Onofre Seen as Latest Setback for U.S. Nuclear Power: Energy
  • Bullion Bear Market Seen Extending to $1,303: Technical Analysis
  • Deutsche Bank Starts Singapore Gold Vault With 200 Ton Capacity

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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

 

 

 

 

 

 

 

 

 

 

 



Bullish Places

“Books can lie, but places never do.”

-Jack Weatherford

 

I love that quote. Jack Weatherford uses it in the Introduction to this epic book I am still reading – Genghis Kahn and The Making of The Modern World.  Politicians and market pundits can lie too, but markets are always scoring the truth.

 

Some will disagree and say that markets are often wrong. Agreed – if the market goes your way on the timeline that you outlined prior to taking your position, that is. Being positioned for what the market currently accepts as truth is the name of the game.

 

If you could be right every day, you would be. Very few will disagree with me on that.

 

Back to the Global Macro Grind

 

Last week’s employment data continued to drive home a very simple, but trending, score in 2013 – US employment and consumption growth is accelerating. This shouldn’t have been a surprise by the time you saw the sequential improvement in the payroll data on Friday. Our preferred leading indicator (non-seasonally adjusted rolling jobless claims) has been trending bullish for 6 months.

 

Every 3 months, we update our Top 3 Global Macro Themes @Hedgeye. This quarter I was definitely nervous about one of them. Making a call that US growth could go from stabilizing to accelerating was more of a question to us than it was a definitive answer. Throughout Q213 however, US employment, housing, and consumption data has improved, impressively.

 

To review - our Macro Themes for Q2 2013 are:

 

1.       US #GrowthAccelerating

2.       #StrongDollar

3.       #EmergingOutflows

 

Since the fulcrum factor in our trending themes remains the US Dollar, last week’s abrupt selloff in the US Dollar versus the Japanese Yen definitely mattered. An immediate-term TRADE does not an intermediate-term TREND make though, so this morning’s -1.25% reversal in that move to #StrongDollar’s benefit has me smiling again.

 

Alongside a big bounce in #StrongDollar versus Burning Yen, this is what you get pre-open:

  1. Gold and Silver down another -0.5-1.3%, respectively
  2. Copper and Corn down another -1.1-1.3% respectively
  3. US Equity Futures up another 6 handles, following Friday’s +1.3% bullish breakout back above 1624 SPX

If you are betting on growth, you’ve recognized that the market’s version of the truth is currently paying people who have embraced the non-consensus bullish case that #StrongDollar is a pro-growth signal. You can see that in the following trending correlations:

  1. USD vs SP500 (on our intermediate-term TREND duration) has a positive correlation of +0.81
  2. USD vs Gold (on our intermediate-term TREND duration) has a negative correlation of -0.72

Moreover, if you want to dig into the multi-factor, multi-duration update, these correlations have actually strengthened across multiple factors in the last month. In addition to rising US Treasury yields, here are some more pro-growth signals to consider:

  1. US Financial Stocks (XLF) are +4.2% in the last month vs slow growth Utility Stocks (XLU) at -4.5%
  2. Low Dividend Yield stocks (i.e. higher growth stocks) = +20.9% YTD
  3. High Short Interest stocks (i.e. the ones that squeeze hedgies shorting them on “valuation”) = +19.1% YTD

Again, the score in the book may very well feel like a lie to people who are still bearish on growth, but where this market has scored the game for 2013 YTD isn’t. I’m not a fan of investing alongside what people are “feeling” anyway.

 

Another score that is developing quickly here is that a #StrongDollar eventually drives underperformance in Emerging Markets.  We call this Theme #EmergingOutflows and it’s worth scoring this morning as well:

  1. MSCI Emerging Markets Index = down another -2.4% last week and -6.6% for 2013 YTD
  2. China’s Shanghai Composite Index = down another -3.9% last week and -2% for 2013 YTD
  3. Brazil’s Bovespa Index = down another -3.6% last week and -15% YTD

Investors we speak with on #EmergingOutflows fall into 1 of 3 camps:

  1. Bearish on everything (we aren’t) – so they think Copper and China going down is bearish for US stocks
  2. Bullish on Global Growth (we aren’t) – so they think they should buy Emerging Markets because they “look cheap”
  3. Bullish on US #GrowthAccelerating and #StrongDollar – so they are bearish on Emerging Markets tied to commodities

We’re obviously in the 3rd camp. Looking at this week’s contra-indicator camps (weekly futures and options contracts in the CFTC data) we’re still seeing Camp 1 A) buy Gold (weekly net long position +19% wk-over-wk) and B) short SPY (there’s still a net short position in SPY right now of -3,061 non-commercial contracts).

 

I’m not saying we’re going to nail the macro call in perpetuity. All I’m saying is that last week was one of the top 6 times in the last 6 months that you’ve had to re-load on the long side where it’s actually working. Bullish Places are as bullish does.  And, globally, they are getting harder and harder to find.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, and the SP500 are now $1, $100.27-105.25, $81.31-82.96, 96.05-99.98, 2.07-2.22%, 13.77-15.87, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Places - Chart of the Day

 

Bullish Places - Virtual Portfolio


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