TODAY’S S&P 500 SET-UP – December 11, 2013
As we look at today's setup for the S&P 500, the range is 30 points or 0.98% downside to 1785 and 0.69% upside to 1815.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
This note was originally published at 8am on November 27, 2013 for Hedgeye subscribers.
“Well, there’s not a day that goes by when I don’t get up and say thank you to somebody.”
Roderick gets it. The youngest of five kids, he wasn’t born into poverty or affluence. The 68 year old rocker from Highgate (North London) was born on my wife’s due date (pending baby #3 for us in January). And God knows, I have nothing but thanks for my family’s health and happiness as we move closer to game time.
I also wanted to take some time to thank you, our clients, for making all that we’ve set out to achieve here @Hedgeye possible. We’re going on 6 years since the founding of our firm. You’ve helped us create 50 jobs in America. For that I’m forever grateful.
With achievement comes great responsibility. Now that we have our new @HedgeyeTV studio and office space built out in Stamford, CT we’re looking forward to being the change we all want to see in both our community and profession.
Back to the Global Macro Grind…
Change starts with being transparent and accountable. All great American (and Canadian) Patriots have held their government to account. While hope is not a reputational management strategy, I sincerely hope you see some of my anti-government rants in that light.
Yesterday’s declining US Consumer Confidence reading is case and point. While the US government and its un-elected @FederalReserve refuses to acknowledge this, there’s an implicit link between:
A) The Purchasing Power of The American People
B) US Consumer Confidence
In real-time economic strategy speak, we call these coincident indicators. As you can see in Christian Drake’s Chart of the Day (US Dollar vs. US Consumer Confidence going back to January, 2013), the following conclusion is also explicit:
1. The US Dollar locked in her YTD highs in the May-July period
2. US Consumer Confidence peaked in mid-July of 2013
Not only did confidence peak; now, alongside the US Dollar (down 3 weeks in a row), it’s starting to plummet. While the chart we are showing is the University of Michigan’s reading, every single US Consumer & Business Confidence survey we track looks the same:
1. US Conference Board Consumer Confidence reading for NOV = 70.4 vs 81.0 in JUL
2. University of Michigan Consumer Confidence reading for NOV = 72.0 vs 85.1 in JUL
3. NFIB Small Business Optimism reading for OCT = 91.6 vs 94.1 in JUL
In other words, as the US government signs off on this no-taper-zero%-rates-on-savings-US-Dollar-devaluation lie, the American people aren’t buying it.
Why? Because everyone who is literate in real-world economics realizes that the current @FederalReserve Policy To Inflate is only good for high income earners in America who are long of the @PIMCO Total Return fund and/or stocks, art, bubbles, etc…
Within another US Consumer Confidence data series, look at the Bloomberg Consumer Comfort readings by Income bracket:
1. INCOME $40,000-50,000 confidence reading for NOV = -45.6 vs -23.1 JUL
2. INCOME > $100,000 confidence reading for NOV = +16.9 vs 17.0 JUL
Notwithstanding the obvious (that low-income earners all have NEGATIVE confidence readings to begin with), this is a national embarrassment; especially for a US President who campaigns explicitly with class warfare words. Obama, what about the “folks?”
I didn’t grow up in a community where we assigned people to different “classes.” I’m the son of a firefighter and teacher who put two feet on the floor every morning just like everyone else. And when someone less fortunate than me needed help, it was my leadership responsibility to do so.
So I’d like to thank you again this morning for the opportunity to lead from the front. There has never been a country that has devalued its way to long-term economic prosperity. Perpetually devaluing the purchasing power of the poor (US Dollar) is wrong. And it’s our patriotic responsibility to end this never-ending-money-printing-policy before it’s too late.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.69-2.81%
Best of luck out there today and Happy Thanksgiving to you and your loved ones,
Keith R. McCullough
Chief Executive Officer
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Takeaway: We still think RH is on its way to $175. The quarters will ebb and flow. But despite the bearish sentiment we like it into the 3Q print.
We've never seen the Street more bearish on RH -- especially headed into a print. We find that interesting, if not perplexing, given that there should be such a positive change in fundamentals with the upcoming quarter. We still think RH is on its way to $175. The quarters will ebb and flow. But despite the bearish sentiment we like it into the 3Q print.
Consider the following
Last quarter -- when RH was flirting with $80...
