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This Is Not 2013

“Everything is the same, until it is not.”

-Dr. Ellen Langer

 

Love that quote in chapter 3, “Variability”, in Langer’s #behavioral beauty, Counterclockwise. “People aren’t all that observant, although we think we are. We see what we expect to see, even to the point that we don’t notice things that others clearly do” (pg 33).

 

Growth investors want to see growth, Gold Bond investors want to see slow-growth, and I want to see Canada win medals at the Olympics. It is what it is – it’s called confirmation bias. And, on some level, most of us have it in us.

 

(Can you see both women in the picture below?)

This Is Not 2013 - oldyoung

 

So how do we become more objectively observant? How do we force ourselves to see what we don’t want to see? Since I’m talking about markets, I think you know where I wash out on this. Mr. Macro Market usually shows us the way.

 

Back to the Global Macro Grind

 

If you were looking to rekindle 2013’s bull market in US stocks, all you’d have to have done is look at the Dow on Friday. It was +165 points (+1.1%) on the second straight jobs report miss. Everything is the same as last year, right?

 

Nope. Including Friday’s low-volume rally (the Top 5 Volume days of 2014 have been down days), the Dow and SP500 are down -4.7% and -2.8%, respectively. And they’ll probably be down again today.

 

This is not 2013 (when inflation was falling and US consumption and employment growth were accelerating). This is 2014 and with #InflationAccelerating again last week, US consumption growth is slowing, faster.

 

Got Hedgeye Macro Theme #1 for Q114?

  1. US Dollar down -0.8% last week and back below @Hedgeye TREND support of $81.12
  2. CRB Commodities Index (19 commodities) +2.3% last wk to +3.4% YTD
  3. CRB Foodstuffs Index up another +1.1% last wk to +4.5% YTD

In other words, as the US economic data slows, Mr. Macro Market is starting to front-run proactively predictable behavior that Janet Yellen will back off on the tapering and/or change the goal posts again on the Fed’s dual mandate.

 

Everything that matters in macro happens on the margin, so don’t forget that last year the Fed got incrementally tighter – anything less would be dovish on the margin, including Yellen moving toward what print-money-forever PhDs call “forward rate guidance.”

 

Not to be confused with something that will work in getting early 2011-style #InflationAccelerating off the US consumer’s back, “forward rate guidance” is basically what Japan did decades ago in telling the world its rates would never go up.

 

Guess what, they didn’t.

 

With the 10yr yield on Japanese Government Bonds at 0.60% this morning, the US Treasury 10yr yield of 2.66% has a long way to go; if the USA wants to let an un-elected-central-planning-bureaucrat at the Fed make it like Japan, that is…

 

Who gets paid on Down Dollar, Down Rates, and #InflationAccelerating again?

  1. Gold and Silver Bulls (+1.9% and +4.3%, respectively last wk to +5% and +2.9% YTD)
  2. Real Estate Bulls (MSCI REIT Index up another +0.8% last wk to +4.9% YTD)
  3. Oil Bulls? Yep, that trade ripped on the jobs miss too – Brent Oil +3% last wk, most of it coming on Friday

Forget the lessons of 2011. In response to inflation expectations rising, we need the Fed to tell us we “need more inflation”… so that we can slow real-inflation-adjusted-growth more!

 

There’s “inequality” in America, so we definitely need to ramp up those prices at the grocery store and at the pump again. Definitely. No question. We need to re-ramp some asset prices and pulverize the purchasing power of the poor.

 

Captain Keynesian textbook will be quick to read this and say:

  1. But inflation is low, CPI is only 1.2%
  2. And if inflation rises, bond yields will rise …
  3. Because, the government says so

Gotit.

 

After deflating a small part of the mother of all inflations (Global Inflation’s all-time highs of 2011-2012), anyone who thinks there’s A) no inflation and B) no problem with inflation doubling sequentially from 1% to 2% needs their head examined.

 

If inflation expectations rise, commodities, wages, household debt levels, and breakevens rise (US 5yr Breakevens up another +4bps last wk to 1.93%); the 10yr bond yield won’t.

 

Why? Because the Fed has 0% credibility in fighting real world INFLATION. That’s why over 80% of the movement in the long-end of the yield curve can be explained by rising and falling GROWTH expectations.

