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CHART OF THE DAY: The Biggest 1-Month Move (Ever) in Global Bond Yields

Editor's Note: This is a chart and brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information on how you can subscribe. 

 

CHART OF THE DAY: The Biggest 1-Month Move (Ever) in Global Bond Yields - ccc 06.12.15

 

...After seeing the yield quintuple in a month, what’s a German Bund Yield (pronounced Boo-nd) dropping -16% (10yr 0.86% this morning vs. 1.03% yesterday) in 24 hours amongst central planning friends?

 

Germany’s almighty President of the Bundesbank (as in the place where they make the Bunds), Jens Weidman, told the European press yesterday that recent volatility in the European Bond Market was not “exceptionally high.”

 

It’s a good thing that the biggest 1-month percentage move ever in Global Bond Yields and the worst month-to-date for sovereign bonds in over 30 years isn’t exceptional.


Popping Headache?

“I thought so hard I got a headache.”

-J.D. Cobb

 

Oh, look – the US 10yr Yield just dropped back to where it started the week (2.39%). Nothing must have happened this week!

 

BREAKING: “Bond Selloff Could Cause Headache For Fed” -Reuters

 

Nah. #NoWorries

Popping Headache? - Fed cartoon 06.11.2015

 

Back to the Global Macro Grind

 

After seeing the yield quintuple in a month, what’s a German Bund Yield (pronounced Boo-nd) dropping -16% (10yr 0.86% this morning vs. 1.03% yesterday) in 24 hours amongst central planning friends?

 

Germany’s almighty President of the Bundesbank (as in the place where they make the Bunds), Jens Weidman, told the European press yesterday that recent volatility in the European Bond Market was not “exceptionally high.”

 

It’s a good thing that the biggest 1-month percentage move ever in Global Bond Yields and the worst month-to-date for sovereign bonds in over 30 years isn’t exceptional.

 

#headache?

 

I had one. Now I’m fine. I’m about to get on a plane from LA to NYC. Then it’s London from there. I’m looking forward to hearing many more of the creative narratives on what, precisely, is going on out there in bond yield terms.

 

With all this bond market talk, I haven’t spent enough time keeping you up on Global Equity markets this week (they don’t cease to exist), here’s what I’m thinking:

 

  1. Japanese Stocks (Nikkei): +4.0% month-over-month and still our favorite International Equity allocation
  2. Chinese Stocks: to infinity-and-beyond (+17.4% month-over-month) even though FXI is breaking down
  3. South Korean Stocks (KOSPI): down for the 8th day in the last 10 – must be a global #growthaccelerating signal
  4. Indian Stocks (BSE Sensex): barely up on the bounce this morning – still bearish, -2.1% in the last month
  5. Mongolian Stocks (yep): +12% month-over-month; I hope you nailed that
  6. UK Stocks (FTSE): +0.3% this morning to +2.5% in the last month; Top 3 International Equity allocation
  7. German Stocks (DAX): big bounce yesterday, but still -1.1% m/m and I’m not buying this dip
  8. Greek Stocks (Athex): -2.2% this morning, -2.9% m/m, and -38.4% y/y #GongShow
  9. Polish and Russian Stocks: -6.5% and -10.5% month-over-month, respectively (I don’t like either)
  10. US Stocks (SP500): +0.17% yesterday and +0.46% in the last month – fair fight; bullish ahead of the Fed

 

Sorry. I had to mention the Fed and bond market again in order to say #bullish on US Stocks (SPY). It’s all one and the same call. If the Fed alleviates the headaches next week (just reiterates what they’ve been saying), you probably buy everything (on red).

 

Everything?

 

Not Mongolian stocks – they’re overbought. But if the Fed knocks the US 10yr Yield back to where it was only 12 days ago (2.10%), I certainly wouldn’t want to be short bonds or any US stock that looks like a bond (REITS, Utes, etc.).

 

In US Equity terms, here’s what we still like the most in terms of net LONG asset allocation:

 

  1. US Healthcare Stocks (XLV)
  2. US Housing Stocks (ITB)
  3. Restoration Hardware (RH)

 

You mean you’re still not long RH? Ah, that’s because it looks “expensive”, right? Well, it’s my All-Star Partner, Brian McGough’s, birthday today and I wanted to give him a shout-out for staying with what’s been a world class research call.

