“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”
Who is this guy? Seriously. Bernanke is un-elected and un-accountable – but, evidently, has the power to change the entire risk parameters of the economy with an un-qualified market timing opinion that spits in the face of economic data.
I get the whole fear-mongering love for Ben thing. Politicians and bankers who put the country on the brink saved us from themselves in 2008 – or so they claim. Nailed it. Even if you believe that, it was so 2008-2009. We’re half-way through 2013 for God’s sake.
The last time I saw Dick Fuld, he was living large at my golf club; Timmy Geithner just got paid $200,000 to speak at an #OldWall conference ; and bankers who are long FICC (Bill Gross too) are begging Bernanke for more. Is this the society Franklin and Jefferson had in mind?
Back to the Global Macro Grind…
Thanks for letting me get that off my chest. If it’s not self-evident to you that markets are going right squirrel on this, your internet connection must be down. Pardon the pun, but in a nutshell:
- American Purchasing Power (US Dollar) is getting pounded on this
- Gold, Silver, Oil, etc. (Bernanke Bubbles) are all ripping
- Treasury Yields are having their 4th down-day in a row, after rising on employment #GrowthAccelerating
So here’s the deal - Ben Bernanke is not only going to A) time the economic cycle (even though his growth forecasts have been wrong 58-73% of the time, depending on what year you use), he’s also going to B) time the market cycle.
Actually, to be balanced, what he’d say he’s attempting to do (which is unprecedented by the way during a recovery) isn’t timing, per se. I think these Keynesian types who have never risk managed a market or run a business in their life call it “smoothing.”
I call that reckless.
Mucker’s Policy Advice: longer-term, Mr. Market is already pricing in #StrongDollar and #RatesRising, so just let it go pal. Let free-market prices and economic cycles clear; or your legacy will be that of someone who kept trying to re-flate bubbles as they were blowing up.
If Bernanke doesn’t take Mr. Market’s advice on this, here’s what is most likely going to happen:
- US Dollar Debauchery = Commodity Reflation
- Commodity Reflation = Consumption #GrowthSlowing
In other words, with Oil prices ripping a move above our long-term TAIL risk line of $108.11/barrel this morning, Bernanke is going to effectively give everyday Americans an enema again. Not cool.
This is not new territory for this conflicted cat. Remember what he did with his “communication tooling” in September of 2012? He said he would print to infinity and beyond and commodities (Gold) had their last hurrah on that.
Then, within 2-3 months, markets were in bedlam, US Consumption growth tanked, and the USA printed a Q412 GDP number of 0.38%!
It’s especially awesome for the guy who gets paid to run Gold Bond funds. Why don’t we take rips on this volatility roller coaster over and over and over again? Bernanke is on the switch – we’ll have 3 coasters on the same track at the same time; he’s wicked good on timing!
What’s my economic strategy this morning?
Seriously. What on God’s good earth am I supposed to recommend you do on this? Lever yourself up with asset classes that are crashing? Fortuitously, we aren’t short anything related to Bernanke’s banker boy bonuses (FICC – Fixed Income, Currencies, Commodities). And we’re not short anything PIMCO yet either, so maybe I’ll just sell everything and take the rest of the summer off.
I’m getting really tired of all this un-American central planning anyway. We’ve had a great year, and there’s no way I’m letting whoever this guy thinks he is make me give it all back.
Our immediate-term Risk Ranges are now as follows:
UST 10yr 2.41-2.77
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
THE MACAU METRO MONITOR, JULY 11, 2013
MACAU MOGUL LAWRENCE HO COMMITS TO CASINO IN RUSSIA WSJ
Lawrence Ho's Summit Ascent Holdings Ltd. said Wednesday it agreed to buy a 46% stake in an initial US$130 million phase of the casino project on the outskirts of Vladivostok. Melco International Development Ltd, which also is run by Ho would take a 5% stake. It is unclear if MPEL is not involved.
