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Friday's Red Hot GDP Report & What It Means For Long Bonds

Takeaway: I’d be a seller of long-term bonds into this GDP report (hoping to buy the 10-yr back again around 1.65-1.70%).

Worldwide long-term yields lower in the last 48 hours and with the UST 10yr at 1.50%, I’d be a seller of long-term bonds into this GDP report (hoping to buy the 10-yr back again around 1.65-1.70%); plenty of people will get sucked into this GDP print if it’s as big as we think it’s going to look (our estimates are +4.8% q/q SAAR – that’s +2.3% y/y – then we’re straight back down to 0.8% for Q3).

 

Friday's Red Hot GDP Report & What It Means For Long Bonds - 10yr treasury 7 28

 

Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more.


The Macro Show with Keith McCullough Replay | July 28,2016

CLICK HERE to access the associated slides.

 

 

An audio-only replay of today's show is available here.


July 28, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.62 1.47 1.52
SPX
S&P 500
2,134 2,176 2,166
RUT
Russell 2000
1,185 1,221 1,218
COMPQ
NASDAQ Composite
4,984 5,150 5,139
NIKK
Nikkei 225 Index
16,104 16,868 16,664
DAX
German DAX Composite
9,973 10,359 10,319
VIX
Volatility Index
11.71 15.35 12.83
USD
U.S. Dollar Index
96.47 97.97 97.04
EURUSD
Euro
1.09 1.11 1.09
USDJPY
Japanese Yen
103.15 107.18 105.27
WTIC
Light Crude Oil Spot Price
41.48 44.58 41.92
NATGAS
Natural Gas Spot Price
2.59 2.80 2.66
GOLD
Gold Spot Price
1,315 1,351 1,326
COPPER
Copper Spot Price
2.16 2.26 2.18
AAPL
Apple Inc.
99.28 104.06 102.95
AMZN
Amazon.com Inc.
730 751 736
NFLX
Netflix Inc.
80.92 93.99 92.04
JPM
J.P. Morgan Chase & Co.
62.07 64.54 64.33
FB
Facebook Inc.
118.39 126.14 123.34
ABX
Barrick Gold Corp.
18.69 22.22 21.35


Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


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.

CHART OF THE DAY | Housing: Behind The Treasury's Shell Company Crackdown

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

 

"... A couple weeks ago, I highlighted a Treasury Department initiative aimed at tracking high end real estate transactions in Miami and Manhattan in an attempt to crackdown on money laundering in the ultra high-end real estate markets.  

 

With foreign demand having an outsized impact on prices in select markets and nearly 50% of foreign buyers purchasing properties over $5mn doing so through shell company LLCs, someone thought illegal activity was getting a little too frothy."

 

CHART OF THE DAY | Housing: Behind The Treasury's Shell Company Crackdown - 7 28 16 CoD2


High-Frequency Flopping

“When all is said and done, more is said than done”

-Lou Holtz

 

Unfortunately, when your primary “tool” is communication, “saying” pretty much = “doing”. 

 

In the last 6 months, the Federal Reserve has pivoted from Hawkish (DEC hike) to Dovish (on market down), to Hawkish (April), back to Dovish (May Jobs Report bomb), and now Hawkish again!

 

For High-Frequency Flopping enthusiasts that equates to a rhetorical policy pivot approximately every 6 weeks. 

 

And for a Fed pre-occupied with dampening volatility and pro-actively leading markets via carefully crafted rhetorical gradualism, they certainly seem to be running the uncertainty promulgation machine near full productive capacity. 

 

As a thoughtful reader opined about the prevailing, domestic productivity malaise yesterday following the Fed Minutes:

 

Imagine all the collective speculation, all the sunken search and research costs, all the spurious activity surrounding “fed watching” was, instead, directed towards innovation and tangibly productive activity.   

 

Then do the same for all the superfluous activity surrounding the manic forecasting of the unforecastable monthly NFP figure. 

 

Viola, step function increase in productivity.

 

Doing instead of saying …. whoda thought!

 

Back to the Global Macro Grind

 

Dude, you’re not long Latvia!  

 

C’mon, everyone’s doin’ it. It’s a no-brainer, I think it’s in Central America too, so its gotta be good. I know a guy if you wanna get some!

 

The table below, which we recently tweeted out, is a simple reminder that “the market” ≠ 1 domestic equity index. Macro investing is cross asset class and global.

 

High-Frequency Flopping - 7 28 16 CoD1

 

Q. What do you call Helen of Troy after sunset?

A. Nitrogen (night Trojan)

 

Chemistry humor is rare, you take it where you can get it.

