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Big Bang Theory: The Failure Of Global Central Bankers

Big Bang Theory: The Failure Of Global Central Bankers - big bang

 

Can central planners arrest economic gravity?

 

Nope.

 

Here's how that is playing out in macro markets via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"Being bearish on the big 3 global Equity indexes (Nikkei, DAX, and SP500) continues to pay off in long/short space (vs. Long TLT, XLU, GLD); this will not be highlighted by the bulls but the Nikkei closed down for the 4th straight session overnight = down -12.1% YTD (vs. DAX -8% YTD) and teetering on going back into #crash mode (-20% from July highs)"

 

 

Japanese equities are falling because of what McCullough has dubbed the #BigBangTheory. In other words, as McCullough says, the idea is that "central-market-planning (or QE)… could easily implode if the #BeliefSystem that humans can bend and smooth economic gravity crashes." 

 

In short, what happens when macro markets no longer believe in the omnipotence of central bankers and equities and currencies move in direct opposition to policymaker's intent?

 

That's a reality now. Here's a chart of (strengthening) Yen and (crashing) Nikkei post BOJ negative interest rates:

 

Big Bang Theory: The Failure Of Global Central Bankers - boj nikkei

 

It's happening in the Eurozone too. Despite ECB head Mario Draghi's best efforts to burn the euro, the currency is actually up 3.8% this year versus the U.S. dollar. Meanwhile, look at the year-to-date performance of European equities:

 

  • Germany's DAX: -7.9%
  • Italy's FTSE MIB: -12.7%
  • France's CAC 40: -4.8%

 

Big Bang Theory: The Failure Of Global Central Bankers - Draghi cartoon 03.09.2016

 

Watch out!


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  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.98 1.79 1.91
SPX
S&P 500
1,974 2,049 2,040
RUT
Russell 2000
1,055 1,099 1,091
COMPQ
NASDAQ Composite
4,630 4,815 4,774
NIKK
Nikkei 225 Index
16,595 17,248 16,936
DAX
German DAX Composite
9,502 10,105 9,892
VIX
Volatility Index
14.08 20.81 14.44
USD
U.S. Dollar Index
95.51 97.42 94.80
EURUSD
Euro
1.09 1.13 1.12
USDJPY
Japanese Yen
111.02 114.01 111.44
WTIC
Light Crude Oil Spot Price
34.59 41.52 41.67
NATGAS
Natural Gas Spot Price
1.69 1.96 1.93
GOLD
Gold Spot Price
1,230 1,285 1,258
COPPER
Copper Spot Price
2.16 2.31 2.29
AAPL
Apple Inc.
99 107 105
AMZN
Amazon.com Inc.
530 584 559
MCD
McDonald's Inc.
118 124 123
XLU
Utilities Select Sector SPDR
46.24 49.47 49.31
XLF
Financials Sector SPDR
21.65 22.94 22.63
TIF
Tiffany and Co.
65.11 71.91 70.12


RTA Live: March 18, 2016

 


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 80.33%
  • SHORT SIGNALS 78.51%

Volatility: A Disconcerting Signal For Equities

Takeaway: The VIX is at 14. That's not bullish.

Volatility: A Disconcerting Signal For Equities - Volatility cartoon 09.02.2015

 

The S&P 500 might be back to “flat," but being Long the Long Bond, Gold, and Utilities continues to dominate in the absolute return space. 

 

The recent "back to flat" rally is starting to look precarious. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:

 

"While being right on all of my macro longs in 2016 (and having covered SPY in FEB, then coming back to the short side too early here in March SPY short -3.65% against me currently), I’m as committed to the bear side of SPX and Russell as I have been every time VIX has been in this 12-14 range since JUL (when I initially went bearish on SPY)"

 

 

Check out the corresponding chart of the S&P 500. 

 

Volatility: A Disconcerting Signal For Equities - s p 500 vix

 

With the VIX tapping 14, where do we go from here?


Volatility, Commodities and Gold

Client Talking Points

VIX

While being right on all of our macro longs in 2016 (and having covered SPY in FEB, then coming back to the short side too early here in March SPY short -3.65% against us currently), we are as committed to the bear side of SPX and Russell as we have been every time VIX has been in this 12-14 range since JUL (when we initially went bearish on SPY).

COMMODITIES

Massive ramp in everything reflation post Janet Yellen going Dovish, but now that both the SPX and CRB Index are “flat” year-to-date (i.e the new bull is flat), but now USD is signaling immediate-term TRADE oversold inasmuch as CRB overbought.

JAPAN

Being bearish on the big 3 global Equity indexes (Nikkei, DAX, and S&P 500) continues to pay off in long/short space (vs. Long TLT, XLU, GLD). This will not be highlighted by the bulls but the Nikkei closed down for the 4th straight session overnight, now down -12.1% year-to-date (vs. DAX -8% YTD) and teetering on going back into #crash mode (-20% from July highs).

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 7%
FIXED INCOME 26% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
XLU

Utilities (XLU) remains the alpha generating trades in equities, year-to-date XLU is up 11.3% versus -1.1% for the S&P 500. Factor exposure is very important to us, especially when volatility is in a bullish TREND set-up and small cap, illiquid stocks continue to underperform. Here's another way to look at it:

Volatility

+ Illiquidity

+ Too many hedge funds chasing performance...

= #Pain

We continue to expect utilities to outperform the broader market given this current environment.

GIS

This stock is not likely going to go up 20% in the next year, but we do believe it will fare better than most in the consumer staples sector, especially as we head into an economic slowdown. That's why GIS is up 5.5% year-to-date versus down -1.4% for the S&P 500.

 

In the past few newsletters we've noted the effect Walmart is having on GIS, how its Yogurt business is faring against competitors, and how the company is broadening the distribution of its top 450 SKUs. On the M&A front, barring any screaming deals in the market place we don’t see General Mills (GIS) buying anything over roughly $1 billion in sales, just given the added complexity it would cause. So they will most likely continue the string of pearls approach in the Natural & Organic/Snacking categories. This does not rule out the possibility of GIS being bought, 3G & Kraft Heinz could be getting back in the mix as well, although it seems too soon for another deal this big.

TLT

Growth and inflation continue to decelerate in the Eurozone and globally. In other words, there is very little central planners can do to stop the cycle and the inevitable deleveraging that must take place in credit Long-Term Treasuries (TLT) remains the alpha generating trade in fixed income this year. 

Three for the Road

TWEET OF THE DAY

NEW VIDEO | What's Next For $VRX $MD $ATHN $HCA https://app.hedgeye.com/insights/49775-must-see-on-hedgeyetv-tom-tobin-on-what-s-next-for-vrx-and-much-mor… @KeithMcCullough @HedgeyeHC @HedgeyeHIT

@Hedgeye

QUOTE OF THE DAY

If you want to have a better performance than the crowd, you must do things differently from the crowd.

Sir John Templeton

STAT OF THE DAY

Since 2001, Earth has experienced 15 out of the 16 hottest years on record and 2015 was the warmest year ever recorded.


CHART OF THE DAY: Dispelling Permabull Willful Blindness

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Macro analyst Christian Drake. Click here to learn more.

 

"... As the Chart of the Day below illustrates, inventories again grew at a premium to sales in the latest January data, sending inventory-to-sales ratios across the supply chain to new highs. Note: Unless companies are successfully foreshadowing accelerating demand, excess inventory = lower future profitability at the corporate level (discounting to move supply) and lower growth at the aggregate level (lower inventory build drags on Investment growth)"

 

CHART OF THE DAY: Dispelling Permabull Willful Blindness - IS Ratio CoD


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