As Keith alluded to in today’s Early Look, the sad part about playing this game every day is the shameless use of inside information by people trying to make money.
We don’t have inside information but we think Mr. Macro Market is whispering in our ear. The CRB Index and gold are breaking down from an intermediate term perspective for one reason: interest rates are heading higher.
Last week there was a compression in our “Piggy Banker Spread”, especially with gains in the 2-year yield. The 2-year yield remains in a bullish formation* and typically when the Hedgeye model flashes a bullish formation we assume a high level of conviction on our call.
Interest rates are going up globally! Domestically, they are going up because we are a debtor nation and inflation is going to accelerate on a reported basis in March from February’s data. Lastly, the dollar is in a bullish formation and last week hit at 3-week high, confirming the bullish formation on interest rates.
From a MACRO perspective, that RHYMES because somebody knows something you don’t know. Another thing that RHYMES today is that rumors create fear and bubbles that people are terrified of being short into! Today’s speculation:
(1) Pactiv (PTV) is trading higher in reaction to a rumor that it is an LBO candidate
(2) Martin Marietta (MLM) is moving higher in reaction to rumor that private equity is interested in the company
(3) SK Broadband rises most in eight months on merger speculation
(4) Papandreou Says Talk of Greece Leaving Euro Zone a ‘Joke’
Shorting is difficult enough to do, never mind in a market so affected by ridiculous rumors. Shorting due to valuation or a small earnings miss might not be worth the price of admission. Stick with flawed business models.
Have a great day,
* Official definition (glossary on hedgeye.com): A bullish formation occurs when the TRADE, TREND, and TAIL lines of support for a security's price sit below the current price, with the TRADE line closest to the current price and the TAIL line farthest below, with the TREND line in between. A Bullish Formation predicts a behavioral response by the market in which investors of different durations are driven by the price to conspire to drive the price higher through their mutually reinforcing investment activity.