“Come to me, that I may give your flesh to the birds…”
Allegedly, that’s what Goliath said to David, before taking a sling-shot rock to the melon – and dying, epically, in front of his fans circa 1000 BC. It probably felt something like how Captain Top Caller of the US stock market has felt now, for a year. #Boom
I got the quote from reading the 1st fifteen pages of Malcolm Gladwell’s latest pop culture book, David and Goliath. I’m only a third of the way through the book, but it gets pretty underwhelming after that. Malcolm’s bullish momentum has slowed.
“Should I play by the rules or follow my own instincts? Should I persevere or give up? Should I strike back or forgive?” (David and Goliath, pg 5). Irrespective of how the rest of his book goes, Gladwell’s opening questions spoke to me. In the arena that is Wall Street I’m a fighter, not a lover. Failing in front of my growing family and firm is not an option. I need to constantly evolve.
Back to the Global Macro Grind…
Are there hard coded rules to risk management? Or should you have none and just trade on your emotions? Should we spend our days striking back at Mr. Macro Market’s real-time signals, or embrace them?
“When he first sees David, his first reaction is to be insulted, when he should be terrified. He seems oblivious of what’s happening around him.” (David and Goliath, pg 13) So, don’t be Goliath (especially if Mr. Macro’s real name is David; he’s everywhere).
I am just Mucker. I don’t tell the market to come to me. The market tells me where to go. And while I can be prickly and moody about it sometimes, I eventually obey.
BREAKING: “SP500 Has Year’s Biggest Gain On Retail Sales, Mergers” –Bloomberg
But, but… yesterday’s headline (the aforementioned one and it are still side by side in the “Most Popular” (most read) of Bloomberg.com) said “SP500 Falls Most Since November Amid Valuation Concern.”
So which one is it? *hint (neither)
Macro markets don’t move that way. That’s because there usually is no single factor model (like “valuation”) that saves you from having to do the real work. That’s what macro is – history, math, and behavioral – and it’s one hell of a grind.
Not to pick on one of the Goliaths of financial market “news”, but US Retail Sales actually slowed, sequentially, to 0.2% in yesterday’s report – and that’s in line with the shift we have been calling for here in the USA as:
1. US Consumption Growth Slows from its Q313 sequential highs
2. US Inflation Expectations Rise from their Q413 sequential lows
Macro is obviously multi-duration and multi-factor, but focusing on the big stuff (Growth and Inflation) matters more than someone’s qualitative view about why someone failed at Brown (Gladwell’s book) or a magic multiple for stocks (Old Wall).
That’s just #history and #math. The more you study both, the more you realize you have to learn. Especially on the Correlation Risk (#math) front, you actually have to re-learn what #history may already be able to contextualize.
From a #behavioral perspective, how many market mavens have tied everything together for you in a baby blue Tiffany box? Our team is constantly searching for clues, correlations, and causalities on human behavior. Like markets, they evolve too.
What do you think matters more to macro markets, A) confidence or B) valuation. I’ll go with A).
Without confidence in:
1. Growth Accelerating (sustainably)
2. Inflation being under control (as opposed to what the government tells you it is)
3. The strength and credibility of a government’s balance sheet, income statement, and currency
You will not have sustainably strong equity market multiple.
That’s why the greatest threat to the US stock market is a reversal of what gave the market its first taste of multiple expansion in half a decade – a #Strengthening US Dollar, #GrowthAccelerating, #DeflatingTheInflation, and #Rates Rising.
Instead of reading the Bloomberg headlines, here’s what actually happened in the last 2 trading days:
1. SP500’s Biggest Down Day since NOV 7, 2013 = Dollar Down, Rates Down, Stocks Down
2. SP500’s Biggest Up Day of 2014 = Dollar Up, Rates Up, Stocks Up
So come to me #StrongDollar, or I will re-allocate capital to countries who don’t play by the rules of the Federal Reserve and a tired Western Keynesian academia. If this time is different, and I fail to evolve my positioning – may my flesh be fed to the birds.
Our immediate-term Macro Risk Ranges are now as follows (all 12 Macro ranges are in our Daily Trading Range product):
UST 10yr Yield 2.79-2.94%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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THE MACAU METRO MONITOR, JANUARY 15, 2014
WHERE THE RICH CHINESE ARE TRAVELING IN 2014 WSJ
Japan has emerged as the most desired destination for China’s wealthy travelers this year, according to a recent report by Travelzoo Asia-Pacific. The weak yen has made Japan a new shopping paradise for deep-pocketed Chinese travelers. Travelzoo is a mass-market player in most countries, but it targets the high-end travel market in China.
