Client Talking Points
#Boom. Just an awesome unemployment report for the UK. 7.4% in October versus 7.6% last. The Pound understandably loves it. Right now it's re-testing the highs versus the US Dollar as the Bank of England Keynesian Quacks whine about how a #StrongPound “threatens the recovery.” Huh? Please. It's perpetuating it!
India's Central Bank Chief Raghuram Rajan says no more rate hikes for now. No surprise here - Indian stocks loved that. The BSE Sensex jumped +1.3% back above our signal breakout line at Hedgeye of 20,754. If Ben Bernanke Burns The Buck (again) buy India. It's good for Emerging Markets.
Brent Oil is snapping our Hedgeye TAIL risk line of $108.69 again here this morning. That’s a very good thing for consumers (it's a tax cut) because Bernanke is hell bent on reflating the commodity bubble otherwise. Speaking of Ben, stock futures are up ahead of the no-taper expectation; Ben will really throw this thing for a loop if he flips again.
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Top Long Ideas
Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged. If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
QUOTE OF THE DAY
“Concentrated power is not rendered harmless by the good intentions of those who create it.” - Milton Friedman
STAT OF THE DAY
German business confidence rose to the strongest in 20 months in a signal that the pace of recovery is quickening in Europe’s largest economy.
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“It will be said that we don’t propose to establish Kings.”
“But there is a natural inclination in mankind to Kingly Government. It sometimes relieves them from the Aristocratic domination. They had rather have one tyrant than five hundred.” –Benjamin Franklin (The Liberty Amendments, pg 25)
I just love that quote. And how appropriate for a fresh winter’s morning when our central planning overlords are going to speak down to us from upon high. It’s Federal Reserve day, baby! Just like your Founding Fathers planned it.
On tapering, our Kingly Government’s leaky-peaky-media-access-group seems a little confused as of late. Between the WSJ’s Hilsenrath and CNBC’s Liesman flip flopping on what the Fed is going to do today, at a bare minimum it makes for great TV, on mute.
Back to the Global Macro Grind…
Did King Bernanke cut these poor peons off? What is up with that by the way? Forcing these dudes to think for themselves during the holiday season is just mean.
In all seriousness, trying to front-run the Fed without inside information isn’t easy. Reading the tea leaves on what Mr. Macro Market expects in real-time is the best we can do. If Bernanke tapers today, he’ll certainly shock me. But that’s not new.
What is new is US equity market volatility. What’s driving an intermediate-term TREND breakout in front-month stock market volatility (VIX) above our 14.91 signaling line is very simple – monetary policy confusion.
And in markets (which trade on expectations, not academic theories), confusion breeds contempt. If you follow the bouncing ball of expectations:
1. MONETARY POLICY: what the Fed should have done in SEP (taper) wasn’t done, so confusion rules
2. CURRENCIES: confusion drives Global FX volatility; most markets are keying off what the US Dollar does
3. EQUITIES: since spoos like no-taper (but worry that there should be a taper) they whip around (on no volume)
One of our biggest subscribers (he runs $18B in equity assets) nailed it in an email to me yesterday. Effectively, he thinks he knows what to do, but he’s not sure – and he definitely doesn’t like the process of discovery:
“I need to take the pulse of the patient everyday and I would really like to take the pulse without a pacemaker attached!”
#Pacemakers. That’s what the Fed should get us Canadian catholic boys for Christmas – we can attach them to a Demark dongle on our Bloomberg machines and any time Hilsy or Liesman whispers another flip to their flopping Fed leaks, we get a little jolt.
In other news…
Economic data in the United Kingdom continues to improve at an accelerating rate. On the heels of a #StrongPound, strengthening purchasing power, and falling consumer prices, the UK unemployment rate just dropped to 7.4% from 7.6%.
This, of course, has the former Keynesian kings of the Bank of England all squirreled up.
After all, they cannot allow the only thing that perpetuates economic recoveries for sustainable periods of time (#StrongCurrency) to threaten their un-elected political power.
Or is that “threatening the recovery”?
I couldn’t make this up if I tried, but after one of the best British runs of positive (think rate of change) economic data since the early Thatcher years (oh did she #timespank those British Keynesian boys publicly!), this is the headline in Europe this morning:
“BOE WARNS FURTHER POUND APPRECIATION THREATENS THE RECOVERY”
All the while, the Swiss reported an awesome confidence reading for DEC (ZEW index 39.4 vs 31.6 in NOV) after the Germans did yesterday (Germany’s ZEW accelerated to 62 in DEC vs 54.6 NOV).
