5-10 minutes prior to the 11AM EST start time today please dial:
(Toll Free) or (Direct)
Conference Code: 958997#
Materials:"Q1 2012 THEMES"
Q1 THEMES & PRESENTATION:
STRONG DOLLAR = STRONG CONSUMPTION, DEFLATING THE INFLATION II & GROWTH SLOWING'S BOTTOM
Topics will include:
- Strong Dollar = Strong Consumption - Our King Dollar thesis continues to strengthen and with it the outlook for U.S. consumption, roughly 70% of GDP, and U.S. consumption-related equities.
- Deflating the Inflation II - Alongside the strengthening of the King Dollar and the continued high inverse correlation of commodities to the U.S. dollar, we expect to see commodity inflation continue to subside. Winners include: domestic and international consumers. Losers include: commodity producers and emerging market currencies as their central banks ease monetary policy.
- Growth Slowing's Bottom - One standard bearer of global macro markets is that they revert to the mean. As economic growth bottoms out, certain equity markets, notably China, Germany, and the U.S., look set to outperform.
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THE HEDGEYE BREAKFAST MONITOR
According to MasterCard Inc., U.S. Gasoline demand fell by 1.4% WoW and 4.1% YoY to the lowest level in more than seven years of records.
Comments from CEO Keith McCullough
Romney wins big and continues to be a Stable/Strong US Currency trade. Obama is going to have to deal w/ that too:
- HANG SENG – in my core multi-factor model, this index carries a heavy-weight as a leading indicator – so seeing last night’s follow through buying (on volume, ahead of more Chinese data this week) is just bullish. Hang Seng +0.8% to 19,151 matters because it’s an explicit confirmation of an intermediate-term TREND breakout > 18,616 support. China Growth Slowing at a slower pace.
- COPPER – the Doctor is in the Global Macro house this morning! Ringing the alarm clocks on the bears early (and loudly), up +1.1% isn’t the point as much as an intermediate-term TREND breakout > $3.45/lb – we’ll see if that holds (still below TAIL resist of $3.98), but Copper likes what it sees out of China all of a sudden.
- TREASURIES – literally the only major leading indicator in my macro model that has not yet confirmed bullish immediate-to-intermediate-term slopes of growth and inflation readings. TRADE line support for 10yr yields = 1.96% (so we’re above that), but the TREND up at 2.03% is the biggest line in the sand that has not yet been traversed. Stay tuned.
Ron Paul won the youth/change vote (18-27 yr olds) again last night on Hayekian economics.
YUM: Yum! Brands’ Taco Bell chain is in the news today as details emerge about its new menu aimed at taking share from Chipotle. Mike Brugamin, a former Yum! Brands senior project manager and Taco Bell store-owner, was quoted by Bloomberg as saying “they have a tough road ahead of them… [Taco Bell] has always been about value.” Such a turnaround obviously required capital in order to produce the new menu items and that can be expensive for franchisees. In our view, the company’s efforts are aimed at improving brand perception. As the Bloomberg article states, Taco Bell scored the lowest in food quality and atmosphere among limited-service Mexican eateries, including Chipotle and Qdoba, according to a September survey by Nation’s Restaurant News and consultant MD Partners.
YUM: Yum! Brands is adding 100 KFC restaurants to its Africa division, opening up in seven new countries.
GMCR: Green Mountain will report 1QFY12 earnings on February 1st, after the market close.
TODAY’S S&P 500 SET-UP – January 11, 2012
As we look at today’s set up for the S&P 500, the range is 25 points or -1.48% downside to 1273 and 0.46% upside to 1298.
SECTOR AND GLOBAL PERFORMANCE
TREASURIES – literally the only major leading indicator in our macro model that has not yet confirmed bullish immediate-to-intermediate-term slopes of growth and inflation readings. TRADE line support for 10yr yields = 1.96% (so we’re above that), but the TREND up at 2.03% is the biggest line in the sand that has not yet been traversed. Stay tuned.