 

In other news this morning:

  1. Dollar Down
  2. Rates Down
  3. US Equity Futures Down

No I didn’t buy the bounce last week (the Russell2000 actually didn’t bounce, it was down another -1.3% to -4% YTD – another growth slowing on the margin signal). Sorry, this is not 2013. Everything is the same until it isn’t.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

VIX 14.74-20.41

USD 80.41-81.03
Brent 107.61-109.92

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

This Is Not 2013 - Chart of the Day

 

This Is Not 2013 - Virtual Portfolio


February 10, 2014

February 10, 2014 - Slide1 

BULLISH TRENDS

February 10, 2014 - Slide2

February 10, 2014 - Slide3

February 10, 2014 - Slide4

February 10, 2014 - Slide5

February 10, 2014 - Slide6 

February 10, 2014 - Slide7

February 10, 2014 - Slide8

BEARISH TRENDS

February 10, 2014 - Slide9

February 10, 2014 - Slide10

February 10, 2014 - Slide11
February 10, 2014 - Slide12

February 10, 2014 - Slide13


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THE M3: CNY GGR; HOTEL STATS; SANDS VISITATION; CHIMELONG; TAIPA FERRY

THE MACAU METRO MONITOR, FEBRUARY 10, 2014

 

 

CASINOS RECORD A BRIGHT MOP8.3-BLN START TO MONTH Macau Business

Casino revenue for the first six days of this month reached MOP8.3 billion (US$1.04 billion), a run rate was MOP1.39 billion.  In the first seven days of the Lunar New Year holidays last year revenue was MOP7.2 billion. Credit Suisse says mass-market gaming revenue in the first five days of the holidays was up to 25% YoY.

 

HOTEL STATS Macau Business

The Macau Government Tourist Office said the average occupancy rate of three-, four- and five-star hotels was 94.4%, 5.4% points higher than last year.  Five-star hotels saw the biggest increase in their average occupancy, which rose by 6.3% points to 97.2%.  The average room rate in three- to five-star hotels climbed by 17.5% to MOP2,387 (US$298).

 

SANDS RECORDS 1.8 MILLION VISITS DURING HOLIDAYS Macau Business

There were 1.8 million visitors to Sands China Ltd’s casino-resorts between January 31 and last Thursday.  Its resorts had an average of around 260,000 visitors a day during the first week of the lunar year.

 

CHIMELONG RESORT DRAWS 500,000 IN FIRST 10 DAYS Macau Business
The Chimelong International Ocean Resort on Hengqin Island drew about 500,000 visitors during its first 10 days in business.  A spokesman for the owners said the resort had up to 80,000 visitors a day during the Lunar New Year holidays, and that most were independent travellers from Zhuhai and elsewhere in the Pearl River Delta region. He said about 500,000 people had visited the resort between January 28 and last Thursday.

 

TAIPA FERRY TERMINAL TO BE OPERABLE IN Q2 OF 2014 Macau Daily TImes

After an almost five-year delay, the Infrastructure Development Office (GDI) finally confirmed that the first and second stages of construction of the Pac On Ferry Terminal in Taipa will finish in 2Q. 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 10, 2014


As we look at today's setup for the S&P 500, the range is 75 points or 3.45% downside to 1735 and 0.72% upside to 1810.                                  

                                                                                             

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: 2.37 from 2.38
  • VIX  closed at 15.29 1 day percent change of -11.26%

MACRO DATA POINTS (Bloomberg Estimates):

  • 12pm: Wasde commodities reports
  • U.S. Rates Weekly Agenda
  • FX Weekly Agenda

GOVERNMENT:

    • President Obama meets with French President Hollande; to discuss U.S.-French business ties, proposed U.S.-EU free-trade agreement
    • House Transportation and Infrastructure Cmte holds field hearing in Charlestown, W.Va., on Elk River chemical spill
    • 10am: CFTC’s Technology Advisory Cmte holds public meeting focused on swap data reporting; CFTC’s concept release on automated trading; swap execution facilities
    • 2pm: House Energy and Commerce panel holds hearing on drug shortages, with GAO Healthcare Director Marcia Crosse
    • 2:30pm: House Transportation and Infrastructure panel holds roundtable discussion on public-private partnerships
    • Geneva II peace talks and negotiations continue after the Jan 22 Conference; members of President Bashar al-Assad’s government and rebels are expected to resume talks in Geneva

