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And We’re Off…

Client Talking Points

YEN

Ah that smell of Burning Yen to an immediate-term TRADE oversold signal of $118.64 vs. USD… and the levered long trade to Weimar Nikkei and SPY do not seem to be responding to it (Nikkei only +0.07% on the “bounce”) – what happens if the Yen goes up, for a day – or  a week? #CorrelationRisk is massive right now.

EUROPE

Don’t you hate it when the data doesn’t fit the bullish “recovery” narrative? European PMI’s (both Services and Manufacturing) are awful this morning with our favorite country short posting the worst of the lot (France PMI drops to 47.6!) as Germany teeters on snapping the 50.0 PMI line #EuropeSlowing.

RUSSELL 2000

After dropping another -1% yesterday, the Russell is right back into the red for 2014 year-to-date (down -4.2% from its all-time #bubble high of 1208 in July), which begs a very simple question? How high are U.S. GDP expectations for Q414? A: way too high. Stay with #GrowthSlowing Long Bond, Consumer Staples (XLP), Healthcare (XLV) and REITS instead.

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 5%

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

Real Conversations: A Dire Appraisal of Our ‘Broken Global Economy’

https://app.hedgeye.com/insights/40718-real-conversations-a-dire-appraisal-of-our-broken-global-economy

@KeithMcCullough

QUOTE OF THE DAY

If you walk in the footsteps of a stranger, you’ll learn things you never knew.

-Pocahontas

STAT OF THE DAY

German PMI for November slows at 50.0 vs. 51.4 October, Germany's Service PMI slows too, 52.1 November vs. 54.4 October.


November 20, 2014

November 20, 2014 - Slide1

 

BULLISH TRENDS

November 20, 2014 - Slide2

November 20, 2014 - Slide3

November 20, 2014 - Slide4

November 20, 2014 - Slide5

 

 

BEARISH TRENDS

November 20, 2014 - Slide6

November 20, 2014 - Slide7

November 20, 2014 - Slide8

November 20, 2014 - Slide9

November 20, 2014 - Slide10

November 20, 2014 - Slide11
November 20, 2014 - Slide12

November 20, 2014 - Slide13


CHART OF THE DAY: How Are Those #Inflation Expectations?

 

CHART OF THE DAY: How Are Those #Inflation Expectations? - 11.20.14 EL Chart


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Building Expectations

“In the end, if you build it, they may not come.”

-Jim Rickards

 

Whether it’s the Japanese burning their currency, a demigod named Draghi “saving” Europe, or the Fed’s perpetual Policy To Inflate asset prices, I often wonder if Rickards is right – now that markets have built these expectations, will the growth come?

 

So far, the long-end of the bond market says no. On growth that is… but what are markets telling you about the centrally planned illusion of growth (i.e. inflation expectations)?

 

And “what happens when you manipulate markets using price signals that are the output of manipulated markets?” (The Death of Money, pg 86) Never forget that the biggest risks to markets are the critical answers to the toughest questions.

 

Building Expectations - Monetary policy cartoon 11.07.2014

 

Back to the Global Macro Grind

 

I spent all of yesterday seeing Institutional Investors in Greenwich, CT. The meetings, as always, were tremendous learning opportunities. And there was one moment in one of the meetings that I’ll never forget.

 

As I was sitting across from a Portfolio Manager, the Federal Reserve’s “Minutes” (from their last meeting) were released. So, I sat there and watched Liesman @CNBC spew his interpretation of what he thought the Fed said…  and the seasoned PM just giggled.

 

Even at the most sophisticated funds, whether they like it or not, this is modern day “macro” – where you have to not only think about what you think… but seriously consider what everyone else was told they should think…

 

Here’s what I think was incremental in those Fed Minutes:

 

  1. Inflation expectations are falling
  2. The Fed only has one move to address that newfound concern
  3. In the next 3-6 months, as US inflation falls, the Fed will get more dovish, because of that

 

Since our “Bad #Deflation” view is not yet consensus, it’s really hard for consensus to get why this is bearish for bond yields (and bullish for the Long Bond, TLT, EDV, etc.). But markets almost always front-run consensus – and that’s already in motion.

 

After our interlude with the English-major turned pretend macro savant (who has never traded a market in his life), the Portfolio Manager asked me a very simple question that I get asked a lot: “what things should I look at to monitor your #deflation view?”

 

I answered by referring him to exhibit 15 (the slide in my #Quad4 Deflation Macro deck) that shows #InflationExpectations:

 

  1. TIPs (5 year Breakeven Rate)
  2. Fed 5Y-5Y Forward Breakeven Rate

 

Then I said:

 

  1. The price of Oil relative to my bearish TREND view
  2. CRB Commodities Index (TREND resistance = 281)
  3. Russell 2000 relative to my bearish TREND view

 

The price of Oil ($74.20/barrel) continues to crash this morning (-31% since June); the CRB Index is trading at 267 (-4.6% YTD); and after having another horrendous day (both absolute and relative to US Equities yesterday) the Russell 2000 is DOWN (again) for 2014 YTD.

