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INSIDE THE HEDGEYE NOTEBOOK: Sept. 10, 2010

I’m going to start trying to bullet point data, prices, and signals that I fail to weave into my Early Look notes.  Here's a partial glimpse into those notes.

 

 

INSIDE THE HEDGEYE NOTEBOOK: Sept. 10, 2010 - Notebook Image Hedgeye

 

 
In the last 24 hours, here are some green (bullish) and red (bearish) highlights from my notebook:
 
BULLISH:
1.      Netherlands CPI down sequentially to 1.2% y/y (AUG) vs. 1.3% (JUL)

2.      Germany CPI down sequentially to 1.0% y/y (AUG) vs 1.2% (JUL)

3.       FTSE/DAX/Denmark all flashing bullish TRADE and TREND

4.      India’s IP growth rips higher sequentially in July to +13.8% y/y vs +5.8% June

5.      Chinese passenger car sales boom higher to +18.7 (AUG) y/y vs 13.6% (JUL)

6.      Chinese Equities bullish TRADE and TREND confirmed by the same on the Hang Seng

7.      Brazil inflation decels sequentially to 4.49% (AUG) y/y vs 4.6% (JUL)

8.      Brazilian and Canadian equities bullish TRADE and TREND

9.      Commodities (CRB Index) traded up on both dollar UP and dollar DOWN days this week

10.  Oil taking a run at breaking out above its TREND line = $75.64

11.  Copper and Gold remain bullish TRADE and TREND with Gold’s immediate term TRADE support = 1233

12.  US Treasury yields breaking out above TRADE lines this week (2yr TRADE line = 0.52%, 10yr TRADE line = 2.68%)

13.  Jobless claims breaking down through the 4wk rolling average = new immediate term TRADE

14.  All 9 sectors in our S&P 500 risk management model are bullish TRADE now

15.  Dubai World restructuring debt as opposed to piling more debt upon debt (Greece)

 
BEARISH:
1.      Fed’s Balance Sheet expands w/w to $2.31 TRILLION (+$3.7B w/w)

2.      Philippines issuing $1B in Peso Bonds

3.      Argentina showing a +94% YTD rise in asset backed bond sales (most since default in 2001)

4.      Japanese Equities have crashed (down more than -20% since YTD peak)

5.      US Dollar remains bearish from a long term TAIL and intermediate term TREND perspective

6.      Greek stocks flashing a very negative divergence this week vs European equities (down -28% YTD and worst in world)

7.      Hungary and Latvia also flashing negative divergences vs. FTSE/DAX this morning

8.      Vietnam equities continues to flash very bearish versus Asian equities (down another -2.2% overnight)

9.      SP500 remains broken from an intermediate term TREND perspective with resistance up at 1144 (down -9.3% since YTD high)

10.  US equity volumes remained bone dry this week – volume studies bearish on TRADE, TREND and TAIL

11.  XLF (Financials) remain broken from an intermediate term TREND perspective

12.  Harrisburg, PA default pending if they miss the September 15th payment

 
 
Keith R. McCullough
Chief Executive Officer
HEDGEYE RISK MANAGEMENT


The Grind: What's In My Notebook

I’m going to start trying to bullet point data, prices, and signals that I fail to weave into my Early Look notes.

 

In the last 24 hours, here are some green (bullish) and red (bearish) highlights from my notebook:

 

BULLISH:

  1. Netherlands CPI down sequentially to 1.2% y/y (AUG) vs. 1.3% (JUL)
  2. Germany CPI down sequentially to 1.0% y/y (AUG) vs 1.2% (JUL)
  3.  FTSE/DAX/Denmark all flashing bullish TRADE and TREND
  4. India’s IP growth rips higher sequentially in July to +13.8% y/y vs +5.8% June
  5. Chinese passenger car sales boom higher to +18.7 (AUG) y/y vs 13.6% (JUL)
  6. Chinese Equities bullish TRADE and TREND confirmed by the same on the Hang Seng
  7. Brazil inflation decels sequentially to 4.49% (AUG) y/y vs 4.6% (JUL)
  8. Brazilian and Canadian equities bullish TRADE and TREND
  9. Commodities (CRB Index) traded up on both dollar UP and dollar DOWN days this week
  10. Oil taking a run at breaking out above its TREND line = $75.64
  11. Copper and Gold remain bullish TRADE and TREND with Gold’s immediate term TRADE support = 1233
  12. US Treasury yields breaking out above TRADE lines this week (2yr TRADE line = 0.52%, 10yr TRADE line = 2.68%)
  13. Jobless claims breaking down through the 4wk rolling average = new immediate term TRADE
  14. All 9 sectors in our S&P 500 risk management model are bullish TRADE now
  15. Dubai World restructuring debt as opposed to piling more debt upon debt (Greece)

