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Q3 2013 Macro Themes Conference Call

Q3 2013 Macro Themes Conference Call - 3Q13themesdialb

 

Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl Jones, is hosting its highly anticipated Quarterly Macro Themes conference call with a presentation and a live Q&A session for participants. The presentation highlights the THREE MOST IMPORTANT MACRO TRENDS that our team has identified for the quarter, analyzing potential impacts across multiple scenarios and identifying investment opportunities. The Q3 2013 Macro Themes Call will be held Monday, July 15th at 11:00am EDT.              

 

 

Q3 THEMES INCLUDES:

  1. #RatesRising: The 30Y bull cycle in bonds is over.  We'll discuss the cross-asset class implications of the reversal and how to be positioned for the ongoing deflation of Bernanke's last (and largest) bubble.  
  2. #DebtDeflation:With total outstanding debt equal to three times equity, we give caution to the impact of debt deflating and offer investment vehicles to play this theme.
  3. #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.  

 

 CALL DETAILS 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 317583#
  • Materials: CLICK HERE (Slides will download one hour prior to the start of the call)

 

CONTACT

Please email if you have any questions. 

 

 


Morning Reads on Our Radar Screen

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

Keith McCullough – CEO

30yrs old, giving up $77M > NJ Devils star Kovalchuk announces retirement (via ESPN)

China Can Endure Growth Slowdown to 6.5%, Finance Chief Says (via Bloomberg)

Treasury Secretary says China to hand audit work to SEC (via Reuters)

Egypt prepares for rival Ramadan protests (via BBC)

 

Morning Reads on Our Radar Screen - asia

 

Daryl Jones – Macro

China GDP To Hit 6.7% (via Zero Hedge)

ETF Simplicity Betrayed by Volatility in Market Selloff (via Bloomberg)

 

Tom Tobin – Healthcare

Affordable Care Act insurance unaffordable for college students (via WorldMag.com)

The Affordable Care Act: The key to opening up ‘job lock’ (via The Bay State Banner)

 

Josh Steiner & Jonathan Casteleyn – Financials

JPMorgan Profit Rises 31% on Trading, Beats Estimates (via Bloomberg)

 

Matt Hedrick – Macro

European Parliament demands spending increase (via The Telegraph

                    

Todd Jordan – Gaming

Cash declaration idea ‘not targeting’ gaming: Tam (via Macau Business Daily)


[PODCAST] KEITH TALKS MONETARY VIAGRA

Has the Fed lost its monetary mojo? Hedgeye Risk Management CEO Keith McCullough weighs in on myriad market signals and whether the Bernanke Fed's Monetary Viagra has finally lost its potency. 

 


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Failure of Fed Viagra?

Client Talking Points

GOLD

Is that all Bernanke’s got? The US Dollar Index holds immediate-term TRADE support of $82.52; Gold fails at my $1312 TRADE line in kind. The Fed Chief's Dollar Devaluation attempts are being met with less and less stamina. I can’t imagine why? The Fed’s Balance Sheet is only at $3.504 TRILLION right now (I guess the +11.4 BILLION it's up week-over-week just doesn’t cut it) Rate of change impotence.

ASIA

Over in Asia, Chinese stocks, the KOSPI, etc didn’t care much for Bernanke’s monetary escapades. Shanghai and Hong Kong closed down -1.6% and -0.8%, respectively; that's despite the all-time highs in the SP500 and Russell. Don’t forget that every single major Asian Equity market remains bearish on our intermediate-term TREND duration (other than Japan). #GrowthSlowing

ITALY

The weakest link stops going up first. With the exception of the FTSE and DAX right now (both are only up +1% above their TREND lines), all of Europe is bearish TREND as well. Italy is down small this morning, but notably down post the USA Viagra thing. And it's still down -1.5% year-to-date for the MIB index is the point. 

Asset Allocation

CASH 68% US EQUITIES 12%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
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.

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. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

TREASURIES: 2.53% 10yr - Bernanke, is that all you got? you need to snap 2.4% to get me to stop shorting bonds

@KeithMcCullough

QUOTE OF THE DAY

"If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse."

-- Seth Klarman, Baupost

STAT OF THE DAY

The Fed's balance sheet is now 25% of US GDP and the Fed is currently in possession of 30% of all 10-Year equivalents. (Zero Hedge)



Hell or High Water

“Life is not easy for any of us. But what of that? We must have perseverance and above all confidence in ourselves. We must believe that we are gifted for something and that this thing must be attained.”

