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"I Got Nowhere Else to Go!"

Client Talking Points

YEN

Keeping a close eye on currencies remains key. Yen vs USD is failing at our 96.17 intermediate-term TREND line of support this morning. This comes after the propaganda of down currency, up exports (Japan reported +10% exports for May, but their 3rd worst monthly trade deficit ever) was being cheered on by Japanese bureaucrats. The #WeimarNikkei gained +1.8%, but failed to close above 13,641 TREND resistance again.

CHINA

#GrowthSlowing in most things Chinese continues... Meanwhile, the rest of Asia (ex-Japan) traded very poorly again overnight. Over in Hong Kong, the Hang Seng led the losers, down another -1.1%. It is now down -5.1% year-to-date. It's bearish TRADE and TREND for most Asian Equity markets now, including Singapore, KOSPI, and BSE Sensex. Be alert here.

RUT

All the while the Russell 2000 quietly (volume was -15% yesterday vs my TREND duration average) clocked a new all-time closing high yesterday of 999. Yes, all-time is a long time. The continuing flows to US Equities (and out of everything Treasuries, Gold, Sovereign Debt, etc) make sense to me. A lot of sense. The world is running out of places to flow capital. That's bullish for US stocks.

Asset Allocation

CASH 53% US EQUITIES 17%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
NSM

Financials sector head Josh Steiner is the Street’s head bull on residential mortgage originator/servicer Nationstar, projecting $9 in earnings for the company in 2014.  This is well above the company’s own guidance range, which tops out at around $7.50. NSM had a successful start to the year as it won servicing bids on substantial mortgage portfolios.  They also reported significant increases in their profit margins on those portfolios, and double-digit increases in their own originations.  Housing prices are ramping significantly higher, as Steiner predicted, as demand continues to exceed supply in both new and existing homes.  Steiner says this quality mortgage company could ride the crest of a sustained wave of sector improvement.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.  

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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

Three for the Road

TWEET OF THE DAY

Marty Feldstein on @SquawkCNBC : I think the Fed made a mistake in doing as much as it has ... it's created a bubble in the long-term bond

@beckyquickcnbc

QUOTE OF THE DAY

Be wary of the arrogant intellectual who comments from the stands without having played on the field.

-Ray Dalio

STAT OF THE DAY

The IRS is about to pay $70 million in employee bonuses despite an Obama administration directive to cancel discretionary bonuses because of automatic spending cuts enacted this year.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 19, 2013


As we look at today's setup for the S&P 500, the range is 38 points or 1.26% downside to 1631 and 1.04% 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: 1.92 from 1.92
  • VIX closed at 16.61 1 day percent change of -1.13%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, June 14 (prior 5%)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC seen Fed Funds rate target between zero and 0.25%
  • Release of Fed’s Summary of Economic Projections
  • 2:30pm: Fed’s Bernanke to hold news conference on FOMC

GOVERNMENT:

    • 9:30am: Senate Appropriations Cmte panel on Joint Strike Fighter FY14 budget request
    • 10am: Natl Governors Assn., Natl Conf. of State Legislatures hold discussion of Marketplace Fairness Act, with 7 tech cos. making software to collect remote sales tax online
    • 10am: Senate Commerce, Science and Transportation Cmte hearing on improving passenger, freight rail safety
    • 10am: Senate Judiciary Cmte hears from FBI Director Robert Mueller at oversight hearing
    • 10am: House Oversight and Govt Affairs Cmte holds hearing on biometric ID use in fed govt
    • 2:30pm: Senate Commerce, Science and Transportation Cmte panel on airline industry consolidation, with reps. from US Airways, American Airlines

WHAT TO WATCH

  • Google considering PE alliances amid buying spree
  • Icahn urges Dell to buy back shrs at $14 in revised approach
  • Dish won’t make new Sprint bid by deadline
  • Microsoft said to add Qualcomm as supplier for Surface RT
  • BC Partners to buy Springer Science for $4.4b
  • Shuanghui getting $7.9b financing for Smithfield bid: WSJ
  • Smithfield got another $34/shr bid prior to Shuanghui deal
  • GE sees $20b order tally from Paris Air Show: Aviation CEO
  • Tesla issues recall for some Model S vehicles
  • Netflix to expand streaming service to Netherlands by yr-end
  • GM says China luxury vehicle demand slower than expected
  • U.K. banker bonuses face decade delays in industry overhaul
  • HSBC cuts China growth forecasts to 7.4% in 2013 and 2014
  • Japan’s exports surge by most since ‘10 in boost for Abenomics
  • Porsche $2.6b hedge-fund suit moved to Hanover court
  • King loses final BOE vote as majority sees recovery strength
  • Cuomo said to win agreement for four upstate N.Y. casinos

EARNINGS:

    • FedEx (FDX) 7:30am, $1.95 - Preview
    • Actuant (ATU) 7:30am, $0.59
    • Finisar (FNSR) 4pm, $0.17
    • Steelcase (SCS) 4:01pm, $0.13
    • Jabil Circuit (JBL) 4:02pm, $0.54
    • Red Hat (RHT) 4:04pm, $0.31
    • Micron Technology (MU) 4:05pm, $0.03 - Preview
    • Clarcor (CLC) 5:30pm, $0.67

