TODAY’S S&P 500 SET-UP – January 12, 2012
As we look at today’s set up for the S&P 500, the range is 22 points or -1.20% downside to 1277 and 0.50% upside to 1299.
SECTOR AND GLOBAL PERFORMANCE
- ADVANCE/DECLINE LINE: 259 (-1374)
- VOLUME: NYSE 759.12 (-9.72%)
- VIX: 21.05 +1.74% YTD PERFORMANCE: -10.04%
- SPX PUT/CALL RATIO: 2.18 from 1.40 (+55.71%)
CREDIT/ECONOMIC MARKET LOOK:
INFLATION – there’s a big difference b/t Q2 of 2011 levels of global food/energy inflation and what you are seeing around the world now – a sequential DEFLATION OF THE INFLATION = big Q1 Macro Theme for us that Keith went through in the slide deck yesterday. This should continue to auger bullish for both Global Consumption and for the stocks that react to it. Germany’s CPI benign for DEC at 2.1%.
- TED SPREAD: 56.63
- 3-MONTH T-BILL YIELD: 0.02%
- 10-Year: 1.92 from 1.90
- YIELD CURVE: 1.70 from 1.68
MACRO DATA POINTS (Bloomberg Estimates):
- 7:00am: BOE announces rates, est. 0.5% (prior 0.5%)
- 7:45am: ECB announces interest rates, est. 1% (prior 1%)
- 8:30am: Advance Retail Sales, Dec., est. 0.3% (prior 0.2%)
- 8:30am: Jobless Claims, week Jan. 7, est. 375k (prior 372k)
- 8:30am: USDA Quarterly grain stocks, WASDE monthly
- 9:45am: Bloomberg Consumer Comfort, week Jan. 8 (prior -44.8)
- 10am: Freddie Mac 30-yr mortgage
- 10am: Business Inventories, Nov., est. 0.4% (prior 0.8%)
- 1pm: U.S. to sell $13b 30-yr bonds (reopen)
- 2pm: Monthly Budget Statement, Dec., est. -83.7b (prior -78.1b)
WHAT TO WATCH:
- ECB likely to maintain interest rates at 1%; watch for comments by Mario Draghi at 8:30am ET
- Bank of England rates decision, 7am ET
- Sales at U.S. retailers may have risen 0.3% in Dec. on holiday discounts, economists est.
- Vestas Wind Systems to cut 2,335 jobs worldwide; says 1,600 U.S. posts at risk as tax credit expires
- Kinder Morgan said to prepare to start talks on selling off parts of El Paso’s oil and gas E&P unit in case it can’t find a buyer for the whole division.
- President Obama said to reprise previously rejected deficit- reduction plans and tax increases on the wealthy as part of his FY2013 budget
- Infosys cuts dollar sales forecast, citing global economy
- Banks may seize more than 1m U.S. homes this year, up 25% Y/y, RealtyTrac said
- U.S. may block Omnicare’s $716m bid for PharMerica: NYPost
- Deutsche Bank executives said to decide to pursue sale of asset-management units after they were satisfied with early interest in the business
- RBS to cut 3,500 jobs as it jettisons equities, mergers units U.S. Chamber of Commerce President Thomas Donohue delivers
- “State of American Business” address, 9am
- American Bankers Association holds news conference on consensus economic forecast, monetary policy predictions, 10am
- No IPOs expected to price
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
COPPER – the Doctor’s signal that we gave you yesterday was a pure one = breakout > intermediate-term TREND line support of 3.45/lb and obviously getting squeezed to immediate-term TRADE overbought here (3.59 last), but this is one of the epicenters of what’s been a royal short squeeze of everything that didn’t work in NOV/DEC (Financials, Basic Materials, Pandora – the list is long).
