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Be Afraid (Of Fear)

Takeaway: A pervasively strong US Dollar has far reaching global macro implications. You get the USD right, you get a lot of other things right.

Bill Gross may not like it, US stock market bears may not like it, but #StrongDollar + #RisingRates are still tattooing Treasuries, Gold and Emerging Markets.

 

Meanwhile, US stocks are still ripping higher with the Russell 2000 notching another new all-time high today up almost 20% YTD. Yes - we’ve been calling for this all year long.

 

Be Afraid (Of Fear) - Chart of the Day

 

We don’t fear growth here at Hedgeye. We know a lot of other folks do. But to paraphrase FDR, what people should really be afraid of is … fear itself. It has been on sale all year.

 

Just look at Gold (and its levered brethren gold miners) cratering, along with Volatility and Treasuries. The fact is being short fear has been and remains the best place to be positioned.

 

It’s all about the TRIFECTA (Employment, Housing and Consumption Growth in the U.S.) The trifecta has been our pointedly non-consensus, time stamped call all year. When you get it, the US Dollar responds. Strongly. You want to be long growth in Financials and Consumer Discretionary.

 

I’ve said it before and I’ll say it again: You should be avoiding commodities like the Bubonic plague. I don’t know how else to put it. Gold, Copper, Silver—they all look like hell. I don’t know why anyone would buy them.

 

That said, we’re keeping a close eye on Brent Oil. It’s the biggest risk to U.S. Consumption growth. Oil has been diverging due to Middle East unrest. If it shoots up to $112, that would be terrible for U.S. consumption growth.

 

Look, consumption growth happens to a point. But everything that really matters happens on the margin. So if Brent goes above our long term TAIL line that would be bad news. It makes the game a little bit tougher in here.

 

Getting Global Macro right has been relatively easy this year. It has had many simple, but moving, parts. In the end it’s all correlated and it’s all about having a proven process. Bottom line is a pervasively strong US Dollar has far reaching global macro implications. You get the USD right, you get a lot of other things right. 

 

(This is a brief excerpt of Hedgeye Risk Management CEO Keith McCullough's morning conference call. If you would like additional information on our products and services please click here.)


European Banking Monitor: Negative Divergences in Italy and Greece

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

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European Financial CDS - Bank swaps were narrowly tighter across Europe last week with negative divergences in Italy and Greece. 

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv. banks

 

Sovereign CDS – Sovereign swaps were mostly uneventful last week with two exceptions. Portugal widened by 73 bps to 474 bps, while Japan tightened by 5 bps to 73 bps. All other major markets were unchanged.

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv.sov1

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv.sov2

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv.sov3

 

Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv.euribor ois

 

ECB Liquidity Recourse to the Deposit Facility – Deposits rose by 11.5 billion Euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

European Banking Monitor: Negative Divergences in Italy and Greece - vv.facility


Nike Punk'd Adidas

Takeaway: The logo wars heated up this week when a new star Bayern Munich player (Adidas team) wore a huge Swoosh in his first press conference.

This note was originally published July 05, 2013 at 13:53 in Retail

Things NOT to do on your first day on the job...appear in a PR photo with your new employer while wearing a T-shirt emblazoned with the logo of its nemesis. 

 

Nike Punk'd Adidas - punk

 

Bayern Munich is one of Adidas' top endorsed football clubs, and their new hot-shot midfielder -- Mario Goetze -- sported a Nike T-shirt during his first press conference as a Bayern Munich player on Tuesday. It wasn't even a shirt with a subtle Nike logo on the sleeve or the upper right crest. It was a massive, borderline obnoxious, full-frontal Nike assault.

 

You can bet that someone at Adidas got fired over that miss. 


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MACAU: STRONG START TO JULY

There is no change to our YoY GGR projection of 18-22% growth for July following a solid start to the month.  Through the first 7 days, table revenues averaged a strong HK$919 million per day, up 24% YoY and 5% versus June 2013.  Anecdotal indications are that both VIP and Mass traffic contributed to the start.

 

Market shares are pretty much irrelevant so early in the month but as you can see from the table below, MGM and LVS were the biggest gainers from trend.  MPEL and Wynn were the laggards.  In terms of the stocks, we continue to like MPEL and MGM.

 

MACAU: STRONG START TO JULY - macau1

 

MACAU: STRONG START TO JULY - macau2


Morning Reads on Our Radar Screen

Takeaway: A quick look at stories on Hedgeye's radar screen.

Keith McCullough – CEO

Egypt unrest: Tensions soar amid Cairo killings (via BBC)

IMF May Cut Global Growth Forecast as Emerging Markets Slow (via Bloomberg)

Japan Mergers Fall to Nine-Year Low as Yen Volatility Surges (via Bloomberg)

China ex-rail minister given suspended death sentence (via BBC)

 

Morning Reads on Our Radar Screen - earth2

 

Josh Steiner – Financials

Corzine off the crook: No criminal charges (via New York Post)

Bond investors face a reckoning as interest rates jump (via Los Angeles Times)

 

Daryl Jones - Macro

China Cash Squeeze Seen Creating Vietnam-Size Credit Hole (via Bloomberg)

 

Matt Hedrick - Macro

German economy struggles as exports and output tumble (via Reuters)

 

Kevin Kaiser – Energy

Deadly Train Derailment Fuels Crude-by-Rail Concerns (via WSJ)

 

Jonathan Casteleyn – Financials

Crowded ETF Exit Proving Costly as Bonds Trail: Credit Markets (via Bloomberg)

 

Tom Tobin – Healthcare

Kaiser Health Tracking Poll: June 2013 (via KFF.org)


July 8, 2013

July 8, 2013 - 7 8 2013 7 59 11 AM


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