WHAT TO WATCH:

  • L’Oreal jumps as Nestle said to seek ways to reduce 29% stake
  • James River Coal hires Perella Weinberg, may sell itself
  • PBOC signals money-mkt volatility; China seeks to tame debt
  • Hudbay makes offer to acquire Augusta Resources
  • Intl Forest Products to acquire Tolleson Lumber for $180m
  • Japan’s Dec. current-account deficit widens to record
  • Forbes sale nears; Spice Grp, Fosun said to plan final bids
  • Mandel tops best-earning hedge funds for second year
  • AIG eyes acquisitions in Asia, Latin America: Figaro
  • Barclays examining possible data theft from 27,000 customers
  • China regulator said to order smaller banks to set aside funds
  • Chinese regulator said to seek JPMorgan job for friend: NYT
  • Swiss brace for sour EU relations on anti-immigration vote

AM EARNS:

    • Boardwalk Pipeline (BWP) 6am, $0.31
    • CNA Financial (CNA) 6am, $0.85
    • Emera (EMA CN) Bef-mkt, C$0.42
    • Hasbro (HAS) 6:30am, $1.22 - Preview
    • Mercury General (MCY) 8:30am, $0.53

PM EARNS:

    • Albany International (AIN) 5pm, $0.35
    • American Capital (ACAS) 4pm, $0.24
    • Amkor Technology (AMKR) 4:07pm, $0.14
    • Compass Minerals International (CMP) 4:15pm, $1.77
    • CYS Investments (CYS) 4:01pm, $0.35
    • Flotek Industries (FTK) 4:15pm, $0.17
    • Forward Air (FWRD) 4:05pm, $0.56
    • Highwoods Properties (HIW) Aft-mkt, $0.73
    • KapStone Paper and Packaging (KS) 4:15pm, $0.48
    • Loews (L) 4:15pm, $0.70
    • Masco (MAS) 5:09pm, $0.16
    • Molina Healthcare (MOH) 4pm, $(0.19)
    • Nuance Communications (NUAN) 4pm, $0.23
    • Owens & Minor (OMI) 5pm, $0.50
    • Pioneer Natural Resources (PXD) 4:01pm, $0.98
    • Primerica (PRI) 4:02pm, $0.79
    • Rackspace Hosting (RAX) 4pm, $0.14
    • Regal-Beloit (RBC) 5:17pm, $0.84
    • Sensient Technologies (SXT) 4:24pm, $0.63
    • Toromont Industries (TIH CN) Aft-mkt, C$0.52
    • Waste Connections (WCN) 4:05pm, $0.43

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Demand in China Surges to Record as Bear Market Spurs Sales
  • Rubber Inventories in Producing Countries to Drop on Drought
  • Coffee to Soybean Wagers Climb on Brazilian Drought: Commodities
  • Aluminum Faces Deficit in 2015 on Cutbacks, Sumitomo Says
  • Brent Slips After Biggest Gain in Three Months Amid Libya Return
  • Nickel Climbs Amid Speculation Ore-Export Ban Will Lift Prices
  • Gold Gains to Two-Week High on U.S. Jobs as China Resumes Buying
  • Wheat Falls Third Day Before USDA Report as Supply Seen Ample
  • Sugar Drops 3rd Day in New York Before Possible India Decision
  • Hedge Funds Boost Diesel Bets With Supply at Decade Low: Energy
  • Rebar Declines for Second Day as Demand Weakens After Holiday
  • California Ranchers Missing Beef Rally in Bid to Survive Drought
  • Cheap Shale Gas Allows U.S. Refiners to Displace EU in LatAm
  • Tin Exports From Indonesia Slump to Three-Month Low in January

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

 

 

 

 

 

 

 

 

 

 

 

 

 


Dog or Wolf?

This note was originally published at 8am on January 27, 2014 for Hedgeye subscribers.

“The hour between dog and wolf, that is, dusk.”

