prev

Fade the Dead Cat

Takeaway: Gold is nowhere near confirming anything at all except a dead cat bounce.

After crashing throughout 2013, Gold, Yen, VIX (volatility) were all up yesterday.

 

Yes, I will be fading that counter TREND move (shorting Gold and buying US and European equity beta) on that.

 

Sorry, but Gold is nowhere near confirming anything at all except a dead cat bounce.

 

Fade the Dead Cat - Gold Dead Cat

 

Join the Hedgeye Revolution.



Bear Depression

“In 1893, the most serious depression the nation had yet experienced settled over the land.”

-Doris Kearns Goodwin (The Bully Pulpit)

 

Today is not 1893.

 

While they let some of the 2013 US stock market bears out of their caves yesterday (BREAKING NEWS: “SP500 Falls To Start Year Lower For 1st Time Since 2008” –Bloomberg), I suspect the blizzard will send them right back to where they came from.

 

This is not 2008 either.

 

Sure, there’s plenty to concern yourself with (like a market that got pinned up at an all-time high at year-end) in terms of this raging bull market being overbought and both sentiment and flows chasing it, but let’s get real here and get on with our risk managed day.

 

Back to the Global Macro Grind

 

Oh, and by the way, in 1893 we didn’t need a bunch of bureaucrats at the Fed to save us from themselves either. The bear depression of the late 19th century was one born out of this thing we call a cycle. Companies back then overbuilt rail capacity and over-extended themselves with bank loan leverage (sound familiar?). This is what happens at cycle tops (like 2007).

 

Globally (especially in Europe) we aren’t in the area code of a peaking 1893 or 2007 piggy cycle either. In the US we don’t think we’ll be seeing consecutive 4% handles on GDP, but that certainly doesn’t mean fear and panic is going to break-out across the land. With so many still whining about the last war, I say you get yourself a shovel and a smile this morning - move forward.

 

Back to the business cycle (where companies build inventories, shhh), lets dig through some fresh US economic data:

 

1. USA’s ISM Manufacturing PMI for DEC was reported yesterday at 57.0 vs 57.3 in NOV

2. The ISM’s New Orders component of the report accelerated to 64.2 DEC vs 63.6 NOV

3. The ISM’s Employment component of the report was steady at 56.9 DEC vs 56.5 NOV

 

For me, this was a surprisingly strong read-through on the US economy as the data was almost as good as it could get (sequentially) in Q3 of 2013. So to see follow-through in December was a good thing for growth (as an investment style) and bad for bonds.

 

Employment is a fun one to watch people complain about because:

 

1. The monthly BLS data is a lagging economic indicator (the one CNBC has dudes guessing on every month)

2. The only coincident to leading indicators (ISM’s, weekly Jobless Claims, etc) are poorly understood

3. NSA rolling 4-wk jobless claims (see Chart of The Day) fit the 10yr US Treasury Yield’s 12 month TREND like a glove

 

I’ll give you 5:1 odds that if you ask your run-of-the-mill TV pundit what the consequence is of using the NSA # to probability weight the direction of the bond market that they think you are talking about the National Security Agency.

 

*NSA = non-seasonally adjusted. And the reason why we use the NSA rolling-claims data series on a year-over-year basis is simply because that’s what Josh Steiner (Managing Director of our Financials team) found that Mr. Macro Market cares about.

 

Who seriously cares that, on very light volume (-14% vs @Hedgeye TREND), it was the 1st market down day “since 2008” when it has no back-test or relevance to the market we have in front of us in 2014? Here are 3 more things to think about:

 

1. US Initial Jobless Claims of 443,513 (NSA) were down -9.5% y/y yesterday (vs. down -8.2% in the wk prior)

2. US 10yr Treasury Yield held my most immediate-term TRADE line of 2.96% support yesterday; 3.07% = resistance

3. Gold is signaling immediate-term TRADE overbought this morning within a bearish @Hedgeye TREND

 

So, rather than try to get cute with some Hedgeye panic and depression propaganda yesterday, here’s what I did:

 

1. Took our Cash positions down from 50% to 40% in the Hedgeye Asset Allocation Model

2. Moved from 5 LONGS, 5 SHORTS on 12/31’s close to 8 LONGS, 4 SHORTS (bought and covered on red)

3. Shorted Gold (GLD) and bought some US Equity Beta (TSLA)

 

That doesn’t mean I am going to be right. It simply means there’s a process behind every sequence of macro market timing decisions my team and I make. There’s nothing depressing about that.

 

Our immediate-term Risk Ranges are now as follows (all 12 of my Big Macro Ranges are in our Daily Trading Range product):

 

UST 10yr Yield 2.97-3.07%

SPX 1

VIX 11.91-14.91

Gold 1185-1235

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bear Depression - Chart of the Day

 

Bear Depression - Virtual Portfolio


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.63%

Day 2 of 2014

Client Talking Points

KOSPI

Whoever is long South Korea’s stock market is not a happy camper this morning. The KOSPI is down hard for the first two days of the year (-3.3%). It is now bearish on both Hedgeye TRADE and TREND durations. Global Inflation Expectations Rising hurt real-growth assumptions.

