“What we need is not the will to believe, but the wish to find out.”
I know. I’m going all #behavioral on you this year. When combined with #history and #math, it gives me an edge. And god knows, I’m not the smartest player in this league – so I need one!
The aforementioned quote comes from the introduction in the latest #behavioral book we’ve been discussing in the office, Counterclockwise, by Harvard Applied Psych professor, Ellen Langer.
Langer’s research is unique in that she was really one of the first women (1st woman to ever get tenure in Psychology @Harvard) to break the ice on a lot of topics that make us think about how we think. Her most popular book was Mindfulness in 1989. She wrote Counterclockwise in 2009 and it’s relevant to how you think about your risk management day.
Back to the Global Macro Grind…
Do you wish to find out why almost every major macro position that was working for you last year sucks for 2014 YTD? If I needed to believe that the Japanese-burning-currency thing was going to work, I could – but I’d be losing a lot of money on that.
Last night’s pathetic bounce in Japanese Equities (Nikkei +1.2% to -12.9% YTD) tells you all you need to know about Japanese consensus – all the locals (brokerage clients getting margin calls) were short Yen and long Mothers (as in the index Japanese dudes lever up on).
Most of Wall Street was in the same trade too. It was only 1 month ago today that the CFTC (futures and options) net short position in Japanese Yen hit all-time highs (-135,000 net short position in terms of contracts). This morning that net short position is -89,420 contracts.
Next to short Yen, what have been the other major consensus long/short positions in Global Macro options?
And how’s that going YTD?
Why? Do you want the answer that consensus needed to believe on December 31, 2013, or do you wish to believe what Mr. Macro Market is telling you about growth (hint: on the margin, with #InflationAccelerating, US growth is slowing)?
And it’s not just a USA thing. As you can see in our Chart of The Day (where we show “Hard Growth Comps” for countries versus “Easy Comps”), Japan and the United States were setting up to slow from their 2013 momentum peaks irrespective of this US weather.
Oh, and by the way, the weather on the Merritt in Connecticut this morning isn’t what the dude in Tokyo is dealing with via his margin calls. Japan actually just reported a 16 year low in wages. When his government has a Policy To Inflate the dude’s cost of living, that is not good!
How does the Burning Your Currency thing work again?
Then pop a “consumption tax” on your people (Japan’s is pending) and what people who need to believe about “Abenomics” (that it’s good because the stock market was going up) isn’t aligned with what politicians “wish to find out” about economic reality.
Back to the wage inflation (or deflation) thing, I’ll show you what’s going on in the USA on our US Economics Flash Call this morning at 11AM EST. After seeing big time pressure on wages throughout the 2008 crisis, aggregate private sector wages are actually tracking up +5% on a 2-yr comp basis. . If you need dial in details for the call, email .
I know your run of the mill academic doesn’t model the US economy how we do (we model it on a 1, 2, and 3 yr comparative basis so that we don’t get run-over by changes on the margin in trends), but that’s cool. It seems to work.
What seems to be a developing bearish to bullish reversal in a @Hedgeye TREND may not turn out to be a long-term reality. But can you afford to miss 3, 6, and 12 month accelerations and decelerations in big macro stuff like growth and inflation?
We can’t. And that’s all I have to say about that.
Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TRENDs, bullish or bearish, in brackets):
SPX 1 (bearish)
Nikkei 14036-15004 (bearish)
VIX 15.49-21.63 (bullish)
USD 80.78-81.43 (neutral)
Gold 1 (bullish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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TODAY’S S&P 500 SET-UP – February 5, 2014
As we look at today's setup for the S&P 500, the range is 47 points or 1.15% downside to 1735 and 1.53% upside to 1782.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Takeaway: URBN bold FW launch. RSH not closing enough stores. Top Shop = Big Idea. AdiBok, Iverson not MJ. UA/Adi drop gloves. UK prices down, rev up.
EVENTS TO WATCH OVER THE NEXT 24 HOURS
GIL - Earnings Call: Wednesday 2/5 5:00pm
UK shop prices fall for ninth consecutive month
Takeaway: Interesting to see that prices are down at a time when retail sales are finally showing signs of life, and retailers and brands that operate in the UK are almost uniformly reporting positive business trends.
URBN - Free People Unleashes Footwear
Takeaway: Not sure if these are the coolest things ever, or the ugliest things ever. But it's a bold statement by Free People -- and we'll take a bold statement (even if it fails) over a safe bet any day.
