US STRATEGTY - ON GOLDMAN TIME

Last I checked, making money is not a sin and yesterday’s political grandstanding proved that most politicians in Washington’s are economically illiterate.  If you are a market participant you now know that Senators don’t know what they don’t know.  This is a disgrace to Washington and the best trade coming out of yesterday’s hearings is to be short treasuries. 

 

The S&P 500 came under pressure on Tuesday, suffering their biggest one-day pullbacks since February 4th. The RISK AVERSION trade was in full force and a big negative on the market as the VIX shot up 31.7% on the day.

 

The biggest MACRO driver was the focus on European sovereign credit concerns after S&P downgraded its ratings on both Greece and Portugal. We’re seeing confirmation of our 2Q10 theme of Sovereign Debt Dichotomy via rising CDS spreads, higher yield spreads, and weakness in equity markets from the PIIGS.

 

Treasuries rallied sharply yesterday on the back of European sovereign credit concerns. In addition, the dollar index was up 0.82%.

 

Despite another largely upbeat day for corporate earnings and events, regulatory fears also remained on the front-burner today, leading to another outsized selloff in the financials.  After falling more than 3% on Monday, the banking group remained for sale yesterday with BKX down another 3.1%.  The money-center names were among the laggards with C (down 5.9%), JPM (down 3.4%) and BAC (down 3.2%) showing weakness.  Ironically, GS was up 0.7%.  The stock managed to bounce as executives testified before the Senate's Permanent Subcommittee on Investigations.  The mortgage insurers were among the worst performers in the sector, while AIG (16%) sold off on a downgrade at KBW.

 

Some of the trades done in the Hedgeye virtual portfolio;

 

COVERING XLY - We shorted Consumer Discretionary when it was overbought. The Sector ETF is down -2.4% here and no longer overbought - covering red. KM

 

COVERING GIL - Stock is down more than the market here but holding an immediate term TRADE line of support at $28.61. Covering here and will revisit at a different time/price. KM

 

COVERING SPY - Apparently this market can go down, indeed. Covering our short position in the SP500 here as it is immediate term oversold. KM

 

SELLING CIT - Josh Steiner made the right call being long ahead of this morning's EPS report. We'll book the gain here on the news. We remain bullish on the intermediate term TREND, from a price. KM

 

On the MACRO front, The Conference Board consumer confidence index jumped to 57.9 in April from 52.3 in March, the highest level since September of 2008.  However, Consumer Discretionary XLY declined 2.9% and failed to garner support from the better-than-expected data.  Housing-related names were among some of the worst performers today with the XHB (4.2%) on the day. Yesterday, the S&P Case-Shiller 20-city composite home price index fell 0.1% m/m in February, snapping a string of eight consecutive monthly increases.

 

The Materials sector (XLB) was the worst performing sector yesterday, weighed down by the RECOVERY trade and the accompanying rally in the dollar. The industrial metals stocks were among the notable laggards in the sector, with the NYSE Arca Steel Index down 5.3%.  Gold stocks held up better on the day, with some support from the flight-to-quality gains in the underlying commodity.

 

The Healthcare (XLV) was the best relative performer yesterday with a renewed focus on some of the more defensive sectors.  The XLV underperformed as of late on concerns about the larger-than-expected impact on guidance from healthcare reform.  

 

Yesterday, copper traded down 4.6% to a one-month low on recovery concerns. 

 

In early trading, equity futures are trading below fair value in a continuation of yesterday's broad based declines sparked by S&P's rating downgrade for Portugal and Greece.  

 

Today’s MACRO events: 

  • MBA Mortgage Applications
  • DOE Crude Oil Inventories
  • FOMC Rate Decision

Howard Penney
Managing Director