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MACAU: BAD BUT LESS BAD NOV (REVISED HYPERLINK TO NOTE)

Takeaway: November should look better YoY than October but Macau is headed for another downturn in December

Analysis of November trends and our monthly forecast

 

 

Please see our note:   docs.hedgeye.com/HE_Macau_Less_Bad_11.11.14.pdf

 


Call Today 11am EST | Are Global Central Banks Out of Bullets?

Call Today 11am EST | Are Global Central Banks Out of Bullets? - HE M centralbanks

 

The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting a conference call TODAY, Tuesday November 11th  at 11:00am EST featuring Professor John B. Taylor of Stanford University.

 

Professor Taylor is a highly regarded scholar known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. In the call entitled, Are Global Central Banks Out of Bullets?, Professor Taylor will discuss his view of global monetary policy and where it goes from here.

 

KEY TOPICS WILL FOCUS ON

  • Assessment of monetary policy over the last five years.  What has worked and what hasn’t?
  • In light of recent moves by the ECB and BOJ, what will the Fed do next? And what can any of the central banks do if current policies remain ineffective?
  • While the Presidential election is two years away, will the nature of the Fed and its policy change under Republican leadership?
  • Where is the U.S. economy now and how will that impact Fed decision making?
  • An update on emerging market policy based on Professor Taylor’s recent visits to various emerging markets
  • Looking forward, what can the Fed due to regain its credibility over the long run?

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 855296#
  • Materials: CLICK HERE (The slides will be available approximately one hour prior to the start of the call)

Email for more information

 

 

ABOUT JOHN TAYLOR

  • Currently a Professor of Economics at Stanford University and a Senior Fellow in Economics at the Hoover Institution
  • Formerly served on the President's Council of Economic Advisers and as a member of the Congressional Budget Office's Panel of Economic Advisers
  • Served as Under Secretary of Treasury for International Affairs from 2001- 2005
  • Oversight of the International Monetary Fund and the World Bank
  • Responsible for coordinating financial policy with the G-7 countries
  • Accredited author, his latest the winner of the 2012 Hayek Prize, entitled: "First Principles: Five Keys to Restoring Americas' Prosperity"
  • Received numerous awards for his work as a researcher, public servant, and teacher

Awarded the Alexander Hamilton Award for his overall leadership at the U.S. Treasury, the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis   


Reiterating #Quad4 Deflation

Client Talking Points

COMMODITIES

The CRB Index (19 commodities) deflated another full -1% yesterday and remains bearish TREND @Hedgeye. Energy stocks (XLE) were down another -0.9% on the day. Commodity risk ranges have mostly all opened up to the downside (signaling lower-lows for Oil, Copper, etc.) – immediate-term risk range for WTI crude is now 75.69-79.16.

XLY

Popular consensus is that Down Oil = Up Consumer Stocks, but that isn’t working; Consumer Discretionary (XLY) was both down on a market up week (last week) and down again on a market up day yesterday; by our math 2/3 of the country is in a spending recession (no wage growth and highest cost of living, all-time).

VOLUME

Very similar market dynamics to the SEP highs in the U.S. stock market (SPX made all-time highs, while Russell made lower-highs on decelerating volume); Total U.S. Equity Market Volume (including dark pool) was -8% and -25% vs. the 1 month and year-to-date averages yesterday.

Asset Allocation

CASH 69% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 3%

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).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

GOLD: widening risk range (not good) = $1121-1201/oz $GLD

@KeithMcCullough

QUOTE OF THE DAY

It's about work before glory, and what's inside of you.

-Michael Jordan

STAT OF THE DAY

According to Moody’s Analytics, adults under age 35 currently have a savings rate of negative 2%, that compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.


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 80.64%
  • SHORT SIGNALS 78.61%

CHART OF THE DAY: Small Cap Liquidity Trap | $IWM

"If PRICE is rising with decelerating VOLUME and trending VOLATILITY is rising, that is called a Liquidity Trap," CEO Keith McCullough wrote in today's Morning Newsletter. "Those are not what you want to be buying at the high end of the risk range. You should consider them wonderful selling opportunities."

CHART OF THE DAY: Small Cap Liquidity Trap | $IWM - 11.11.14 Chart


The Battlefield's Vortex

“Where is the battlefield? The answer would be, everywhere.”

