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Japan: CTRL+PRINT

Client Talking Points

JAPAN

This is what the economic reports said before they hit the panic button (household spending -6% year-over-year, housing starts -14% year-over-year, and Construction spending -40% year-over-year)… so they must do moarrr of what didn’t work? Yep. Massive devaluation of Yen to 111.62 last, and Nikkei ramps to highest since U.S. market collapse began (NOV 2007).

USD

Unintended consequences? Nah – how about Yen Down, Dollar Up = #deflation accelerating? Oil, Gold, Russia, Texas, etc. all going to feel serious pain on this epic central planning day of 2014.

OIL

Oil is down on the “news” with WTI re-testing of the lows in play now = down -25% since June and don’t forget that (depending whose index you use),  20-27% of the high yield/junk debt market is “Energy” related. Month end ramp in equities, but we highly doubt that’s on inflation oriented ones.

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

RH

Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road

TWEET OF THE DAY

YEN has one of the biggest 1-day drops in money printing history = $111.62 vs USD

@KeithMcCullough

QUOTE OF THE DAY

Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.

-Martin Luther King

STAT OF THE DAY

According to a study published in Environmental Science and Technology, 29% of San Francisco's air pollution comes from China.



Panic Plan, CTRL-Print

“When I suck, I’ll retire.”

-Tom Brady

 

I suck this morning.

 

While many may very well have nailed this, I did not. The Japanese economy is so bad that they just went all 1920s Germany on the rest of the world, printing 80 TRILLION Yens.

 

Panic Plan, CTRL-Print - EL chart 2

 

Back to the Global Macro Grind

 

Just how bad does the Japanese economy suck? Well, right before they came out of left-central-planning-field with this decision, here’s what they reported, in economic growth terms:

 

  1. Japanese Household Spending -6% year-over-year
  2. Japanese Housing Starts -14% year-over-year
  3. Japanese Construction Spending -40% year-over-year

 

No, the down -14-40% prints aren’t typos. Abenomics is killing it, literally.

 

Q: “So”, what do central planners do when all else fails?

A: moarrr of the same! (*definition of insanity)

 

Japan’s equivalent of Janet (his name is Kuroda) said that Hedgeye nailed it on the #GrowthSlowing call and that the Bank of Japan is at a “critical point to overcome deflation.”

 

There’s that word again, #deflation.

 

Forget what 80 TRILLION is in the context of what the Germans did in the 1920s for a second (99% of people in this world don’t get the econ #history lesson anyway) and think about what this Panic Policy in Japan is going to do to the rest of the world’s economics in 2015:

 

  1. Burning The Yen = Dollar Up = Oil Down
  2. Oil Down = Russia Down
  3. Job growth in Texas, North Dakota, etc. Down

 

In other words, what these macro morons in Japan don’t get is that what they just did is only going to perpetuate worldwide #deflation.

 

Did I just call them morons? Yes. And I said I suck this morning too. Get over it and get on with the next move in the game that is Global Deflation Risk. Did you know that 27% of the high yield/junk debt market in the US is levered to some version of Energy inflation?

 

Again, follow the bouncing puck on that thought. Yen burnt to a crisp à #StrongDollar à Quad4 deflationary pressures à Down Oil à Down Energy stocks à Down Energy related debt #Bubble.

 

And, while you’re going to see the mother of all month-end markups (many mutual funds have their year-end in October too, so isn’t Japan falling into the ocean perfect timing!), what does that mean for #deflation risk to the US stock market as it re-tests all-time highs?

 

Technically speaking (my 4 year old daughter just pointed this out after she looked at the chart), an all-time high in the SP500 is a long time. “So”, there has never been more risk that US equities deflate, starting in November.

 

REMINDER: the last US stock market #bubble peaked in OCT 2007 and Japan’s Nikkei hasn’t been this high since NOV 2007 either.

 

If you’re looking to buy either Japanese or US stocks on this “news”, how do you explain it to your investors? ‘Well, you see, our thesis all along was that these money printings would result in economic collapse, so we wanted to be long the #PanicPlan associated with that.’

 

My asset allocation of 0% (net) to US equities will be dead wrong this morning. Zero percent allocation to Commodity Deflation and its related energy stocks and bonds is right though, so I don’t have to retire just yet.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

RUT 1071-1175

VIX 12.89-21.78

Yen 108.11-111.98

WTI Oil 79.03-81.65

Gold 1162-1231

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Panic Plan, CTRL-Print - Chart of the Day


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Bumbles Bounce!

This note was originally published at 8am on October 17, 2014 for Hedgeye subscribers.

“Didn’t I ever tell you? Bumbles Bounce!”

-Yukon Cornelius

 

Bounce that bumble! Oh yeah. I am going to go all Cornelius Yukon on you this morning! “The greatest stock picker (prospector) in the world!” VIDEO: https://www.youtube.com/watch?v=nsY2EeUuLj8#t=17

 

GenX kids like me loved this guy (so did our baby booming parents – just stick us in front of the TV and they were all set). For those of you who didn’t see Rudolph The Red Nosed Reindeer (initially released in 1964), Cornelius is a beauty.

