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This Story Doesn't End Well

This note was originally published at 8am on March 18, 2014 for Hedgeye subscribers.

“Appreciate stories that do not come out well, for they are very much like a good deal of life.”

-James A. Garfield

 

According to Candice Millard in Destiny of The Republic (pg 19) , that’s what the 20th President of the United States, James A. Garfield, told his kids one night after reading them Shakespeare’s Othello.

 

Admittedly, I read my kids too many fairy tales. Maybe that’s my escape from the latest chapter of reality that is the US Federal Reserve un-officially Burning The Buck via its Policy To Inflate.

 

This morning you’ll see the initial outcrop of Dollar Devaluation – consumer price #InflationAccelerating again in the most recent made-up government CPI report. Tomorrow, you’ll see Janet Yellen officially abandon the Fed’s dual mandate and roll with “qualitative rate guidance” (i.e. price fixing interest rates, like Japan did).

 

This Story Doesn't End Well - usd1

 

Back to the Global Macro Grind

 

No, this story doesn’t end well for the US economy and at least 80% of its people. Yes, that is a forecast. And it’s aligned with at least the last 400-2500 years of economic #history.

 

But don’t worry, the Fed’s main leading indicator (the US stock market) can still go up on this. Venezuela’s was up +460% (in its burning currency) last year, and has since fallen to -5.6% in 2014 YTD. Germany’s stock market went parabolic in the 1920s too.

 

Dollar Down yesterday perpetuated another no-volume (-20% vs. @Hedgeye TREND) rip in US stocks. While @FederalReserve’s esteemed Ph.D. economists will lie to you and suggest that price fixing the long-end of the curve isn’t “causal” to currency devaluation, it is.

 

Moreover, what’s left of free-market pricing believes it is – check out these 30-day US Dollar Correlations:

 

1. SP500 -0.86 (inversely correlated with USD)

2. Commodities (CRB Index) -0.84

3. Gold -0.93

 

Yep, that’s that. The entire world is front-running Janet Yellen talking down interest rates in the face of #InflationAccelerating.

 

Since no one who calls the shots at either the White House or the Fed has ever traded macro market risk in their life, don’t expect them to get the most important aspect of risk managing markets – expectations.

 

If you want to look at the market’s most obvious expectations on US monetary and fiscal policy, look at futures and options positions in the CFTC (US Commodities Futures Trading Commission) data:

 

1. Gold = +123,007 net long contracts (vs. its 1yr avg of +60,763 contracts)

2. Crude Oil = +432,840 net long contracts (vs. its 1yr avg of +349,652 contracts)

3. US Dollar = -197 net short contracts (vs. its 1yr avg of +17,809 contracts)

 

In other words, front-running an un-elected cartel of Keynesian economists who make-up new policy rules as they go (the Fed) has turned into a big business on Wall Street. If you don’t believe that, tell yourself fairy tales too.

 

Like it did in Q1 of both 2008 and 2011, the market is expecting both Congress and the Fed to Devalue the Dollar in the face of slowing economic data. If you go back to the 2011 playbook, you can see that Gold, Bonds, and Utilities (XLU) were beating the Dow steadily.

 

To review what the market is front-running:

 

1. FISCAL policy – moar government deficit spending

2. MONETARY policy – talking down the long-end of the curve (rates)

 

On both of those currency vectors (yes, decisions your elected or un-elected bureaucrats make are causal), unlike last year (when both were Dollar Bullish with sequestration + tapering), Mr. Macro Market is taking the US Dollar to its YTD lows.

 

In other Global Macro news, Germany appears to be finally slowing. While it’s been a good run for the German economy off its European Crisis lows, here’s the real-time market update:

 

1. Germany’s stock market (the DAX) broke @Hedgeye TREND support of 9273 last week

2. Germany’s bond market has ramped in the last month with 10yr Bund Yield -10bps m/m to 1.56%

3. Germany’s ZEW (confidence reading) just dropped in March to 46.6 vs 55.7 in February

 

I know. If China, Japan, USA, and now Germany see the slopes of their economic growth curves roll over (all at the same time) what could possibly go wrong? Oh, and Russia (stock market -23% YTD) is still crashing. This story only ends well in some sadistic dream.

 

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

 

SPX 1846-1866

DAX 8909-9273

VIX 14.72-17.56
USD 79.21-79.79

Gold 1355-1387

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

This Story Doesn't End Well - Chart of the Day

 

This Story Doesn't End Well - Virtual Portfolio



Fishy Feelings

“It’s ok to eat fish because they don’t have any feelings.”

-Kurt Cobain

 

One of the core #behavioral principles in Jonah Berger’s Contagious is emotion. You need to make people feel something. And that something can be positive or negative, provided that it delivers what he calls “high arousal.” Awe, Amusement, Anger, and Anxiety (pg 109) will all do the trick.