- ADVANCE/DECLINE LINE: 1633 (+821)
- VOLUME: NYSE 840.83 (16.48%)
- VIX: 20.69 -1.80% YTD PERFORMANCE: -11.58%
- SPX PUT/CALL RATIO: 1.40 from 2.03 (-31.03%)
CREDIT/ECONOMIC MARKET LOOK:
- TED SPREAD: 57.44
- 3-MONTH T-BILL YIELD: 0.01%
- 10-Year: 1.95 from 1.98
- YIELD CURVE: 1.71 from 1.74
MACRO DATA POINTS (Bloomberg Estimates):
- 7:00am: MBA Mortgage Applications, Jan. 6 (prior -4.1%)
- 8:40am: Fed’s Evans speaks on U.S. economy in Illinois
- 9:00am: Fed’s Lockhart to speak on economy in Atlanta
- 10:30am: DoE inventories
- 12:30pm: Fed’s Plosser speaks on economy in Rochester, NY
- 1:00pm: U.S. to sell $21b 10-yr notes (reopen)
- 2:00pm: Fed’s Beige Book
WHAT TO WATCH:
- Mitt Romney wins New Hampshire primary, Ron Paul finishes second; South Carolina primary next
- Microsoft said 4Q industry PC sales will probably be lower than analyst est. on Thailand flooding
- Geithner meets with Chinese officials, encouraged by comments on growth; due to meet Japanese PM Yoshihiko Noda
- MetLife to shut its home mortgage-origination operation, costing at least $90m; most of 4,300 units employees to lose jobs
- CFTC may vote on Dodd-Frank Act proposal that would limit proprietary trading by banks, limit hedge fund investments
- CEOs of Deutsche Boerse AG, NYSE Euronext meet in NY today as they seek to overcome opposition to exchange combination
- MF Managing Director Christine Lagarde to meet with French President Sarkozy after meeting with German Chancellor Merkel yday. Merkel, Italian Prime Minister Monti give news conference ~7am ET
- Supervalu releases earnings at 8am; watch gross margin, forecast
- Lennar releases earnings at 6am; watch orders, traffic, mortgage availability
- No IPOs planned
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
COPPER – the Doctor is in the Global Macro house this morning! Ringing the alarm clocks on the bears early (and loudly), up +1.1% isn’t the point as much as an intermediate-term TREND breakout > $3.45/lb – we’ll see if that holds (still below TAIL resist of $3.98), but Copper likes what it sees out of China all of a sudden.
- U.S. Wheat Expanding From Century Low as Glut Looms: Commodities
- Coal Set to Rebound After Worst Year Since 2005: Energy Markets
- Oil Falls From Near One-Week High After German Economy Shrinks
- China’s Gold Imports From Hong Kong Reach Record on Demand
- Soybeans Fall as Cooler Weather in South America May Help Crops
- Cocoa Retreats by 3.1% on NYSE Liffe, Erasing Earlier Gains
- Copper Trades Unchanged at $7,740 a Ton in London, Erasing Gain
- Thailand to Buy Rubber at Above-Market Rates After Protests
- Red Kite Evangelicals Reap 47% Sowing Bet on China Copper Market
- Rio, Fortescue Halt Ore Loading, Ports Shut as Cyclone Nears
- Exxon, Vitol Said to Sell Nigeria Oil Supply to Bharat Petroleum
- Russia Resumes Crude Oil Deliveries to China Via Kazakh Pipeline
- Iranian Nuclear Scientist Killed in New Attack Against Program
- COMMODITIES DAYBOOK: U.S. Wheat Acreage Expands Most in 3 Years
- Gold Climbs to 4-Week High on China Demand, Europe Debt Concerns
- Rapeseed May Advance 5.9% in Retracement: Technical Analysis
- Australian Ports Shut for Cyclone Export 41% of Global Ore Trade
HANG SENG – in our core multi-factor model, this index carries a heavy-weight as a leading indicator – so seeing last night’s follow through buying (on volume, ahead of more Chinese data this week) is just bullish. Hang Seng +0.8% to 19,151 matters because it’s an explicit confirmation of an intermediate-term TREDN breakout > 18,616 support. China Growth Slowing at a slower pace.
