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February 3, 2014

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BULLISH TRENDS

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BEARISH TRENDS 

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Game Day

“Welcome to game day… Now it’s real. The score counts. And you either win or lose.”

-John Hamm

 

That’s how golf and life coach John Hamm opens Part Two of Unusually Excellent: Competence – Leading on the Field With Skill. Russell Wilson did just that last night. Seahawks 43 vs. Broncos 8.

 

Credibility, Competence, and Consequence – per Hamm’s framework, that’s the epicenter of leadership skill. And since I can’t argue with that, I like it.

 

Note that in this game there is no credibility in A) cheating and/or B) making a few big “calls.” Credibility is scored in our profession by repeatable processes. If you can score in both up and down markets, you win. So let’s get at it this morning and try to do more of that.

 

Back to the Global Macro Grind

 

What’s winning so far in 2014 is not what was winning for most of 2013. That’s because:

 

A)     Global Inflation is no longer deflating, it’s re-flating

B)      Growth (particularly in the US and across most of Asia) is slowing, not accelerating

 

On the Asian #GrowthSlowing scene, China’s manufacturing PMI came in at 50.5 (which is a six month low) and non-manufacturing PMI came in at 53.4, lowest reading since December 2008.

 

All of this, of course, will be reported to you by the ultimate lagging indicators (your central bankers and consensus economists paid by Big Government), on a lag. So keep it here, where Game Day happens every morning at 4AM.

 

In terms of our Top Global Macro Theme for Q114, #InflationAccelerating:

  1. CRB Commodities Index (19 Commodities) = +0.3% last wk to +1.1% YTD (vs SP500 -3.6%)
  2. CRB Commodities Foodstuff Index = +1.1% last wk to +3.3% YTD
  3. Corn +1.0% last wk to +2.8% YTD
  4. Cocoa +4.3% last wk to +7.5% YTD
  5. Coffee +9.4% last wk to +13.1% YTD

So we hope you enjoyed flipping out of some of that long-term Starbucks (SBUX) idea and into some CAFÉ (the coffee ETN). One’s price is winning YTD; one’s is losing.

 

On the #GrowthDivergences front (Hedgeye Macro Theme #2) YTD:

  1. Russell2000 (IWM) -2.8% vs. Utilities (XLU) +2.98%
  2. Emerging Markets (MSCI Equities Index) -6.6% vs. Europe (EuroStoxx600) -1.7%
  3. Japanese stocks (Nikkei) -10.3% vs. Danish stocks (Copenhagen Index) +5.2%

In other words, being long inflation expectations (particularly via breakevens or food inflation) is crushing it YTD, and so is being long European Equity exposure relative to the slowing growth exposures you could be long in the USA or Japan.

 

That’s not to say that the score may not continue to trend this way. You can make that change in momentum bet this morning if you’d like. You could have doubled down on the Denver Broncos when they were down 22-0 last night too.

 

Competence in risk management starts the way Seattle started last night; with their defense scoring a safety! Not getting scored on in this game is easily the best way to win. If your shorts can generate positive P&L, all the better.

 

From a Style Factoring perspective in US Equities, here’s what’s getting lit up like Denver’s defense did:

  1. Consumer Discretionary Stocks (XLY) -1.1% last wk to -6.0% YTD
  2. High Beta Stocks (by S&P quartile ranking in our model) -4.5% YTD
  3. High Short Interest Stocks (again, by quartile) -4.1% YTD

In other words, if you’re overweight any of these Style Factors in a US Equity only portfolio, that’s bad. This is what we call a bullish to bearish reversal in big beta!

 

But as the game goes on, the score makes more and more sense. With #InflationAccelerating, who gets hurt the most? The Consumer. But don’t tell the Fed that. If growth continues to slow, Janet Yellen’s 1st move will probably be to stop tapering (i.e. devalue the Dollar) and perpetuate more purchasing power pain on The People.

 

If you don’t like that game recap, go buy another house – and like it. Because, like Barney Frank, Janet Yellen is big on housing, irrespective of it being the mother of all bubbles that got the US consumer into this savings mess to begin with.

 

Got Savings? At 3.9% (current US Savings Rate as a % of Disposable Income – see Chart of The Day), Americans are once again dipping into those in order to keep up with their over-spending neighbors (and the government’s understated cost of living).

 

But no worries, Game Day for the government will include some cochamamy narrative about “inequality” in America while they dream up the next currency devaluation policy to encourage The People to lever up again. If they go for it, the score of that policy will count too – and this time the Keynesians will lose as big as the Broncos did.

 

Our immediate-term Risk Ranges are now (Our Top 12 Global Macro Ranges are in our Daily Trading Range product):

 

Nikkei 142

VIX 15.89-20.41

EUR/USD 1.35-1.37

NatGas 4.57-5.41

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Game Day - Savings Rate

 

Game Day - val55


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 80.28%
  • SHORT SIGNALS 78.51%

THE HEDGEYE DAILY OUTLOOK

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


As we look at today's setup for the S&P 500, the range is 52 points or 1.77% downside to 1751 and 1.14% upside to 1803.                        

