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China, Europe and Oil

Client Talking Points

CHINA

Thou say they word “stimulus”, and all shall be saved (in stock market terms) – Shanghai Composite rips a +2.3% move to the upside overnight to fresh year-to-date closings high of +6.6% vs. S&P 500 -0.3% (and Nikkei +10.4% year-to-date).

EUROPE

Centrally planned markets continue to go parabolic as the German DAX and Italian MIB Index are up another +0.8-1% this morning to +22.3% and +20.7% year-to-date, respectively – Greece, which was allegedly fixed, down -18% since FEB 24th, but who cares – Lithuania’s stock market is +65% year-to-date, baby! #BurningEuros.

OIL

WTI Oil is down another -0.9% (after dropping -9.6% last week) to $44.45/barrel, taking it right back to the JAN lows where #deflation mattered to the world’s revenue and earnings calculus (it still matters). We have a risk range of $43.26-49.03 now as pervasive USD bullishness keeps our TREND price deck for Oil well below consensus.

 

Asset Allocation

CASH 43% US EQUITIES 13%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 20% INTL CURRENCIES 12%

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

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

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

Rickards Reveals What He Does Differently (Exclusive Interview With McCullough) https://app.hedgeye.com/insights/42944-jim-rickards-reveals-what-he-does-differently-in-exclusive-interview-w… @JamesGRickards

@KeithMcCullough

QUOTE OF THE DAY

Even if you’re on the right track, you’ll get run over if you just sit there.

-Will Rogers

STAT OF THE DAY

A volcano needs to chill out for 10,000 years before being described as “dormant.”


CHART OF THE DAY: (U.S.) Cash Is King!

CHART OF THE DAY: (U.S.) Cash Is King! - Chart of the Day

 

Editor's note: This is a brief excerpt from Keith McCullough's Morning Newsletter. Click here for more information on how to subscribe.

 

Most people who are in the business of telling me that my being in some cash isn’t cool don’t look as cool as our YTD return in US Cash does. At +11.1% YTD and the US stock market down for 3 straight weeks, US Cash is king!

 

For those same people who didn’t know that a rip-roaring ramp in the US Dollar was going to crash both Foreign Currency and Commodity markets, worldwide – now they know. Here’s what that “stuff” has done in the last 6 months:

 

  1. Euros have crashed, losing -19% of their value for the European people who earned them
  2. Japanese Yens and Canadian Loonies have been devalued by -11.6% and -13.2%, respectively
  3. Brazilian Reals have crashed -28%
  4. Russian Rubles have collapsed by -39%
  5. Commodities (CRB Index, 19 commodities) have also crashed, -25.3% in 6 months
  6. Oil (WTI) has been bludgeoned, losing -50.3% of its “value”, over the same time period

 


Moving Macro Markets

“Moving things around is hard – really hard.”

-Peter Zeihan

 

In an excellent book that I just cracked open, The Accidental Superpower, Peter Zeihan wasn’t talking about Global Macro markets – he was referring to moving real stuff. And our centrally-muppeteered markets are getting less real, by the day.

 

Moving macro markets around is easy – really easy. And those with un-elected-central-planning-powers know that. So prepare for more, not less, of this. As their economy continues to slow, the Chinese were the latest to issue the almighty “stimulus” word to markets this weekend. The Shanghai Composite closed up +2.3% overnight on that to +6.6% YTD.

 

With the US stock market down -0.3% YTD, all Janet has to do at the Fed’s gravity-smoothing meeting this week is say that she is going to keep the word “patient” and she can fix those lousy relative and absolute US stock market returns. I mean, seriously, Yellen – Lithuania’s stock market is +65% YTD with Draghi burning the Euro – get with the market moving program!

Moving Macro Markets - Central banker cartoon 03.03.2015

 

Back to the Global Macro Grind

 

Do we have $100 on the US Dollar Index? Indeed, we do, fellow green-card holding Americans! With the US Dollar Index up another +2.8% last week, those of us paid in US Dollars have seen the purchasing power of our hard-earned currency rise +19.1% in the last 6 months.

 

Oh, dearest Janet, you must stop those of us who have large cash positions in America from getting paid…

 

Most people who are in the business of telling me that my being in some cash isn’t cool don’t look as cool as our YTD return in US Cash does. At +11.1% YTD and the US stock market down for 3 straight weeks, US Cash is king!

