“In theory, there is no difference between theory and practice. In practice there is.”
I had a ton of feedback on yesterday’s Early Look (on how and why I use Twitter), so I wanted to thank you for that. Without having to answer to and consider your objective questions and thoughts, I’d just be a man in a room who is hostage to my own thinking. #scary
Your feedback generates more questions and ideas for our research team to work on. So I decided to take 6 minutes to walk through who scores as The 3 Most Overrated Economists in The World (for @HedgeyeTV video CLICK HERE ). I also crowd-sourced (on Twitter) who my followers thought were the most overrated. We came up with completely different answers.
Today, I’d like to throw that right back at you and add the follow-on question – who are The Most Underrated Economists (and/or strategists) that you follow? This has nothing to do with being mean or nice. This has everything to do with competence. We all need to find a better way. In theory, there are “experts” spewing on TV all day long. In practice, you (the players) know who gets it.
Back to the Global Macro Grind…
#Davos is a big deal. CNBC focused on Matt Damon’s "Save the World’s Water" thing yesterday and Reuters is all over actress Goldie Hawn this morning. Up next, after living large last night, Nouriel Roubini is Snapchatting the world a picture of him pecking Arianna Huffington on the cheek.
In other news, 2 of our Top 3 Global Macro Themes are trending in markets this morning, big time:
On Inflation, just to clarify:
- Our call here is like all the calls we make – rate of change – deflating the inflation (last year’s theme = #over)
- We aren’t purely focused on commodity deflation ending; but it’s a big part of the market expectations mismatch
- #InflationAccelerating is a bigger problem in the US than it is in Europe (that’s why we like European Equities more)
Got Commodity inflation in 2014 YTD?
- CRB Commodities Index (19 commodities) is beating both the Dow and the SP500 YTD (it’s up instead of down)
- CRB Food Index = +1.5% YTD (after food prices crashed last year from the 2012 all-time highs)
- YTD Food Inflations = Oats +12.9%, Cattle +5.1%, Coffee +3.9%
- Natural Gas at $4.76 (don’t tell Washington about heating your home) = +12.9% YTD
- Precious Metals YTD = Platinum +6.5%, Palladium +4.3%, Gold +3.7%
In stark contrast to what you would have seen in the Hedgeye Asset Allocation Model for the better part of the last year (0% allocation to Commodities), we have a 9% asset allocation to Commodities right now. From here, that’s going up, not down.
In Real-Time Alerts we are long of Gold in Gold terms (GLD) and Coffee via the CAFÉ (take the little chapeau off the French spellchecker and you’ll see the Coffee ETN – not a perfect security, so if you’re an Institutional investor, just buy the futures).
On the other side of this Q1 theme, there are plenty of short ideas to sink your teeth into; Restaurant Shorts in particular (Slowing Sales and Rising Food Costs). This is the highest # of short ideas our Food/Bev guru Howard Penney has had since 2008. He held a Best Short Ideas call last week @Hedgeye on Cheesecake Factory (CAKE). And he’ll write the Early Look for you tomorrow.
With Roubini going bullish, got short ideas? Here are some high-quality Food #InflationAccelerating ideas currently in Real-Time Alerts:
- Cheesecake (CAKE)
- Bloomin’ Brands (BLMN)
- Red Robin Gourmet Burgers (RRGB)
- McDonald’s (MCD)
In other words, 50% of my #timestamped short book is in Restaurant Shorts (10 LONGS, 8 SHORTS currently @Hedgeye after selling into yesterday’s all-time Russell2000 high of 1181).
In another @HedgeyeTV video this week titled Here’s What’s Working (for video CLICK HERE), I made a very simple point about our #GrowthDivergences theme (which syncs with #InflationAccelerating): country and sector picking matters as much as stock picking right now (i.e. pick the right sectors in the right countries and you’ll look like a good stock picker!).
If you really want to boil that macro point down, for now you want to be:
A) Long Inflation Expectations assets (like breakevens)
B) Short US Consumption assets (like restaurants)
Since the European growth recovery is 1-2 years behind the US (and most of Asia, including Japan), that’s the other reason why we think you’re going to continue to see European Equities outperform the Global Equities league tables.
