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Coaching Through Corrections

This note was originally published at 8am on May 28, 2013 for Hedgeye subscribers.

“A coach is someone who can give correction without causing resentment.”

-John Wooden

 

On weekends, I coach 4-6 year olds (hockey). During the week, I sometimes coach adults (macro). All the while, Mr. Market is always coaching me through something. I bear no resentment towards him. To the contrary, I quite enjoy it when he tells me what to do (signals).

 

With US stocks down for 4 of the last 5 days, there was another choice to be made on Friday – correction or crash? This wasn’t unlike many of the learning opportunities that Mr. Market has provided us in the last 6 months. Buying the correction has been the right choice.

 

The only thing that seems to be crashing this year is the idea that we are going to crash. The #EOW (end of the world) trade has been the worst place you could be long for the month of May. When you have #GrowthAccelerating, you don’t buy Yens, Gold, and Treasuries. Ask the Coach.

 

Back to the Global Macro Grind

 

After covering all but 4 short positions on red Friday morning, I posted a note titled “Oversold: SP500 Levels, Refreshed.” I also re-shorted the Yen at our immediate-term TRADE overbought line of 101.22.

 

These aren’t victory laps; they are timestamps – and I am 100% accountable to them. Two of the four short positions we have left are related to Japanese Policies to Inflate (short Yens and JGBs). The other two are short Russia (world’s 3rd worst stock market YTD, next to Peru and Cyprus) and short Emerging Markets (EEM) which do not like #StrongDollar (and are down YTD).

 

What if I didn’t listen to the Macro Coach? What if I just ignored my signals and went with “feel”? Been there, done that – many times over, in many arenas and markets – and, in general, it doesn’t work. For us what works is the combination of A) Risk Signals and B) Research Views – when we have both, we move.

 

Last week’s US Equity market risk wasn’t the economic fundamentals – it was Ben Bernanke. He tried his best to confuse economic gravity (#GrowthAccelerating) with his longstanding and dogmatic view that he needs a weaker US Dollar to achieve his goals. #wrong

 

He got that last week – the Dollar weakened and so did the US stock market in kind (they now have a very positive correlation, Ben). Bernanke’s jawboning arrested #StrongDollar momentarily (-0.65% on the week), and the SP500 corrected -1.2% from its all-time weekly closing high.

 

Back to the Research View - whether Bernanke wants to acknowledge it or not, last week’s US economic data was decisively bullish:

  1. New Home Sales for April ripped +8.8% sequentially (month-over-month) to 454,000
  2. US weekly Jobless Claims surprised on the downside (again) at 340,000 (-8.9% year-over-year)
  3. US Durable Goods #GrowthAccelerated +3.3% in April (versus March)

That’s why US Treasury Yields continued to back up (despite Bernanke trying to talk them down). The US 10yr Yield is up again this morning to 2.04% and has no intermediate-term TREND resistance to 2.41%. So Mr. Market is trying to coach @FederalReserve through this…

 

Whether Bernanke tells his boys to listen to the market’s message will be his legacy. His boss (President Obama) cares about his political legacy too. On the cover of The Economist this weekend is a picture of Barry looking a little confused alongside the titled “How To Save His Second Term.”

 

Coach says the best way to make Obama look good is via our #StrongDollar, Strong America strategy. It worked for Reagan and Clinton – and it can work for Obama too. If he doesn’t get it, Hillary will – this isn’t that complicated, folks.

 

Coaching you through corrections in Yens, Gold, and Treasuries starts with reminding you that these aren’t corrections – in 2 of 3, they are crashes – and for many Americans still choking on Bernanke Yield Chasing trade, the third may very well become his Waterloo.

 

Just to show you how horrendous being long no-growth “yield” is performing in the last month, here’s the score:

  1. Utilities (XLU) are already down -6.3% for the month of May alone!
  2. With Treasuries down (Treasury Yields up +38bps in the last month!), Financials (XLF) lead the SP500 at +5.5% for May to-date
  3. Low Yield Stocks (i.e. Growth Stocks) are up +6.7% in the last month and now +20.1% for 2013 YTD

Got that Messrs Bernanke and Obama?”