Ho and his Russian associates also signed a memorandum of understanding to be equal partners in a second phase of the project, estimated to cost US$500 million. Ho's companies cited Russia's low tax rate, proximity to northeast China, "cordial diplomatic relationship" with Beijing and Vladivostok's tourism potential as reasons for the investment.
The first phase of the planned casino resort in Primorye—a vast eastern region bordering China and Korea—is scheduled to open in September of next year. The developers plan to build around 120 hotel rooms and install 65 gambling tables and 800 slot machines. The second phase could include 170 gambling tables, 500 slot machines, 500 hotel rooms and entertainment and conference facilities.
GOVT SAYS TOURISTS' CASH DECLARATION WON'T UNDERMINE MACAU'S FREE PORT STATUS Macau News
Secretary for Economy and Finance Tam Pak Yuen said that cash flow across the border would not be restricted “as long as it is not related to money laundering”, insisting that the city’s status as a free economy and free port would hardly be affected by the possible implementation of the cash declaration system. The purpose of the system was to enable “higher transparency and monitoring of the flow of cash", he added.
When asked if the “threshold” was currently being studied, Tam said that “the relevant entity is studying the amount suitable for Macau’s situation”, reiterating that the first priority was to study “if Macau needs to implement this system”.
Tam also said that the cash declaration system “is not targeting the gaming industry,” stressing that the possible measure was not “a limitation on the movement of cash at all.”
SJM HOLDINGS SIGNS NON-GAMING ENTERTAINMENT FOR COTAI Macau Business
Olympics 2008 supplier Beijing Gehua Cultural Development Group will create an entertainment precinct and cultural attractions for SJM Holdings Ltd’s Cotai development. The RMB2-billion (MOP 2.6 billion) deal will lead to the creation of the Wonderland of Art and Literature, including performances, exhibitions and amusement park rides based on Chinese cultural themes.
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TODAY’S S&P 500 SET-UP – July 11, 2013
As we look at today's setup for the S&P 500, the range is 42 points or 1.55% downside to 1627 and 0.99% upside to 1669.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.22 from 2.27
- VIX closed at 14.21 1 day percent change of -0.98%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: Import Price Index, M/m, June, est. 0.0% (pr. -0.6%)
- 8:30am: Init Jobless Claims, week of July 6, est. 340k
- 9:45am: Bloomberg Cons Comfort, week of July 7 (pr. -27.5)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- 11am: Fed’s Tarullo testifies on regulation to Senate
- 11am: Fed to buy $1b-$1.5b TIPS in 7/15/2017-2/15/2043 sector
- 1pm: U.S. to sell $13b 30Y bonds in reopening
- 2pm: Monthly Budget Statement, June, est. $100b
- 9am: U.S.-China Economic and Security Review Commission holds roundtable on deterring cyber theft
- 11am: Senate Banking, Housing and Urban Affairs Cmte hearing on “Mitigating Systemic Risk Through Wall Street Reforms,” w/ Fed Governor Daniel Tarullo, FDIC Chairman Martin Gruenberg, Comptroller of the Currency Tom Curry
- 3:30pm: ACLU, Assn for Molecular Pathology briefing on Supreme Court decision to strike down patents on human genes
WHAT TO WATCH
- June U.S. retail sales likely helped by heat, pent-up demand
- Euronext will be spun off in IPO mid-2014, Cerutti says
- Microsoft reorganization to be announced today: AllThings D
- BOJ keeps monetary policy on hold as recovery signs seen
- U.S., Europe said poised to announce agreement on swap rules
- PC shipments fall for 5th quarter even as U.S. decline slows
- Bank Indonesia raises benchmark rate more than forecast to 6.5%
- Luxembourg PM to resign amid security service spying probe
- Heineken sells Hartwall unit to Royal Unibrew for $614m
- Sprint drops Nextel from co. name as SoftBank takes control
- Commerce Bancshares (CBSH) 7am, $0.71
