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Macro Tourists

This note was originally published at 8am on June 25, 2013 for Hedgeye subscribers.

“As they have come, so shall they go.”

-Ataturk

 

In one of the more interesting chapters (Chapter 26: The End of The Ottomans) of Paris 1919 – Six Months That Changed The World, I found that prescient Middle Eastern history quote by Mustafa Kemal (Ataturk).

 

“In 1919, few foreigners had ever heard of him; four years later he had humbled Britain and France and brought into existence the new nation-state of Turkey.” (Paris 1919, page 369)

 

Ultimately, Ataturk’s vision for a more stable state was based on a simple belief that people are more apt to trust what they know. As confidence falls, foreigners are often the first to flee. That’s no different for most Macro Tourists investing in Emerging Markets.

 

Back to the Global Macro Grind

 

I think Kyle Bass coined the term Macro Tourist. It’s cute. I think he was alluding to people chasing Japanese Equities. It’s a clever term – it also annoys a lot of people who actually are what the term suggests.

 

Bass is a thoughtful guy, but since he only started investing on the buy-side in 2006, he’s hardly in a position to anoint himself the authority on all things Global Macro. So you can imagine why the prickly types like Dan Loeb felt pricked.

 

All personalities (including my own) aside, what Bass and Loeb are really calling attention to here is that we are all Global Macro Risk Managers now. If you believe in things like gravity, beta, and interconnectedness, that is…

 

The way we do Global Macro is A) as a team and B) from a math/theme perspective. At the top of every risk management morning, I’ll send the Top 3 Global Macro Risks that are trending in our model with some quant levels and thoughts.

 

Today’s Top 3 were China, FTSE, and Gold (I send this out at 6AM EST, every day):

 

1.   CHINA – down hard, then rumor, then bounce – Bernanke/Draghi type playbook for the Chinese as the entire world attempts to watch what we cannot see; Shanghai Comp closes -0.2%, #oversold, but crashing – bouncing on rhetoric doesn’t solve the long-term issues; TREND resistance = 2192

 

2.   FTSE – I learn the most during the bounces; this bounce in European Equities hasn’t seen 1 major index recapture any of my intermediate-term TREND lines; FTSE +0.8% to 6075, well below 6398 TREND resistance; DAX TREND line = 8014

 

3.   GOLD – bear market bounce of +0.14%; that’s not going to get anyone excited; neither will a 10yr UST Yield of 2.5% and a US Dollar recapturing $81.21 TREND support. Gold is turning into a good proxy for deflation – deflating Bernanke Bubbles, that is

 

I do this to help our Institutional clients contextualize immediate-term market moves within intermediate-term TRENDs. Consider them headlights. Some clients trade futures on them. Some provide immediate feedback/thoughts. Some probably just #delete.

 

Tourist or Global Macro pro, the market doesn’t care what you are. Mr. Market is going to correlate and frustrate; and he is usually working on a way to impose the most amount of pain, on the most amount of people, at the most inopportune time. #consensus

 

That’s why we Embrace Uncertainty each and every Global Macro morning. After the market issues its signals, it’s a lot easier to make risk adjusted decisions within a multi-factor, multi-duration, framework than it is to space out and watch consensus TV.

 

Global Macro TRENDs matter, because they tend to trend. Here are 3 new ones trending now:

  1. US Equity Volatility (VIX) is bullish TREND for the 1st time since October 2012 (new TREND support = 18.98)
  2. US Equity (SP500) intermediate-term TREND support of 1592 is broken
  3. Japan’s #WeimarNikkei has snapped her intermediate-term TREND line of 13,619

Will US Equities recover TREND support? Will front-month volatility break down through 18.98 VIX again? Will she stay or will she go? Oh, and what will be the catalyst? In the US, both Durable Goods and New Home Sales “expectations” look a tad high this morning.