 

After a rough week of dancing with the bear, here are some “high-conviction” Cornelius “picks”, I mean quotes:

 

“Terrible weather we’re havin’!”

“Open up! It isn’t a fit night out for man or beast”

“This is my land. And you know it’s rich with gold. Gooooollldddd!”

 

Bumbles Bounce! - EL chart 2

 

Back to the Global Macro Grind

 

Ok. Maybe Captain Stock Picker didn’t think that was funny. Getting caught long in “the land” of levered bullish market beta wasn’t funny either. “So”, on this Bumble Bounce, do me a favor and recognize that the oncoming red light isn’t Rudolph – it’s a train.

 

Yep, open it up! Let this bounce rip to the high heavens of hope and sell-the-bumble-bounce #STBB. Because hope (that “everyone is bearish now”) is not a risk management process.

 

Neither is calling tops and bottoms. Remember, both are processes, not points. We’ll review the #process that got us bearish on both growth and inflation in the first place (before October’s “terrible weather”), on a Flash Call today at 1PM EST (email sales@hedgeye.com if you’d like access).

 

I’ll keep the call to 15 mins, then take the most important part of the call (your questions). Here are some levels to consider selling into as you “observe the bumbles one weakness (the bumble sinks! Ha ha!)”:

 

  1. UST 10yr Yield – immediate-term TRADE resistance zone of 2.22-2.31%
  2. Russell 2000 – immediate-term TRADE resistance = 1105
  3. SP500 – immediate-term TRADE resistance = 1889

 

*Note: I am not using the 200-day moving monkey as “resistance” – our #process is built to front-run that.

 

Don’t worry, I get it. You get it too. We are both allowed to change our minds in real-time. This is a dynamic and non-linear system of risk we are dealing with. Being wed to a chart, ice pick, and a moving monkey isn’t the answer.

 

While yesterday’s gap down open in both the Russell and SP500 recovered faster than I would have thought it could. Who cares what I thought? Mr. Market certainly doesn’t.

 

What we need to care about is where marked-to-market risk is right here and now. Then make the best risk management decisions we can make on the bounce. Chase or sell?

 

That’s why I show every move I’d be making if I was back in your seat (Real-Time Alerts). If you can think of a better way for me to show what I really think in the moment, let me know. But I’m thinking the #timestamp is the best I can do.

 

No, that doesn’t mean my #timestamps are always right. They’re not always wrong either. But I have been arguably dumber than Cornelius in showing you, literally, every move I’d have made (over 2,800 of them, long and short) since 2008.

 

Back to risk managing the bounce – some of the more interesting ones will come within risk ranges that are #crashing:

 

  1. Including this morning’s bounce to 2.18%, the 10yr UST Yield is still crashing, -28% YTD
  2. Including this morning’s whopping +0.5% bounce to $82.89, WTI Crude Oil is still crashing, -25% since June
  3. Including Europe’s bounce, both Greek and Portguese stocks are still crashing, -21-22% YTD

 

And why are these ex-ebola items #crashing?

 

  1. Bond Yields crash when growth expectations do
  2. Oil crashes in #Quad4, when both global growth and inflation expectations do
  3. Illiquid European stocks crash, well, every time they remind you the central plan didn’t work

 

Oh, then there’s the crash within the Russell itself. Over 62% of stocks in the Russell 2000 have crashed (-20% peak to trough drawdowns). By my math, that is a lot of pain that was not proactively prepared for.

 

But everyone is going to strike it rich with their small cap peppermint stock “picks”, on the bounce, right? “Peppermint! What I’ve been searching for all my life! I’ve struck it rich! I’ve got peppermint! Wahooooo!” (Cornelius again, sorry – couldn’t resist).

 

Right. Right. After very few prepared for the avalanche of small cap beta risk, everyone is going to triple-down on the bounce, and the bumbles will never sink again.

 

Roger that. And it really is different this time. It’s Rudolph, remember (not a train on globally interconnected #GrowthSlowing and deflation risk).

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.09-2.22%

SPX 1831-1889

RUT 1041-1105

DAX 8454-8895

VIX 20.74-28.92

Gold 1205-1251

 

Best of luck out there today,

KM

 

Bumbles Bounce! - Chart of the Day


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 30, 2014


As we look at today's setup for the S&P 500, the range is 111 points or 4.75% downside to 1900 and 0.82% upside to 2011.                                           

                                                                                    

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: 1.85 from 1.84
  • VIX closed at 14.52 1 day percent change of -4.16%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Employment Cost Index, 3Q, est. 0.5% (prior 0.7%)
  • 8:30am: Personal Income, Sept., est. 0.3% (prior 0.3%)
  • 9am: ISM Milwaukee, Oct., est. 60 (prior 63.18)
  • 9:45am: MNI Chicago Business (purchasing managers), Oct., est. 60 (prior 60.5)
  • 9:55am: UofMich. Consumer Sentiment, Oct. final, est. 86.4 (prior 86.4)
  • 1pm: Baker Hughes rig count

 

GOVERNMENT:

    • Senate, House out of session
    • President Obama gives speech on the economy
    • Deadline for bids on Pentagon’s $11b electronic health records contract (for March 2015 award)
    • 8:30am: Commerce Dept maunfacturing event; Deputy Commerce Secretary Bruce Andrews to speak at 11:45am
    • U.S. ELECTION WRAP: Trouble With Polling; Ad Spending; Ratings

 

WHAT TO WATCH:

  • Citigroup Legal Costs Jump $600m as FX Probes Accelerate
  • Bank of Japan Boosts Record Stimulus as Abe Eyes Tax Rise
  • Oil Set for Biggest Monthly Drop Since ’12 on Oversupply
  • Russia Agrees to Terms With Ukraine for Gas Supply to Resume
  • Trading in Xetra Is Suspended, Deutsche Boerse Says
  • Ex-UBS Trader Defense Is Possible Threat to U.S. Forex Cases
  • Android Co-Founder Rubin Leaving Google to Form Incubator
  • Twitter Said to Appoint Head of Product as User Growth Slows
  • Disaster Averted in NYSE Stocks as Price Feed Backup Kicks In
  • Starbucks Sales Trail Estimates Amid U.S. Breakfast Rivalry
  • LinkedIn New Businesses Lift 3rd-Quarter Sales Above Estimates
  • Square’s Card-Reader Market Sway Slips as PayPal, Amazon Loom
  • Alibaba Co-Founder Said to Back Hedge Fund of Ex SAC Trader
  • BlackRock Says ETFs Aided Bond Mkt Stability After Gross Exit
  • U.S. Midterm Elections, Jobs, ECB, BOE, AIG: Wk Ahead Nov. 1-8

 

EARNINGS:

    • AbbVie (ABBV) 7:47am, $0.77 - Preview
    • American Axle & Mfg (AXL) 8am, $0.62
    • Aon (AON) 6:30am, $1.12
    • CBOE (CBOE) 7:30am, $0.54
    • Chevron (CVX) 8:30am, $2.52 - Preview
    • Clorox (CLX) 8:30am, $1.03 - Preview
    • CommScope (COMM) 7:30am, $0.57
    • Dominion Resources (D) 7:30am, $0.95
    • Exelis (XLS) 6:30am, $0.32
    • Exxon Mobil (XOM) 8am, $1.71 - Preview
    • Genesee & Wyoming (GWR) 6am, $1.18
    • Hilton Worldwide (HLT) 6am, $0.17
    • ITT (ITT) 7am, $0.60
    • Legg Mason (LM) 7am, $0.01
    • Madison Square Garden (MSG) 7:30am, $0.32
    • Magellan Midstream Partners (MMP) 8:30am, $0.66
    • Moog (MOG/A) 7:55am, $1.08
    • Newell Rubbermaid (NWL) 6:30am, $0.55 - Preview
    • NextEra Energy (NEE) 7:30am, $1.54
    • Oshkosh (OSK) 7am, $0.82
    • Pinnacle West Capital (PNW) 8:30am, $2.13
    • Rockwell Collins (COL) 7:30am, $1.27
    • Spirit AeroSystems (SPR) 7:30am, $0.77
    • TECO Energy (TE) 7:30am, $0.33
    • Telephone & Data Systems (TDS) 7:56am, ($0.08)
    • United States Cellular (USM) 7:57am, ($0.30)
    • Vantage Drilling (VTG) 6am, $0.02
    • WisdomTree (WETF) 7am, $0.07

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Tumbles With Silver to Lowest Since 2010 as Dollar Advances
  • Brent Oil Set for Longest Run of Weekly Losses Since ’02 on Glut
  • Gold Slumping 17% to $1,000 an Ounce for SocGen on Oil’s Tumble
  • Nickel Leads Gains by Industrial Metals as Japan Adds Stimulus
  • No Guarantee Saudis to Repeat Price Cut That Drove Oil Lower
  • Hurricane Season’s Eastern Pacific Finale Sends Storm to Mexico
  • Shale Boom Redraws Oil Routes as Alaskans Ship to Korea: Energy
  • Russia Agrees to Terms With Ukraine for Gas Supply to Resume
  • Emerging-Market Currencies Hurt by Oil, Metals: Chart of the Day
  • Wheat Futures Drop as Much as 1% to $5.305/bu, Reversing Gains
  • Steel Rebar Pares Monthly Gain as Demand Seen Falling in Winter
  • Freeport Indonesia, Labor Union Continue Talks on Planned Strike
  • Copper Traders Bullish for Next Week Amid Distruption Prospects
  • ‘Brouhaha’ Looming Over OPEC Oil-Production Cuts, Yergin Says

 

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

 

 


October 31, 2014

October 31, 2014 - Slide1

 

BULLISH TRENDS

October 31, 2014 - Slide2

October 31, 2014 - Slide3

October 31, 2014 - Slide4

 

 

BEARISH TRENDS

October 31, 2014 - Slide5

October 31, 2014 - Slide6

October 31, 2014 - Slide7

October 31, 2014 - Slide8

October 31, 2014 - Slide9

October 31, 2014 - Slide10

October 31, 2014 - Slide11
October 31, 2014 - Slide12

October 31, 2014 - Slide13


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%
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