The Hedgeye Macro Team
This note was originally published at 8am on January 06, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“No one in our age was cleverer than Keynes nor made less attempt to conceal it.”
That quote typifies the best thing I can say about John Maynard Keynes – he was a world class storyteller. This characterization provides context at the start of Chapter 7 in Wapshott’s “Keynes Hayek” for what was undoubtedly the closest time in history that Hayek ever came to taking Keynes down (1931).
That’s why Wapshott titles his chapter “Return Fire – Keynes and Hayek Lock Horns, 1931.” This was a unique time in Western Academic History where the “governing ethos at Cambridge was to profit from argument” (page 95). This was also a very different time than what I’m observing from my office on an Ivy League Campus in New Haven, CT today.
Today, there is no legitimate debate between Hayekian and Keynesian thought at either the Whitehouse or in the hallowed halls of the source code that gets paid by it (the Economics Departments of Harvard, Princeton, Yale, etc.). That’s not new. And that’s just plain sad. America is better than that. In order to Re-think, Re-work, and Re-build, our said leaders have to change this.
Back to the Global Macro Grind…
Dominating the debate is what we all wake up thirsting for here at Hedgeye Risk Management. No, that doesn’t mean that we always do – but it provides an excellent compass for us every morning.
Expecting to win is a culture. So is being held accountable for our mistakes.
We’ve been Locking Horns with Keynesiasn, Sell Side Strategists, and Media Pundits for the better part of the last 4 years on the functional matter that is called the purchasing power of a US Dollar.
Yesterday, the US Dollar Index rose another +1.1% to make a new intermediate-term closing high of $80.95 = up +11% since the likes of Bernanke and Geithner have been relegated to basically getting out of the way.
Central planners, meet your new King.
Now a lot of people (and I mean a lot - almost all of Western Keynesian Academia and mostly every “professional economist” in Washington) will quibble with me on the causality of it all.
But to be clear, I don’t want whispering and quibbling – I want to pick a fight.
So today, since I am in a bit of a fired-up mood here in the Haven, I am formally challenging anyone and everyone with a Senatorial title in Central Planning to Lock Horns with me on why a Strong Dollar is not great for Americans?
Strong Dollar = Stronger Employment, Confidence, and Consumption. Period.
You saw that in the US Consumer Discretionary stocks again yesterday with the XLY outperforming the SP500 by another 50 basis points. You saw that in the weekly jobless claims numbers remaining below our critical level of 385,000 resistance. You saw that in the Bloomberg weekly Consumer Comfort Index improving from -47.5 to -44.8 week-over-week.
Keynesians, do you see the impact of your being able to do nothing fiscally and monetarily now?
Surely, they’ll have some political form of a back-slapping session after whatever this morning’s US Employment Report brings. Heck, they were back slapping when they were providing “stimulus” that didn’t work!
What could go wrong from here?
A lot; particularly with both Congress and the Fed coming back from vacation.
The biggest risk from here is that Bernanke and/or Geithner come back into our lives with the broken promise that their next central plan (like the housing forgiveness thing for Bank of America yesterday) is going to provide us with the elixir of a mediocre life.
Recognizing this American Zeitgeist for what it is will either provide President Obama with his greatest opportunity for re-election or it will prove to be his Waterloo.
This isn’t a Republican vs Democrat thing – this is an evolution thing. Both parties have had a bi-partisan agreement on 1 thing for the last decade – Keynesian Economics in their policy making. When The People want that to change, what do you do Sirs?
Let the Locking of The Horns begin.
My immediate-term support and resistance ranges for the Gold, Oil (Brent), EUR/USD, Shanghai Comp, German DAX, and the SP500 are now $1591-1642, $111.61-113.96, $1.28-1.30, 2150-2211, 5976-6281, and 1267-1286, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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