 

Gold, Treasuries, and Emerging Markets blowing up aren’t the new TRENDs @Hedgeye to worry about. These are the ones that we proactively positioned you for. The real pin action is in signaling the new stuff.

 

Since we hockey players aren’t that bright to begin with, what we do is hire football players. My left-tackle is Darius Dale, and he and I tend to keep it pretty simple. We try our best to front-run shifts in the slope of growth and inflation lines.

 

Here’s what I mean by that:

  1. Local inflation is rising in some countries (Japan, Venezuela, etc.) whose currency is being debauched
  2. Gold and Emerging Market Debt are deflating via #StrongDollar and #RisingRates

In other words, some of the older Global Macro TRENDs are bumping into the new ones now. Correlation Risk is starting to whip around and volatility is starting to breakout. Macro Tourist or not, this makes getting the day-to-day tougher out there. So our advice this morning is still what it’s been for the last 3-4 weeks. Sell on strength.

 

Our immediate-term TRADE Risk Ranges are now (TREND bullish or bearish in brackets):

 

UST 10yr Yield 2.31-2.61% (bullish)

SPX 1566-1592 (bearish)

Nikkei 12,408-13,619 (bearish)

VIX 17.98-20.97 (bullish)

USD 82.19-82.98 (bullish)

Yen 96.05-97.91 (bearish)

Oil (Brent) 100.02-103.64 (bearish)

Gold 1254-1336 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Macro Tourists - Chart of the Day

 

Macro Tourists - Virtual Portfolio



Stealing Time

“I want to use the time it takes.”

-Per Peterson

 

As opposed to what I usually do when I’m reading non-fiction, I don’t dog-ear many pages when I read a novel. The aforementioned quote is a simple one for type-A types in this profession. It comes from Peterson’s acclaimed novel, Out Stealing Horses.

 

Time is important to me now, I tell myself. Not that it should pass quickly or slowly, but be only time, be something I live inside and fill with physical things and activities that I can divided it up by, so that it grows distinct to me and does not vanish when I am not looking.” (Out Stealing Horses)

 

That is all. I just wanted to share it with you. It’s a blessing to be able to work with my teammates and produce something distinct every morning. Thank you for taking the time to read our thoughts.

 

Back to the Global Macro Grind

 

Three consecutive up days for the SP500 (taking it to within 1.7% of her all-time high of 1669) as the Russell 2000 powers forward to make its 2nd consecutive all-time high in as many trading days (+18.8% YTD to 1,009). That’s progress.

 

So are US employment growth expectations rising alongside:

 

A)     Rising Bond Yields

B)      Falling Equity Volatility

 

In Hedgeye quant-speak, that means:

  1. SP500 is back in a Bullish Formation (bullish on all 3 of our core risk management durations, TRADE/TREND/TAIL)
  2. US Equity Volatility (VIX) is back in a Bearish Formation with immediate-term TRADE resistance = 16.39
  3. US Treasury 10yr Bond Yields remain in a Bullish Formation (with immediate-term TRADE support 2.33%)

As growth expectations rise, slow-growth securities (Bonds, MLPs, Utilities, etc.) fall:

  1. US Consumer Discretionary stocks (XLY) = +3.39% July-to-date
  2. US Financials (XLF) = +2.67% July-to-date
  3. US Utilities (XLU) = -0.53% July-to-date

In other words, one of these things (XLU) is not like the others. #StrongDollar and #RatesRising gets the consumer paid, not the banker and/or ETF manufacturer who is pushing you Yield-Chaser product.

 

*Key Word Score in 2013 = #expectations

 

Mr Market couldn’t care less what Captain Valuation thinks about a mining security. Mr Market is all about the rate of change in expectations. And right now, expectations are rising that #GrowthSlowing is still yesterday’s war.