 

*Note to the valuation experts:

 

  1. “Expensive” stocks with high short interest get more expensive when they deliver on the growth story
  2. “Expensive” macro exposures (like Treasuries) get more expensive when growth slows
  3. “Cheap” gets cheaper when a company misses and your boss blows it out due to his/her P&L headache

 

Oh, and if your stock is expensive and your CEO sucks – just fire/remove him like Twitter (TWTR) did this morning and you get that pop. You know – like when you try so hard that nothing is working.

 

Then you stop doing that. And things pop! My head feels better now. Enjoy your weekend.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.14-2.51%

SPX 2092-2123
Nikkei 20064-20787
VIX 12.56-15.38
USD 94.01-95.88
YEN 122.61-125.46
Oil (WTI) 57.68-61.91

Gold 1165-1198

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Popping Headache? - ccc 06.12.15


TWTR: No Easy Fix

Takeaway: The problem with TWTR is the business model and expectations. Dorsey likely can't fix the former; managing the latter won't be much easier.

KEY POINTS

  1. COSTOLO STEPS DOWN: This was more a question of when, not if, although we are surprised that it happened so quickly into the year.  The street had been calling for Costello’s head on and off since its prior blow-up on the 3Q14 release.  TWTR is now conducting a search both externally and internally for its new CEO; there is no timetable set for when it will fill the role.
  2. DORSEY DOESN’T HAVE THE ANSWER: Interim CEO/co-founder Jack Dorsey suggested that there will no change in the company’s direction/strategy; likely because there is no easy fix.  The problem with TWTR is its business model and street expectations.  The Street demands perpetual upside in both revenues and MAUs, but those two factors that have historically been working against each other (see note below for more detail).  Ultimately, that is a recipe for disappointment; we doubt Dorsey can manage that dynamic any better than Costolo has.
  3. ASSESSING THE SETUP: The switch from Costolo to Dorsey has no bearing on our thesis.  However, we have been mulling the short since the 1Q15 release; largely because TWTR has rebased expectations with both the guidance cut and cautious 2Q MAU growth comments.  However, 2016 is around the corner, and the +50% advertising revenue growth that the street is expecting will be a tall order without a fundamental shift in its monetization strategy.  In short, we see one quarter of potential upside ahead of another potential blow-up 1-2 quarters later.  

 

TWTR: No Easy Fix - TWTR   2Q13 Supply Shock w detail

TWTR: No Easy Fix - TWTR   Ad vs. MAU 1Q15

TWTR: No Easy Fix - TWTR   Consensus Ad 2Q15

 

For more detail, see note below.  Let us know if you have any questions or would like to discuss.

 

TWTR: Rock and a Hard Place (1Q15)

04/29/15 08:15 AM EDT

[click here]

 

 

Hesham Shaaban, CFA

@HedgeyeInternet 


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We the People

This note was originally published at 8am on May 29, 2015 for Hedgeye subscribers.

“Government spending is taxation.   When you look at this, I’ve never heard of a poor person spending himself into prosperity; let alone I’ve never heard of a poor person taxing himself into prosperity.”

-Arthur Laffer

 

Hedgeye Early Look reader and friend Governor George Pataki officially threw his hat in the ring last night for the Republican nomination for President.   The political punditry is by and large calling him the darkest of dark horses.   And who knows, maybe they are correct – Governor Pataki has been out of public for nine years, currently is not well funded, and is centrist among Republicans.

 

The reality remains, though, that the Republican is currently ripe for a new face.  Someone that is above the fray and perhaps, on some level, embodies the “disinterested statesmen” that was originally envisioned by the Founders as a key characteristic for the Presidency.  The Republican race also needs some plain talk and who better to offer it than a candidate that has little to lose.

 

As a Canadian citizen, I can’t actually vote, so I’m no danger to any of you partisans out there, but a more centrist Republican who is trying to push the party beyond social issues and hasn’t been directly involved in the massive buildup of the federal government over the past ten years will be appealing to some.  The central tenet in Pataki’s launch video is a focus on government as the problem.

 

Certainly, a lot of politicians and political candidates pay lip service to reducing the size of the government, while few actually follow through.  If there were ever a time for follow through it is 2016, a year in which the federal government’s spending will be over $4.0 trillion and government debt will accumulate to $23.5 trillion.  Undoubtedly one point that all of us can agree on is that governments are the most ineffective allocators of capital.

We the People - z debt

 

Back to the Global Macro Grind...