 

Back to real economic growth expectations, I told investors yesterday what I’ve been telling them all year long – my catalyst is the cycle. As the growth cycle data slows, whatever these “bullish surveys” are telling you will look wrong.

 

That’s what’s happening from China to Europe this morning (they release Producer Manufacturing and Services data for November). Literally all of the growth data slowed.

 

While China’s PMI print of 50.0 wasn’t as bad as France’s (47.6 NOV vs. 48.8 OCT), that’s not saying much. Bond Yields are falling because the rate of change in global growth is slowing.

 

When both growth and inflation data slows, expectations for asset price inflation in those things slow. So BUY slow-growth-yield-chasing assets (TLT, EDV, MUB, XLV, XLP, XLU) and keep SELLING growth and/or inflation expectations (IWM, KRE, XOP, EWQ, VWO).

 

And that’s all I have to say about that.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.29-2.36%

SPX 2005-2055

RUT 1141-1173

France (CAC 40) 4139-4281
YEN 116.02-118.64

WTI Oil 73.01-76.13

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Building Expectations - 11.20.14 EL Chart


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 20, 2014


As we look at today's setup for the S&P 500, the range is 50 points or 2.13% downside to 2005 and 0.31% upside to 2055.                                                            

                                                                   

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: 1.81 from 1.84
  • VIX closed at 13.96 1 day percent change of 0.72%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: Fed’s Tarullo speaks in New York
  • 8:30am: Init Jobless Claims, Nov. 15, est. 284k (prior 290k)
  • 8:30am: CPI m/m, Oct., est. -0.1% (prior 0.1%)
  • 9:45am: Markit U.S. Mfg PMI, Nov. prelim 56.3 (prior 55.9)
  • 9:45am: Bloomberg Consumer Comfort, Nov. 16 (prior 38.2)
  • 10am: Freddie Mac mortgage rates
  • 10am: Philadelphia Fed Outlook, Nov., est. 18.5 (prior 20.7)
  • 10am: Existing Home Sales, Oct., est. 5.15m (prior 5.17m)
  • 10am: Leading Index, Oct., est. 0.6% (prior 0.8%)
  • 10:30am: EIA natural-gas storage change
  • 1pm: U.S. to sell $13b 10Y TIPS
  • 1:30pm: Fed’s Mester speaks in London
  • 8:30pm: Fed’s Williams speaks in Seoul

 

GOVERNMENT:

    • Sec. of State John Kerry leaves for Paris
    • 8pm: Obama gives national address on plans for executive order to address immigration
    • 8:30am: Sen. Rob Portman, R-Ohio, delivers breakfast keynote remarks at “Enhancing the Transatlantic Trade & Investment Partnership: Reducing Regulatory Barriers”
    • 9:30am: Senate Permanent Sbcmte on Investigations hearings to examine extent to which banks, holding cos. own physical commodities incl. oil, natural gas, aluminum
    • 9:30am: Sens. Edward Markey, D-Mass., Richard Blumenthal, D-Conn. hold news conf. on Senate Commerce Cmte hearing on airbag recalls
    • 10am: Senate Commerce Cmte hearing on airbag defects, vehicle recall process

 

WHAT TO WATCH:

  • Obama scheduled to give 8pm speech on immigration action
  • Gunman Shot Dead on Florida University Campus After 3 Injured: AP
  • Technip Seeks $1.8b Purchase of CGG; Approach Rejected
  • Wall Street Banks Gained Unfair Advantage Owning Commodities
  • Airbus Said to Near Win Over Boeing for Delta Air Wide-Body Jets
  • Caesars Shares Jump on Debt Proposal to Convert Unit Into REIT
  • GoDaddy Seeks Nearly $4.5b IPO Valuation, New York Post Reports
  • RBS Fined $88m by U.K. Regulators for 2012 Technology Collapse
  • German PMI Expands at Slowest Pace in 16 Months
  • Chinese Factory Gauge Falls to 6-Month Low as Slowdown Deepens
  • T-Mobile Could Attract Suitors Again, Deutsche Telekom Says
  • Alibaba Said to Prepare Inaugural Bond Sale as Soon as Today
  • Brookfield Property Drops Plan to Buy New Jersey’s Revel Casino
  • Sony Pictures Said to Drop Plans to Produce Steve Jobs Film

 

AM EARNS

    • Donaldson (DCI) 6am, $0.42
    • GasLog (GLOG) 6am, $0.22
    • Spectrum Brands (SPB) 6:30am, $1.14
    • Best Buy (BBY) 7am, $0.25 - Preview
    • Buckle (BKE) 7am, $0.85
    • Patterson (PDCO) 7am, $0.51
    • Perry Ellis (PERY) 7:30am, $0.06
    • Dollar Tree (DLTR) 7:30am, $0.64 - Preview
    • Raven Industries (RAVN) 9am, $0.23

 

PM EARNS:

    • Gap (GPS) 4pm, $0.73
    • Ross Stores (ROST) 4pm, $0.87 - Preview
    • Intuit (INTU) 4pm, ($0.20)
    • GameStop (GME) 4:01pm, $0.61
    • Autodesk (ADSK) 4:01pm, $0.22
    • Aruba Networks (ARUN) 4:01pm, $0.25
    • Splunk (SPLK) 4:02pm, $0.01
    • Marvell Technology (MRVL) 4:05pm, $0.29
    • Mentor Graphics (MENT) 4:15pm, $0.21
    • Fresh Market (TFM) 4:20pm, $0.28
    • Renren (RENN) 7pm, ($0.13)

                               

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Banks Had Unfair Advantage From Commodity Units, Senator Says
  • Top Rubber Growers Agree to Reduce Exports to Boost Global Price
  • Aluminum Fee to Japan Seen Climbing to Record on Global Deficit
  • Oil at $75 Means Patches of Texas Lose Money for Shale Drillers
  • Goldman Lowers 2015 Nickel Estimate on China Pig Iron Output
  • Goldman, Glencore Found in ‘Merry-Go-Round’ Aluminum Trades
  • Soybeans Rebound From Two-Week Low on U.S. Feed Supply Outlook
  • Pigs Are Too Fat for Holiday Hams as Prices Surge: Commodities
  • Ebola Stokes Liberian Food Shortage as Hungry Farmers Eat Seeds
  • Goldman Sachs to Wind Down Uranium Unit After Failing to Sell
  • Gold Futures Fall a Second Day as Dollar Gains After Fed Minutes
  • Codelco Sees Copper Price Outlook ’Quite Stable’: Chairman
  • JPMorgan Power Market Influence Targeted in U.S. Senate Report
  • Saudi Arabia Tenders for 330,000 Tons of Hard Wheat
  • Goldman, Morgan Stanley Commodity Heyday Gone as Units Faulted

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Believing Anything

This note was originally published at 8am on November 06, 2014 for Hedgeye subscribers.

“Never believe anything, until it has officially been denied.”

-Claud Cockburn

 

For those of you who didn’t know that Cockburn was a British journalist and proponent of communism, now you know. His aforementioned quote was cited by Jim Rickards at the beginning of an excellent chapter titled “Prophesy” in The Death of Money.

 

BREAKING: “Bundesbank investigating whether it can block sovereign QE”

 

Pardon? I know. I know. What is up with the London Telegraph dropping that anti-money-printing (QE) bomb on my laptop while I was sitting pretty at the epicenter of inequality’s Social #Bubble (San Francisco) after the US stock market close last night? 

Believing Anything - campfire cartoon 10.31.2014

 

Back to the Global Macro Grind

 

Now I’m sure that Europe’s un-elected-central-planner-in-Chief (Draghi) will officially deny anything that remotely resembles that headline being true at today’s ECB (European Central Bank) meeting… but that’s the point.

 

What if the Germans have legal grounds to tell the Italian jobber to #PoundSand?

 

Pardon my hockey-talk, but believing anything that you hear about what the Japanese, European, and American central planning agencies can do to stock markets these days is a very dangerous premise.

 

What happens if:

 

  1. People (as in market expectations) don’t believe Policies To Inflate asset prices work anymore? (hint: #deflation)
  2. Or, maybe more importantly, that they aren’t allowed to legally execute on them anyway?

 

Bueller? Or is it “spoos and chartreuse” while Ed is saying that every time the “surveys” get growth wrong “QE will get the perma bulls paid” anyway?

 

Admittedly, as global growth slows (again), it’s getting harder and harder to keep track of what it is, precisely, that has consensus right bulled up about chasing the all-time #bubble high in the SP500.

 

As Rickards appropriately summarizes in the same chapter, “when it comes to betting on a sure thing, greed trumps common sense.” (The Death of Money, page 25).

 

In other news…

 

Utilities (XLU), +2.3% on the day to +22.3% YTD, led the US stock market’s no-volume charge to all-time highs yesterday. I know. Everyone nailed that and Energy (XLE) being -3.1% YTD too.

 

Meanwhile:

 

  1. Japan’s economic implosion finally ended the 3-day central planning rip, with the Nikkei closing -0.9%
  2. European Equities are doing nothing while they await the 2nd coming of the 3rd and 4th coming of Draghi
  3. US Equity futures are down, well, because maybe they won’t go up on the jobs report tomorrow

 

As for me… after spending most of the week in California, I am back in the saddle in Connecticut wondering what changed, fundamentally, since the Russell 2000 was -10% lower (120 points) less than a month ago…

 

Other than mostly every growth and inflation metric in our model being slower today than it was then, I guess the answer is that those who are permanently predisposed to be long of US stocks will believe almost anything, other than common sense.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.24-2.38%

SPX 1967-2040

RUT 1110-1181

Nikkei 14506-17161

Yen 109.68-116.12

WTI Oil 76.12-80.29

Natural Gas 3.88-4.27

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Believing Anything - ISM


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