-Jean Genet

 

Customer questions on Friday went something like this: ‘Keith, was that a bull or bear? Dog or wolf? What do you think?’ I don’t know. But I’m not in the business of walking up to a bear in the dark without a real-time gun! So let’s stay on our toes here and react accordingly. The best market calls are made by Mr. Macro Market, not me.

 

Ironically enough, last week I started reading the latest behavioral psych book to bubble up to the top of my pile, The Hour Between Dog and WolfRisk Taking, Gut Feelings and the Biology of Boom and Bust, by former Goldman/Deutsche trader, John Coates.

 

In his introduction, “it has been said of war that is consists of long stretches of boredom punctuated by brief periods of terror, and much the same can be said of trading” (Coates, pg 5). I’d say that if you were buying-the-damn-bubble #BTDB on Wednesday and Thursday of last week, Friday’s move, punctuated by a +45.8% VIX rip on the week, felt like terror.

 

Back to the Global Macro Grind

 

First, instead of screaming bloody murder this morning, let’s contextualize where Friday’s -2.09% drop in the SP500 came from. In an intraday note (11:45 AM on Thursday January 23rd) I wrote a risk management note titled “Not #BTDB Today” and outlined 3 main issues that were signaling in our model:

  1. US Consumption #GrowthSlowing (rate of change vs. Q313’s sequential top)
  2. SP500 broke our immediate-term TRADE line of 1837 support
  3. US stocks making lower-highs (vs. all-time highs) and down YTD perpetuates performance chasing

In other words, this was very much a playbook 3-factor (History, Math, and Behavioral) line of reasoning that seems sound, after the fall:

  1. HISTORY: our Q114 Macro Theme of #InflationAccelerating has historically slowed consumption growth
  2. MATH: immediate-term TRADE signals matter in either confirming existing TRENDs or signaling new ones
  3. BEHAVIORAL: consensus is still in the business of chasing (buying) high and freaking out (selling) low

Got #InflationAccelerating?

  1. The US Dollar (index) was down a full -0.9% last week (down -2.2% now in the last 6 months)
  2. The CRB Index (19 commodities) was +1.5% last week vs the SP500 -2.6%
  3. US Consumer Discretionary Stocks (XLY) are already down -4.98% YTD (vs SPX -3.1%)

And while, Janet Yellen’s new Fed will see no inflation this week (on a lag, after comping the all-time highs in food/commodity inflation of 2011-2012), real-time men and women trying to decide between dog and wolf see breakevens (inflation expectations rising) and Natural Gas +19.8% last week for what it is, on the margin, #inflationary.

 

Interestingly, but not surprisingly, so does Mr. Macro Market. Remember that down days for US stocks in 2014 have been #timestamped frequently by the following pattern: Down Dollar + Down Rates = Down Stocks.

 

That’s why the immediate-term TRADE correlations between the US Dollar and the SP500 are as follows:

  1. 15-day = +0.66
  2. 30-day = +0.43

In other words, if economic gravity still matters (it does), and the Dollar and Rates are signaling bear (on the slope of US economic growth), it’s probably a bear.

 

While everyone in the Barron’s Roundtable said it’s all about the Fed (you have to quantify less in making general groupthink statements), we continue to think that getting market beta right for the last few years has been more about getting the slope (rate of change) of GROWTH and INFLATION right.

 

On the GROWTH front, this week’s Macro Calendar will show you more #GrowthSlowing (on the margin):

  1. TUESDAY: Durable Goods should slow in December versus November’s +3.4%
  2. THURSDAY: Q413 US GDP should slow to 3-something percent vs Q313’s +4.12% sequential peak
  3. FRIDAY: PMI for January could easily slow form December’s frothy 60.2

Oh, and your illustrious open market committee of forecasting the weather (on a lag) at the Federal Reserve may well taper again on Wednesday into #GrowthSlowing too. Never mind dog or wolf – that’s just dumb.

 

Our immediate-term Global Macro Risk Ranges are now:

 

*= new TREND change (in brackets)

 

*UST 10yr Yield 2.72-2.79% (bearish)

SPX 1779-1825 (bullish)

*Nikkei 14678-15169 (bearish)

*VIX 14.91-20.41 (bullish)

*USD 80.19-80.79 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dog or Wolf? - Chart of the Day

 

Dog or Wolf? - Virtual Portfolio


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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