- China May Idle Most Aluminum Capacity Since 2009: Commodities
- Oil Options Signal Doubt Iran Crisis Will Worsen: Energy Markets
- LME’s Board in ‘Robust Debate’ After Decision to Raise Fees
- World Food Prices Declined by 2.4% in December, UN’s FAO Says
- China’s Central Bank May Be Behind Gold Import Rise, Pixley Says
- Oil Climbs From Two-Week Low on Nigeria Disruption, Iran Tension
- Coffee Reaches 4-Week High on Vietnam Bean Hoarding; Cocoa Drops
- Copper Advances for Third Day as Spain’s Bond Sale Exceeds Goal
- Silver Coin Sales May Signal Bear-Market End: Chart of the Day
- EU Sugar Export Applications Exceeded the Limit by 2.5 Times
- Soybeans Gain as USDA May Cut Estimate for World Oilseed Stocks
- Freepoint Commodities Plans Asian Expansion After European Push
- China Trade Spurs $115 Billion Australia Building Boom: Freight
- COMMODITIES DAYBOOK: China May Idle Third of Aluminum Capacity
- Gold Gains for Third Day as Dollar’s Drop May Spur More Demand
- Plunging Bearish Gold Options Signal Rally: Chart of the Day
- European States Said to Vote on Suspending Sugar-Import Tenders
CHINA – the biggest Global Macro risk management shift of the last 3 wks has been both China’s high-frequency economic data and the reactions in both the China local and H-shares markets; China reported a CPI level of +4.1% DEC (inline w/ our estimate) – that’s down 10bps vs last month and, more importantly = 15 month low. Chinese stocks +3.5% for 2012 YTD and we’re long them (CAF) + EWH.
The Hedgeye Macro Team
This note was originally published at 8am on January 09, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“It’s about time something good like this happened.”
It’s about time we started seeing a Strong Dollar equate to Stronger US Employment. It’s about time we can be long both the US Dollar and some US stocks. It’s about time that both of these positions started winning at the same time.
It’s Tebow Time!
I just loved watching the quarterbacks of the New Orleans Saints and Denver Broncos (Drew Brees and Tim Tebow) do what they do this weekend (win). It’s the best part about living in this country – it always has been. It’s a place where anyone can accomplish anything, provided that the fields of competition are both fair and free.
Back to the Global Macro Grind…
Last week was awesome. So far, this morning is double-awesome. Why? Because we’re winning. And I have no shame in saying that I absolutely and positively love that too!
Last week’s positioning (long the US Dollar and US Consumption) registered the following score:
- US Dollar Index up another +1.3% week-over-week to $81.25 (a fresh 11 month high)
- US Consumer Discretionary Stocks (XLY) up another +2.6% week-over-week (a fresh 11 month high)
- US Stock Market Volatility (VIX) dropped another -12% week-over-week to 20.63 (a fresh 6 month low)
While I have the pom-poms out, we’re also long Chinese Stocks – and they just had their biggest up move in 3-months overnight, closing +2.9% to 2225 on the Shanghai Composite Index.
It’s About Time!
Can we get confident in something we trust and believe in? Big time. While people on the Old Wall might want to label me like they label just about everything else (on a lag), they’re not going to be able to change me. I can get as confident as any Captain in this game when the momentum is there for the right reasons.
Positive momentum, like winning, is contagious.
Some people in this country want to get paid to win even when they lose. That’s just ridiculous – and Americans will have no more of it. There is no free lunch in this economy. There is a cost to re-build confidence. We call it Deflating The Inflation.
Think about this in terms of where the primary driver of Global Inflation (a debauched US Dollar) has been versus where the US Dollar’s Correlation Risk is starting to go (away). Here are the latest correlations between the USD and the SP500:
- 30-day = +0.11
- 90-day = +0.06
- 3-year = -0.66
In other words, the combined fiscal and monetary policies to inflate via US Dollar DOWN were tested and tried for 3 years – and they did not work. What’s working, as it always has in the long-run, is a Stronger Currency Inspiring Consumption and Confidence.