                                                                                                       

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: 2.33 from 2.32
  • VIX closed at 18.41 1 day percent change of 6.48%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:58am: Markit U.S. PMI Final, Jan., est. 53.9
  • 10am: ISM Mfg, Jan., est. 56.1 (prior 57, revised 56.5)
  • 10am: Construction Spending, m/m, Dec., est. 0.2% (prior 1%)

GOVERNMENT:

    • 9am: Treasury Sec. Jack Lew speaks at Bipartisan Policy Center on need for Congress to extend debt ceiling
    • 1:30pm: Reps. Joe Barton, R-Texas; Diana DeGette, D-Colo.; FTC Commissioner Maureen Ohlhausen speak at Congressional Bi-Partisan Privacy Caucus briefing on consumer data breaches
    • 3pm: Senate Banking panel hears from FTC consumer protection director Jessica Rich, American Bankers Assn representative James Reuter on safeguarding consumer data

WHAT TO WATCH:

  • Auto sales for Jan. come out today; SAAR may be 15.7m
  • Jos. A. Bank tells Men’s Wearhouse offer undervalues co.
  • Jos. A. Bank said to pursue Eddie Bauer
  • Smith & Nephew to buy ArthroCare for $1.7b in cash
  • United to drop Cleveland airport hub in $2b savings push
  • China manufacturing gauge at 6-mo. low signals growth easing
  • AT&T cuts family wireless plans $40 in escalating price war
  • Microsoft’s new director said to seek Windows-sales revamp
  • Lenovo said to turn to U.S. security insiders for deal approval
  • Universal’s “Ride Along” tops N.A. weekend box office
  • Euro-area manufacturing expands faster than estimated
  • FTC chief to meet with activists about Herbalife: N.Y. Post
  • SAC Capital to change name, restructure by mid-March: NYT
  • U.S. can’t yet fix enrollment errors in HealthCare.gov: WPost
  • Shell’s Australian assets draw bids over A$3b, AFR report
  • Liberty, Discovery may buy 49% of Formula One from CVC: NY Post

AM EARNS:

    • Sysco (SYY) 8am, $0.40
    • Old National Bancorp (ONB) 9am, $0.25

PM EARNS:

    • Integrated Device Technology (IDTI) 4pm, $0.12
    • Edwards Lifesciences (EW) 4pm, $0.82
    • Anadarko Petroleum (APC) 4pm, $0.90
    • Torchmark (TMK) 4pm, $1.46
    • Prospect Capital (PSEC) 4pm, $0.32
    • Principal Financial Group (PFG) 4pm, $0.94
    • Hologic (HOLX) 4:01pm, $0.31 - Preview
    • Advanced Energy Industries (AEIS) 4:01pm, $0.60
    • American Capital Agency (AGNC) 4:01pm, $0.64
    • General Growth Properties (GGP) 4:01pm, $0.35 - Preview
    • CareFusion (CFN) 4:02pm, $0.54
    • Alexandria Real Estate (ARE) 4:05pm, $1.16
    • Take-Two (TTWO) 4:05pm, $1.42
    • Power Integrations (POWI) 4:05pm, $0.63
    • PartnerRe (PRE) 4:13pm, $2.79
    • Artisan Partners Asset Mgmt (APAM) 4:15pm, $0.76
    • Brown & Brown (BRO) 4:15pm, $0.35
    • Advent Software (ADVS) 4:15pm, $0.30
    • Hartford Financial (HIG) 4:15pm, $0.90
    • Yum! Brands (YUM) 4:15pm, $0.80 - Preview
    • Dun & Bradstreet (DNB) 4:15pm, $2.83
    • Post Properties (PPS) 4:35pm, $0.66
    • BRE Properties (BRE) 4:45pm, $0.65
    • UGI (UGI) 4:45pm, $1.09
    • AmeriGas Partners (APU) 4:45pm, $1.06
    • Kilroy Realty (KRC) 5:02pm, $0.64
    • Crown Holdings (CCK) 5:03pm, $0.50
    • Suncor Energy (SU CN) 10pm, $0.77 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Set for Longest Slump Since 1996 on China Manufacturing
  • WTI Crude Drops a Second Day on Concern Chinese Demand May Slow
  • Perth Mint to U.S. Post Higher January Gold Sales as Price Gains
  • Hedge Funds Raise Gold Bets as Copper Bulls Retreat: Commodities
  • Corn Climbs to Five-Week High on Signs of Demand for U.S. Crop
  • Gold Advances in London as Declining Equity Markets Boost Demand
  • Sugar Extends Gains as Brazil Dry Weather Combines With India
  • Natural Gas Declines a Third Day on Milder U.S. Weather Outlook
  • Speculators Boost Bullish Oil Wagers Most in Six Months: Energy
  • Keystone Foe Steyer Says Flaws in Pipeline Report Require Review
  • Commodity Hedge Fund Run by King, Coleman Gains 9.8% in January
  • CME Settles MF Global Lawsuit for $14.5 Million: Bankruptcy
  • Libya Crude Oil Output More Than Doubled in January: BI Chart
  • Mining’s Dormant $8 Billion of Private Equity Seen Reviving M&A

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

 

 

 

 

 

 

 

 

 

 

 

 

 


Kung Hei Fat Choi!

Sorry for the belated well wishes but Happy Chinese New Year


THE WEEK AHEAD

The Economic Data calendar for the week of the 3rd of February through the 7th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - ahead


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.

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