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Keith's Daily Trading Ranges, Unlocked

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published March 05, 2015 at 07:35. Click here to learn more and subscribe.

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BULLISH TRENDS

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BEARISH TRENDS

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Burning Euros and A Strong USD

Client Talking Points

EURO

Euros Burning to fresh year-to-date lows of $1.10 as Mario Draghi prepares to say something – since he cannot stop economic gravity (and only lift stock markets), it’s interesting to see the Italian recession reported (GDP -0.5% year-over-year) and neither French (10.4%) nor Greek (26.0%) unemployment improve, at all… #NeedMoreCowbell.

CHINA

Evidently equity markets did not like the hopeful guidance of 7% GDP and 3% Inflation – Shanghai Composite down -1% overnight (back to flat year-to-date) and Hang Seng down -1.1% (-2.1% in the last 2 sessions)… 7% and 3% look unlikely, at best.

 

TURKEY

#StrongDollar Deflation is not good for plenty of Emerging Markets – if you’re the market that gets tagged with a crashing currency (Lira) and your stock market doesn’t have a daily central planning message, what to do? Stocks in Istanbul down -2% this morning to -6.1% year-to-date. 

Asset Allocation

CASH 37% US EQUITIES 12%
INTL EQUITIES 11% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.

PENN

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road

TWEET OF THE DAY

which means continued slowdown in #Macau gaming volumes $LVS $WYNN $MGM $MPEL

@HedgeyeSnakeye

QUOTE OF THE DAY

We delight in the beauty of the butterfly, but rarely admit the changes it has gone through to achieve that beauty.

-Maya Angelou

STAT OF THE DAY

Greece stocks are down another -1% in Athens this morning, down -11% since FEB 24, Greece posted a putrid 26% unemployment rate report.


CHART OF THE DAY: Moarrr #Draghi Cowbell = Moarrr #StrongDollar Driven #Deflation

CHART OF THE DAY: Moarrr #Draghi Cowbell = Moarrr #StrongDollar Driven #Deflation - 03.05.15 chart

 

Editor's note: This is an excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to learn more and subscribe.

 

And then there was moarrr #Deflation

 

Remember that, perversely, moarrr cowbell from Draghi = moarrr #StrongDollar driven #Deflation:

 

  1. Cowbell = Centrally Planned Currency Devaluation
  2. EUR/USD is getting smoked to -8% YTD and multi-yr lows of $1.10 ahead of Draghi’s latest (830AM EST)
  3. US Dollar Index is rocketing to $96.21 on that, +6% YTD and +21% from its 2014 lows!
  4. Commodities (CRB) Index (19 Commodities which largely trade in Dollars) continues to crash -28% y/y
  5. Oh, and WTI Oil, which you could have chased at $105 at this time last year, has crashed > 50% since 

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

A Man Larger Than The Sun

“At rest, however, in the middle of everything is the sun.”

-Nicolaus Copernicus

 

On this day of in 1616, the Catholic Church banned Copernicus’ book. The establishment’s main issue with the man’s independent research (which correctly implied that the sun was at the center of the universe) was that it didn’t sync with their ideologies and politics.

 

Today will go down as one more day in central planning history where an unelected man of the mainstream will boil the oceans and part the heavens, raising stock markets to heights the world has never seen before.

 

That man, who sees himself residing in the middle of everything, is Mario Draghi…

A Man Larger Than The Sun - Draghi balloon cartoon 01.23.2015

 

Back to the Global Macro Grind

 

You go, Mr. Central Planning man. You go. You are the power and the light – you are the only one who can keep the Italian stock market up while its economy is in recession. Only you, the great Draghi, can see 0% improvement in Greek unemployment as Italian stocks move to +16.5% YTD.