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Timah Sees Tin Climbing 20% as Supply Curbed From Indonesia
  • Mining CEOs Punished as FTSE 100 Peers Keep Pay: Commodities
  • WTI Crude Advances to Nine-Month High as U.S. Stockpiles Decline
  • Copper Swings Between Gains and Drops Before Fed Meeting’s End
  • Hog Futures Rise in Chicago, Heading for Biggest Gain in a Week
  • Gold Holds Above Three-Week Low Before Fed Concludes Meeting
  • Arabica Coffee Gains as Investors May Start Buying; Sugar Slides
  • Rice Exports From Thailand to Advance as Support Prices Reduced
  • Carbon Rescue Seen Surviving European Panel Vote: Energy Markets
  • Aluminum Contango Widest in Four Years as Stockpiles Swell
  • Singapore Urges Naming of Firms After Worst Smog Since 1997
  • Argentina Banks on Railroads to Prolong Soybean Boom: Freight
  • Copper Slump Longest Since 2001 on Supply Gain: Chart of the Day
  • Corn Falls on Outlook for U.S. Supply and Signs of Weaker Demand

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

 

 

 

 

 

 

 

 

 

 


God's Hands

This note was originally published at 8am on June 05, 2013 for Hedgeye subscribers.

“You hold in your hands, the future of the world.”

-Raymond Poincare

 

Not to be confused with someone who does math (his famous cousin and mathematical genius Henri Poincare), Raymond was a lawyer turned politician. In France, that’s a potent mix. Poincare was President of France from 1913-1920.

 

The aforementioned quote is a friendly reminder that politicians have always thought that they can control your life. It was part of Poincare’s speech that officially opened the Paris Peace Conference in 1919. (Paris 1919: Six Months That Changed The World, pg 62)

 

Setting aside the fact that the Russians weren’t even at the conference, the comment reeks of the kind of political hubris that scares people. Today’s French President doesn’t scare me, but the people advising him and the President of the United States on economic and monetary policy do.

 

Back to the Global Macro Grind

 

I was spending time with clients in Pittsburgh yesterday and throughout the day I kept coming back to the conclusion that the biggest risk to the rally in US stocks is an un-elected central planner who has built a series of unintended consequences into our risk matrix.

 

Un-elected and un-accountable – his name, by the way, is Ben Bernanke. He isn’t a chaos theorist or mathematician either. Bernanke, like most Keynesian central planners who have never traded Global Macro risk in their life (actually Keynes did and lost 90% of his capital speculating on commodities in the late 1920s), fundamentally believes that he can bend and smooth gravity.

 

Markets obviously couldn’t care less what he thinks about defying the laws of physics. We’ve often used the thermodynamic metaphor of The Waterfall. Funds that have flowed into what appeared to be a calm and steady river of yield chasing and fixed income oriented securities are now approaching the point of entropy. A breakout in Treasury yields looks like Niagra Falls to me.

                                                                                                                

Most free market clients agree with me on this: A) we like gravity but B) we’re leerier when it happens to the anti-dog-eat-dog, anti-economic gravity, crowd fast! It’s all about the speed of the water (yields rising) now and there are a series of real-time risk management signals we are monitoring for velocity:

 

1.   US Dollar - #StrongDollar breakouts across intermediate and long-term durations have always front-run central planners and growth bears alike in this country. There has never been a sustainable US economic recovery (think 1983-1989 and/or 1993-1999) when the US Dollar didn’t rip alongside economic growth ripping. Treasury Bond yields rose, in kind.

 

2.   Gold and Oil – these are coincident and highly correlated (on an inverse basis to the US Dollar) real-time signals that anyone with macro historical context (that goes beyond a 5-10yr chart) will acknowledge as pro-growth signals. Gold hates growth. Falling Oil prices perpetuate US #GrowthAccelerating. So think about falling oil as entropy. #Speed

 

3.   US Treasury Yields – since Bernanke has opted to attempt to suspend economic gravity by marking the US Yield curve to model (not clear if he learned this from Tricky Dick Fuld or not), his decision to “taper” (whatever that means) is the equivalent of trying to smooth the flow of the Teton Dam on this day in 1976.

 

Huh? Yep, today in 1976, the Teton Dam collapsed. Big man-made structure built on false premise, evidently, too. Sound familiar? Engineers started to notice the dam was leaking ahead of time (the pool of “steady state” water was rising – real subtle hint!). And then boom! #Waterfall

 

To stay with the metaphor, the leaks are both economic data points and real-time market reactions to them. As US employment, housing and consumption data build the water level of, god forbid, rising growth expectations – both the dam and the government itself starts to leak.

 

Bernanke calls his leaks “communication tools”, or something like that. Since I don’t do the inside information thing from “consultants” in Washington, I depend on my engineers (analysts) who spend their time measuring crazy things like velocity, convexity, etc. at the proverbial dam’s bifurcation point.

 

Just to give you some key water levels on that:

  1. 2yr US Treasury Yield TAIL risk line = 0.27%
  2. 10yr US Treasury Yield TAIL risk line = 1.85%
  3. 10yr Japanese Government Bond TAIL risk line = 0.89%

So, you don’t have to be Raymond Poincare’s cousin or Albert Einstein to understand what is already happening here. And that’s the point – it’s already in motion folks – and if you want to try to arrest the speed of the decline of a waterfall (one that’s been bubbled up for say, 30 years, in this case) with your hands, you might want to dial up God himself for this one.

 

Because Bernanke’s political hands aren’t going to work.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX and the SP500 are now $1355-1424, $100.35-104.29, $82.46-83.51, 98.76-103.06, 2.08-2.22%, 14.17-16.93, and 1624-1648, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

God's Hands - Chart of the Day

 

God's Hands - Virtual Portfolio


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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


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