 

Staying with the theme of the Presidential race this morning, there is one big challenge facing Pataki or any Republican – Hillary Clinton.   In the race for the Democratic nomination, she has a staggering lead of 51 points in poll aggregates over the second nearest candidate Elizabeth Warren. Meanwhile versus the large Republican field, Clinton outpolls the top contenders by between 8 and 10 points.

 

So, what, if anything, can stop the Clinton coronation?  Well, as we touched on it a note a few weeks ago, there are a number of legitimate headwinds to a Clinton Presidency. The top four headwinds we see are outlined below:

 

1. The Clinton Foundation - This risk is the most topical right now given the current scrutiny the Foundation is receiving thanks to Peter Schweitzer’s book, “Clinton Cash: The Untold Story of How and why Foreign Governments and Businesses Helped Make Bill and Hillary Rich.” It is also very likely an issue that will not go away.  On some level, whether the Clintons acted ethically as it relates to the Foundation is irrelevant because there is enough fodder that it will allow Republicans to continue to keep the heat on the Foundation.  To the extent the scrutiny accelerates, the Foundation has the potential to become Clinton’s “Swift Boat” moment.
  

2. Likeability (and accessibility) – Since announcing her candidacy more than 45 days ago, Hillary has limited interaction with the press.   Whether this lack of accessibility is ultimately perceived as a lack of a common touch (think Hillary going into Chipotle wearing sunglasses and not leaving a tip) remains to be seen. However, her favorability has taken a steady decline since she left office as Secretary of State in February 2013.

 

3. Bill’s Gaffes – While there is no question that Bill Clinton is one of the most talented politicians of his generation, there is also no question he is (and maybe increasingly so) prone to putting his foot in his mouth. In today’s hyper-plugged in digital world, where no one is safe from a rogue iPhone recording a candidate’s every word, this may pose a delicate challenge for the former commander in chief. 

 

4. Benghazi (and general track record) – In aggregate, Hillary Clinton’s role as Secretary of State is regarded favorably and without much controversy with one big elephant-in-the-room exception – Benghazi.  This was of course the unfortunate turn of events that led to the deaths of U.S. Ambassador J. Christopher Stevens and three other Americans when the U.S. diplomatic mission in Benghazi, Libya was attacked.

 

We are going to reserve analysis of the events, but believe this will become a major thorn in her side, especially as it gets into the nitty-gritty of the campaign post the nominating conventions.   The downside of having a track record is that it can and will be scrutinized.  With the eventual planned releases her emails as Secretary of State, her record will be subject to accelerating scrutiny.

 

Certainly, if the election were held today, it is hard to argue that Clinton would likely win in a landslide.  But whether it is the emergence of a new Republican contender or a current front runner breaking from the pack, the polls will narrow into Election Day as they always do.

 

For Clinton specifically, as touched upon above, her favorability ratings continue to decline.  Currently based on poll aggregates, 47.8% view her unfavorable and 45.9% view her favorably.   These are her worst readings since 2009.

 

Make no mistake about it: there will be a race in 2016.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.98-2.20%

SPX 2107-2130

Nikkei 20091-20688

VIX 12.76-14.42

Oil (WTI) 57.01-61.35

Gold 1180-1205 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

We the People - z 05.29.15 chart


Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. 

Click here to learn more and subscribe.

Keith's Daily Trading Ranges [Unlocked] - z dtr

 

BULLISH TRENDS

Keith's Daily Trading Ranges [Unlocked] - Slide2

Keith's Daily Trading Ranges [Unlocked] - Slide3

Keith's Daily Trading Ranges [Unlocked] - Slide4

Keith's Daily Trading Ranges [Unlocked] - Slide5

 Keith's Daily Trading Ranges [Unlocked] - Slide6

 

 

BEARISH TRENDS

Keith's Daily Trading Ranges [Unlocked] - Slide7

Keith's Daily Trading Ranges [Unlocked] - Slide8

Keith's Daily Trading Ranges [Unlocked] - Slide9

Keith's Daily Trading Ranges [Unlocked] - Slide10


June 12, 2015

June 12, 2015 - Slide1

 

BULLISH TRENDS

June 12, 2015 - Slide2

June 12, 2015 - Slide3

June 12, 2015 - Slide4

June 12, 2015 - Slide5

 June 12, 2015 - Slide6

 

 

BEARISH TRENDS

June 12, 2015 - Slide7

June 12, 2015 - Slide8

June 12, 2015 - Slide9

June 12, 2015 - Slide10


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