-Colonel Qiao Liang

 

That was a quote from the People’s Liberation Army in China in 1999 that Jim Rickards cited at the beginning of a chapter titled The War God’s Face (The Death of Money, pg 42).

 

Since today is one of the most important days of the year to show our gratitude and respect (Veterans Day in the US, Remembrance Day in Canada, Armistice Day across Europe), I’d like to take a minute to do that this morning.

 

While the battlefield of economic and market risks continue to mount, we should never forget the sacred one where our bravest countrymen have fought for our liberty and freedom.

 

The Battlefield's Vortex - v4

 

Back to the Global Macro Grind

 

In the last few weeks I have been meeting with Institutional Investors in New York, Boston, Los Angeles, San Francisco, and Chicago. I need to get out of the Windy City this morning before this polar vortex thing rolls in!

 

The definition of a vortex: “a mass of whirling fluid or air.” That sounds like the feedback I’ve been getting on the bull case for US and global growth – oh, and the “it’s different this time” short covering we have seen in the US stock market in the last month.

 

But what happens after the vortex? Will there be massive volume buying at the all-time #bubble highs again, or not? How can we measure and monitor that? And what if all that comes after the v-bottom-vortex is crickets?

 

Crickets in the snow?

 

Yep. Anything can happen! Today the bond market is closed, so you’ll definitely hear crickets there. But you could also hear them in yesterday’s US stock market trading too. Here’s what happened in terms of Total Equity Market Volume (including dark pool):

 

  1. Volume was down -8% versus its 1-month average volume
  2. Volume was down -25% versus its YTD average volume

 

This is almost exactly what happened at the end of September (before the -10% drop in the SP500) when I’d write to you about explicit risk signals like decelerating-volume-on-up-days, and how big domestic #GrowthSlowing signals (like the Russell 2000 and UST 10yr Yields making lower-highs) were confirming that an immediate-term topping process was in motion.

 

While many still use point-and-click simple (one factor) moving averages to calibrate what they think is market risk (it’s above the 50-day bro, chart looks sweet!), the core Hedgeye quantitative signal has not changed – it has 3-factors:

 

  1. PRICE
  2. VOLUME
  3. VOLATILITY

 

The reason why we consider the battlefield of risk this way is that this is where you can find the market’s internal convictions. If PRICE and VOLUME are accelerating as trending VOLATILITY is falling (like it did in 2013), I’d be all bulled up on small cap growth.

 

However, if PRICE is rising with decelerating VOLUME and trending VOLATILITY is rising, that is called a Liquidity Trap. Those are not what you want to be buying at the high end of the risk range. You should consider them wonderful selling opportunities.

 

Again, we don’t want you shorting what almost every hedge fund on the planet is using as their perceived “hedge” (the SP500). We want you to short the Russell (IWM), and buy the Long Bond (TLT) on the other side of it.

 

Price, Volume, and Volatility provide a quantitative overlay to our fundamental research process. If there’s one fundamental factor that has mattered most in my investor debates, it’s the same one that has mattered all year – growth.

 

After 65 consecutive months of a US economic expansion, is the rate of change in US growth accelerating or slowing? That’s the battlefield debate – and, if you’re in our camp, there are plenty of ways to express our US #GrowthSlowing view:

 

  1. LONG: Healthcare stocks (XLV) led yesterday’s rally, +1% on the day, to +22.3% YTD
  2. SHORT: Consumer Discretionary (XLY) and Energy (XLE) stocks (which were both down, again, yesterday)

 

That’s right. While everybody and their thesis-drifting-brother on the Old Wall is now parroting that “you buy Consumer Discretionary stocks because of down oil prices”, that’s been one of the worst sectors of the market to be long in the last week.

 

Not only was it down with Energy deflating yesterday, Consumer Discretionary (XLY) was down on the week last week too. “So”, what does that tell you about late-cycle indicators like employment (and the lack of wage growth)?

 

Prepare for slowing’s vortex. Winter is coming.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.25-2.40%

SPX 1

RUT 1135-1182

Yen 111.99-117.87

WTI Oil 75.69-79.16

Gold 1121-1201

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Battlefield's Vortex - 11.11.14 Chart


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