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The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding

Takeaway: Here's our take on some of today's top financial stories.

The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding - Helicopter money 05.20.2016

 

"Be wary of the arrogant intellectual who comments from the stands without having played on the field."

-Ray Dalio 

Helicopter Ben Visits Japan

"Bernanke met Haruhiko Kuroda, the central bank governor, for lunch Monday," Bloomberg reports. "The BOJ issued no statement on the substance of those talks, which come three weeks before its next policy meeting as it confronts a fresh strengthening in the yen this year that risks undermining inflation and weakening the appetite for investment and wage increases." Interestingly, Bernanke has been weighing in on the efficacy of helicopter money recently.

 

OUR TAKE: As the BOJ's negative interest rate policy (NIRP) fails and continues to draw the ire of the Japanese public, the likelihood that central planners turn to helicopter money is rising.

 

Earthquakes, Unforeseen Events & Brexit

The OECD will hold off on publishing its Composite Leading Indicators (CLIs) – "an effective tool during periods of extreme volatility" – until September in order to properly assess the Brexit shock. In a press release, the OECD compared Brexit to an unforeseen event like a natural disaster:

 

"The CLIs cannot, however, account for significant unforeseen or unexpected events, for example natural disasters, such as the earthquake, and subsequent events that affected Japan in March 2011, and that resulted in a suspension of CLI estimates for Japan in April and May 2011.

 

The outcome of the recent (23 June) Referendum in the United Kingdom is another such significant unexpected event, which is affecting the underlying expectation and outturn indicators used to construct the CLIs regularly published by the OECD, both for the UK and other OECD countries and emerging economies." 

 

OUR TAKE: As Hedgeye Director of Research Daryl Jones wrote in today's Early Look "So the moral of the story is: if you don’t like the numbers, just suspend reporting them. That’s one way to deal with adversity anyway. Practically speaking, it is pretty difficult to call Brexit an unforeseen event. Perhaps it was viewed as improbable, but hardly unforeseen."

Yup. #EuropeImploding

A pre-Brexit survey of 8,2000 firms in the U.K., conducted by the British Chambers of Commerce, found that "UK economic growth was uninspiring in the run-up to the EU Referendum." The BCC found that services sector sales continues to fall and manufacturing sales remained at historically "low ebb." 

 

OUR TAKE: In our Q3 Macro Themes, the Hedgeye Macro team warned that "Europe's cyclical and structural growth and inflation headwinds" combined with political risk would cause ... #EuropeImploding. More to come.

Equity Market Bull & S&P all-time highs

"We don’t have the rising (bond) yields that would typically check the market rally, that’s one of the reasons we keep going higher," Jim Paulsen, chief investment strategist at Wells Capital Management told Reuters. Paulsen continues: "I certainly think (low bond yields) are creating problems in the bond-like stocks. I wouldn’t want to be sitting in utilities or REITs right now."

 

OUR TAKE: We've been The Bulls on Long Bonds (TLT) and Utilities (XLU) on U.S. #GrowthSlowing. That's been the right call and we're sticking with it (see chart below). As for Paulsen's call against bonds and utilities, it is what it is ... a whole lot of bull.

 

The BS Filter: Helicopter Ben Visits Japan | Earthquakes & Brexit | #EuropeImploding - s p 500 xlu tlt

Taleb: The Importance Of Probability

"One thing it took me 30 years to realize is that the way people compute future performance of portfolios is wrong because they take alpha and simply apply it as if you were invested in that strategy. But if you have any uncle point, in other words if you hit ruin, then you never realize that return," author and distinguished professor Nassim Taleb tells Bloomberg.

 

The "uncle point" Taleb is talking about is the point at which you have to reduce your position or take a loss. Now, an investor might have realized their expected returns if they were able to wait for a downturn to mean revert but "uncle points," like a margin call, prevent such long-term patience. Taleb's conclusion? "People [therefore] underestimate how much protection they need."

 

OUR TAKE: Taleb's analysis is always thoughtful and this video is no exception.


MACAU | LVS | POSITIVE MASS TRACKER RESULTS

Takeaway: Headline Q2 GGR disappointed but the mix likely more favorable than expected. HE Mass Tracker suggests mass revs up 2-4%. LVS is the play

CALL TO ACTION

The Hedgeye Macau Mass Tracker suggests mass gaming revenue increased in the range of 2-4% YoY in Q2. Given the headline GGR disappointment of -9%, positive mass growth may come as a surprise to most. If the Tracker is right – the high R Square suggests it probably is – this would imply better margins in general for the Macau operators’ Q2. With a growing mass segment, LVS is the obvious play and it is our favorite, particularly over the long-term. Our only reservations pertain to the very near term – for whatever reason, the sell side has not reduced Q2 expectations despite the softer monthly GGR figures.

 

Positive mass revenue growth in Q2 would represent the first growth quarter since Q3 2014. Extrapolating estimated Q2 mass revenues portends consistent YoY growth for at least the next 3 quarters, and likely more assuming just some market growth from new properties. This is a very important inflection point for the market and particularly LVS. Importantly, within the mass segment, higher margin bass mass is likely outperforming. Not only is LVS the largest mass player in Macau, it maintains the most exposure to base mass.