-Marie Curie

 

For those that haven’t been following the news reports from Alberta over the past month, the province and in particular its largest city Calgary, have been devastated by floods.  I’ve been up in Calgary, Alberta over the last couple of days meeting with clients and companies and the perseverance to rebuild and recover has been nothing short of amazing.

 

The most significant tourist and cultural event in Calgary every year is the Calgary Stampede.  It is a combination of an outdoor fair and championship rodeo, and attracts many hundreds of thousands of visitors.  Fittingly, the slogan of this year’s Stampede is “Come Hell or High Water”, which is an acknowledgement to what the city has gone through to begin the recovery from devastating flooding.

 

Once a century floods are what we in the risk management business call tail risk events.  They are low probability events that occur rarely but have an outsized relative impact.  The reality of tail risks, or black swans as Nassim Taleb calls them, is that they actually occur much more often than normally distributed risk model would project.

 

Back to the Global Macro grind . . .

 

Yesterday we hosted a call with George Friedman, the CEO and founder of Stratfor, a veritable private CIA.  With an army of global contacts and human intelligence collectors, they are rightfully considered among the best and most accurate assessors of global geo-political risks.  As a result, their clients include major government organizations, corporations and global asset allocators.

 

One of the key ideas that Friedman raised on his call was that despite the recent complacency in European equity and debt markets, things may not end well in Europe.  From his perspective, which we would agree with, the key political issue in Europe is that the grand experiment of the Euro has really only benefitted Germany.   The value of the Euro has supported the 40%+ of exports that drive German GDP, but has failed the rest of Europe.  Friedman thinks we may be in the early days of mass popular unrest in Europe across economically disadvantaged European nations outside of Germany.

 

Next week we will be releasing our quarterly themes, which is how we quantify the most important factors that are, and will be, driving markets and asset returns over the next couple of quarters.  Our Q2 themes were growth accelerating, strong dollar, and emerging outflows.   These largely played out in spades, particularly emerging market outflows, the extent of which surprised many market participants in Q2.  We added the etf EEM, which is a proxy for the emerging markets equities, as a short idea to our Best Ideas product on April 23rd. Since then the EEM is down more than 10%.

 

On Monday at 1pm eastern we will be hosting our Q3 Themes call, and while I don’t want to want to steal all of the thunder of that call, our Q3 Themes are as follows:

 

1.   #DebtDeflation – This theme analyzes the massive build up of debt globally and then looks at debt by sector to assess the outlook over the coming months.  Broadly speaking, you don’t want to be long bonds in the TREND duration.  Even if gentlemen prefer bonds, we don’t.

 

2.   #AsianContagion – Our Senior Asia Analyst Darius “Sunny D” Dale has done an outstanding job parsing through the Asian economies over the last eighteen months.  This theme primarily looks at the intermediate impact of Japan and China across Asian economies more broadly.  By and large, as Chinese economic growth goes, so goes growth across Asia.

 

3.   #RatesRising – This theme has been and will likely continue to have the most meaningful impact on U.S. markets as we’ve seen over the past six weeks with rates breaking out to the upside and devastating the bond markets.

 

In the Chart of the Day, we’ve borrowed a chart from the Q3 Themes presentation of the high yield index and the potential impact of a reversion to the mean in bonds.  As the chart shows, high yield is well below its 10-year average yield of 9.6%.  Even if we exclude the anomalous period of 2008 – 2009, in which rates spiked, that average is at 8.6% and well above current levels.

 

Our research shows that rates reverting to more normal levels won’t actually impede growth, and thus equity market returns.  In fact, the best U.S. economic growth rates often occur when the 10-year yield is in the 4 – 6% range.  The bond and gold markets, of course, fare much, much worse in a rising rate environment. 

 

In particular, gold has surprised people to the downside this year.  Many gold bugs have argued to us that with the recent correction in gold, now is no time to sell.  In reality, the facts tell a different story.  Gold will continue to underperform in an environment of rising rates and a strong dollar.

 

Our correlation analysis tells us that the other key factor driving gold is the size of the Federal Reserve balance sheet.  In fact, the correlation is over 0.90 on an r-squared basis (so very high).  To the extent that the rate of change in the Federal Reserve balance slows, or god forbid declines, it could well be the death knell for gold and gold bugs.

 

We hope you can join us for our theme call on Monday.

 

Our immediate-term Risk Ranges are now as follows:

 

UST 10yr 2.42-2.77%

SPX 1

VIX 13.15-15.92

USD 82.52-83.93

Oil 105.84-110.73

Gold 1

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Hell or High Water - HY EL

 

Hell or High Water - Virtual Portfolio


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