 

Q: What’s the most ironically named macro metric YTD?

A: Durable Goods ... where the early 2016 improvement has proved neither Durable nor Good?

 

Headline Durable Goods for June reported yesterday declined -4.6% sequentially and -6.4% YoY. 

 

While the -59% MoM/-60% YoY decline in private sector aircraft orders was an outsized drag, most of the subaggregates mirrored the headline.

 

Indeed, Durables ex-Defense and Aircraft – which aligns most closely with what actual households buy – remained negative year-over-year (-1.8%) for a 4th consecutive month. 

 

Core Capital Goods Orders, meanwhile, declined for the 17th time in the last 18 months, dropping -3.7% YoY while extending the most epic non-recessionary run of negative capex growth ever.    

 

That number will drive a downward revision to tomorrow’s advance GDP estimate for 2Q but only modestly. With Retail Sales having its best quarter since 2014 (up +7.2% QoQ annualized), the growth juice remains in household spending as Consumption remains the only GDP Expenditure Bucket game in town.

 

Elsewhere across domestic macro yesterday, we got the latest update on sales activity in that forgettable, $22.5T asset class that is residential real estate.

 

We provided a summary update on Housing to Institutional clients yesterday. Since I haven’t touched on it in a bit in the Early Look, below is a recap of that note:   

 

Pending Home Sales: Pending Home Sales rose +0.2% sequentially and +1% YoY. On an NSA basis, year-over-year growth decelerated to a 19-month low at +0.3% YoY.

 

With growth making new lows the last couple months, it’s worth quickly reviewing our expectations around demand in the 90% of the market that is existing sales.  

 

Our Call: Our process is generally rate-of-change centric as being lazy long a negative 2nd derivative trend and an expectation for a conspicuous deceleration in growth is typically a losing proposition, as is the converse setup.   

 

Our expectation since the beginning of the year was for demand growth in the existing market to continue to converge towards 0% against peak comps and subsequently run +0-2% during the mid-year period. With PHS printing negative YoY growth for the 1st time in 2-years on a seasonally-adjusted basis last month and NSA growth printing a 19-month low in June, that expectation has largely been realized. 

 

So now what?

 

Comp-sternation: From here, PHS comps get modestly easier over the next 6-months which, at current levels of activity, equates to ~2.4% YoY growth over the balance of the year. While the potential for further reemergence of entry level buyers may provide some modest support over the nearer term, sales in the existing market having already mean reverted back to average levels of activity and the inventory environment will remain an upside constraint. In other words, what we think you’re playing for over 2H in a neutral-to-bullish case is low to mid-single digit demand growth. Also, notably, June PHS suggest modest downside risk to July EHS when the data are officially reported next month (8/24)

 

Reality's Reflection: If we were to Occam’s razor an explanation on the prevailing trend in housing it’s that it is largely reflecting the current underlying macro reality - which remains an underwhelming, stubbornly crawling expansion. Flat-to-mid single digit growth doesn’t necessarily make for a sensational fundamental “call” but it probably correctly characterizes current domestic fundamental macro and housing conditions. 

 

With a relatively benign near-term comp setup, without a discrete large-scale catalyst (regulatory, fundamental or otherwise) and absent another outsized move in rates, we’d expect housing fundamentals and housing related equities to trade largely in step with economic and market beta over the nearer term.            

 

And a last quick highlight…  

 

High-End Hit List Expansion: A couple weeks ago, I highlighted a Treasury Department initiative aimed at tracking high end real estate transactions in Miami and Manhattan in an attempt to crackdown on money laundering in the ultra high-end real estate markets.  

 

With foreign demand having an outsized impact on prices in select markets and nearly 50% of foreign buyers purchasing properties over $5mn doing so through shell company LLCs, someone thought illegal activity was getting a little too frothy.  

 

After just 4-months of investigation and evidence of significant criminal activity, the Treasury department announced yesterday that it will expand the program to all the boroughs of New York City, Miami-Dade and surrounding Counties, Los Angeles County, San Francisco and surrounding Counties, San Diego County and Bexar County in Texas. An Order that will take effect on August 28th.

 

Notably, the Treasury Department announcement came just a day after the British Columbia government unveiled a new 15% tax on Vancouver-area property purchases made by foreigners along with a capacity to tax vacant properties. (note: Vancouver = ground zero for speculative foreign capital flow). As our financials team highlighted, the impending foreign buyer fallout in the Vancouver area sits as a key component of the future deflation of the Canadian housing bubble.