I’m going to keep beating this American Bronco Drum until it starts losing, because the alternative just puts me in a bad mood. John Maynard Keynes was in a pretty bad mood come 1932. If your economic theories, politics, and personal accounts completely failed, you would be too.
As Nicholas Wapshott explains at the beginning of Chapter 9 in “Keynes Hayek”, come 1932-1933, “for all his phrase making and eloquence urging government to instigate public works to cure unemployment… in the aftermath of ‘A Treatise on Money’, Keynes was suffering for a distinct lack of influence in high places.” (page 123)
Like a bad Coach who preaches a style of play that ultimately results in failure, The People of Britain and America effectively fired Keynes in the early 1930s – and they should have. That’s why Keynes was forced to re-invent himself with a new “theory” – the General Theory (more on how that idea was re-built later).
Back to the now and how to Proactively Prepare our portfolios for tomorrow’s games…
If we build upon this country’s latest economic victories and simply keep the Big Government Interventionists (Geithner and Bernanke) out of the way for another 3 months, we really can see US economic growth re-accelerating from its bottom in Q1 of 2012.
We’ll go through this on our Global Macro Themes conference call on Wednesday (email email@example.com), and that’s where we’ll take the time to show you the Macro Math behind how an arrest of our 1-year old Growth Slowing theme would work. But it’s critical to remind you that this is a US economic scenario that can quickly be unwound by none other than the US Government itself.
In our most bullish US Economic Scenario we can get to +2.2-2.8% US GDP Growth for 2012 (which would put us higher than the Bloomberg consensus of 2.1%). But we, unlike the consensus process that’s broken in generating these consensus estimates, do not make annual forecasts and set them in stone. We change as the probabilities, math, and scenarios of the game do.
With that bullish scenario in mind though, I think we can all raise a glass to the real-time winners in this country (Brees, Tebow, US Dollar, etc). For now at least, It’s About Time!
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1592-1643, $111.89-115.21, $1.26-1.29, $80.31-81.32, and 1267-1288, respectively.
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer
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The Macau Metro Monitor, January 12, 2012
WYNN VICE CHAIRMAN SUES TO SEE ACCOUNTS IN DISPUTE OVER SPENDING Bloomberg
WYNN Vice Chairman Kazuo Okada filed a complaint against WYNN in state court in Clark County, Nevada, seeking to force the company to produce spending records. Okada opposed WYNN's HK$1 billion pledge to the University of Macau Development Foundation in July 2011. Okada said in a related regulatory filing he is seeking to protect his investments of $380 million in Wynn Resorts dating back to 2000.
According to the filings, on Nov. 2, Okada sought information regarding the pledge, the use of $30 million one of his companies invested in Wynn in April 2002 and an amendment to a stockholders agreement with Steve Wynn and ex-wife Elaine Wynn that followed the couple’s divorce. “Not only was the request summarily denied but, shockingly, Wynn Resorts asked for evidence that the $30 million investment had even occurred,” according to the filing.
Okada is also chairman of Universal Entertainment Corp., Wynn’s biggest shareholder.
“It’s not the dreamers that are remembered, it’s the doers.”
This morning one of our top Global Macro leadership sources (ESPN) reports Tim Tebow is now America’s favorite athlete.
“The poll, calculated monthly, had the Denver Broncos quarterback ranked atop the list for the month of December. In the last 18 years of the ESPN Sports Poll only 11 different athletes (Michael Jordan, Tiger Woods, etc.) have been No. 1.” (ESPN.com)
I can already hear the mumbling from the weenie bins - ‘there goes that knucklehead hockey player talking about winners again’…
Yep – and I love it.
Back to the Global Macro Grind…
When it comes to playing at the highest level of Global Macro Risk Management, you really have to do it each and every day. Global Markets wait for no one.
We were on a Hedgeye Morning Call in mid-December and our Financials guru, Josh Steiner, said ‘look Keith, people are just exhausted out there.’ On a call in late December, our Gaming Ace, Todd Jordan, said ‘no one is picking up the phones – it’s dead.’
