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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

“Dude, that goalie was pissed about something.”

-Freeburg (Freddy vs. Jason, 2003)

It’s certainly been an interesting week and its ending with a flurry of shots on goal for global macro risk management net-minders. Sophisticate coaches from Mass call them “net-mind-ahs” by the way. Canucks call dem de goalies, eh.

Today is also Friday the 13th, and de goalies with de coaches who got dem-selves lee-verd up long last week are feeling shame. The most infamous American goalie mask of them all has to be Jason’s. He’s seen a lot of red rubber as of late.

Another American who found fame on this day in 1907 was a stock market manipulator from Massachusetts by the name of Thomas W. Lawson. Ole Lawsy tried to slip one by de goalie back then by publishing a book titled “Friday The Thirteenth”, which attempted to scare the horses into believing that the market was setting up for a crash on that very day (his book sold 28,000 copies in its 1st week).

Per Wikipedia, Lawsy was “a highly controversial Boston stock promoter – he is known for both his efforts to promote reforms in the stock market and the fortune he amassed for himself through highly dubious stock manipulations.” He was a hybrid Barney Frankenstein - fear mongering Americans, then flip flopping his position to the other side of the trade. All the while forgetting that people would remember what he said/did on the last go around.

While stock market futures have whipped around a great deal this morning, the Dodd-Frankenstein reform bill doesn’t appear to be today’s excuse. Germany reported a blockbuster Q2 GDP report (+2.2% sequential growth) and Europe’s “net-mind-ah” has apparently left the building on the news. European markets are being chased lower by the old Friday The Thirteenth fear that we call ‘selling on the news.’

In addition to the week-to-date Nightmare on Wall Street drop of -3.3%, here’s what is legitimately scaring US equity investors (in the order that the data points occurred):

  1. China bought 456B Yen worth of JGB’s (Japanese Government Bonds) in June = most since 05’ (and remains a net seller of US Treasuries).
  2. Goldman Sachs (Jan Hatzius) cut his US GDP growth estimate to 1.9% for 2011 (that’s the closest estimate to Hedgeye’s 1.7%).
  3. Chinese Imports dropped 1100 basis points sequentially in July to 23% (vs. 34% in June) = Chinese demand continues to slow.
  4. Chinese property prices dropped to +10.3% y/y in July versus +11.4% in June.
  5. USA’s NFIB survey for small business confidence hit another sequential low this month dropping to 88.
  6. Bernanke’s QE2 was met with selling of both US stocks and get this, Treasuries!, with this morning’s 2-year yields trading UP versus Tuesday.
  7. China’s bank regulator ordered the transfer of off-balance sheet loans to its books by 2011 (and make provisions for defaults)
  8. US MBA mortgage applications held flat week-over-week, enforcing the reality that Americans refuse to lever themselves up again.
  9. Chinese industrial production, retail sales, and money supply growth (M2) all slowed again sequentially in July versus June.
  10. Chinese inflation hit a 20 month high, accelerating +3.3% in July versus +2.9% in June = oil, food… you know… the things they need.
  11. Venezuelan and Argentinean bond yields pushed higher as their dysfunctional governments try to issue the world sovereign debt.
  12. America’s budget deficit tacked on another $165 BILLION loss in July, taking spending up +10% y/y with tax revenues barely flat.
  13. Russian Bond sales saw only 44% of the demand de goalies in de Kremlin were looking for (25 BILLION Rubles) = Russian bond yield up.
  14. General Disaster (GM) announced their pending $12-16 BILLION Dollar IPO = 2nd largest IPO in US history; what is wrong with America?
  15. US weekly jobless claims ripped higher to 484,000 = representing the highest jump in rolling weekly claims for 2010 YTD!
  16. The Fed’s Balance sheet expanded again week/week going up to $2.33 TRILLION DOLLARS after Ben bought $1.7B more MBS this week!

Sorry, for penmanship’s sake I tried to go with 13 bearish points, but I had to print 16 as pushing Hedgeye’s own book of ideas trumps my literary aspirations.

Look on the bright side, Monday will be a new day for the professional storytellers in Washington and it won’t be Friday The Thirteenth either. By the way, Thomas W. Lawson died poor.

On a fair amount of bearish global macro news, I’ll call the SP500 fairly oversold at 1080 or lower. As a result, we’ll open up the Hedgeye Asset Allocation coffers and move from 70% cash (last Friday) down to 55% on this Friday the 13th, 2010 by going to a 6% allocation to US Equities.

My immediate term TRADE lines of support and resistance for the SP500 are now 1080 and 1197, respectively, eh.

Best of luck out there today and have a great weekend with your families,

KM

Keith R. McCullough
Chief Executive Officer

Friday The Thirteenth - 13