 

From a US stock market factoring perspective, here’s another way to look at that relative to the SP500’s +15.0% YTD gain:

  1. Low Yield Stocks = +22.9% YTD
  2. Top 25% EPS Growth Stocks = +19.4% YTD
  3. High Beta stocks = +17.5% YTD

High Yield Stocks (i.e. slow growth) are only +11.2% YTD. Whether you are long Tesla (TSLA) (which is replacing Oracle (ORCL) in the Nasdaq 100 today), or you’re short sketchy MLP companies, you are just loving this expectations shift versus the consensus.

 

Don’t let jimmy pundit confuse you  - for the entire year the #OldWall hasn’t been Bullish Enough on the US Dollar, Bond Yields, and Growth Expectations. At the beginning of 2013, the sell-side’s average “year-end target” for the SP500 was only 1531.

 

Today, the SP500 is obviously 109 handles higher than that, and the VIX is -18.0% for the YTD. Only 43.8% of investors surveyed in the most recent II Bullish/Bearish Survey admitted they are bullish.

 

Are we discounting too much growth too fast? Or are we just normalizing a pervasively bearish growth expectation in the political economy? I don’t know. All I know is that I will not let consensus’ bearish baggage get me down.

 

Life is too short to not enjoy the up moves. If I can steal more of the good times, I’ll take them.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr 2.56-2.74%

SPX 1

VIX 14.12-16.36

USD 83.47-84.83

Yen 99.59-101.98

Brent Oil 104.93-108.36

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Stealing Time - Chart of the Day

 

Stealing Time - Virtual Portfolio


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THE M3: MACAU TOURIST CURRENCY CHECK; WYNN MACAU UNIVERSITY INQUIRY

THE MACAU METRO MONITOR, JULY 9, 2013

 

 

MACAU CONSIDERS REQUIRING TOURISTS TO DECLARE CASH Bloomberg

Macau is studying a “cross-border cash declaration system, but no timeframe, declaration threshold or penalties are determined yet at the present stage,” Deborah Ng, director of the city’s Financial Intelligence Office, said in an e-mail yesterday.  Any controls imposed by Macau’s government would back China’s currency curbs, which restrict how much money Chinese tourists can take out of the country.

 

Travelers to Macau currently aren’t required to report how much cash they bring in when entering the city, said Daniel Tang, a press officer at the agency.

 

Tourists from mainland China can bring 20,000 yuan (US$3,260) when traveling across the border and withdraw as much as 10,000 yuan a day with each card at cash machines.  

 

WYNN RESORTS: SEC DOESN'T PLAN ACTION AFTER INQUIRY INTO MACAU UNIT WSJ

WYNN said that it had received word from the SEC that the agency wouldn't recommend a civil enforcement action against the casino operator following an informal investigation into the company's pledge to donate $135 million to a university in Macau.  "It is a charitable donation. We do it all the time just like everybody else," said Wynn. "We are fanatically compliant with the spirit and the letter of regulation."


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 9, 2013


As we look at today's setup for the S&P 500, the range is 31 points or 1.31% downside to 1619 and 0.58% upside to 1650.                      

                                                                                                         

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: 2.29 from 2.28
  • VIX closed at 14.78 1 day percent change of -0.74%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Bus. Optim, June, est. 94.6 (prior 94.4)
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 10am: JOLTs Job Openings, May, est. 3790k (prior 3757)
  • 11am: Fed to buy $2.75b-$3.5b notes in 8/15/2020-5/15/2023
  • 11:30am: U.S. to sell 4wk bills
  • 12pm: DoE Short-Term Energy Outlook
  • 1pm: U.S. to sell $32b 3Y notes
  • 4:30pm: API crude, oil product inventories

GOVERNMENT:

    • House Financial Svcs panel holds hearing with CFPB Acting Deputy Director Steven Antonakes on how CFPB collects and uses of consumer data, 10am
    • FDIC board meets to consider interim final regulatory capital rules including those needed for implementation of Basel III intl banking accords, 10am
    • House Financial Svcs panel holds hearing on Dodd-Frank Act, with witnesses including lawyer Boyden Gray, 2pm
    • House Energy and Commerce panel meets on “Cyber Espionage and the Theft of U.S. Intellectual Property and Technology,” with CSIS’s Jim Lewis testifying, 10:15am
    • NTSB holds first of two investigative hearings on 2012 New Jersey train derailment, haz-mat release, 9am

WHAT TO WATCH

  • FDIC meets to vote on final capital rules of Basel III
  • Glass Lewis backs Michael Dell $13.65-shr buyout offer
  • BlackBerry to hold annual shareholder meeting
  • China inflation stays below target; PPI falls 2.7%
  • CFTC weighs delay of swaps rules, WSJ says
  • U.S. apartment vacancies unchanged in 2Q, Reis says
  • DirectTV, Time Warner Cable meet deadline to bid on Hulu
  • Alcoa 2Q EPS, rev. beat; reaffirms 2013 aluminum outlook
  • Barnes & Noble edges closer to breakup as CEO quits
  • Shell names Van Beurden to succeed Voser as CEO
  • U.K. manufacturing unexpectedly falls in May
  • Greece wins release of $3.9b in aid from Europe

EARNINGS:

    • Wolverine World Wide (WWW) 6:30am, $0.34
    • Jean Coutu Group (PJC/A CN) 7am, C$0.26
    • Alimentation Couche-Tard (ATD CN) 11:45am, $0.77
    • Helen of Troy (HELE) After-mkt, $0.70

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodity Traders’ Buildup on Easy Money Seen as Risk in Report
  • Gold Bulls Defy Price Slump as Paulson Loss Widens: Commodities
  • Copper Falls as Slumping Chinese Prices Reflect Slowing Economy
  • Russian Grain Harvest Seen Below Government Target After Drought
  • Gold Gains to One-Week High on China Inflation, Physical Demand
  • WTI Crude Trades Near 14-Month High Before U.S. Inventory Data
  • Coffee Reaches One-Month High on Supply-Curb Signal; Cocoa Gains
  • Gold-Dollar Deviation Signaling Shift of Faith: Chart of the Day
  • Hedge Fund Crude Oil Bets Jump Amid Egypt Strife: Energy Markets
  • Rebar Erases Gains to Decline as Overcapacity Damps Sentiment
  • Libya Oil Output Slides as Power Cuts Mix With Protests: Energy
  • Tanker Demolitions Slumping as Rupee Reaches Record Low: Freight
  • Quebec Explosion Exposes Risks of Rising Urban Oil Shipments
  • China’s Wheat Imports Seen Higher Than USDA Forecast After Rains

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

 

 

 

 

 

 

 

 

 

 

 


We (Still) Don't Like China

Takeaway: Our view on China remains simple: We don't like it.

We still don’t like China. We’ve been clear on that. What’s going on there isn’t good.

 

Despite US equities rallying last week and into the close on Friday, Chinese equities were down another 2.4% overnight and are down 12% for the year. The Hang Seng also failed to bounce, down another 1.3% after failing at its immediate term TRADE line resistance. Indonesia was down 3.2%; Thailand down 2.4%. The only market above its TREND line in all of Asia is Japan. There are some big bad moves going on over in Asia.

 

So, is Asian growth slowing? Yes, that’s already happening.

 

Looking more closely at China, the Politburo (via President Xi), the PBoC (via Governor Zhou) and the State Council all came out at varying times last week and talked down market expectations for GDP growth and credit expansion going forward. With Manufacturing PMI hitting a 4-month low and Services PMI hitting a 9-month low in June, this does not bode well for China’s TREND duration growth outlook.

 

We (Still) Don't Like China - China GDP

 

Meanwhile, Bloomberg reports that President Xi Jinping said officials shouldn't be judged solely on their record in boosting GDP, the latest signal that policymakers are prepared to tolerate slower growth.

 

More to be revealed.


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