 

With the US Dollar +5.1% YTD and Commodities -3.7% YTD, Coach says get the US Dollar right and you’ll start to get America right. Freedom, Liberty, and Growth are the best paths to prosperity – not Dollar Debauchery, fear-mongering, and sketch balls at the IRS.

 

We can get you guys through this. Yes We Can. Embrace #StrongDollar, and be the change.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1341-1421, $101.48-103.94, $83.62-84.29, 101.21-103.66, 1.96-2.06%, 12.27-14.46, and 1642-1672, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Coaching Through Corrections - Chart of the Day

 

Coaching Through Corrections - xx. VP


June 11, 2013

June 11, 2013 - dtr

 

BULLISH TRENDS

June 11, 2013 - spx

June 11, 2013 - dax

June 11, 2013 - dxy

June 11, 2013 - 10yrA

 

BEARISH TRENDS

June 11, 2013 - VIX

June 11, 2013 - yen

June 11, 2013 - oil

June 11, 2013 - natgas

June 11, 2013 - gold

June 11, 2013 - copper



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Beach Time?

“I’m going to lie on the sand and watch the world go to hell.”

-William Bullitt Jr.

 

That’s not a very nice thing to say now is it? Young Yale men can get pretty emotional when they go out into the real world and get told they are wrong. In 1913, William Bullitt was voted the “most brilliant” man at Yale. I am not sure what that means, but trying to do a deal with Lenin probably changed his classmates’ minds on that, eventually.

 

Brilliant is as brilliant does. Yesterday may have been one of the best days to sell everything and go to the beach for the rest of the summer. I doubt it, but we’ll see. Every morning we reserve the right to change our mind. That’s the upside to not working for the government. Poor Bullitt (he was a rich kid from Philadelphia actually) didn’t share our self-deterministic luxury.

 

In 1919, “Bullitt and Steffens spent a wonderful week in Moscow: accommodation in a confiscated palace, piles of caviar, nights at the opera…” etc. Life was indeed #brilliant, until he came back to Paris and Wilson bagged his idea to appease the Bolsheviks. Lenin later recalled that the young American diplomats were “useful idiots” (pages 78-81, Paris 1919 by Margaret Macmillan).

 

Back to the Global Macro Grind

 

I don’t do beach. At least not now. I have work to do, a family to feed, and a firm to build. It’s mid-June and its really only the 2nd day in the last 6 months where I woke up thinking, wow – the world might actually start going to hell again.

 

When I say I “think”, I mean the Global Macro market’s interconnected signals are making me think. When I was Bullitt’s age (28 years old at the Paris Peace Conference) I wasn’t yet married and I thought in very different ways!

 

I was a lot more bullish on US Consumption oriented Equities < 1601 in the SP500 last week than I was 50 handles higher yesterday. At 11:02 AM EST I wrote a note titled “Sell Some: SP500 Levels, Refreshed.” The research view didn’t change; my risk signals did.

 

To review the what on that (which is usually more important than the why):

  1. SP500 signaled it’s 1st lower-high in my model in months (1662 resistance vs YTD closing high of 1669)
  2. US Equity Volatility (front month VIX) signaled a higher-low at 13.77
  3. US Dollar signaled immediate-term TRADE overbought on the open versus the Japanese Yen

Get the Dollar right, and you’ll get other things right. You don’t have to be brilliant to embrace the uncertainties associated with that. When I make big moves in either Real-Time Alerts or the Hedgeye Asset Allocation Model, it almost always starts with a USD signal.

 

Since we’ve already beached our asset allocations to both Fixed Income and Commodities (0% on both), our only risk management exercise this summer is deciding how big we get (and when) on this US Consumption LONG versus Commodities SHORT position.

