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Taper or Tighten?

“Start slow, and taper off.”

-Harry Truman

 

If I was Ben Bernanke today, that’s what I’d tell the world I am going to do. US consumption, employment, and housing growth supports a slow start to tapering. So does the Russell 2000 closing at an all-time high  of 999 (+17.7% YTD) yesterday.

 

As we often remind history buffs, all-time is a long time, and there comes a time (within all-time) when things start to change. Gold and Treasuries have already been front-running Bernanke on this. All-time lows in US Treasury rates are ending.

 

The beginning of the end of Bernanke’s financial market “innovations” is a good thing. I think most people in this country are tired of listening to politicians preface the need for their interference in our lives and markets with “what would have happened” if they didn’t save us from the problems they perpetuated. That’s now half a decade ago. Get over it.

 

Back to the Global Macro Grind

 

I spent the entire day meeting with our Institutional Clients in San Francisco, California yesterday. And I don’t know if it was something in the air (gorgeous day) or what, but investors down here are a lot more chill about the end of QE than some folks on the East Coast.

 

In most meetings, it seemed like a generally accepted reality that A) tapering expectations are in motion and B) this is potentially a pro-growth signal. In other words, tapering is becoming yesterday’s news. The next debate is about tightening.

 

Tightening?

 

Oui, oui, mes amis. This is what happens after the tapering – the tightening. And since every measure of consensus you can consider is not considering a Federal Reserve rate hike, that’s what my sharpest clients were asking me about; not what Liesman rehashes today.

 

Six months ago, consensus didn’t expect a tapering decision at the June 2013 Fed meeting. We did. That’s why we have 0% asset allocations to Commodities and Fixed Income.

 

The fundamental view wasn’t based on getting a whisper from a Washington “consultant.” It was based on the following forecast:

  1. US Dollar was going to stabilize and strengthen from Bernanke’s burning 40 year lows
  2. Commodity Prices would deflate from their 2011-2012 all-time highs
  3. US consumption, employment, and housing growth would enjoy that and surprise to the upside

That’s not a victory lap. That was just our call.

 

So the question now is where will we be 6 months from now?

  1. Will the US Dollar continue to make a series of higher-lows and higher-highs?
  2. Will Commodity Deflation remain a 2013 reality?
  3. Will the US Housing and Stock markets continue to add to their double digit YTD gains?

I think that if Bernanke starts slow and follows through with tapering through the fall, Americans will be ok with that. And when I say Americans, I mean the 95 to 99% of us who want:

  1. #StrongDollar
  2. Down Oil prices
  3. Appreciating home and equity prices

To be clear, the dudes who are riding the Bernanke Zero-Bound train (long Mortgage Backed Securities, Gold, Treasuries, MLPs, and whatever else it was that he jammed yield chasers into like mashed potatoes into a garden hose), do not want this.

 

But what % of the population cares about being long unproductive assets likes Gold (or depleting assets like an Oil and Gas MLP) and selling ads on Sirius satellite radio about the end of the world anyway?

 

The sad reality is that the 1-5% of Americans who need the #EOW (end of world) trade to work probably control 50% of the airtime. Oh, and by the way, they also get paid to fear-monger. That’s why their ratings suck. America gets it. We are the silent majority that tweets loudly on mute.

 

Our natural intuition is to prosper and grow.  We all know that waiting on the whim of a central planning overlord’s whispers about tapering is no way to live. It’s time to tighten our belts, hold ourselves to the future’s account, and stop fighting the last 5 year’s war.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Nikkei, and the SP500 are now $1, $104.55-106.64, $80.31-81.21, 93.27-96.17, 2.09-2.29%, 14.62-18.64, 121, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Taper or Tighten? - Chart of the Day

 

Taper or Tighten? - Virtual Portfolio


June 19, 2013

June 19, 2013 - dtr

 

