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October 8, 2013

October 8, 2013 - dtr

 

BULLISH TRENDS

October 8, 2013 - 10yr

October 8, 2013 - spx

October 8, 2013 - nik

October 8, 2013 - mib

October 8, 2013 - vixB

October 8, 2013 - euroB

 

BEARISH TRENDS

October 8, 2013 - dxy

October 8, 2013 - natgas

October 8, 2013 - gold

October 8, 2013 - copper

 



Dear Mother

“You know, men do nearly all die laughing”

-T.E. Lawrence

 

As a young enlightened man in the field of war in the Middle East, that’s what T.E. Lawrence wrote to his Mom in 1916. At the time, he was also tasked with writing a weekly letter to the “Mother” (Britain’s War Office) of his homeland. Not surprisingly, this is when he started to “incense his military superiors” with on-the-ground truths (Lawrence in Arabia, pg 125).

 

“We edit a daily newspaper, absolutely uncensored, for the edification of twenty-eight generals; the circulation increases automatically as they invent new generals. This paper is my only joy. Once can give the Turkish point of view of the proceedings of admirals one dislikes, and I rub it in my capacity as editor-in-chief.” (pg 125)

 

Ah, the power of the pen. You either have it, or you do not. For an amateur writer like me, I get that my moments are fleeting. But, especially when attacking the tyranny of government spin, I feel as liberated as a man who believes in truth and freedom can feel. That’s why I do this at the top of every risk management morning - to feel free.

 

Back to the Global Macro Grind

 

This is not a “free-market.” At least not in its purest definition. At any given moment of the trading day, the government can announce that it is officially saving us from itself. For that, I’ll be damned if I give thanks and praise.

 

Can money buy your freedom? What if the purchasing power of that “money” is being burned at the stake? What if your money is borrowed from the future of your grandchildren?

 

These aren’t new questions this morning. Montaigne started asking these questions in 1571 with “Essais” and Shakespeare personified the money/power/freedom conundrum with the Merchant of Venice too.

 

Can the world’s reserve currency (US Dollar) hold its long-term TAIL risk line of $79.21 support?

 

It’s still the #1 question in my notebook this morning. And I suspect it will be for some time to come. If you ask Gold, the answer is maybe. If you ask Bernanke, Obama, and Boehner, it’s no.

 

In addition to the US Dollar’s TAIL risk line imposed upon us by central planners, here are some critical US TREND lines to consider:

  1. US Treasury 10yr Yield = 2.58% TREND support
  2. US Equities (SP500) = 1663 TREND support
  3. US Equity Volatility (VIX) = 18.98 TREND support

That last one is what’s going to drive the other two. For all of 2013 I’ve been Bearish on Fear (VIX). As of the last 2 weeks, that’s changed. I am as afraid of US government intervention in our markets and economies as the VIX has become.

 

Yesterday’s move on the front-month of fear (VIX) was telling – follow Mr. Market’s flow:

  1. US Equities had a big newsy down-open in the pre-market built on the false media message that the US could “default”
  2. US Bonds and Credit Default Swaps didn’t care about all of the “default” fear-mongering; stocks acknowledge the same
  3. US Equities eventually lifted off the lows and were only down -0.3% by lunchtime

Then …

  1. As the lunch-time lull passed, US Equity market players started to realize that this correction is not just about “default” noise
  2. Almost everything that’s been killing it YTD (Growth Stocks) started to roll over in the early afternoon
  3. Financials (XLF), Consumer Discretionary (XLY), and Small Caps (IWM) all ended up closing down -1.2-1.3% by end of day

And all this happened as US Equity Volatility (VIX) broke out above the @Hedgeye TREND line (18.98) for the 1st time since June. Our process would suggest that there was absolutely no irony in that.

 

I won’t re-hash the Growth “Style Factors” that I outlined in yesterday’s Early Look again, but the risk management point to embrace was a very simple one. As a market expectation, #GrowthAccelerating has plenty of downside.

 

The US Government is not going to default on its debt, but it may very well slow growth.

 

Put another way, the longer that both the fiscal and monetary policy sides of the US House lean on:

 

A)     Down Dollar

B)     Falling US Interest Rates

 

The less likely it is that the US economic cycle will be allowed to occur.

 

Policies to Inflate (devaluing the Dollar) don’t create economic growth; they perpetuate inflation. Under our #StrongDollar + #RatesRising scenario (that may have died 2 weeks ago), inflation is not an issue. Now it is. Mother, be forewarned.