BEARISH:

  1. Fed’s Balance Sheet expands w/w to $2.31 TRILLION (+$3.7B w/w)
  2. Philippines issuing $1B in Peso Bonds
  3. Argentina showing a +94% YTD rise in asset backed bond sales (most since default in 2001)
  4. Japanese Equities have crashed (down more than -20% since YTD peak)
  5. US Dollar remains bearish from a long term TAIL and intermediate term TREND perspective
  6. Greek stocks flashing a very negative divergence this week vs European equities (down -28% YTD and worst in world)
  7. Hungary and Latvia also flashing negative divergences vs. FTSE/DAX this morning
  8. Vietnam equities continues to flash very bearish versus Asian equities (down another -2.2% overnight)
  9. SP500 remains broken from an intermediate term TREND perspective with resistance up at 1144 (down -9.3% since YTD high)
  10. US equity volumes remained bone dry this week – volume studies bearish on TRADE, TREND and TAIL
  11. XLF (Financials) remain broken from an intermediate term TREND perspective
  12. Harrisburg, PA default pending if they miss the September 15th payment

 

Keith R. McCullough

Chief Executive Officer

 

The Grind: What's In My Notebook - 1


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 9, 2010

As we look at today’s set up for the S&P 500, the range is 38 points or 1.74% (1,085) downside and 1.70% (1,123) upside.  Equity futures are trading higher tracking gains across European equities as the region’s banking and mining stocks rebound. Today's macro highlights include: Initial Jobless Claims and July Trade Balance.

  • AvalonBay Communities (AVB) said its AvalonBay Value Added Fund II unit bought an apartment community in Calif. for $98.5m
  • Fuqi International Inc. (FUQI) got SEC subpoena from for failing to file periodic reports on time
  • Men’s Wearhouse (MW) forecast 3Q adj. EPS 40c-47c vs est. 41c
  • Questcor Pharmaceuticals (QCOR) said FDA delayed a decision on its application to sell its Acthar drug as treatment for seizures in babies
  • TNS (TNS) agreed to buy Cequint for as much as $112.5m and said it will buy back up to $50m of its stock

 

PERFORMANCE

  • One day: Dow +0.45%, S&P +0.64%, Nasdaq +0.90%, Russell 2000 +0.79%
  • Month-to-date: Dow +3.72%, S&P +4.72%, Nasdaq +5.43%, Russell +5.35%
  • Quarter-to-date: Dow +6.27%, S&P +6.61%, Nasdaq +5.67%, Russell +4.06%
  • Year-to-date: Dow (0.39%), S&P (1.46%), Nasdaq (1.78%), Russell +1.42%

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1183 (+2599)
  • VOLUME: NYSE - 879.91 (+5.96%) - No conviction and a light economic calendar
  • SECTOR PERFORMANCE: All sectors were up yesterday except XLU.  Tough to find a specific catalyst for yesterday’s performance, though an improvement in the risk backdrop surrounding Europe and the momentum behind the M&A rumor mill also offered some upside.
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: NY Times +7.99%, Priceline +5.53% and Huntington Bank +4.48%/Visa -4.13%, Nisource -3.86% and Tereadyne -3.53%
  • VIX: 23.25 -2.31% - YTD PERFORMANCE: (+7.24%)            
  • SPX PUT/CALL RATIO: 2.04 from 2.00

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 16.67 -0.101 (-0.604%)
  •  3-MONTH T-BILL YIELD: .14% trading flat
  • YIELD CURVE: 2.14 from 2.12  

COMMODITY/GROWTH EXPECTATION:

  • CRB: 274.27 +0.17% - Coffee at a 13 year high
  • Oil: 74.67 +0.78% up for the first day in three
  • COPPER: 344.65 +0.86%
  • GOLD: 1,255 -0.07%

CURRENCIES:

  • EURO: 1.2750 +0.14%
  • DOLLAR: 82.585 -0.28%

OVERSEAS MARKETS:

ASIA

  • Nikkei +0.82%; Shanghai Composite (1.44%)
  • Asian markets were mixed today even though concerns about European debt problems were addressed by successful bond auctions yesterday.