 

Governments taking action, eh.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.47-1.62%

SPX 2134-2176
RUT 1185-1221

VIX 11.71-15.35
USD 96.47-97.97

Gold 1

 

To action above oration … and a shot for every time the media says what Janet will say at Jackson Hole over the next few weeks. 

 

Christian B. Drake

U.S. Macro Analyst

 

High-Frequency Flopping - 7 28 16 CoD2


JT TAYLOR: Capital Brief

JT TAYLOR: Capital Brief - JT   Potomac banner 2

 

“Things don't turn up in this world until somebody turns them up.”

-        James A. Garfield

 

PASSING THE TORCH: Day three was immensely important for Democrats as it signified a passing of the party torch from President Obama to Hillary Clinton. In his speech, Obama emphasized Clinton’s vast experience as a leader in public office, touting her ability to adapt to any situation, while imploring voters to defend his legacy by electing her as president. VP Joe Biden vouched for Clinton’s character, recalling weekly breakfasts with Clinton, where he learned her true passions, intellect, and toughness. Both hit on Donald Trump for his lack of substance and reluctance – even inability – to expand his limited knowledge of policy and international affairs, despite the information being at his fingertips. But the most vital speaker of the night was veep pick Tim Kaine, who introduced himself to an unfamiliar nation and highlighted the reasons why he was the right choice to round out the ticket.

 

TALKIN’ TRADE: VA Governor Terry McAuliffe is one of Bill Clinton’s closest friends, and like the former president, he speaks expansively about topics more wisely left undiscussed. McAuliffe told reporters that Clinton might not have been entirely serious about her opposition to the Trans-Pacific Partnership trade deal, a core Sanders and Trump economic-populist article of faith. We’ve touched on McAuliffe’s blunders before, including how him being the subject of an FBI probe for foreign campaign donations could negatively impact Clinton’s campaign, but new issues like this have us feeling the Clintons would rather keep their distance. Whether it was a miscommunication or not, the press and Trump have eaten it up. We can only think that this will add to Clinton’s trust issues as trade is a touchy subject for both candidates.

 

MARK OF KAINE: In a year when the veep choice matters so much, two questions remain – can Kaine make enough of a positive impact and is he liberal enough to woo leftist voters? Clinton took the safe route by tapping Kaine as her running mate, but it’s yet to be seen if he’s too safe of a pick. His style is anything but electric and he really doesn’t ignite progressives or other party factions. The Wall Street crowd is pleased with him because he is not Warren, and his pros ultimately outweigh his cons since VA is a highly contested swing state, his moderate views can corral undecided voters, and he speaks fluent Spanish. However, the pick is still a direct slap in the face to progressives as they feel they are not adequately represented.

 

CLIMBING CAPITOL HILL: Veep pick Mike Pence, a former congressman with close ties to the Hill, has helped Trump and his campaign step up its courtship of wary Republicans - and the efforts appear to be fruitful. The charm offensive comes after months of Trump picking on other Republicans and is aimed at rewarding surrogates who make the case for him around the Hill. Pence is working hard to reel in Republicans who’ve kept an arm’s length – even extending an olive branch to those once against Trump. If this is any indication of how Pence will perform in the future, Trump has made the right decision in choosing him. It’s imperative he grows his army as he will need all the backup he can get in the coming months.

 

WE COULDN’T MAKE THIS UP IF WE TRIED: In the last 6 months, the Federal Reserve has pivoted from Hawkish (December) to Dovish (March, on markets down), to Hawkish (April), back to Dovish (May Jobs Report bomb), and now Hawkish again! And we quote (because this is going to make them look really bad come the Q3 GDP report), “near term risks to the outlook have diminished”… ex-Durable Goods, ex-Capex, ex-Labor, ex-Profits… yes, until the next jobs report? The Fed is more short term now than a Connecticut prop trader pounding six Starbucks per day. If we’re right, Friday’s Q2 GDP report is going to be up big sequentially (we’re at +4.8% q/q SAAR), then down hard, sequentially, in Q3 (right before the election). Godspeed to them as they prepare to pivot back to Dovish (again). This is a professional and national embarrassment.

 

DISSECTING THE PARTY PLATFORMS: The Republican Convention concluded last week and the Democratic Convention officially kicked off this week. We put together a comparison of each party’s platform to help you better understand the differences and similarities in the policy agendas for the coming year. You can read the comparison here.


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