 

Fishy Feelings - shark

 

Whether it was Janet Yellen telling you she is “extraordinarily committed” to burning your currency or Michael Lewis proclaiming his book is for the “little guy,” it was all out there yesterday.

 

So let’s do it for the children. Let’s keep the risk free rate of return on American Savers at 0% forever and have the FBI raid high-frequency-tweeters. We commoners of capitalism don’t have any feelings anyway.

 

Back to the Global Macro #Grind

 

On literally no volume yesterday, the SP500 made its best attempt to bubble itself back up to her all-time-closing high of 1878. Just wait until they ban all technology and bring back the NYSE dinosaurs – when you get squeezed, you’ll feel no volume at all.

 

I better be careful about calling anything we do innovative, or the fun-cops are going to come after me too. The “little guys” (read big lazy guys at bailed out #OldWall banks that can’t compete with math) have their biggest lobby yet.

 

At the risk of explaining how fractal math helps investors reading this note front-run the machines, let’s just keep our market update to a simple 3-factor model this morning instead:

  1. PRICE
  2. VOLUME
  3. VOLATILITY

And let’s score the US stock market (SP500) on all three:

  1. PRICE - making higher-lows, but not yet higher-highs (vs. the all-time closing high)
  2. VOLUME – decelerating on up days; accelerating on down days
  3. VOLTILITY – front-month VIX continues to signal higher-lows and that the term-structure of VIX is way too complacent

Notwithstanding Biotech and Social Media stocks dropping 15-35% in 2-weeks, what could possibly go wrong in Q2?

  1. FX – the US Dollar continues to signal long-term TAIL risk (trading below our TAIL risk line of $81.17 on the US Dollar Index)
  2. 10YR – continues to signal a series of lower-highs and remains below @Hedgeye TREND resistance of 2.81%
  3. SECTOR VARIANCE – Consumer Stocks (XLY) -3.2% vs slow-growth #YieldChasing Utilities (XLU) +9.2% YTD

I know. I know. Yellen has an implicit policy to Devalue the Dollar, let #InflationAccelerating (Food Prices +19% YTD) rip America’s poor a new one, and slow 71% of the US economy (Consumption), but you can go eat a REIT (+8% YTD), and like it.

 

If inflation slowing real US consumption growth wasn’t enough, now we have a series of non-weather related #GrowthSlowing data points interconnecting around the world. Here’s this morning’s macro data:

  1. CHINA – HSBC PMI (producer manufacturing index) slowed yet again in March to 48.0 vs 48.5 in February
  2. JAPAN – PMI slowed again in MAR to 53.9 vs. 55.5 in FEB
  3. UK – PMI finally slowed sequentially to 55.3 MAR v. 56.9 in FEB

Yep, in spite of its strong (relative) fiscal, monetary, and currency policy, even the United Kingdom is subject to gravity (i.e. at some point the rate of change in the economic acceleration slows). But, don’t worry, Keynesian economic policy makers say you don’t have to feel that.

 

They’ll smooth it out. You know, rig gravity. Right, right. And Larry Summers is my uncle.

 

Amused or anxious yet? No worries - all the backward looking political economists will not be writing about any of this today, because they’re still trying to fit the #weather data to a real consumption #GrowthSlowing narrative that they have once again missed.

 

If you’re in the 10% of America who gets rich on government spending, money printing, and selling books to mediocre minds in the media, you don’t have to have any feelings about that either. Remember, it’s for the children.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

Nikkei 14098-14887

VIX 13.56=15.58

USD 79.81-80.44

Pound 1.65-1.67

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fishy Feelings - Chart of the Day

 

Fishy Feelings - Virtual Portfolio


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 80.30%
  • SHORT SIGNALS 78.51%

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 1, 2014


As we look at today's setup for the S&P 500, the range is 24 points or 0.98% downside to 1854 and 0.30% upside to 1878.                            

                                                                                                   

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: 2.31 from 2.30
  • VIX closed at 13.88 1 day percent change of -3.68%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly retail sales
  • 8:55am  Redbook weekly sales
  • 9:45am: Markit U.S. Manufacturing PMI, March final, est. 56 (prior 55.5)
  • 10am: ISM Manufacturing Index, March, est. 54 (prior 53.2)
  • ISM Prices Paid, March., est. 59.5 (prior 60)
  • 10am: Construction Spending, m/m, Feb., est. 0% (prior 0.1%)
  • 10am: IBD/TIPP Economic Optimism, April, est. 46.0 (prior 45.1
  • TBA: Domestic Vehicle Sales, March., est. 12.4m (prior 11.98m)
  • Total Vehicle Sales, March., est. 15.8m (prior 15.27m)
  • 4:30pm: API weekly oil inventories

GOVERNMENT:

    • House may take up Senate-passed measure w/Ukraine aid, Russia sanctions
    • 9:30am: Caterpillar’s Chief Tax Officer Robin Beran, Financial Svcs Division VP Julie Lagacy, former Senior Intl Tax Manager Rodney Perkins scheduled to testify before Senate Homeland Security and Govt Affairs panel on offshore tax strategy
    • 10am: Supreme Court may issue opinions
    • 12pm: FCC Commissioner Michael O’Rielly delivers remarks at Federal Communications Bar Assn
    • Budget panels/hearings
    • House Budget Cmte’s Ryan plans FY15 budget resolution release
    • 3pm: House Appropriations panel on financial services with Chairman Mary Jo White
    • U.S. Election Wrap: Obama Backs Schatz in Hawaii

WHAT TO WATCH:

  • GM CEO Mary Barra testifies before House Energy panel on recalls
  • FBI probes high-frequency traders for abuse of nonpublic information
  • NATO ministers meet on Ukraine as Russia starts troop pullback
  • Automakers incl. Chrysler, Ford, GM report March auto sales
  • HP reaches $57m settlement in shareholder lawsuit
  • Yahoo said to be in talks for News Distribution Network: WSJ
  • OCBC bids $5b in biggest Hong Kong bank offer since 2001
  • Obamacare sign-up ends as it began with crashes, new challenges
  • Euro-area manufacturing stays near 3-year high
  • Euro-area unemployment stays at 11.9%, Italy jobless at record
  • China HSBC March manufacturing PMI 48.0; est. 48.1
  • Macau March casino rev. climbs 13.1%, est. 13%
  • CAT’s Robin Beran at Senate panel on offshore tax strategy
  • House Budget Cmte Chairman Paul Ryan releases budget plan
  • North Korea shows no signs of missile launch, South says
  • Bouygues extends its offer for SFR by two weeks
  • Malaysia plane hunt may take long as start point uncertain

EARNINGS:

    • Apollo Education Group (APOL) 4:01pm, $0.19

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodities Defy Citigroup ‘Death Bells’ With Quarter’s Best
  • China Milk Thirst Hands U.S. Dairies Record Profits: Commodities
  • WTI Drops for Second Day on China Economy Concern; Brent Steady
  • Japan Traders Seen Returning $3 Billion on Commodities Fall
  • Soybeans Rise to Nine-Month High as U.S. Reserves at 10-Year Low
  • Gold Trades Near 7-Week Low as Investors Weigh Stimulus Outlook
  • Copper Trades Near Three-Week High on China Stimulus Speculation
  • Rebar in Shanghai Advances as Iron Ore Surges Most Since August
  • Sugar Exports From Pakistan Seen Dropping as Inventories Shrink
  • Pecora Sees Gold Bottom This Year Before Rebound Toward Record
  • Gazprom Raises Ukraine Gas Price as Government Seeks Cash
  • Hong Kong Property Tycoon Making $533 Million Solar Bet: Energy
  • European Gas Prices Plunge on High Storage Levels, Mild Weather
  • Iron Ore Trims Quarterly Loss as China Seen Countering Slowdown

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

 

 

 

 

 

 

 

 

 

 

 

 

 


April 1, 2014

April 1, 2014 - Slide1

BULLISH TRENDS

April 1, 2014 - Slide2

April 1, 2014 - Slide3

April 1, 2014 - Slide4

April 1, 2014 - Slide5

April 1, 2014 - Slide6

BEARISH TRENDS

April 1, 2014 - Slide7

April 1, 2014 - Slide8

April 1, 2014 - Slide9

April 1, 2014 - Slide10

April 1, 2014 - Slide11
April 1, 2014 - Slide12


How Do You Spell Denial? T-A-R-G-E-T

Takeaway: Target brass is living in denial.

Editor's Note: This is a complimentary research excerpt from Retail Sector Head Brian McGough. For more information on our services, click here.
 

How Do You Spell Denial? T-A-R-G-E-T - tar5

 

Standard & Poor's Cuts Target's Debt Rating

  • "Ratings agency Standard & Poor’s has cut the debt rating of Target Corp. by one notch to 'A' from 'A+,' and the outlook is 'stable.'”
     
  • "The agency said it expected a 'lingering effect' on customer traffic through the first half of 2014, adding too that expenses related to the breach are likely as well."

TAKEAWAY FROM HEDGEYE’S BRIAN MCGOUGH:

We rarely call out a ratings change by Standard & Poor's as newsworthy. But this is Target we're talking about here. There's nothing wrong with this downgrade as it's grounded in a real world event. (If you've been living under a rock the past 3-4 months, and don't know what we're referring to, click here.)  But here's the problem: Target still does not see it. They don't get it. Its guidance for positive comps and gross margin improvement screams 'denial.'

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