 

EUROPE

  • FTSE 100: +0.51%; DAX: +0.12%; CAC 40: +0.35% (as of 04:55 ET)
  • European markets opened lower, seeing some profit taking after yesterday's strong gains.
  • Ireland's Finance Minister looked to reassure markets over Anglo Irish Bank saying the government hopes to produce definitive figures on the cost of its restructuring by the end of October.
  • No movement on the part of the BOE; 0.5% benchmark interest rate and the £200B asset purchase program remains unchanged.
  • Banks and technology groups are amongst the leading gainers with all but four sectors trading higher. US futures trade higher.
Howard Penney
Managing Director

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EARLY LOOK: We're Used to Winning

This note was originally published at 8am this morning, September 10, 2010.  INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

 

 

____________________________________________________

"We're not used to 14-9 victories, but we're used to winning."
-Drew Brees

 


Q: For all of the overpaid professional politicians in Washington this morning - what do the mid-month 2010 US stock market rallies of February, July, and September have in common?
 
A: Winners (Winter Olympics, World Cup, NFL Season).
 
Investment Conclusion: politicians, stop intervening in this game and go away.
 
New Orleans Saints quarterback, Drew Brees, reminded the real grinders of this country what makes us wake up every morning expecting to win. Brees doesn’t point fingers. He doesn’t fear monger either. He’s one of the fastest in the world at changing his mind as the game that’s in front of him changes. He makes calls and he holds himself accountable to them. Drew Brees is an American Risk Manager that is used to winning.
 
What does this have to do with managing risk across global markets this morning? A lot. The behavioral side of analytics and how it applies to decision making in modern day finance is still in its very early days.

 

 

EARLY LOOK: We're Used to Winning - Screen shot 2010 09 10 at 9.12.44 AM

 

 
Neuroscientists, like my friend Dr. Richard Peterson, are starting to enlighten us about the intersection between investor psychology and financial markets. I’ve mentioned his 2007 book “Inside the Investor’s Brain” before as one of the most important risk management books I’ve ever read. Peterson just published “Market Psych” on September 7th, and it’s on the top of my reading pile this morning.
 
The intersection between confidence and fear is one of the most important factors in my multi-factor, multi-duration, risk management model. If you have a market that’s dominated by what the government is going to do next, and the core marketing message of that government is fear mongering about great depressions and keeping “risk-free” rates of return at ZERO percent, the impact on confidence becomes very real.
 
I don’t need a loser who gets paid to politically pander to tell me how to think about market risk or the bottoms up factors in meeting my employee payroll. Nor do I need them to eliminate the rate of return I have on the hard earned savings in my family’s bank account. What I really need is for the government to just stop and leave me and this market alone. You want a solution, Mr. President? Try that.
 
From the front line manager at a McDonald’s this morning to an offensive lineman protecting Drew Brees’ blind side last night – these are the men and women of this country that inspire our competitive spirits and drive a positive confidence interval in our decision making. Americans are back from Labor Day vacation showing a renewed spirit to persevere – this time, Mr. Big Government, just leave them alone.
 
I’m certain that I won’t be accused of being bullish since April, but don’t confuse the winning side of this game with a lack of confidence. For me, there is no such thing as the “risk on, risk off” game of finance often bandied about by pundits who have never traded a P&L in their life. Risk is always on. Confidence isn’t about being bullish or bearish. It’s about being right.
 
Not unlike the NFL on NBC.com last night, our revolutionary Hedgeye Risk Management Portal shows you everything that we do and when we do it. There is a replay on the competitive fields of real-life folks – we’re early in showing this to the world of finance. We think others will follow.
 
Since September 3rd, you’ll notice that this cuddly Thunder Bay Bear has done nothing but BUY long positions and COVER short positions. It’s not my job as a risk manager to bypass calling an audible when the game in front of me is changing. In the last week, Americans have become more confident and so has the US stock market’s internal risk management factors on our immediate term TRADE duration.
 