Remember, in theory consensus might think it’s about absolute levels of growth. In practice, it’s all about the rate of change of growth. And that’s all I have to say about that.
Our immediate-term Global Macro Risk Ranges are now:
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
THE MACAU METRO MONITOR, JANUARY 23, 2014
MACAU VISITOR ARRIVALS FOR DECEMBER 2013 DSEC
Visitor arrivals increased by 4% YoY to 2,586,829 in December 2013. Visitors from Mainland China increased by 8% YoY to 1,620,434, coming primarily from Guangdong Province (647,348) and Fujian Province (66,940); Mainland visitors travelling under the Individual Visit Scheme totaled 700,934. Moreover, visitors from the Republic of Korea (46,412) and Malaysia (40,935) increased by 5% and 8% respectively YoY, while those from Hong Kong (570,830) and Taiwan (86,575) decreased by 7%. The average length of stay of visitors stayed unchanged from a year earlier, at 1.0 day in December 2013.
MELCO INTL SELLS STAKE IN LOTTERY GEAR DISTRIBUTOR DSEC
Melco International Development Ltd says it has sold some of its shares in a mainland supplier of lottery equipment, MelcoLot Ltd, for HK$224.81 million (US$29 million). MelcoLot Ltd distributes lottery terminals used by the state-run China Sports Lottery Administration Centre.
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Takeaway: Country/sector/asset picking matters in a lower variance, divergent performance environment.
Hedgeye’s Macro Team recently released our Q1 Macro Themes—three key global macro forces we believe will play a dominant role in shaping the markets near term.
#GrowthDivergences is one.
Looking to the U.S., Europe, China and Japan, we see the heavyweights of the world economy diverging from an economic growth perspective as some countries and/or regions are much further along in the economic cycle than others. We highlight those divergences and identify which countries and/or regions you want to be allocating assets to at the start of the year.
Our macro call is bearing fruit. Take a look.
The point here is that country/sector/asset picking matters in a lower variance, divergent performance environment. Some big YTD divergence…and the YTD is only a few weeks old.
This is a complimentary excerpt from Hedgeye research.
TODAY’S S&P 500 SET-UP – January 23, 2014
As we look at today's setup for the S&P 500, the range is 28 points or 0.91% downside to 1828 and 0.60% upside to 1856.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.45 from 2.47
- VIX closed at 12.84 1 day percent change of -0.23%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: Chicago Fed Nat Act. Index, Dec., est. 0.9 (pr 0.6)
- 8:30am: Init Jobless Claims, Jan. 18, est. 330k (pr 326k)
- 8:58am: Markit US PMI Preliminary, Jan., est. 55 (pr 54.4)
- 9am: FHFA House Price Index m/m, Nov., est. 0.4% (pr 0.5%)
- 9:45am: Bloomberg Consumer Comfort, Jan. 19 (prior -31.0)
- 10am: Existing Home Sales, Dec., est. 4.93m (prior 4.9m)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- 10:am: Leading Index, Dec., est. 0.2% (prior 0.8%)
- 11am: Kansas City Fed Manuf, Jan., est. 2 (prior -3)
- FCC set to begin first major airwaves auction since 2008
- 8:30am: CSIS holds conference on U.S-Australia relations, incl Australian Minister for Foreign Affairs Julie Bishop, White House Council of Economic Advisors Chairman Jason Furman
- 10am: U.S. Conference of Mayors holds annual meetings; speakers incl Cordray; HHS Sec. Kathleen Sebelius; Education Sec. Arne Duncan
- 12:30pm: NASA holds teleconference on agency’s Earth science activities planned for 2014
- 12:45pm: Media briefing by Press Sec. Jay Carney