BULLISH TRENDS

June 19, 2013 - 10yr

June 19, 2013 - spx

June 19, 2013 - dax

June 19, 2013 - euro

June 19, 2013 - yen

 

BEARISH TRENDS

June 19, 2013 - VIX

June 19, 2013 - dxy

June 19, 2013 - natgas

June 19, 2013 - gold

June 19, 2013 - copper


THE M3: PHILIPPINE REVENUES

THE MACAU METRO MONITOR, JUNE 19, 2013

 

 

PHILIPPINES CASINO INDUSTRY REVENUE GROWING: PAGCOR Macau Business

The performance of the Philippine casino industry in 2013 is so far meeting expectations, says Cristino Naguiat, the chairman and CEO of PAGCOR.  PAGCOR operates 13 casinos in the Philippines and is also the country’s regulator.  “I’m certain that the first five months of the year has been higher compared to the same period last year,” Naguiat said.


He estimates that the country’s gaming revenue will reach US$2.5 billion this year, up from US$2 billion in 2012.  “The bulk of that growth will basically come from Solaire Resort and Casino,” inaugurated in March, Naguiat said.  Naguiat expects annual casino gaming revenue in the Philippines to grow to US$10 billion by 2017-2018.

 



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Trade of the Day: BAC

Takeaway: We bought Bank of America (BAC) at 9:59 AM at $13.21.

It’s tough to not buy bank stocks with the Yield Spread (10s - 2s) widening to +193 basis points wide this morning. Bank of America remains one of Hedgeye Financial Sector Head Josh Steiner's Best Ideas in 2013.

 

Trade of the Day: BAC - BAC


Whatever Happened to Peak Oil?

Takeaway: “Peak Oil” has not only peaked. It has flipped.

(Editor's note: The excerpt that follows below is from Hedgeye's popular "Investing Ideas" newsletter which is sent out on Saturday mornings. Investing Ideas is for the savvy, longer-term self directed investor looking for fresh, long-only opportunities.  It also features macro commentary like the excerpt below. With your subscription, you'll know immediately when one of our award-winning analysts uncovers a new Idea or changes a current one. Click here to learn more.)

 

Whatever Happened to Peak Oil? - peakoil

 

Remember “Peak Oil”? 

 

The notion was making the rounds a few years ago that the world had run out of its readily-producible supply of oil, and that Life As We Know It would soon grind to a halt, predicated as it has been since WWII on an unending supply of cheap oil. 

 

Oil is already no longer cheap – the US Department of Energy says that, in constant 2011 dollars, the price of gasoline rose from under $1.50 a gallon on the eve of the Arab Oil Embargo of 1974, to over $3.50 by the end of 2011.  Peak Oil says oil is also no longer plentiful, because we have drilled the world down to a diminishing petroleum reserve. 

 

Books and articles proliferated – because not many people can make money trading markets, but a whole lot of folks can make money writing about how to trade markets – predicting how dire our lives were about to turn, and how soon.

 

Now “Peak Oil” has not only peaked.  It has flipped. 

 

Now, when folks use the term, they mean that demand for oil has peaked and the combination of fracking and newly-discovered US gas reserves will make our energy woes a thing of the past. 

 

We have no idea who will be proved right, but we again observe that it pays to speak in superlatives and paint extreme scenarios if you want to sell books about investing.


Brazil's Got Problems

Takeaway: Our #EmergingOutflows theme continues to ring the bell in both Brazil and China.

One of Hedgeye's big Q2 Global Macro Themes has been #EmergingOutflows. Our theme continues to ring the bell - particularly in Brazil.

 

Brazil's Got Problems - braz

 

In case you missed it, Brazil’s Bovespa dropped below 50,000 yesterday. It is now officially in crash mode (down -22.5% since January 3rd) as the biggest Brazilian protests in twenty years sweep the streets.

 

Click on the chart below. #NotPretty

 

Brazil's Got Problems - Brazil SP500

 


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