And I love that too.
If you want to drive absolute returns, consistently, in up and/or down markets, dealing with emotions, losses, and exhaustion is part of this profession. You have to suck up its adversity, absorb it, and turn it into something positive. The alternative to not playing this game confidently is deer-in-headlights.
When I watch Europe trade this morning, that’s exactly what I see. I see a lot of people reacting to what was 2011’s playbook. I see journalists claiming authority on what to do with European positions into and out of bond auctions. And I see one mother of a short squeeze in almost everything that was going down in November.
This Game of Risk is globally interconnected. You can’t anchor on 1 fear-factor and react. You have to work your tail off to proactively prepare for where the game is going next.
“Hard work beats talent when talent doesn’t work hard.”
-poster above Tebow’s bed growing up in Jacksonville, Florida
What’s going on in Global Macro markets across our Multi-factor, Multi-duration, model this morning?
- US Dollar Index remains King (up +11.5% since the end of QE2)
- US Equities remain in a Bullish Formation (bullish TRADE, TREND, and TAIL)
- SP500’s immediate-term TRADE range moves to 1 (so buy red closer to 1277, sell green closer to 1299)
- US Equity Volatility (VIX) is breaking down into a Bearish Formation (bearish TRADE, TREND, TAIL)
- Strong/Stable US Dollar = Lower Volatility (30-day inverse correlation between USD and VIX = -0.77%!)
- US Equity Volume Studies are starting to shift to the bullish side (up volume days on up moves)
- US Treasuries not yet confirming a breakout in US Growth expectations (10yr under my TREND line of 2.03%)
- US Yield Spread (10yr yields minus 2s) = 170 bps wide = 6 basis points wider than where it started 2012
- The 3-day range (lead indicator for VIX) in my model is only 44 points wide = very trade-able market vs OCT-NOV
- All 9 Sectors in our S&P Sector ETF model are bullish from an immediate-term TRADE perspective
- 7 of 9 Sectors in our S&P Sector ETF model are bullish from an intermediate-term TREND perspective
- 2 of 9 Sectors in our S&P Sectors ETF model are bearish from a long-term TAIL perspective (Financials and Basic Materials)
REST OF WORLD
- Chinese Equities = +3.5% for 2012 YTD and breaking out > immediate-term TRADE line support (Shanghai Composite)
- Chinese Consumer Inflation (CPI) falls to a 15-month low this morning at 4.1% = Deflating The Inflation
- Hang Seng (Hong Kong) = +3.6% YTD = bullish TREND
- Japan’s Nikkei is flashing a very negative divergence at down -0.8% for 2012 YTD = bearish TREND
- South Korean unemployment unchanged m/m at 3.1% for DEC and the KOSPI was up +1% overnight = bullish TREND
- India down -0.6% last night to 16,077 on the Sensex = bearish TREND
- Germany’s DAX is powering forward again this morning to +5.6% YTD = bullish TREND
- France’s CAC is up +1% this morning and has moved to bullish on our immediate-term TRADE duration
- Italian and Spanish stocks are getting squeezed after lower bond yields (vs last auction)
- Russia, Norway, Hungary – all markets that got spanked in 2011 = up and frustrating shorts
- Dr Copper breaking out > $3.45/lb TREND line support (this was new as of yesterday) = bearish TAIL up at $3.99/lb
- Gold is up +0.7% this morning and is trading in between a rock (TREND resistance = $1682) and TRADE support = $1633
That’s about ½ of what’s already hand-written in my notebook, every day, before 6AM.
What do we do with all of it? We hold ourselves accountable to every play we make, time-stamping every position, so that you can trust that the summary of all our hard work has conclusions that we have the convictions to act on.
Sometimes (like now in Europe), we have no positions. Sometimes we have many. But all of the time, we want to try to make this Tebow Time at Hedgeye Risk Management.
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1, $111.89-115.99, $1.26-1.28, $80.64-81.73, 2, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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