This note was originally published at 8am on June 03, 2014 for Hedgeye subscribers.
“Dude, look at your dirty shoes – you need a shine!”
Yesterday I was getting my shoes shined in NYC at one of my favorite spots – on the corner of Avenue of the Americas and 46th Street, right across from the building where I got fired.
Not that I keep track of the when and the why, but I wrote a book about it so it’s out there. Carlyle fired me for being “too bearish” on the US #ConsumerSlowing on November 2, 2007. My 1st son was born on November 7th. And the SP500 dropped 6% by the end of the month.
Yep, risk happens slowly, then all at once. You know when your shoes are dirty too. If you go to my spot, tell Joe I sent you. He’ll chirp anyone who is looking NYC serious with dirty shoes. Within a block, they all look down. They may not like it, but the truth is staring at them from their feet.
Back to the Global Macro Grind…
Our preferred US Equity Growth index to be short of in 2014 remains the Russell 2000. In addition to being down -0.5% on Friday, it dropped another -0.7% yesterday to -3.1% YTD.
BREAKING: SP500 hits all-time highs –CNBC
Yep, as bond yields crash YTD (peak-to-trough decline in the 10yr Treasury Yield = 20%) and the Russell delivers negative returns, the world’s most consensus short position (SPX Index + E-mini) hit another new high on no volume yesterday. #hooray
Whatever you do, don’t look at your shoes yet.
Total US Equity Market Volume was -28% versus its 3-month average (and the average continues to crash!) and the US Equity market’s breadth (advancing vs. decline stocks) was negative yesterday too (46% gained in price, 50% declined). #dirty
But, but, you have to buy the SP500 … because it’s up, right?
As long as you buy SPX vs short Russell (IWM), I’m into that. From a risk Style Factoring perspective, the SP500 is not the Russell:
Like the FTSE in the UK, the SP500 is much more multinational too. If you want the pure play on short US domestic growth, it’s the Russell.
While there’s no doubt that it’s a lot easier to call the macro game from the seat I have today than the one I used to be in, that doesn’t mean that market truths cease to exist. #OldWall hasn’t been there to help coach Portfolio Managers through US growth slowdowns. We have been.
Being right in an environment with Rising Variance at both the country and sector level gets easier if you know the macro economy we are in. With US #InflationAccelerating perpetuating US #ConsumerSlowing, here are the Top 3 US Equity Sectors you still want to be long:
To reiterate the Sector Style Factors you do not want to be long:
If you leave being US Equity market centric (life is easier that way), buying currencies and stocks in countries who had what the USA had last year (#StrongCurrency + #RatesRising and inflation deflating), current equity markets we still like on the long side are:
In addition to being long Bonds (TLT), Inflation Protection (TIP), and Commodities in 2014, it’s what you aren’t long when growth slows (bubble multiple stocks) that has made all the difference too.
My call wasn’t consensus in November 2007, and it wasn’t in January of 2014 either. While we need to be loud about seeing something that we don’t think the Street is paying attention to, we don’t want that to feel dirty to you. We want to help augment your process and keep your shoes shiny.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.42-2.57%
British Pound 1.67-1.69
Brent Oil 108.42-110.76
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – June 17, 2014
As we look at today's setup for the S&P 500, the range is 35 points or 1.12% downside to 1916 and 0.68% upside to 1951.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates)
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
Takeaway: 60% voted YES; 40% voted NO.
Should we fear what lies ahead?
As the Wall Street Journal reported this morning, “a raft of unsettling events have shattered the relative calm of the U.S. stock market and put investors on edge.” Concerns over Iraq and rising oil prices, Fed Policy jitters and other worries helped trigger a 12% jump in the VIX fear gauge and sent the S&P 500 down 0.7% last week, its worst performance in two months.
We wanted to know what you thought: Are we entering a new phase of market turbulence?
At the time of this post, 60% voted YES; 40% voted NO.
Those who voted YES had this to say:
Those who voted NO reasoned:
In Friday’s Early Look (Giddy Up) we highlighted the Fed G.19 Data from April which showed US revolving consumer credit balances rose at a month-over-month annualized rate of +12.3%, the fastest rate of growth since 2001.
While the (potential) inflection was certainly notable, historically, the series has been volatile and subject to significant revision, so the preliminary data is to be taken with some caution.
In short, it was interesting but, in isolation, hard to build any specific conviction around.
This morning, we received some confirmatory data from Capital One (COF) who reported domestic card loans grew 1.7% MoM in May – a continuation of the strength observed in April.
There are a few primary takeaways:
Whether or not rising auto and card balances is reflective of a confident, resurgent consumer or simply an attempt by households to maintain current levels of consumption in the face of rising food and commodity inflation remains open to debate.
At present, we continue to think the data sides more with the later than the former.
Christian B. Drake
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.