- Corus Entertainment (CJR/B CN) 7am, C$0.51
- Progressive (PGR) 8:12am, $0.41
- Bank of the Ozarks (OZRK) 6pm, $0.57
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- IEA Sees 20-Year Supply Peak Outpacing Demand Recovery in 2014
- Corn Bets Turn Bearish as Rain Revives U.S. Crops: Commodities
- Thai Sugar Harvest Seen at Record Adding to Global Surplus
- WTI Trades Near 15-Month High as U.S. Crude Inventories Plunge
- Copper Reaches Three-Week High on Outlook for Further Stimulus
- Gold Nears $1,300 After Fed’s Bernanke Backs Sustained Stimulus
- Commodity Traders Face New Squeeze as Storage Congestion Spreads
- Crude-by-Rail Profits Fall as WTI-Brent Narrows: Energy Markets
- Raw Sugar Rebounds in New York After Brazil Raises Interest Rate
- Japan Purchases Alternatives to Oregon Wheat in Tender
- Zinc May Advance to $1,974 on Retracement: Technical Analysis
- South Africa Mine Wage Talks Open With Highest Demands on Record
- Iron Ore Bests Metals as Prices Have Gone Nowhere Since 1913
- Corn Gains as Investors Weigh Stress Risk to Record U.S. Crop
The Hedgeye Macro Team
Takeaway: Brent Oil is a potential fly in the #GrowthAccelerating ointment.
Brent Oil is dancing around our long-term tail-risk line of $108.36/barrel today. It broke out above it earlier in the session.
Our global macro model says $108.36 (or higher) is key. That is where we choke global consumption demand. Since U.S. consumption growth effectively doubled in the last six months to 2.4% vs. 1-1.2% prior, that’s a headwind, on the margin.
An expedited back-up in oil costs and the follow-on impact to fuel prices will be a headwind to other discretionary consumption growth. Gas prices aren’t yet a headwind (they are still lower on both a YoY and QoQ basis) but any existent tailwind is diminishing.
A large and sustained back-up in energy costs (at the same time as the furloughing of federal workers), while not a direct drag to disposable income growth, does serve as an incremental drag to consumption.
Bottom line: Rising Oil Prices is not a dynamic supportive of continued #GrowthAccelerating.
Takeaway: Consumer Discretionary and Financials are where you want to be positioned.
This note was originally published July 09, 2013 at 15:07 in Macro
We’ll introduce our detailed view on #RatesRising and the cross-asset class implications of the reversal in the 30Y bull cycle in bonds on our 3Q13 Macro Themes call next Tuesday July 15th.
As a visual preview and for some historical context, the sector study below shows the average, relative Q/Q sector performance during periods in which the factor combination of: Rising 10Y Yields, Expanding Yield Spread, and $USD appreciation all prevailed. At n=7, the sample population isn’t overly large but we’d still view the output as instructive.
General underperformance in defensives and outperformance in cyclicals isn’t particularly surprising. Additionally, we’d note that given the policy catalyzed, positive relative performance in yield chase assets, the downside for sectors such as Utilities and Staples is likely larger than historical precedent would suggest.
Further, in the context of our #StrongDollar and Bearish China/Emerging Markets view, the relative performance risk for Materials and select Energy & Industrials is likely to the downside vs the historical mean.
In short, alongside continued TREND improvement in domestic Labor Market, Housing, Confidence and Credit metrics, we’re viewing the back-up in Treasury rates and expansion in the yield spread as a pro-growth signals.
In terms of positioning, the 1H13 playbook remains largely in-tact with Consumer Discretionary and Financials the best way to find positive $USD and domestic consumption leverage at the sector level. While equities are immediate-term overbought here (see today’s note: Overbought: SP500 Levels, Refreshed) we continue to like the absolute and relative growth setup for the U.S. and pro-growth oriented asset exposures.
Christian B. Drake
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