- Postponed: SEC open meeting on 2014 budget for Public Company Accounting Oversight Board
- Privacy Oversight Board says NSA program illegal: N.Y. Times
WHAT TO WATCH:
- Lenovo to acquire IBM’s server unit for $2.3b in cash, stock
- EBay says Icahn proposes PayPal spinoff after taking stake
- Berkshire said to face start of U.S. systemic-risk scrutiny
- China manufacturing index trails estimates as orders cool
- Toyota beats GM, VW in 2013 car sales, sees 3% growth this year
- Microsoft will allow foreign customers to store data overseas
- Credit Suisse sued by China Green chief over alleged negligence
- Haniel, Elliott close to agreement over Celesio stake: Boersen
- Target’s virus linked to 23-year-old southern Russian: WSJ
- Swiss raise bank capital buffer to rein in real estate market
- Banks aid U.S. forex probe to fulfill duty in Libor settlements
- Most JPM employees didn’t get raise due to legal bills: Reuters
- Iceland traps hedge funds in refusal to discuss bank claims
- Euro-area January factory output expands more than forecast
- Alaska Air Group (ALK) 6:01am, $1.07
- AmerisourceBergen (ABC) 6:15am, $0.78 - Preview
- Avnet (AVT) 8am, $1.11
- BankUnited (BKU) 7:30am, $0.46
- Baxter International (BAX) 7am, $1.25 - Preview
- CapitalSource (CSE) 9am, $0.17
- Cypress Semiconductor (CY) 8am, $0.08
- Fairchild Semiconductor Intern (FCS) 7:30am, $0.09
- Fifth Third Bancorp (FITB) 6:30am, $0.42
- Janus Capital Group (JNS) 7am, $0.19
- Johnson Controls (JCI) 7am, $0.70
- KeyCorp (KEY) 6:14am, $0.25
- Lockheed Martin (LMT) 7:25am, $2.11 - Preview
- McDonald’s (MCD) 7:58am, $1.39 - Preview
- MGIC Investment (MTG) 7am, ($0.02) - Preview
- National Penn Bancshares (NPBC) 6:31am, $0.17
- Popular (BPOP) 8am, $0.65
- Southwest Airlines Co (LUV) 6:35am, $0.29
- Union Pacific (UNP) 8am, $2.49
- United Continental Holdings In (UAL) 7:30am, $0.71
- Altera (ALTR) 4:15pm, $0.31
- Celanese (CE) 4:30pm, $1.01
- Compuware (CPWR) 4:05pm, $0.14
- Cubist Pharmaceuticals (CBST) 4pm, break-even - Preview
- Discover Financial Services (DFS) 4:05pm, $1.19
- E*Trade Financial (ETFC) 4:05pm, $0.19
- Federated Investors (FII) 4:02pm, $0.37
- Hexcel (HXL) 4:06pm, $0.46
- Informatica (INFA) 4:05pm, $0.48
- International Game Tech (IGT) 4:15pm, $0.31 - Preview
- Intuitive Surgical (ISRG) 4:05pm, $4.02
- Juniper Networks (JNPR) 4:05pm, $0.36 - Preview
- KLA-Tencor (KLAC) 4:15pm, $0.80
- Leggett & Platt (LEG) 4:05pm, $0.33
- Maxim Integrated Products (MXIM) 4pm, $0.40
- Microsoft (MSFT) 4:01pm, $0.69 - Preview
- ResMed (RMD) 4:05pm, $0.64
- Starbucks (SBUX) 4:03pm, $0.69 - Preview
- Synaptics (SYNA) 4:05pm, $0.90
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- WTI Crude Trades Near Three-Week High Before U.S. Inventory Data
- Rubber Output in Thailand Seen Dropping as Growers Join Protest
- Australia Drought Spurs Beef-Sales Boom on Herd Cut: Commodities
- Copper Touches One-Week Low as Manufacturing Contracts in China
- Gold Rises From Two-Week Low as Investors Weigh Demand, Tapering
- Wheat Climbs on U.S. Freeze Concern and Signs of Import Demand
- Coffee Rebounds as Vietnam Sales Slow Before Tet; Cocoa Advances
- Platinum Strike Paralyzes Mines as Intimidation Claims Arise
- China Rebar Has Biggest Gain in Three Months on Restocking Hopes
- Iran’s Rouhani Invites Oil Companies to Invest as Sanctions End
- Arctic Air Blankets Northern U.S. as Texas Set to Receive Snow
- Alaska Coastal Oil Drilling Challenge Revived by U.S. Court
- Traders Buying Dutch Weaken U.K. Gas Market: Chart of the Day
- Platinum Tops Gold by Most Since ’11 on Strike: Chart of the Day
The Hedgeye Macro Team
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