 

Our immediate-term Risk Ranges are now as follows (we do all 12 Global Macro ranges in our Daily Trading Range product):

 

UST 10yr Yield 2.60-2.68%

SPX 1

VIX 16.23-20.15

USD 79.67-80.71

Euro 1.34-1.36

Brent 107.97-109.99

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dear Mother - Chart of the Day

 

Dear Mother - Virtual Portfolio


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 8, 2013


As we look at today's setup for the S&P 500, the range is 14 points or 0.31% downside to 1671 and 0.53% upside to 1685.                           

                                                                                                    

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 2.29
  • VIX  closed at 19.41 1 day percent change of 15.95%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Bus. Optimism Index, Sept., est. 94
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: IBD/TIPP Economic Optimism, Oct., est 43.5 (prior 46)
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 12:25pm: Fed’s Pianalto speaks on economy in Pittsburgh
  • 12:30pm: Fed’s Plosser speaks in Johnstown, Pa.
  • 1pm: U.S. to sell $30b 3Y notes
  • 7:50pm: Bank of Japan issues minutes of Sept. 4-5 meeting
  • 9pm: Bank of Japan’s Nakaso holds news conference

GOVERNMENT:

    • IMF issues World Economic Outlook; Chief Economist Olivier Blanchard gives press conference during annual meeting, 9am
    • FDIC Board Reviews Deposit Insurance Fund
    • House, Senate in session
    • Senate Armed Forces Committee Hearing on Sequestration
    • SEC Commissioner Michael Piwowar attends Chamber of Commerce’s Center for Capital Markets Competitiveness discussion on “Advancing and Defending the SEC’s Core Mission,” 11:30am

WHAT TO WATCH:

  • U.S. default specter has Japan joining China warning on debt
  • U.S. loses $1.6b from shutdown costing $160m/day
  • Alcoa begins earnings season for 1st time since drop from DJIA
  • Alcatel-Lucent to reduce 10,000 jobs worldwide as losses mount
  • Morgan Stanley seen leading bank profit gains
  • IMF to publish World Economic Outlook, 9am
  • McKesson is in advanced talks to buy Celesio: DJ
  • America Movil, AT&T discuss entering Europe: Telegraaf
  • Vodafone plans to spend $2b on Indian mobile unit buyout: FT
  • U.S. approves China co.’s takeover of Mooney Airplane: Xinhua
  • North Korea has restarted Yongbyon nuclear reactor: Yonhap
  • German exports gained in Aug. as euro-area economy recovered

EARNINGS:

    • Alcoa (AA) 4:03pm, $0.05
    • Wolverine World Wide (WWW) 6:30am, $1.03, preview
    • Yum! Brands (YUM) 4:15pm, $0.92, preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Cocoa Touches 23-Month High on Shortage Outlook; Sugar Climbs
  • Rubber Glut Shrinking as Car Sales Expand to Record: Commodities
  • WTI Crude Advances as Impact of U.S. Shutdown Seen Limited
  • Morgan Stanley Increases Iron Ore Outlook as Deficit Persists
  • Soybeans Poised for Longest Rally in Four Months on U.S. Weather
  • Copper Rises in London as PMI Report in China Signals Growth
  • Goldman’s Currie Says Gold Is ‘Slam Dunk’ Sell After Shutdown
  • Rebar Gains on Stock Market Rally as China Returns From Holiday
  • Crude Supplies Increase for Third Week in Survey: Energy Markets
  • Asia’s Chocolate Craving Paces Global Demand: Chart of the Day
  • Battery-Stored Solar Sparks Utilities Backlash: Climate & Carbon
  • Iron Ore Demand Expands 7.5%, Keeps Market in Deficit: Bull Case
  • Olam Sees Smaller Arabica Coffee Surplus as Robusta Supply Gains
  • Vale Sees Iron-Ore Market Oversupplied From 2015 on New Capacity

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

 

 

 

 

 

 

 

 

 

 

 

 



McCullough: Why We're Seeing Red

Takeaway: Watch the relationship between US Equity performance and US Equity volatility (VIX) from here.

This remains the first U.S. stock market correction of 2013 that I haven’t been buying on red. Friday was only the third up day for US equities in the last 12 (when Bernanke wrongly decided to Burn The Buck by not tapering). Today isn't looking much better.

 

It's simple: Down Dollar + Rates Down = US Stocks Down - that’s precisely what we are seeing again today, and what I told our clients earlier this morning in our Morning Newsletter. From a US growth expectations perspective, that’s not good.

 

Wall Street was caught off-sides again this morning – too long = wrong. Watch the relationship between US Equity performance and US Equity volatility (VIX) from here. I’m already net short in our RealTimeAlerts signaling product, but I’d get really net short on a VIX breakout over 18.98.

 

McCullough: Why We're Seeing Red - dale


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