The top 3 plays of the week that are driving US consumer confidence higher are as follows:
 
1.      The ABC/Washington Post Consumer Confidence report improved from minus -45 to -43 this week.

2.      MBA Mortgage Applications rose for the 2nd consecutive week by +6.3% on a week-over-week basis.

3.      Weekly US jobless claims dropped for the 3rd consecutive week to 451,000 this week down from 500,000 in the week of August 23rd.

 
You can go back and see how many of our short positions we covered between August 24th and 25th (when confidence and mortgage applications bottomed). The instant replay doesn’t lie; people do.
 
The bottom line then was that the volatility index (VIX), or one of the clean-cut measures of concurrent fear was peaking in the high-20’s. All the “valuation” models that the Warren Buffett wannabes of this game use don’t work until prices reflect the appropriate Fear-Discount. If you are going to strap on the risk management pads and actually trade this game, keep that in mind.
 
My greatest fear about NOT being short the SP500 (SPY) here is that after I get fired up watching some of America’s finest on the field on Sunday, some “government is good” loser comes back into my life on Monday with another failed policy game plan that smokes all of the confident players in this country right back into their holes.
 
My immediate term TRADE lines of support and resistance for the SP500 are now 1085 and 1123, respectively. Go Redskins.
 
Best of luck out there today,
KM
 
Keith R. McCullough
Chief Executive Officer
HEDGEYE RISK MANAGEMENT


"We're Used To Winning"

"We're not used to 14-9 victories, but we're used to winning."

-Drew Brees

 

Q: For all of the overpaid professional politicians in Washington this morning - what do the mid-month 2010 US stock market rallies of February, July, and September have in common?

 

A: Winners (Winter Olympics, World Cup, NFL Season).

 

Investment Conclusion: politicians, stop intervening in this game and go away.

 

New Orleans Saints quarterback, Drew Brees, reminded the real grinders of this country what makes us wake up every morning expecting to win. Brees doesn’t point fingers. He doesn’t fear monger either. He’s one of the fastest in the world at changing his mind as the game that’s in front of him changes. He makes calls and he holds himself accountable to them. Drew Brees is an American Risk Manager that is used to winning.

 

What does this have to do with managing risk across global markets this morning? A lot. The behavioral side of analytics and how it applies to decision making in modern day finance is still in its very early days.

 

Neuroscientists, like my friend Dr. Richard Peterson, are starting to enlighten us about the intersection between investor psychology and financial markets. I’ve mentioned his 2007 book “Inside the Investor’s Brain” before as one of the most important risk management books I’ve ever read. Peterson just published “Market Psych” on September 7th, and it’s on the top of my reading pile this morning.

 

The intersection between confidence and fear is one of the most important factors in my multi-factor, multi-duration, risk management model. If you have a market that’s dominated by what the government is going to do next, and the core marketing message of that government is fear mongering about great depressions and keeping “risk-free” rates of return at ZERO percent, the impact on confidence becomes very real.

 

I don’t need a loser who gets paid to politically pander to tell me how to think about market risk or the bottoms up factors in meeting my employee payroll. Nor do I need them to eliminate the rate of return I have on the hard earned savings in my family’s bank account. What I really need is for the government to just stop and leave me and this market alone. You want a solution, Mr. President? Try that.

 

From the front line manager at a McDonald’s this morning to an offensive lineman protecting Drew Brees’ blind side last night – these are the men and women of this country that inspire our competitive spirits and drive a positive confidence interval in our decision making. Americans are back from Labor Day vacation showing a renewed spirit to persevere – this time, Mr. Big Government, just leave them alone.

 

I’m certain that I won’t be accused of being bullish since April, but don’t confuse the winning side of this game with a lack of confidence. For me, there is no such thing as the “risk on, risk off” game of finance often bandied about by pundits who have never traded a P&L in their life. Risk is always on. Confidence isn’t about being bullish or bearish. It’s about being right.

 

Not unlike the NFL on NBC.com last night, our revolutionary Hedgeye Risk Management Portal shows you everything that we do and when we do it. There is a replay on the competitive fields of real-life folks – we’re early in showing this to the world of finance. We think others will follow.

 

Since September 3rd, you’ll notice that this cuddly Thunder Bay Bear has done nothing but BUY long positions and COVER short positions. It’s not my job as a risk manager to bypass calling an audible when the game in front of me is changing. In the last week, Americans have become more confident and so has the US stock market’s internal risk management factors on our immediate term TRADE duration.