 

While this is turning into a joke, the actual data fits what I just wrote:

 

  1. Italy’s GDP for Q4 of 2014 was -0.5% y/y (revised lower vs. the prior -0.3%)
  2. Greek Unemployment rose to 26.0% in DEC from 25.9% in NOV

 

Oh, right - the latest central planning of European stock markets didn’t really ramp until JAN, so I’m sure Greek government work is booming now and these structural debt, deflation, and unemployment problems all went away as a result…

 

And then there was moarrr #Deflation

 

Remember that, perversely, moarrr cowbell from Draghi = moarrr #StrongDollar driven #Deflation:

 

  1. Cowbell = Centrally Planned Currency Devaluation
  2. EUR/USD is getting smoked to -8% YTD and multi-yr lows of $1.10 ahead of Draghi’s latest (830AM EST)
  3. US Dollar Index is rocketing to $96.21 on that, +6% YTD and +21% from its 2014 lows!
  4. Commodities (CRB) Index (19 Commodities which largely trade in Dollars) continues to crash -28% y/y
  5. Oh, and WTI Oil, which you could have chased at $105 at this time last year, has crashed > 50% since

 

So we definitely need to have Bloomberg and CNBC cheer on more of this. Access to these Sun-smoothers drives ad revs. #clicks

 

Put another way, until either the Europeans and/or Japanese fail outright (i.e. when their people figure out this does jack for the economy, but keeps getting the bureaucrats and Eurocrats (and their all-access media) paid), this #StrongDollar + Down Rates #Deflation will continue.

 

Not to be confused with #StrongDollar + #RatesRising (our call on the US in 2013), the Down Rates (both locally and globally) part is critical to contextualize, in global growth expectations terms.

 

It’s obviously one thing to obfuscate Policies To Inflate with real-economic growth – but it’s entirely another to have neither inflation, nor growth. Japan (for the last decade), and Europe currently, that is …

 

At least in the USA we get to get paid owning all of the asset allocations and sector style exposures to this 17th century gong show of the vanities. We signaled doing more of the pure play on US domestic consumption #accelerating yesterday in Real-Time Alerts (buy Housing, ITB, on red!).

 

To review what we like during Global #Deflation:

 

  1. US Dollars (that’s our entire FX allocation, and it’s beating both US stocks and bonds YTD by a factor of 3)
  2. Long-duration-low-volatility Bonds
  3. US Housing (ITB), Consumer Discretionary (XLY), and Healthcare Stocks (XLV)

 

And what we really don’t like:

 

  1. Burning Euros and Yens
  2. Commodities
  3. Stocks and bonds that have the most #Deflation risk (energy and the financials)

 

Our Global Macro view is not that complicated. It is how you play Global #Deflation and #GrowthSlowing, while the US economy gets it’s “easy compare” Q1 sequential growth bounce (see Theme #2 @Hedgeye called #Quad414 for details).

 

And while it has been fun to be bullish on the Weimar Nikkei (in Burning Yen terms), which is handily beating US stocks and bonds YTD at +7.5%, that’s really just a rolling of the bones that can go bust whenever this epic human experiment in trying to bend gravity and the sun does.

 

Our immediate-term Global Macro Risk Ranges are now (intermediate-term TREND view in brackets):

 

UST 10yr Yield 1.89-2.17% (bearish)
SPX 2083-2117 (bullish)
Nikkei 188 (bullish)
USD 95.01-96.28 (bullish)
EUR/USD 1.10-1.12 (bearish)
YEN 118.67-120.66 (bearish)
Oil (WTI) 48.22-52.16 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

A Man Larger Than The Sun - 03.05.15 chart


March 5, 2015

March 5, 2015 - re do

 

BULLISH TRENDS

March 5, 2015 - Slide2

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March 5, 2015 - Slide4

March 5, 2015 - Slide5

March 5, 2015 - Slide6

 

BEARISH TRENDS

March 5, 2015 - Slide7

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March 5, 2015 - Slide9

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March 5, 2015 - Slide12

March 5, 2015 - Slide13

 


Investor Patience

This note was originally published at 8am on February 19, 2015 for Hedgeye subscribers.

“He that can have patience, will have what he will.”

-Benjamin Franklin

 

That’s a great fishing strategy inasmuch as it is a macro risk management one. While I don’t think Benjamin Franklin was talking about either, we can always learn something from a thought leader’s timeless quotes.

