Friday, July 9, 2010

Morning Note...


Happy Friday…at approx 9:30pm last night I became a die-hard Cavs fan…thin note today…not much news out there…

Futures ~15bps lower after two consecutive days of relatively light-volume strength.  South Korea raises rates by 25bps overnight.  Canada’s unemployment data better than expected.  France’s industrial production better than expected.  The ECB denies the need for quantitative easing.  In corporate news, JNJ is lower on a drug recall, and GOOG is higher after renewing its China license.  (BIDU is subsequently lower.)  Also, Visa is higher premkt after being added to the Conviction Buy List at GSCO and Intel and AMD are lower on an OPCO downgrade.  Looking ahead, AA kicks off Q2 earnings next Monday. 

In other news, this caught my eye this morning:

Thiel’s Clarium, Loeb’s Fund Report June Losses: N.Y. Post 2010-07-09 10:53:27.585 GMT By Nadine Elsibai Skoczylas
July 9 (Bloomberg) -- Money manager Peter Thiel lost 7.7% in June, bringing Clarium Capital down 13.8% for the year, N.Y. Post reported, without saying where it got the information.

* Daniel Loeb’s fund Third Point Partners lost 2.1% in June, still up for the year by 12%: Post
                        * Avg. hedge fund fell 1.35% last month, following losses of close to 3% in May: Post, citing Hennessee Hedge Fund Index

For all the World Cup fans…the octopus chooses Spain!  (much respect…the octopus has not been wrong yet…here’s the video:  http://www.youtube.com/watch?v=kFvrAdyFUJ8)

Octopus Oracle Tips Spain Over Netherlands in World Cup Final 2010-07-09 09:49:10.437 GMT By Martijn van der Starre
July 9 (Bloomberg) -- Paul, the octopus that has correctly predicted all of Germany’s matches at the World Cup, predicted today a Spanish victory over the Netherlands in July 11’s World Cup final in Johannesburg when he selected a mussel from labelled glass tanks. The octopus oracle from the Sea Life Aquarium in Oberhausen, Germany, correctly predicted his homeland’s wins over Argentina, England, Australia and Ghana and the country’s losses to Serbia and Spain.

Air Products raises offer for Airgas.  Huawei Tech bidding to sell wireless broadband equip to S.  V added to Conviction Buy List at GSCO.  OPCO ups TXN.  UBSS ups COST.  OPCO cuts INTC, ATHR, CNXT, MPWR, MRVL.  EXPE cut at GSCO.   JEFF cuts BBY.  NEED ups VSEA.  RBCM ups WMGI.  ACE to replace MIL in S&P500.  +GOOG/-BIDU on news that GOOG actually renewed China license.  CPTS lowers guidance.  CITI names CELG/HGSI top picks.  JPM ups JNS.  CSFB ups KLAC.  LWSN reports in line and offers mixed guidance.  MSG lower on LeBron James decision.  NANO reaffirms guidance.  BERN cuts PT.  West LB ups QGEN.    

Asia higher overnight.  Europe hanging on to slight gains.  EUR/USD $1.2629.  Oil flat.  Gold +1%.          

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
DEVELOPERS DIVER        8.88      -10.03%            143
CINCINNATI FIN             25.11    -6.38%              200
JANUS CAPITAL GR         10.20    +4.51%             3900
GOOGLE INC-CL A           469.30  +2.79%             254784
EXPEDIA INC                  18.50    -2.53%              2000
KLA-TENCOR CORP         29.35    +2.26%             4380
BEST BUY CO INC           33.71    -2.01%              32370

Today’s Trivia:  As the father of the science of genetics, what did Gregor Mendel famously perform his inheritance studies on?
                                                                                                                                                                        
Yesterday's Answer:  To Kill A Mockingbird is set in Maycomb, Alabama

Best Quotes: 
EARLY LOOK: SENATORIAL MANIPULATORS
"When people learn no tools of judgment and merely follow their hopes, the seeds of political manipulation are sown."
-Stephen Jay Gould

If you have their email addresses, take a minute this weekend and send a US Senatorial Manipulator this message: STOP with the "China is a manipulator" fear-mongering; LOOK in the mirror; and FOCUS on fixing the problems with your own currency, deficit, and balance sheet.

Last night, after Timmy Geithner made his best policy decision as US Treasury Secretary to-date by not calling our largest creditor names, it was an American donkey race between Schumer, Hatch, and Baucus to see who could prove their analytical incompetence on global macro matters first.

Now most readers of the Early Look know that I am not a Geithner fan, but I am a fan of giving credit where credit is due. Geithner had the political spine to fight the protectionist wind on this issue because he finally understands the alternative. If the US continues to aggravate its Big Creditor, and China decides to unload the nuclear economic option (selling US Treasuries), the US economy would be blown to smithereens.

We've been hammering on this since we introduced our Q3 Macro theme of American Austerity last week (email sales@hedgeye.com if you'd like the 35 slide presentation with our US GDP model), but its important to repeat and review 3 critical factors in the US economic model that are changing:

1.       GDP growth
2.       Deficit spending
3.       Debt accumulation

Jokes about these ridiculous IMF assumptions for US GDP growth aside, we are finally starting to see some rational macro economists take down their US GDP growth targets for the back half of the year. At the same time, the Krugmanites of 'feed a man a fish for a day' (as opposed to teaching him to respect the cost of capital and access to it for life) are begging for more US government spending handouts as the US debt balance climbs.

Clearly some in Congress don't get the relationship between debt and compounding interest expense, or they wouldn't be mooning their Chinese landlord. If China starts selling US Treasuries, rates will rise sharply and so will America's interest expense line. Ask the Greeks how this math works.

US Balance Sheet Update: here are the most recent data points on the debt accumulation that Senatorial Manipulators have been signing off on:

1.       US National Debt leapt $166 billion in a single day last week, the third-largest one day increase in U.S. history
2.       The Federal Reserve's balance sheet expanded another $1.6B week-over-week to $2.34 TRILLION DOLLARS

Chuck Schumer is the modern day version of a Senator from Rome circa 71BC. He waves his orator's plumage from upon high and purges the citizenry's life savings as he feeds on his fish ponds of entitlements that he and his professional politician friends in Washington have created for themselves.

Hearing Schumer fear-monger Rumsfeld style about "great depressions" and the lack of Chinese transparency as he gorges himself on the fruits of this great nation's legacy is over the top. This is the Senatorial Manipulator from New York who oversaw the biggest gong shows in US financial history. Madoff, Lehman, AIG? Wake-up dude.

In other news... President Obama's approval rating from "independents" surveyed in the Gallup poll has dropped below the 40% line for the first time ever. With only 38% of theoretically independent votes telling us that they don't think the President of the United States gets it, it's probably time he puts a muzzle on some of his economic storytellers. Americans think politicians are lying to them and our deficit and debt math supports that claim.

All of this keeps us as bearish as we can be on the US Dollar (short UUP). Politicians may lie; but markets don't - and we think that with the US Dollar Index down for the 5th consecutive week, we are onto something here that our Professional Politicians need to be paying acute attention to.

Despite the US stock market putting on a 3-day rally from its July 2nd YTD low, from its October 2007 and April 2010 ZERO-percent-money-cycle peaks, the SP500 is down -31.6% and -12.1%, respectively. We're not currently short the SP500 (SPY) but we are waiting and watching for our selling opportunity.

Our immediate term TRADE lines of support and resistance are now 1006 and 1076, respectively.

Have a great weekend and best of luck out there today,
KM