 

For those same people who didn’t know that a rip-roaring ramp in the US Dollar was going to crash both Foreign Currency and Commodity markets, worldwide – now they know. Here’s what that “stuff” has done in the last 6 months:

 

  1. Euros have crashed, losing -19% of their value for the European people who earned them
  2. Japanese Yens and Canadian Loonies have been devalued by -11.6% and -13.2%, respectively
  3. Brazilian Reals have crashed -28%
  4. Russian Rubles have collapsed by -39%
  5. Commodities (CRB Index, 19 commodities) have also crashed, -25.3% in 6 months
  6. Oil (WTI) has been bludgeoned, losing -50.3% of its “value”, over the same time period

 

In other non-stock-market news (i.e. economic data), Switzerland reported accelerated #Deflation of -3.6% year-over-year in producer prices this morning. No, that’s not good for the dude who is selling in whatever that is which is hard to move and produce…

 

And that currency-adjusted risk management thought has to be what is on the mind of many investors who have foreign currency risk to both revenues and earnings these days. That’s probably why the 15-day inverse correlations to USD currently look like this:

 

  1. SP500 -0.94
  2. CRB Index -0.75
  3. Gold -0.94

 

That, “folks”, is called #deflation - when the US Dollar goes parabolic as both US and global bond yields fall. Last week, the US 10yr Yield dropped -13 basis points to 2.11% taking it to down -6 basis points for the YTD.

 

Sovereign Bond Yields down was good for what really works during what we call #Quad4 Deflation:

 

  1. US Healthcare Stocks (XLV) up another +0.6% last week to +5.0% YTD
  2. REITS (MSCI Index) +2.4% last week to +1.1% YTD

 

And not so good for what doesn’t work during #Quad4 Deflation:

 

  1. Energy Stocks (XLE) down another -2.8% last week to -5.7% YTD
  2. Emerging Market Stocks (MSCI Index) -3.3% last week to -1.8% YTD

 

The sneaky thing is that as the world’s economy remains in #Quad4 (both growth and inflation, slowing, at the same time), the USA is in #Quad1 for another month (real consumption growth accelerating on real FX adjusted purchasing power, as inflation slows).

 

That’s the main reason why I’ve liked the Russell 2000 over the SP500 so far in 2015. It’s a purer play on the domestic economy, so it didn’t surprise me whatsoever that the Russell (IWM) was +1.2% last week to +2.3% YTD in a down tape for the Dow and SP500.

 

Moving asset allocations around isn’t easy. But if you get both the US Dollar and rates right, it gets less hard.

 

Our immediate-term Global Macro risk ranges are now:

 

UST 10yr Yield 2.01-2.22%
SPX 2025-2075

RUT 1
DAX 114
VIX 13.28-17.45

USD 97.99-100.87
EUR/USD 1.03-1.07

Oil (WTI) 43.26-49.03

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Moving Macro Markets - Chart of the Day


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

March 16, 2015

March 16, 2015 - Slide1

 

BULLISH TRENDS

March 16, 2015 - Slide2

March 16, 2015 - Slide3

March 16, 2015 - Slide4

March 16, 2015 - Slide5

March 16, 2015 - Slide6

 

BEARISH TRENDS

March 16, 2015 - Slide7

March 16, 2015 - Slide8

March 16, 2015 - Slide9

March 16, 2015 - Slide10

March 16, 2015 - Slide11
March 16, 2015 - Slide12

March 16, 2015 - Slide13


REPLAY: The Macro Show, Live With Keith McCullough 3/16/15

Hedgeye presents The Macro Show for Monday March 16, 2015. Hedgeye CEO Keith McCullough breaks down what's happening in global macro this morning and takes your questions.  

 


Jim Rickards Reveals What He Does Differently in Exclusive Interview With Keith McCullough

 

James Rickards, best-selling author of Currency Wars, spoke with Hedgeye CEO Keith McCullough about how he finds the truth, the continuation of the currency wars, what the Fed gets wrong and much more in this exclusive interview.

Jim’s first appearance on Hedgeye TV in May 2014 was met with wide acclaim, and he did not disappoint in his return to Stamford for Hedgeye’s first ever live “Market Marathon” held in January. After 45 minutes of raw & unfiltered commentary on markets and the people that move them, Rickards and McCullough turned it over to the viewers, offering an extended viewer Q&A session powered by user-submitted questions.


investing ideas

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.

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