Package that all together, and it's easy to see why sentiment is so poor.
But here why we're more optimistic…
THIS IS THE CORRELATION BETWEEN SOURCEBOOK MAILINGS AND REVENUE -- NADA
HERE'S WHAT 1,000 PEOPLE TOLD US ABOUT WHAT WHAT THEY DO WITH CATALOGS. THEY DON'T DO MUCH.
Sentiment for RH is just about as low as it's ever been -- despite the fact that fundamenals are getting better on the margin, and we’re inching closer to the period (in 12 months) when square footage should start to accelerate.
Takeaway: Dollar debauchery has consequences.
Shhh. Don’t tell the Fed, but that Down Dollar (The one that’s down five weeks in a row), well it's kick-starting that ‘ole 2011-2012 style inverse correlation to Commodity Inflation again.
Right now, Brent Oil vs. US Dollar has an inverse correlation of -0.66 on a 6-week duration. Both Brent and WTIC are up about 1% this morning after Brent held our Hedgeye TAIL risk support of $109.07/barrel. We covered our Oil short yesterday.
Great news for America as we head into the thick of winter with heating bills and all. Right?
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Takeaway: The key to a safe “landing of the [growth] plane” is an expedited, well-implemented deregulation of FDI and portfolio flows.
This note was originally published December 04, 2013 at 14:44 in Macro.
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At the bare minimum, 2013 has been a weird year to be involved in China – either directly through Chinese equity exposure or indirectly through consensus ancillary plays like EM assets, commodities, and the currencies of commodity-producing nations.
While we consider it a huge victory for our team to have kept our clients out of or on the short side of those ancillary plays all year (and prior), that is certainly not to say we’ve nailed China or anything to that nature.
In the following table, we highlight the absolute bloodbath that has occurred across the commodity complex since we first introduced our structurally negative view on commodities back in APR ’11 as part of our Deflating the Inflation quarterly macro theme. We’ve obviously followed that up with numerous notes and presentations over the past couple of years, so please email us if you’re not yet familiar with our long-held bearish bias on the commodity complex and we’ll be happy to forward you the relevant materials.
Going back to not nailing China, we’ve been keen to change our stance on China multiple times in the YTD (% changes reflect the performance of the Shanghai Composite Index over the respective duration):
The predominant reason we’ve changed our tune on China so many times this year has been due to policy inflections that have materially altered (or complicated) our rolling-thee-to-six-month forward expectations for the Chinese economy. Amid this ~3M long period of admittedly-unattractive neutrality, we’ve analyzed China in both a positive and negative light, highlighting both the key opportunities and risks to China’s long-term GIP outlook along the way:
We are decidedly back to analyzing China with a sanguine lens and are increasingly of the view that it probably warrants playing China alone (i.e. not via consensus ancillary “China plays”) on the long side with respect to the intermediate-term TREND.
With respect to the long-term TAIL, we still would like to see concrete implementation of capital account and FX reforms, as well as more safeguards put in place to limit the risk of a broadly destructive transition to a fully liberalized financial system (email us if you’d like to receive a walk-though of the specifics and a recent collection of confirming evidence).
It could be over a year before we have meaningful clarity on the latter, so our best solution for clients at the current juncture is to overweight “new China” (i.e. consumption and deregulation) while underweighting (or shorting) “old China” (i.e. the concomitant bubbles in credit and fixed assets investment), as highlighted in the chart below:
Going back to the intermediate-term TREND outlook, we think China has the opportunity to surprise consensus growth expectations to the upside into and potentially through 2014, after what is likely to be a brief dip into Quad #3 here in 4Q13:
Moreover, we think China has the potential to continue distancing itself from the carnage that has become the emerging markets space. It will seek to accomplish this by enticing international capital flows (both FDI and portfolio) away from beleaguered EM economies, at the margins, through a combination of strengthening the CNY and promoting its use internationally, as well as through incremental deregulation and investor-friendly incentives.
Below is a compendium of data points we’ve come across in the past couple of weeks that support this view:
All told, we still think China has a lot of credit bubble-related skeletons in its closet that will increasingly become a headwind to Chinese economic growth over the long-term TAIL. For the time being, however, we think Chinese officials are putting the right policies in place to offset those headwinds, at the margins.
Please feel free to email us with any follow-up questions.
Associate: Macro Team
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