 

For now, the intermediate-term TREND ranges for US Equities and volatility are as follows:

  1. SP500 = 1
  2. VIX = 13.77-18.98

Again, you’ll note that what’s new in that 2 factor model is:

 

A)     Lower-highs for US stocks

B)      Higher-lows for US equity volatility

 

Plenty will quibble with how my models work, and that’s perfectly fine with me. I don’t have time to do anything other than what we are already doing here at the firm. So my own risk is going to be doing more of that.

 

The beauty of operating from the opposite perspective as brilliant central planners who promise you certainty (Obama just called his freshly minted Keynesian, 42 year old Harvard boy, Jason Furman, “one of the most brilliant minds of his generation”) is Embracing Uncertainty. We have no idea what tomorrow is going to tell our model.

 

Here’s all I am certain about as of this morning (this could change by tomorrow, but probably not):

  1. Japan’s Weimar Nikkei is now bearish TREND (resistance = 13,849)
  2. Japanese Yen (vs USD) remains bearish TREND (resistance = 96.05)
  3. US Dollar Index remains bullish TREND ($81.21 = support)
  4. South Korea’s KOSPI is back to bearish TREND (resistance = 1968)
  5. Hong Kong’s Hang Seng is bearish TREND (resistance = 22,438)
  6. India’s BSE Sensex is bearish TREND (resistance = 19,692)
  7. Germany’s DAX is bullish TREND (support = 8112)
  8. UK’s FTSE is bullish TREND (support = 6281)
  9. Spain’s IBEX is bearish TREND (resistance = 8361)
  10. Russia’s RTSI is bearish TREND (resistance = 1472)
  11. Brazil’s Bovespa is bearish TREND (resistance = 56,191)
  12. Commodities (CRB Index) remain bearish TREND (resistance = 296)
  13. Gold remains bearish TREND (resistance = 1581)
  14. Old (Brent) remains bearish TREND (resistance = 108.31)
  15. Copper remains bearish TREND (resistance = 3.51)
  16. Japanese Government Bond yield (10yr) is bullish TREND (0.79% support)
  17. US Treasury Bond yield (10yr) remain bullish TREND (1.83% support)

And it goes on and on and on …

 

Multi-factor, multi-duration. That’s how we roll. And as you’ll quickly note, there are plenty of places to be bearish in this world. The problem with consensus US stock market bears in 2013 is that they weren’t bearish enough on many of these things – primarily because they weren’t bullish enough on US #GrowthAccelerating.

 

Gold and Sovereign Credits (Japan and USA) loathe growth. And while the Japanese won’t get real (inflation adjusted) economic growth in the end anyway, at least their Keynesian duo of Abe/Aso will get plenty of beach time. We can only pray that they lose their jobs fast. Never mind the beach, dealing with their and Furman’s “brilliance” every morning might just drive me to the bottle.

 

Our immediate-term Risk Ranges Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Nikkei, and the SP500 are now $1, $100.21-105.04, $81.21-82.42, 96.05-99.55, 2.14-2.26%, 14.07-17.69, 129, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Beach Time? - Chart of the Day

 

Beach Time? - Virtual Portfolio


THE M3: GRAND HO TRAM; JUNKETS

THE MACAU METRO MONITOR, JUNE 11, 2013

 

 

HO TRAM CASINO TO OPEN ON JULY 26 Macau Business

Ho Tram Project Co announced that its first resort, "The Grand Ho Tram Strip" in Ho Tram, Vietnam, will open on July 26. The casino will be operated by Ho Tram Project Co itself.

 

The first phase of The Grand Ho Tram Strip includes 541 five-star rooms, gaming facilities, meeting and convention space, ten bars and restaurants, a spa, three swimming pools and luxury retail shops.

 

Ho Tram Project Co announced last October that it had broken ground on the second phase of the project, which will include a second tower of 559 rooms and additional leisure facilities.

 

GOVT MUST DISCLOSE WHICH CASINOS JUNKETS PARTNER WITH Macau Business

The Court of Second Instance has sided with lawyer Vong Chong Kio in his request that the Gaming Inspection and Coordination Bureau disclose which casinos two junket operators are doing business with.  He had requested the Gaming Inspection and Coordination Bureau to disclose the information but the bureau denied the request, saying Vong had no cause to have access to the information, which was restricted.