EUROPE

Across the pond, the #StrongPound and #StrongEuro continue to be the economic glue holding together rising purchasing power and confidence across the continent. Both the UK's FTSE and Germany's DAX held TRADE and TREND lines of support yesterday. Meanwhile, UK Construction PMI came in at 62.1 for December. As you may recall, #EuroBulls was a Q4 Macro Theme here at Hedgeye.

GOLD

After crashing throughout 2013, Gold, Yen, VIX (volatility) were all up yesterday. Yes, I will be fading that counter TREND move (shorting Gold and buying US and European equity beta) on that. Sorry, but Gold is nowhere near confirming anything at all except a dead cat bounce. Incidentally, the upside in the 10-year Treasury yield is 3.07%.

Asset Allocation

CASH 40% US EQUITIES 12%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
GHL

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL.  So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.

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.

Three for the Road

TWEET OF THE DAY

TREASURIES: 2.98% 10yr yield holds yet another higher-low; bullish #RatesRising, bearish Gold @KeithMcCullough

QUOTE OF THE DAY

"Go confidently in the direction of your dreams. Live the life you have imagined." -Henry David Thoreau

STAT OF THE DAY

Pimco had record redemptions last year in the $244 billion Total Return Fund, which trailed 64% of peers and fell 1.9% in 2013 for the biggest loss since 1994 as the S&P 500 surged 30%, prompting investors to flee traditional bond funds.(Bloomberg)


January 3, 2014

January 3, 2014 - Slide1

 

BULLISH TRENDS

January 3, 2014 - Slide2

January 3, 2014 - Slide3

January 3, 2014 - Slide4

January 3, 2014 - Slide5

January 3, 2014 - Slide6

January 3, 2014 - Slide7

January 3, 2014 - Slide8

January 3, 2014 - Slide9

 

BEARISH TRENDS

January 3, 2014 - Slide10

January 3, 2014 - Slide11
January 3, 2014 - Slide12

January 3, 2014 - Slide13


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 3, 2014


As we look at today's setup for the S&P 500, the range is 47 points or 1.25% downside to 1809 and 1.31% upside to 1856.

                                                                                                                               

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 110                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.61 from 2.61
  • VIX closed at 14.23 1 day percent change of 3.72%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: ISM New York, Dec., prior 69.5
  • 10:30am: EIA natural-gas storage change
  • 11am: DOE Energy Inventories
  • 12:45pm: Fed’s Plosser speaks in Philadelphia
  • 1pm: Baker Hughes rig count
  • 1:15pm: Fed’s Stein speaks in Philadelphia
  • 1:30pm: Fed’s Lacker speaks in Baltimore
  • 2:30pm: Fed’s Bernanke speaks in Philadelphia

 GOVERNMENT:

    • House, Senate not in session

WHAT TO WATCH:

  • Dec. Auto Sales: SAAR May Be 15.8m vs 16.4m rate in Nov.
  • U.S. East Coast facing blizzard as snow, wind ground flights
  • Cox agrees to buy back AutoTrader stake at $7b valuation: WSJ
  • Rupert Murdoch’s Fox sells Star China stake to management group
  • Goldman raised 2012 pay for top U.K. bankers as rivals cut
  • BP bid to stop Gulf oil spill payments to get fast court review
  • Manhattan home sales rise to yr-end record in buyer deal rush
  • Cisco’s video chief De Beer takes leave to tend ailing relative
  • USDA pares rules targeting healthier school meals: Reuters

EARNINGS:

    • Lindsay (LNN) 7am, $0.92 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Falls Most in Two Weeks as China Services Measure Slumps
  • Brent Crude Rises Most in Two Weeks as Libyan Ports Remain Shut
  • Gold Extends Rally From Biggest Loss Since ’81; Platinum Gains
  • Wheat Recovers From 19-Month Low as Arctic Freeze May Hurt Crops
  • Rebar Declines in Shanghai After Biggest Producers Lower Prices
  • Robusta Coffee Declines to One-Month Low as Cocoa Rebounds
  • Natural Gas Set for Second Weekly Decline Before Inventory Data
  • Rubber Output From Key Producers Rises 4.7% in 2013, Group Says
  • WTI Oil May Decline Next Week on Fed Outlook, Survey Shows
  • U.S. East Coast Facing Blizzard as Snow, Wind Ground Flights
  • German Power Costs Seen Dropping for Fourth Year on Glut: Energy
  • U.K.’s Warmest December in 10 Years Hinders Gas Demand in Europe
  • China Thermal Coal Prices May Climb on Japan Demand: Bear Case
  • India 2013-14 Coffee Output Estimate Cut to 311,500 Tons

THE HEDGEYE DAILY OUTLOOK - 3

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 4

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - t

 

THE HEDGEYE DAILY OUTLOOK - f

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

next