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July 11, 2013

July 11, 2013 - DTR

 

BULLISH TRENDS

July 11, 2013 - 10yr

July 11, 2013 - spx

July 11, 2013 - dax

July 11, 2013 - nik

July 11, 2013 - dxy

 July 11, 2013 - oil

 

BEARISH TRENDS

 

July 11, 2013 - VIX

July 11, 2013 - euro

July 11, 2013 - yen

July 11, 2013 - natgas
July 11, 2013 - gold

July 11, 2013 - copper


Hogtown

This note was originally published at 8am on June 27, 2013 for Hedgeye subscribers.

“There is thy gold, worse poison to men’s souls,

Doing more murder in this loathsome world,

Than these poor compounds that thou mayst not sell.”

-William Shakespeare

 

My colleagues and I ventured up to Toronto (nicknamed Hogtown due to the vast pork processing plants that used to call Toronto home) yesterday to meet with some old clients and some new prospects.  The first prospect’s office we strode into had a massive solid gold coin and paintings from French Impressionists on the walls.  Clearly, the commodity, and in particular gold, boom, has been good to Canadian investment managers.

 

As we made our rounds yesterday, it became increasingly obvious that Canadian money managers were also doing their utmost to diversify from this commodity heritage and in the short run that means diversifying more into U.S. equities.  In part, this was actually due to a perception of potential strength in the U.S. dollar, a theme which is very near and dear to our hearts, of course.

 

One manager actually made a very interesting point on gold companies, which was that as the majors were being increasingly forced to hedge out gold prices, they put their company at even greater risk in the future if, and when, gold prices and operating costs increased.  His view is that intrinsic value of many major Canadian gold companies is substantially lower than where Mr. Market is currently valuing them.

 

Given how much fun we’ve had analyzing the hedging strategies of LINN Energy, the Canadian gold sector may be an interesting short research project to work on next.  But as always, while you can marry your longs, it’s highly recommended to only date your shorts.

 

Back to the global macro grind . . .

 

Despite a little bit of a market freak out last week, global markets are seemingly stabilizing.  An important tell for us on this front is sovereign debt markets in Europe where, logically, risk capital seems to flee first.  After peaking over 5% on Monday, Spanish 10-year bonds are back down well below 5% and on their way back to 4.5%.

 

Admittedly, though, even as some of the risk has decreased over the past couple of days, the low volume price recovery in many key markets has been uninspiring.  In Asia, the bounce has been very uninspired with China down small over night and Hong Kong only up 0.5% for the second day of its bounce.  In Europe, Greece is back in crash mode as is down -2.7% this morning.

 

Speaking of yields, the future direction of yields on U.S. Treasuries is one of the topics our international clients are increasingly focused on, which is no surprise given the blood bath that has occurred in the U.S. government debt market over the last thirty days.  But, where will yields go from here?

 

Many bond experts had been adamant that the Federal Reserve would defend the 2% line on the 10-year.  Clearly, that was about as defendable as a Canadian Football League offense against a NFL defense.  In the Chart of the Day, we look at the yield on the 10-year going back ten years.   On a basic level, if the market truly begins to price in the end of quantitative easing, the blood bath in the bond market is likely in early days. 

 

Conversely, as interest rates go up in the U.S., this should bode well for the U.S. dollar especially given the positive relative position versus the Yen and the Euro.  In Japan, to generate anywhere close to 2% inflation will require substantially more quantitative easing.  Meanwhile in Europe, the continued economic bifurcation between countries makes it unlikely the ECB will tighten anytime soon.  On the last point, the best example of this is like the gap in unemployment rate of Germany at 6.8% and the rest of the Euro zone at 12.2%.

 

Another key theme that will continue to play out if rates in the U.S. increase and the U.S. dollar naturally strengthens is Emerging Markets outflows.  In fact, in the strong dollar era from 1995 to 2001, the SP500 CAGR was 15.8% and the CAGR of the MSCI EM Index was -5.3%.  Conversely, in the weak dollar period of 2001 to 2011, the SP500 CAGR was 1.4% and the MSCI EM Index returned 14.5%.  Now clearly, there were and are other factors at play, but the U.S. dollar will continue to be one of the most influential.

 

As it relates to interest rates, today’s jobless claims print will be the most important data we will get through the end of the week.  If claims are better than expected, then interest rates are likely to continue their ascent.  So far, equities have not acted well with interest rates breaking out to the upside, though that could change if a stabilizing economy becomes increasingly evident.

 

The global markets are having a difficult time finding their identity.  As Shakespeare wrote:

 

“All the world’s a stage, and all the men and women merely players: they have their exits and their entrances; and one man in his time plays many parts, his acts being seven ages.”

 

Indeed, we are all stock market players.  The key is to make sure, whether it is gold, U.S. treasuries, or LINN Energy, that we are not the last players to exit.

 

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

 

UST 10yr 2.39%-2.74% (bullish)

SPX 1558-1618 (neutral)

DAX 7606-8096 (bearish)

Nikkei 12,578-13449 (bearish)

 

VIX 15.17-20.97 (bullish)

USD 82.27-83.67 (bullish)

Euro 1.29-1.31 (bearish)

Yen 96.41-99.53 (bearish)

 

Oil 98.98-103.36 (bearish)

NatGas 3.64-3.89 (bearish)

Gold 1207-1316 (bearish)

Copper 2.98-3.12 (bearish)

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Hogtown - Chart of the Day

 

Hogtown - Virtual Portfolio



Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Bernanke's Society

“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”

-Benjamin Franklin

 

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:

  1. American Purchasing Power (US Dollar) is getting pounded on this
  2. Gold, Silver, Oil, etc. (Bernanke Bubbles) are all ripping
  3. 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.

 

#Great

 

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:

  1. US Dollar Debauchery = Commodity Reflation
  2. 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%!

 

#Awesome

 

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?

  1. Prayer

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

SPX 1

VIX 13.51-15.66

USD 82.64-83.95

Oil 105.56-110.28

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bernanke's Society - Smoothing

 

Bernanke's Society - vp 711


THE M3: RUSSIA; TAM COMMENTS ON CURRENCY MONITORING; SJM COTAI NON-GAMING

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.

 




THE HEDGEYE DAILY OUTLOOK

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.                     

                                                                                                          

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: 2.22 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

GOVERNMENT:

    • 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

EARNINGS:

    • 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 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

 

 

 

 

 

 

 

 

 

 

 


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