Damn that #StrongEuro!
How dare economic gravity take hold and the most coincident indicators of economic health (a country’s currency) perpetuate confidence amongst The People?
But there is a natural inclination amongst group-thinkers towards “certainty” in economic forecasting and policy making. It sometimes relieves people who are trying to cover their political bottoms because they don’t have to be accountable to the policies themselves.
They had rather have one central planning god than a free market.
Our immediate-term Risk Ranges are (my Top 12 Daily Macro Risk Ranges are its own product now):
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – December 18, 2013
As we look at today's setup for the S&P 500, the range is 51 points or 0.95% downside to 1764 and 1.91% upside to 1815.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.51 from 2.52
- VIX closed at 16.21 1 day percent change of 1.12%
MACRO DATA POINTS (Bloomberg Estimates):
- 7am: MBA Mortgage Applications, Dec. 13 (prior 1%)
- 8:30am: Housing Starts, Nov., est. 954K
- 10:30am: DOE Energy Inventories
- 2pm: FOMC seen maintaining federal funds target of 0% to 0.25%; releases summary of economic projection
- 2:30pm: Fed’s Bernanke holds news conference
- Senate in session, House not in session
- 10am: Senate Foreign Relations panel meets on “Economic Engagement in the Asia-Pacific”
- 2:30pm: Senate Commerce Cmte holds hearing on data brokers’ use of personal information about consumers
WHAT TO WATCH:
- FOMC to issue policy statement, new forecasts at 2pm today
- JPMorgan sues FDIC over >$1b Washington Mutual liabilities
- JPM sued by Mississippi on credit card conduct: Reuters
- Silver Lake said in $2.4b deal for Forstmann Little’s IMG
- GE seen raising margins on demand for industrial goods
- Facebook acquires startup SportStream, AllThingsD says
- Wal-Mart to open 2 Sam’s Clubs in China in 2014
- Nintendo experimenting with smartphones, tablets: KING-TV
- Blackstone buys 3 Texas power plants from Centrica for $685m
- China Mobile plans smartphone sales of 220m in 2014
- Chipotle testing pizza as next possible fast food: WSJ
- ResCap sues UBS, SunTrust, Capital One over CMBS buybacks
- EU set to fine Goldman PE unit over cable maker price fixing
- Novartis’s cancer therapy faces question of logistics
- Pentagon says dependence on China rare earths has lessened
- Cantor to get $135m from American Airlines over 9/11 attacks
- Israel wants Google royalties for local content, Globes says
- Apogee Enterprises (APOG) 4:30pm, $0.35
- FedEx (FDX) 7:30am, $1.64 - Preview
- General Mills (GIS) 6:58am, $0.87 - Preview
- Herman Miller (MLHR) 4pm, $0.40
- Lennar (LEN) 6am, $0.62 - Preview
- Oracle (ORCL) 4:01pm, $0.67
- Paychex (PAYX) 4:01pm, $0.42
- Quanex Building Products (NX) 7am, $0.14
- Steelcase (SCS) 4:01pm, $0.26
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- EU Proposes Ban on Cloning Farm Animals and Sale of Clone Meat
- Goldman Sachs Said to Name New Global Commodities, Metals Heads
- Rio Tinto CEO Sees Iron-Ore Price Decline Next Year: Commodities
- Brent Trades Near One-Month Low Before Federal Reserve Decision
- Copper Falls a Second Day Before Fed Policy Meeting’s Outcome
- Gold Climbs in London Before Fed’s Decision: Palladium Advances
- Wheat Reaches 18-Month Low on Outlook for Rising Global Supply
- White Sugar Extends Drop to 2010-Low on Supply; Coffee Advances
- Australia Seen Boosting Bauxite Exports on Indonesia Ore Ban
- U.S. Pump Prices Seen Setting 2013 Low as Supply Swells: Energy
- U.S. Refiners Have Steep, Sustainable Advantage: 2014 Outlook
- Silver Proving No Store of Stability in Flight: Riskless Return
- U.S. Auto Revival Boosts Shipping as Jeeps Go to China: Freight
- Australia to Boost Iron Ore Exports as Rio to BHP Expand Output
The Hedgeye Macro Team
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.