prev

December Taper? "No Chance"

Client Talking Points

CHINA

The Shanghai Composite was down -0.45% overnight making it 6 straight down days and a snap of Hedgeye’s intermediate-term TREND line again (2196). The rest of Asia mixed with Nikkei +0.8 (up for only the second day in the last 6.

UK

What's that? Yet another rock-star economic data point out of the UK as consumer prices (CPI) fall to +2.1% year-over-year  (verssu 2.2% last month). That’s what #StrongPound gets you: purchasing power via a tax cut for The People – still love Cable.

US DOLLAR

It's sad sitting here watching the Dollar burn. The Greenback is now down for the 6th consecutive week ahead of Ben Bernanke’s final Buck Burning test. But don’t worry! At the Fed’s 100th year anniversary (which no one cared about) yesterday, Bernanke said “during the Fed’s finest hours, we stood up to political pressures.” Huh?

Asset Allocation

CASH 48% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

if $LNCO trades up today, @jimcramer is a genius. If it trades lower, it's a #bearraid @HedgeyeEnergy

QUOTE OF THE DAY

"A ship is safe in harbour, but that's not what ships are for." -William Shedd

STAT OF THE DAY

Michael Jordan's 56,000-square-foot home failed to sell at auction Monday after lingering on the market for nearly two years. The former Chicago Bulls basketball star initially listed the home at $29 million in February 2012. Later, the asking price was cut to $21 million. The home was built in 1994. (CNN)



I'm Sorry America

“I can only say: I’m sorry America.”

-Andrew Huszar

 

In the opening sentence to his recent WSJ op-Ed (which the NY Times wouldn’t publish), “Confessions of a Quantitative Easer”, that’s what Andrew Huszar wrote. Since he ran the biggest Fed bond buying program in US history, that was a big apology.

 

I had the pleasure of hosting Andy at our new Hedgeye headquarters in Stamford, CT yesterday for our 1st segment of a series @HedgeyeTV that we’re calling Real Conversations.

 

The short-term headline of our conversation is that Andy doesn’t think the Fed tapers tomorrow. The longer-term implication of our conversation is that Andy thinks the Fed has been politicized, allowing “QE to become Wall Street’s new Too Big To Fail policy.” So don’t look for an actual “taper” of consequence, any time soon.

 

Back to the Global Macro Grind

 

Not to be confused with Ben Bernanke’s take on the whole thing, Huszar left “Fed-up” because he didn’t believe in how “the central bank continues to spin QE as a tool for helping Main Street.”

 

Yesterday at the Federal Reserve’s 100 year birthday party (the one that no one in America cared to celebrate), Bernanke went on and on saying that the “Fed’s willingness, during its finest hours” … was to “stand up to political pressure.” Got-it.

 

Moving along… the entire global currency market, which has picked up some volatility as of late (JPM’s FX Volatility Index was +3.7% last wk to +8.1% YTD), awaits our central planning overlord’s decision tomorrow.

 

We’re short the US Dollar in our Q413 Global Macro Themes deck and we re-shorted the US Dollar (UUP) on its bounce to lower-highs last week in #RealTimeAlerts. Huszar’s take on it all simply confirmed what we were thinking.

 

From a risk signaling perspective, where do we stand on the FX War’s Big 3?

  1. US Dollar (Index) = Bearish Formation (bearish on all 3 of our core risk mgt durations – TRADE, TREND, and TAIL)
  2. The Euro (EUR/USD) = Bullish Formation (bullish on all 3 of our core risk management durations)
  3. Japanese Yen (USD/JPY) = Bearish Formation

The bearish intermediate-term TRENDs in both the US Dollar and Yen make sense as (relative to the ECB, whose balance sheet has shrunk) the Fed and BOJ have been the marginal debaucherers of their currencies as of late.

 

Japan has been doing this for over a year now, while the Fed re-engaged in Buck Burning with the no-taper decision in September. So that makes getting long the Yen versus the US Dollar here interesting. Warning: it’s early.