 

PLEASE SEE OUR DETAILED NOTE | HERE 


A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs

Takeaway: Total market volume was down -24% versus the 1-month and 3-month average yesterday as the S&P 500 breached its all-time high.

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume knob 

 

All-time high in the S&P 500 yesterday? 

 

Yep.

 

Meanwhile, US Equity Volume crashed. Here's analysis from our Macro team in a note sent to subscribers earlier today:

 

"Take a look at volume the last two trading days. We’re comfortable calling the nearly 2% move in the SPY Friday-Monday a “melt-up”. Market and Total exchange volume on Friday was down -8% and -7% vs. 1-month averages on Friday and yesterday volume was much lighter still. Total market volume was down -24% vs. 1-month averages and total exchange volume was down -19% vs. 1-month Averages showing the lack of breadth at all-time highs and cycle high market multiples."

 

In other words, yesterday's no volume up day is an expression of investors' lack of conviction. Funny how market volume rips on down days and is nowhere to be found on bull-touted "rallies."

 

A Whole Lot Of Bull: The S&P 500's No-Conviction, No Volume "Rally" To All-Time Highs  - volume 7 12


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 80.46%
  • SHORT SIGNALS 78.35%

Take A Look At The Volume...Are You Comfortable?

Client Talking Points

Pound Sterling

The GBP/USD rises +1.18% to $1.3152 intraday on news the UK is set to receive a new Prime Minister (Theresa May) in 2 days. However, we caution that relief rallies may be met by incrementally more dovish policy from governor Mark Carney and the BOE in the wake of Brexit. Carney has repeatedly said that the leave vote “materially changes the risk outlook” and the Bank is “ready to take more action if needed”. The BOE next meets this Thursday. 

#Volume

Take a look at volume the last two trading days and you’re comfortable calling the nearly 2% move in the SPY Friday-Monday a “melt-up”. Market and Total exchange volume on Friday was down -8% and -7% vs. 1-month averages on Friday and yesterday volume was much lighter still. Total market volume was down -24% vs. 1-month averages and total exchange volume was down -19% vs. 1-month Averages showing the lack of breadth at all-time highs and cycle high market multiples.    

Small Business Confidence

Small business hiring growth has been slowing conspicuously over the last year and with small businesses representing over 99% of total U.S. employer firms and >60% of net private sector hiring on a monthly basis, the trend is not inconsequential. This morning’s NFIB small business confidence index for June increased +0.70 points sequentially, marking at 6-month high at 94.5. Under the hood, the Job Openings and Jobs Hard to Fill sub-indices both gained two points while the Compensation and Compensation Plans sub-indices fell -4 points and -1 point, respectively.  Net-net, small businesses continue to have difficulty finding qualified applicants but aren’t expecting to pay up for current or prospective workers. Confidence was better sequentially but represents another lower high as both sentiment and hiring growth remain 6 quarters past peak. 

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/11/16 56% 0% 0% 12% 25% 7%
7/12/16 56% 0% 0% 12% 25% 7%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/11/16 56% 0% 0% 36% 76% 21%
7/12/16 56% 0% 0% 36% 76% 21%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

On Thursday, we introduced our Q3 Macro Themes: #ProfitCycle, #ConsumerCredit, #EuropeImploding. The gist of themes #1 and #2 emphasize that the economic cycle continues to roll over as evidenced by declining corporate profitability and the pending deceleration in consumer credit growth which is more of a “when” rather than an “if” scenario. 

 

Consumer credit growth has a direct effect on consumption. Employment and consumption peaked on a Y/Y rate of change basis in Q1 2015 right after corporate profits peaked in the second half of 2014.

GLD

We want to be long of continued growth decelerating and inflation picking up from a GIP modeling perspective into the back half of 2016. TIPS are a great way to play both of these views along with our GLD (reflation) and TLT (growth slowing) positions.

TIP

See update on TLT/GLD.

Three for the Road

TWEET OF THE DAY

CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound app.hedgeye.com/insights/52274… via @HedgeyeDJ #Brexit $FTSE #Pound

@Hedgeye

QUOTE OF THE DAY

"Brock Lesnar does what Brock Lesnar wants to do"

-Brock Lesnar

STAT OF THE DAY

Giancarlo Stanton won the MLB homerun derby last night, he hit a total of 61 homeruns...39 of which went over 440 ft.


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, and key currency crosses. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 7 12

 

Daily Market Data Dump: Tuesday - sector performance 7 12

 

Daily Market Data Dump: Tuesday - volume 7 12

 

Daily Market Data Dump: Tuesday - rates and spreads 7 12

 

Daily Market Data Dump: Tuesday - currencies 7 12


CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.

 

"... The FTSE has largely shaken off the impact of BREXIT and is now approaching 52-week highs. The British pound on the other hand remains at close to 52-week lows and has barely budged since collapsing after the June 24th referendum. Perhaps no currency is an island?"

 

CHART OF THE DAY: A Post-Brexit Look At FTSE & Pound - 07.12.16 chart


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