 

The Fed wants you to focus on being “patient” too…

 

And while it may be intellectually stimulating to consider the removal of that wording, yesterday the Fed’s Jay Powell (voting member of the FOMC) cautioned against rising expectations of “dropping the patient language” at the March 18th Fed meeting.

 

Back to the Global Macro Grind

 

Powell’s comment was a real-time one yesterday, whereas the Fed’s “Minutes” from their January meeting were not. That said, both helped drop the 10yr US Treasury Yield in a straight line from 2.16% 24 hours ago, to 2.05% this morning.

 

The key to the Fed Minutes was the FOMC acknowledging what I’ve been very concerned about – a policy mistake – i.e. raising rates as both the global economy is slowing and #deflationary headwinds continue to manifest.

Investor Patience - Yellen dove 09.17.2014 

“So”, I think our almighty overlords on the central planning committee did the right thing in suggesting that a “premature hike might dampen the recovery.” That is indeed, the truth.

 

Or is it?

 

I’m on the road seeing Institutional Investors in California this week, and THE question in every meeting surrounds this basic, but critical, question on rates rising or falling from here. What is going to be the truth?

 

  1. That all of the “data” drives rates? (PPI slowed -0.8% in JAN, CPI will slow again next week)
  2. That the only data that matters is the employment data? (FEB jobs report 1st wk of March)
  3. Or that none of the data really matters at this point, because raising rates is a political move?

 

I like to measure the truth with what the market does on data and  events:

 

  1. So far, all of the growth and inflation data has mattered to the rate of change in long-term bond yields
  2. As both #deflation data and US growth slowing data for DEC was reported in JAN, the 10yr hit new lows
  3. On the 1 major economic surprise (strong JAN jobs report) rates reversed, and ripped higher for 2 weeks

 

And obviously the politics, wording, and timing of all Fed comments have mattered along the way. Don’t forget that Powell’s comments were plugged into the marketplace to offset a non-voting Fed member’s comments about removing the “patient.”

 

So I’d say the truth is that it all matters – and that markets are reflexively reacting to price action which, in turn, is driving Fed rhetoric, as the Fed reacts (on a lag) to data that the market is already discounting.

 

If you don’t want to deal with all of the data, noise, etc., and want to take a longer-term and more patient view of this gong show of gaming un-elected-political-policy-expectations, this gets a lot easier:

 

A)     You have to decide if year-over-year GROWTH is going to accelerate or decelerate

B)      You have to decide if INFLATION is going to continue to #deflate or start to reflate

C)      Then you have to take a view on how to front-run the Fed’s behavior depending on answers to A) and B)

 

And/or you can just let Mr. Macro Market hold your hand along the way, signaling in real-time where the probabilities on A) and B) are rising or falling. He tends to do a better job than most on that.

 

I don’t get to take the easy path. I have to write to you every day and attempt to explain every little data wiggle and watch word. But I’m cool with that. It’s what makes this game of expectations the one that I love.  

 

To review how we’d answer A, B, and C:

 

A)     Global Growth will continue to surprise on the downside as US Growth has a solid Q1, then slows Q2/Q3

B)      Global #Deflation remains our Top Global Macro Theme for Q1/Q2

C)      Even if the Fed does a token 25bps hike, they’ll have to say no more of that by Q3 anyway

 

The patient investor has bought every pullback in the Long Bond (TLT) for the last 8 months and made plenty of money doing so.

 

That’s because they understood that the best way to play global #GrowthSlowing and #Deflation was to buy low-volatility duration as the manic had to unload commodity and energy related equity beta as Oil Volatility (OVX) went from 15 to 60.

 

Never mind Oil Vol 60 – that’s epic, 2008 style volatility! Can you imagine if US Equity Volatility (VIX) went from 15 (closed at 15.45 yesterday) to 20, 25, or 30 again? I can. And a lot of #patient equity investors will be happy to buy lower (again) on that.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.74-2.16%
SPX 2075-2115
Nikkei 17804-18302
VIX 14.26-18.96
USD 93.64-95.39
EUR/USD 1.12-1.15

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Investor Patience - cod TLT


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