prev

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE

Takeaway: The intermediate and long-term dynamics remain very favorable, though the short-term setup appears balanced between positive & negatives.

Summary: On a short-term basis, we see improvement and decline in roughly equal  measures, while over the intermediate term there remains the trend is clearly toward improvement by a ratio of two to one. The same can be said for the long-term, where improvement is outstripping decline by a ratio of four to one.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 3 of 13 improved / 3 out of 13 worsened / 7 of 13 unchanged

 • Intermediate-term(WoW): Positive / 8 of 13 improved / 4 out of 13 worsened / 1 of 13 unchanged

 • Long-term(WoW): Positive / 4 of 13 improved / 1 out of 13 worsened / 8 of 13 unchanged

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 15

 

1. U.S. Financial CDS -  The week saw big improvement in mortgage insurers MTG and RDN, furthering their m/m trend of improvement. The big banks were modestly tighter, on average, continuing their trend over the past month as well.

Tightened the most WoW: MTG, RDN, AGO

Widened the most WoW: WFC, MET, CB

Tightened the most WoW: AON, MBI, AGO

Widened the most/ tightened the least MoM: AXP, WFC, XL

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 1

 

2. European Financial CDS - The most recent week saw swaps widen nominally in Europe's banking system, but the bigger takeaway remains the still-substantial tightening on a m/m basis. 

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 2

 

3. Asian Financial CDS - Indian banks continue their see-saw trend of late, this time tightening by 11-22 bps w/w. Meanwhile, on a m/m basis the Chinese banks continue to widen, rising by 24-28 bps. Japanese banks are mixed, though, on balance, unchanged on a m/m basis.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 17

 

4. Sovereign CDS – Sovereign swaps mostly tightened last week with the exception of Japan where they rose 2 bps. Portuguese sovereign swaps tightened by -7.6% (-22 bps to 269 ) and U.S. sovereign swaps were unchanged. Overall, the trend of ongoing improvement in European sovereign risk profiles continues.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 18

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 3

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 8.3 bps last week, ending the week at 5.83% versus 5.91% the prior week.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.0 points last week, ending at 1850.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 6

 

7. TED Spread Monitor – The TED spread was unchanged last week at 20.4 bps.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 7

 

8. CRB Commodity Price Index – The CRB index rose 1.3%, ending the week at 278 versus 275 the prior week. As compared with the prior month, commodity prices have decreased -1.1% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread was essentially unchanged at 12 bps last week. Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 1 basis point last week, ending the week at 2.77% versus last week’s print of 2.76%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened -6 bps, ending the week at 77 bps versus 83 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 11

 

12. Chinese Steel – Steel prices in China fell 0.8% last week, or 27 yuan/ton, to 3,419 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 245 bps, -4 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.6% upside to TRADE resistance and 1.4% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: THE INTERMEDIATE AND LONG TERM OUTLOOKS REMAIN FAVORABLE - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


JPM: ADDING J.P. MORGAN TO INVESTING IDEAS

Takeaway: We are adding JPM to Investing Ideas.

Hedgeye Financials Sector Head Josh Steiner has added JPM to Investing Ideas. 

 

We will send out a full report for subscribers detailing Steiner's bullish case for the stock later this week.

 

JPM: ADDING J.P. MORGAN TO INVESTING IDEAS - jpm1



real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Hilsy's Got Some Info?

Client Talking Points

US DOLLAR

With the Wall Street Journal's Jon Hilsenrath passing along the "super duper" secret information that the Fed isn’t one and done on the whole #taper thing, the US Dollar and Rates are up this morning (versus down Friday, which meant stocks down). You already know that I like the Fed tapering. It's long overdue. Yes - it's bearish for bonds and bullish for stocks (see our #FlowShows Macro Theme for Q114).

UST 10YR

The 10-Year Treasury yield is up 3 basis points this morning to 2.85% after testing and holding our Hedgeye TREND support of 2.76%. Higher-lows are bearish form bonds, but the broader breakout to higher-highs in yields over 3.05%? It isn’t in the cards. Yet.

GOLD

Well, Gold certainly loved the down bond yield move last week (and year-to-date for that matter) and does not like bond yields up this morning. This is how Gold is trading... with rates. The risk range is now $1220-1267 with the 10-year yield range of 2.76-2.89%, immediate-term.

Asset Allocation

CASH 27% US EQUITIES 18%
INTL EQUITIES 20% COMMODITIES 8%
FIXED INCOME 0% INTL CURRENCIES 27%

Top Long Ideas

Company Ticker Sector Duration
DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

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

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

Three for the Road

TWEET OF THE DAY

Goldman making the call we did on $SBUX, 2.5 months ago @HedgeyeHWP #OldWallDelay @KeithMcCullough

QUOTE OF THE DAY

"Confidence comes not from always being right but from not fearing to be wrong." - Peter T. McIntyre

STAT OF THE DAY

The poorest half of the world’s population—3.5 billion people—control as much wealth as the richest 85 individuals. (Businessweek)


January 21, 2014

January 21, 2014 - Slide1

 

BULLISH TRENDS

January 21, 2014 - Slide2

January 21, 2014 - Slide3

January 21, 2014 - Slide4

January 21, 2014 - Slide5

January 21, 2014 - Slide6

January 21, 2014 - Slide7

January 21, 2014 - Slide8

January 21, 2014 - Slide9

 

BEARISH TRENDS

January 21, 2014 - Slide10

January 21, 2014 - Slide11
January 21, 2014 - Slide12

January 21, 2014 - Slide13

 



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next