 

The top 3 plays of the week that are driving US consumer confidence higher are as follows: 

  1. The ABC/Washington Post Consumer Confidence report improved from minus -45 to -43 this week.
  2. MBA Mortgage Applications rose for the 2nd consecutive week by +6.3% on a week-over-week basis.
  3. Weekly US jobless claims dropped for the 3rd consecutive week to 451,000 this week down from 500,000 in the week of August 23rd. 

You can go back and see how many of our short positions we covered between August 24th and 25th (when confidence and mortgage applications bottomed). The instant replay doesn’t lie; people do.

 

The bottom line then was that the volatility index (VIX), or one of the clean-cut measures of concurrent fear was peaking in the high-20’s. All the “valuation” models that the Warren Buffett wannabes of this game use don’t work until prices reflect the appropriate Fear-Discount. If you are going to strap on the risk management pads and actually trade this game, keep that in mind.

 

My greatest fear about NOT being short the SP500 (SPY) here is that after I get fired up watching some of America’s finest on the field on Sunday, some “government is good” loser comes back into my life on Monday with another failed policy game plan that smokes all of the confident players in this country right back into their holes.

 

My immediate term TRADE lines of support and resistance for the SP500 are now 1085 and 1123, respectively. Go Redskins.

 

Best of luck out there today,

KM

 

Keith R. McCullough

Chief Executive Officer

 

"We're Used To Winning" - 1


THE M3: END TO FREE SHUTTLES IN SINGAPORE; PROPERTY PRICES

The Macau Metro Monitor, September 10th 2010


 

RWS WITHDRAWS HEARTLAND SHUTTLE BUSES TODAYonline

In a statement released last night, RWS said it was "voluntarily withdrawing its shuttle services in the spirit of collaboration with the Singapore Government".  RWS spokesman Robin Goh said that a total of eight services running through Bukit Merah, Queensway, Bedok, Choa Chu Kang and Bukit Panjang, Tampines, Jurong East, Ang Mo Kio and Bishan, as well as Tiong Bahru will end at 11pm on Sunday.  The remaining shuttles running through the Central Business District, Orchard and Marina areas will continue. 

 

Several hours before RWS's annoucement, MediaCorp visited the pick-up points in Bishan and Bedok and observed that demand for RWS' shuttle services - which had operated as scheduled - remained strong with many of the buses operating at full capacity, in spite of the authorities' investigation. Many of the passengers used the shuttles to get to Sentosa in general and not just RWS.  However, without the shuttles, business may soften.

 

 

IR'S TOLD TO STOP FREE SHUTTLE SERVICE IMMEDIATELY channelnewsasia.com
The Casino Regulatory Authority has issued directives to the IR's put and end to their free shuttle services, effective immediately.  RWS said that it received the directive at noon on Friday.  Approximately  4-5% of RWS's casino visitors travel to the resort by the free shuttle services and therefore, management doesn't expect that the Authority's move will have great impact on its business.

 

ANTICIPATED ANNUAL GROWTH OF PROPERTY VALUE IN MACAU TO EXPAND BY 5-10%  Macao Daily News

According to the president of Real Estate Chamber of Commerce in Macau, recent data indicates that Macau has clearly fully recovered from the global financial crisis. Value of real estate properties in Macau is almost back to pre financial crisis levels and if there are no further tightening measures or other negative external shocks in 2H10, the value of real estate property in Macau is estimated to sustain 5-10% annual growth.

 

 

CHINA'S PROPERTY PRICES RISE 9.3% IN AUGUST AMID COOL DOWN EFFORTS  Xinhua

According to the National Bureau of Statistics, property prices in 70 major Chinese cities rose 9.3% in August YOY but were unchanged on a MOM basis from July.  August trends are a deceleration from growth rates in the first 7 months of the year. On a YOY basis, China’s home prices increased 7.8% in Dec 2009, 9.8% Jan 2010, 10.7% in Feb 2010, 11.7% in March, 12.8% in April, 12.4% in May, 11.4% in June and 10.3% in July.  New home prices rose 11.7% YOY in August, a 1.2% deceleration from July.  Prices of second hand homes increased 6.2% YOY in August, down 0.5% from July.  Investment in property sector soared 34.1% to RMB $449BN in August.

 

 


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