 

Vong first appealed to the Administrative Court, which sided with the regulator.  Now, the Court of Second Instance has ruled in his favor.  The court says “there is nothing restricted, confidential, intimate or secret” about which casinos junket operators work with.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 11, 2013


As we look at today's setup for the S&P 500, the range is 38 points or 1.14% downside to 1624 and 1.17% upside to 1662.         

                                                                                                                      

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: 1.94 from 1.90
  • VIX closed at 15.44 1 day percent change of 1.98%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Business, May, est. 91.5 (prior 92.1)
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: Wholesale Inventories, April, est. 0.2% (prior 0.4%)
  • 10am: JOLTs Job Openings, April, est. 3.900m (prior 3.844m)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 1pm: U.S. to sell $32b 3Y notes
  • 4:30pm: API weekly inventory data

GOVERNMENT:

    • Obama meets w/ President Ollanta Humala of Peru to discuss proposed Trans-Pacific Partnership, other issues; will also give remarks on Senate immigration bill
    • ITC holds hearing on probable economic effect of duty-free treatment for imports in TPP free trade agreement, 9:30am
    • Senate Appropriations subcommittee hears from Defense Sec. Chuck Hagel, Joint Chiefs Chairman Martin Dempsey, 10am
    • Senate Finance Committee votes on nomination of Michael Froman to become U.S. trade representative, 10am
    • Senate panel holds hearing on Puerto Rico’s status, 10am
    • Senate scheduled to hold cloture vote on motion to proceed to immigration legislation, 2:15pm

WHAT TO WATCH

  • Softbank raises Sprint bid by 7.5% to $21.6b to counter Dish
  • Paulson, #2 Sprint holder, to vote for Softbank deal
  • Bank of Japan left unaltered 1-yr fixed-rate loan facility
  • News Corp. holders to OK plan to spin off publishing unit
  • Sony unveils PlayStation 4 console pressing fight w/ MSFT
  • Nestle’s Nespresso to face new copycat from Mondelez
  • MSCI to announce mkt classification review after 5pm
  • Goldman to expand in Poland even as economy slows
  • ANA says it canceled Boeing 787 flight yday to check engine
  • Safety net scaled back as Senate passes agriculture bill
  • EU seeks air-traffic charge cuts, challenging controllers
  • Most banks expect salary increases to offset EU bonus cap

EARNINGS:

    • Oxford Industries (OXM) 4pm, $0.78
    • Ulta Salon Cosmetics (ULTA) 4pm, $0.62

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Touches a Five-Week Low on Concern About Stimulus Curbs
  • Record U.S. Soybean Crop Seen Extending Bear Market: Commodities
  • Wheat Drops a Fifth Day on Prospects for Better Crop Conditions
  • WTI Crude Declines a Second Day on Forecast of U.S. Supply Gain
  • Gold Falls to Lowest in More Than Two Weeks on Stimulus Outlook
  • Coffee Declines on Outlook for Growing Production; Sugar Climbs
  • Shale Boom Curbing OPEC’s Grip as Saleri Sees a $120 Oil Cap
  • Iraq Plans to Boost Wheat Output, Become Exporter in Three Years
  • Oil-Tanker Demand Seen Falling 5% as Bookings and Distances Slip
  • Gold ‘Triangle’ Signals Price Drop to $1,250: Technical Analysis
  • Australia 2013 Wheat Crop May Be 25 Mln T, Grain Trade CEO Says
  • Commodities for Rest of 2013 Seen by UBS Heading for 1994 Redux
  • Car Carriers Fill Up as Global Trade Expands to Record: Freight
  • Iron Ore Seen Rebounding as China Restocks in Year’s Second Half

THE HEDGEYE DAILY OUTLOOK - 5A

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6A

 

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

 

 

 

 

 

 

 

 

 

 

 

 


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