While Chinese tourists are becoming fonder of visiting foreign countries, the feeling isn’t mutual among foreign travelers visiting China. The number of people who entered mainland China fell by 2.5% YoY during the first 11 months of 2013, while their expenditure fell more by 4.4% in the same period, according to China’s Tourism Bureau.
CHINA DECEMBER NEW YUAN LOANS MISS EXPECTATIONS RTT News
Chinese banks extended CNY 482.5 billion in new yuan loans in December, less than CNY 570 billion forecast by economists. China's aggregate social financing came in at CNY 1.23 trillion in December, unchanged from November, but higher than the expected CNY 1.14 trillion.
TODAY’S S&P 500 SET-UP – January 14, 2014
As we look at today's setup for the S&P 500, the range is 28 points or 1.03% downside to 1820 and 0.50% upside to 1848.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.48 from 2.49
- VIX closed at 12.28 1 day percent change of -7.53%
MACRO DATA POINTS (Bloomberg Estimates):
- 7am: MBA Mortgage Applications, Jan. 10 (prior 2.6%)
- 8:30am: Empire Manufacturing, Jan., est. 3.5 (prior 0.98)
- 8:30am: PPI m/m, Dec., est. 0.4% (prior -0.1%)
- 9:15am: BoE’s Carney speaks in London
- 10:30am: DOE Energy Inventories
- 11am: Fed to purchase $4b-$5b in 2018-2019 sector
- 12:50pm: Fed’s Evans speaks in Coralville, Iowa
- 2pm: Fed releases Beige Book
- 5:45pm: Fed’s Lockhart speaks in Atlanta
- 10am: House Financial Services Cmte hearing on impact of Volcker Rule, including req’d divestiture of some collateralized debt obligations
- 10am: Sens. Ron Wyden, D-Ore.; Johnny Isakson, R-Ga.; Reps. Erik Paulsen, R-Minn.; Peter Welch, D-Vt., announce bill aimed at Medicare beneficiaries living with multiple chronic illnesses
- 10am: House Veterans Affairs Cmte hearing on VA sourcing of surgical implants, incl. body tissue, for use in former troops
- 10am: House Foreign Affairs Cmte hearing on South Sudan
- 10am: Senate Finance Cmte hearing on nomination of R. Gil Kerlikowske to be commissioner of U.S. Customs and Border Protection
- 1:05pm: Obama to discuss economy at Raleigh, N.C., event
- 2pm: Senate Banking panel holds hearing on regulating financial holding companies and commodities
WHAT TO WATCH:
- World Bank raises global growth forecasts for 2014
- Abu Dhabi fund, GIC said to invest in Time Warner HQ
- Volcker rule curbs on banks owning CDOs eased by regulators
- Senate bid to renew jobless benefits collapses amid sparring
- California bullet train may see funding shortfall: L.A. Times
- Deutsche Bank suspends FX trader in New York, Welt Reports
- AbbVie, Alexion slated to present at JPM Healthcare Conference
- EU reins in high-frequency traders, commodity speculators
- Laura Ashley sells stake in Moss Bros
- China Mobile IPhone pre-registrations reach about 1m
- German 2013 GDP growth, deficit miss est.
- China’s credit growth slows as leaders curb speculation
- Warrants for records said no burden as Obama readies NSA changes
- Bank of America (BAC) 7am, $0.27 - Preview
- Clarcor (CLC) Aft-Mkt, $0.70
- CSX (CSX) 4:03pm, $0.43
- Fastenal (FAST) 6:50am, $0.34 - Preview
- HB Fuller (FUL) 6:01pm, $0.75
- Kinder Morgan (KMI) 4:05pm, $0.34
- Plexus (PLXS) 4pm, $0.61
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Brent Crude Declines to Two-Month Low as Libya Output Recovers
- Libya’s First Oil Expansion in 10 Months Aiding Refiners: Energy
- Copper Falls as Chinese New-Credit Slump Fuels Demand Concern
- Cocoa Nears Three-Week High on European Processing; Coffee Drops
- Gold Declines on Outlook for Less Stimulus, Strengthening Dollar
- Corn Retreats as Argentine Crops May Benefit From Weekend Rain
- Zinc Was in Shortage in November, Study Group Figures Show
- Commodity Slump Spurs INTL FCStone Asia Growth as Banks Cut
- Coffee Farmers in Vietnam Curb Sales From Record Crop Before Tet
- Indonesia Mineral Export Ban Risk Additional Changes: Eurasia
- Braskem to Work With Siluria on Making Ethylene From Methane Gas
- South African Gold Mines Face Strike Notices Over Pay From AMCU
- EU Clears Way for Fracking With Voluntary Environmental Rules
- Barry Callebaut Says Africa Cocoa Deliveries Cut Global Shortage
The Hedgeye Macro Team
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.