RSH - RadioShack to Close About 500 Stores Within Months
Takeaway: They forgot to mention this in that 1980s redux Super Bowl ad that drove the stock up 8%. The reality is that this is probably the right move. We'd rather see 1,000 modern stores that sell 'must have' products, than 4,300 old, antiquated stores with grumpy employees trying to sell batteries, extension cords, and circuit board components.
ADDYY, UA - Adidas Sues Under Armour Over Patents
Takeaway: While we can't comment on any direct patent infringement or what the innovation head knew, or shared, we can say that there are a couple dozen applications and systems out there to track fitness levels according to various metrics. So few brands in that space have truly original thoughts and products anymore. We're not saying there's not a lot of cool and commercial stuff out there. But simply that so much of it mimics technology that's already being used by others. Unless there's blatant copying of specific Adi patents (which we'd think UA's risk management would have avoided like the plague), we'll be very surprised if AdiBok comes out ahead on this one.
ADDYY - Reebok Launches New Marketing Campaign
Takeaway: Is Reebok still seriously parading around Allen Iverson as a brand spokesperson? The guy hasn't played in four years (three years if you count that year he played in Turkey -- we don't think that counts as it relates to relevance to the US consumer). It's clear that AdiBok is trying to immortalize the guy in the same way that Nike grew Michael Jordan's brand and persona long after he stopped playing. As much as we're surprised that the Jordan Brand still remains so relevant after all these years, the reality is that Iverson wasn't Jordan on the court, off the court, and his relevance in the mind of urban consumers never approached MJ levels.
Top Shop - Topshop Signs Lease for Fifth Ave. Flagship
Takeaway: This is the story most likely to go unnoticed by US investors, but one that is likely to emerge as one of the biggest US retail ideas over the next two years. Contrary to what the name suggests, this retailer sells a lot more than just tops. It has a full assortment including tops, denim, coats, shoes/boots, belts, handbags, jewelry, and more. It's not that assortment that is so threatening to US brands, but rather the price. Jeans for $70. Purses for $30. Boots for under $100, and Jewelry for less money than it costs to buy a cheeseburger near the new 5th Ave flagship. The prices aren't quite as low as H&M, but the quality is definitely higher.
WMT - Wal-Mart sets C$500 million Canada expansion, rival shares fall
Takeaway: On one hand, this is a drop in the bucket for WMT. This is a company that will spend nearly $14 bn in capex this year. But on the flip side, at least it shows WMT's commitment to growing in a market that others, like Sears, are leaving.
Asics - Asics Results Up on Weaker Yen, Running Boom
Senate Passes Farm Bill
THE MACAU METRO MONITOR, FEBRUARY 5, 2014
JAN GGR DICJ
January GGR totaled HKD 27.902 billion (MOP 28.739 bn), up by 7% YoY (Street est: +13%).
WYNN MACAU GIVES 5% PAY RISE, ONE-MONTH BONUS Macau Business
Most of Wynn Macau Ltd’s 7,600-strong workforce have received a bonus equivalent to one month’s pay, and will get a 5% pay rise soon. The pay rise is effective from March 1.
DOUBTS PUT WYNN'S US ONLINE VENTURE ON HOLD Macau Business
WYNN has postponed the launch of its online casino in New Jersey after CEO Steve Wynn questioned the venture’s profitability and the state’s laws. Wynn’s objections were confirmed by a Wynn Resorts spokesman, who said the company no longer saw online gaming as an “entrepreneurial opportunity”.
FREE TOUR BAN MEANS FEWER TRAVEL BY FERRY Macau Business Daily
Fewer visitors have been coming to Macau by ferry since the mainland banned free package tours in October, a government official says. “There has been quite an impact on the number of package tourists coming to Macau by sea,” Marine and Water Bureau director Susana Wong Soi Man told reporters on Sunday. Ms Wong said the number of ferry passengers had fallen by between 10 percent and 20 percent since October. Ms Wong said passenger numbers had recently begun to recover.
Ms Wong said the renovation of the Outer Harbour Ferry Terminal on the peninsula was proceeding on schedule. She said the first phase of the expansion of the east and west wings of the terminal was “basically” complete. The number of ferry ticket and airline check-in counters would increase to 46 from 34, she said. Ms Wong said the next step was to install a baggage carousel before the summer, as the lack of such a carousel was the main cause of complaint about the terminal. The work will be done in five phases. The government expects the work, which began in July, to take at least one year. The terminal now handles about 40,000 passengers and 250 ferry movements a day, on average.
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