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“Roll on highway, roll on along. Roll on daddy till you get back home.”
-Alabama
 
Roll on bankers, roll on along. Roll on Geithner till you get back home. Roll on Debtor Nations, roll on through. Roll on Obama like I asked you to do. And roll on banker bonuses, roll on…
 
Not to be confused with the Crimson’s Tide’s recent version of “Roll Tide Roll”, these are my new lyrics of an old favorite that I used to play on my boom-box as I was riding junior hockey buses in the northern parts of Canada (Alabama’s 1984 rendition of Roll On Eighteen Wheeler).
 
The SP500 continues to roll on. Yesterday made 2010 six-for-six, with the SP500 making another higher-high, closing at 1146 - its sixth consecutive day of positive returns. At the same time, bankers around the world continue to call this an economic recovery that they can dump a generationally high level of debt onto.
 
Take some of the men formerly known as Lehman brothers over at Barclay’s word for it. Mark Bamford, head of global fixed-income syndicate at Barclays Capital told Bloomberg this morning that, “We’re telling our clients to get into the markets now… “get some of your financing done now”… “don’t leave it all for later in the year because it could be more difficult to finance”…
 
Roll on Mark, roll on along. Keep them banker bonuses coming until we get this all wrong. Roll on debt Daddy, roll on through. Roll on global bankers like Bernanke asked you to do. And roll on banker bonuses, roll on…
 
In conjunction with the US Dollar going down yesterday, so did the short end of the yield curve. The yield on 2-year US Treasuries is 0.92% this morning. That’s still a few basis points above our intermediate term TREND line of 0.90% and feeding the widest Piggy Banker Spread ever.
 
The yield spread (10-year minus 2-year Treasury yields) is +284 basis points wide this morning. That’s only 2 basis points away from the best financing American Savers have ever provided Investment Banking Inc.. Or is that Bernanke that’s feeding the pig? Ah, who cares at this point America – roll on!
 
Globally, there continues to be a massive amount of sovereign debt being rolled onto the global highways of finance. If the American citizenry doesn’t mind $83/barrel oil, and India’s consumer don’t mind the latest +18.2% reading (December) on wholesale food inflation, why not keep that debt a rollin’ in? Roll on Big Government Debt Daddy, roll on along!
 
In the last week, we have seen the following sovereign debt issuers come to market:
 
1.      Philippines

2.      Turkey

3.      Indonesia

4.      Poland

5.      Greece

6.      Mexico

 
No, no, Momma. These are not the three little pigs. These are the first six big ole 2010 tractor trailers full of sloppy sovereign debt to roll into town, taking that ole brother Lehman advice, “get some of your financing done now”!
 
Mexico is actually smart enough to spread the Debtor Nation love around the world. They’ve opted to issue another $2.4B in bonds via Japan and Europe this morning. Don’t worry about it, this is the good kind of Mexican debt folks. This is the kind that Robin Williams talked to Charlie Rose about the other night:
 
“like a bunch of junkies who have relapsed… listen my man, I just need some liquidity… I just ran into some bad subprime… I will not screw you again – this is not like the other time. I’ll pay you back!” (You Tube link: http://www.youtube.com/watch?v=JuFnzNsz3sc  )
 
Look on the bright side, this week’s Polish $4.3B sovereign debt issue doesn’t have 69 dead from an overnight Mexican drug war to deal with this morning. For Poland, this is the largest debt issuance in the last 4 years. Pile that debt upon debt boys; get those bankers their bonus, and roll on!
 
Marked-to-market equity trading in some of the more obvious sovereign debt laden countries (Greece and the United Arab Emirates) doesn’t like all of this debt and country music stuff. The Athex Composite in Greece is trading down -2.2%, while the DFM Index in the UAE is trading down more than -2.4%.
 
Oh, and in response to this mounting global debt speculation, China is raising rates on domestic debt for the 2nd time in 2 weeks this morning. Additionally, they are raising the reserve requirement for domestic banks by another 50 basis points.
 
Roll on Debtor Nations, roll on.
 
My immediate term TRADE lines of support and resistance for the SP500 are now 1134 and 1153, respectively.
 
Best of luck out there today,
KM


LONG ETFS
 
XLK – SPDR Technology
Buying back Tech after a healthy 2-day pullback. Next to Healthcare, this remains our favorite sector in the SP500.

UUP – PowerShares US Dollar Index Fund
We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).

XLV – SPDR Healthcare
Buying back the bullish position Tom Tobin and his team maintain on the intermediate TREND term for the Healthcare sector.

VXX - iPath S&P500 Volatility The VIX broke down to our immediate term oversold line on 1/6/10, prompting us to add to our position on VXX.

EWG - iShares Germany Buying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.

EWZ - iShares Brazil
As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8/09 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

CYB - WisdomTree Dreyfus Chinese Yuan
The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP - iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.

 
SHORT ETFS

FXE – CurrencyShares Euro
We shorted the Euro ETF on strength on 1/11/10. From an intermediate term TREND perspective we remains bullish on the US Dollar Index.

GLD – SPDR GoldAs the gold price inches up toward the immediate term resistance line of $1137/oz, we’re going to take the other side of a long-standing bullish position.

RSX – Market Vectors Russia
We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.

EWJ - iShares JapanWhile a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

XLY - SPDR Consumer Discretionary We shorted Howard Penney's view on Consumer Discretionary stocks on 10/30/09 and 12/2/09.

SHY - iShares 1-3 Year Treasury Bonds
If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.