 

Looking at the leans in Global Macro consensus (net long or short positions in CFTC futures and options contracts), here’s where the game is currently at:

  1. USD = +6,730 net long contracts (versus +7,725 three months ago)
  2. EUR = +15,115 net long contracts (versus +39,803 three months ago)
  3. JPY = -129,614 net SHORT contracts (versus -90,060 three months ago)

In other words, consensus A) in US Dollar bulls isn’t as sure as it was 1yr ago (when the net long position in USD was +19,471), B) is more worried about another ECB rate cut (even though the European economic data continues to accelerate) and C) is wacky net short the Yen (now that it’s down -16% vs USD for 2013 YTD!).

 

So what do you do with that? Start yelling to the heavens that “it’s a bloody currency war and a race to burn everything; buy bitcoin!” Or do you buy Yen in early 2014 as consensus marks the bottom?

 

I’ll tell you how I used to think about stuff like this – dogmatically. I was certain that my research view was going to be right (until it would be very wrong) and had a complete disrespect for market timing.

 

Note to self (sponsored by Dan Och at OZM): if you disrespect Mr. Macro Market’s timing signals, he’s going to “do you” some humbling P&L exercises.

 

Our track record risk managing currencies is better than a moving monkey’s, primarily because we use risk controls:

  1. Buying a currency, I wait for an immediate-term TRADE oversold signal within a bullish TREND
  2. Shorting a currency, I wait for an immediate-term TRADE overbought signal within a bearish TREND

Those are the easiest calls to make. The toughest are the ones that eventually have the biggest TRENDING reversals (bearish to bullish reversals or vice versa). Buying the Yen versus the USD would be a potential example of that in early 2014. But, for me, I need to take my time and score the bottoming process (they are processes, not points).

 

In parallel to the quantitative signaling, what we do as a research team is try to play out scenarios and catalysts (preferably with tangible macro calendar catalysts). What if Huszar is right and the Fed’s Policy is To Big To Fail? What if the Fed doesn’t taper in DEC, then the US economic data continues to slow in JAN? What if you’re looking at no taper in 2014 and a Yellen Qe6?

 

If that were to play out, I’ll be really sorry for America too.

 

Our Financials team will be hosting a call on “Mortgage Mayhem” at 1pm today to discuss the coming January upheaval in the mortgage market from the new QM regulations. The speaker will be industry authority, Larry Platt, an attorney with the law firm of K&L Gates. If you’re an Institutional investor and would like access to the call, email .

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

VIX 14.26-16.84

USD 79.79-80.44

EUR/USD 1.37-1.38

USD/JPY 101.72-103.84

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

I'm Sorry America - Chart of the Day

 

I'm Sorry America - Virtual Portfolio


Early Look

daily macro intelligence

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.

December 17, 2013

December 17, 2013 - Slide1

 

BULLISH TRENDS

December 17, 2013 - Slide2

December 17, 2013 - Slide3

December 17, 2013 - Slide4

December 17, 2013 - Slide5

December 17, 2013 - Slide6

December 17, 2013 - Slide7

December 17, 2013 - Slide8

December 17, 2013 - Slide9

December 17, 2013 - Slide10

 

BEARISH TRENDS

December 17, 2013 - Slide11
December 17, 2013 - Slide12

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 17, 2013


As we look at today's setup for the S&P 500, the range is 50 points or 1.21% downside to 1765 and 1.59% upside to 1815.                                                

                                                                               

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: 2.54 from 2.55
  • VIX  closed at 16.03 1 day percent change of 1.71%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Current Acct Balance, 3Q, est. -$100.4b (pr -$98.9b)
  • 8:30am: Consumer Price Index m/m, Nov., est. 0.1% (pr -0.1%)
  • 10am: NAHB Housing Market Index, Dec., est. 55 (prior 54)
  • 4:30pm: API weekly oil inventories
  • Two-day FOMC meeting starts

GOVERNMENT:

    • Senate in session, House not in session
    • Senate to consider bipartisan budget agreement reached Dec. 10
    • 8:50am TSA Administrator John Pistole delivers keynote remarks at Air Line Pilots Association
    • 9am, FOMC 2-day closed meeting on interest rates starts
    • 9:30am Sens. Amy Klobuchar, D-Minn., Christopher Coons, D-Del. hold news conf. on U.S. manufacturing sector
    • 10am Sen. Tom Coburn, R-Okla. holds news conf. on “Wastebook” annual report on federal spending
    • 10am ADBE, ANLY among witnesses set to testify at Senate Judiciary Cmte hearing on limiting so-called patent trolls
    • 10:30am Interior Sec. Sally Jewell and Gov. Martin O’Malley, D-Md., make offshore wind energy announcement
    • 10:30am Senate Homeland Security Cmte holds hearing on safety at federal facilities post  Washington Navy Yard massacre

WHAT TO WATCH:

  • FOMC begins 2-day meeting on interest rates
  • Charter said to tap Goldman Sachs for Time Warner Cable bid
  • Sherwin, NL, ConAgra must pay $1.1b in lead paint lawsuit
  • MetLife said in talks for stakes in AMMB’s insurance units
  • Goldman Sachs aluminum antitrust suits sent to New York
  • Nasdaq must face some investors’ claims over Facebook IPO
  • Facebook to start showing video ads this week, WSJ reports
  • U.S. Senate set to consider Dec. 10 budget agreement
  • Glaxo to end doctor payments amid marketing practices review
  • Herbalife clean audit a setback for Ackman’s pyramid case
  • SAC manager Steinberg’s jury to begin deliberations
  • Detroit seeks to pay UBS, BofA $230m to cancel swaps
  • U.K. inflation nears BOE’s 2% target w/unexpected slowdown
  • Europe car sales up 3rd month on new Volkswagen models
  • German ZEW investor confidence rises as economy gathers pace
  • Japan to add military hardware amid growing China tensions

EARNINGS:

    • FactSet Research Systems (FDS) 7am, $1.22
    • Heico (HEI) 5:14pm $ 0.40
    • Jabil Circuit (JBL) 4:02pm $0.54
    • Sanderson Farms (SAFM) 6:30am, $2.19
    • VeriFone Systems (PAY) 4:01pm $ 0.26

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Indonesia’s Cabinet to Discuss Ore Ban Amid Freeport Queries
  • Chocolate Eaters Drive Record Cocoa-Output Deficit: Commodities
  • Gold Declines in London Before Fed Meeting; Palladium Advances
  • Brent Falls From One-Week High; U.S. Fuel Supplies Seen Rising
  • Ivory Coast 2013-14 Cocoa-Bean Arrivals 43% Higher as of Dec. 15
  • Copper Swings Between Gains and Drops Before Fed Policy Meeting
  • China Finds More U.S. Corn Shipments With Unauthorized MIR162
  • Palm Oil Drops as Record Global Soybean Output May Hurt Demand
  • Commodity Investments Seen by Barclays Set for Record Outflow
  • Citigroup Divests Metalmark Holding to Comply With Volcker Rule
  • Buffett $1 Billion Order Shows Wind Power Rivals Coal
  • Ex-Mizuho Derivatives Trader Banned for Lying to U.K. Watchdog
  • Hong Kong Exchanges Bulls at Highest Since 2011 on LME: Options
  • China Said to Buy 87,200 Tons of Rubber for State Reserves

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

 

 

 

 

 

 

 

 

 

 

 

 

 


THE M3: CHRISTMAS TOURISM FORECAST

THE MACAU METRO MONITOR, DECEMBER 17, 2013

 

 

TOURISM CHIEF FORECASTS SLIGHT RISE IN CHRISTMAS VISITORS Macau News

Macau Government Tourist Office (MGTO) Director Maria Helena de Senna Fernandes says she expects Macau’s number of visitor arrivals around Christmas to increase slightly.  Senna Fernandes said that with the mainland’s new tourism law that took effect on October 1 i.e. ban of zero fee tours, many travel agencies in the mainland had adopted a “wait-and-see attitude”, which may reduce the number of mainland visitors who would usually visit Macau as part of a tour group.  She said that as a result she still expected the number of total visitors to increase slightly around Christmas, with the rise being in the number of tourists traveling independently.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next