The Dawn Patrol – 04.09.12 – On Super Mario. LCM Rcube Monthly is out! Citi’s Global Macro Investors positioning. MS on US earnings.

Chonî,

European markets futures indicated flat this morning while Asia is down vetween -0.25% and 0.63% on an article in the “The People’s Daily” arguing that pro growth measures should be kept for later. Macro eyes to focus on anything coming out from the European leaders meeting, the US ISM and US Auto sales.

Ups/Downs : MS likes +DAI/-BMW and +TEF/-TIT pairs and reiterates OW on ProSiebenSat1SEB raised to Buy at Nomura whereas Nordea is cut to Neutral – Michelin named a Most Preferred stock at Citi, replaces VW – Citi reiterate Buy on APR Energy and upgrade Telekom Austria to Buy – Accor EBIT estimates & PO cut c.3% at Citi – Unibail cut to UW at Exane – JPM downgrade BARC to Neutral saying capital at risk analysis concludes biggest shortfalls – British Land, Derwent London, Unibail are JPMorgan Sector Top Picks. GS initiates SDL with Buy, reitereates conviction Buy on Richemont and Unit 4, reiterates Buy on LSR Group and DnB.

LCM RCUBE

LCM – Rcube – Global Macro Monthly Report – September 2012

Follow the link to get the latest LCM RCUBE Macro monthly report.

As a reminder, we went long risk in the middle of May as the credit lending situation continued to improve. On the equities side, we remain constructive with a long position in the Footsie (basic resources, miners) and we’re still cautious on the US consumer discretionary (short XLY). Most indicators show that despite this rally, investors continue to hate equities (high put/call ratios, investors survey…).
It’s too early to go back in EM equities (Chinese earning revisions ratios dive).
We like Gold and we added some gold miners (via the GDX ETF) in the portfolio.
On the FX side, we believe the long USD trade is too crowded so we sold the EM sovereigns in USD but we want to keep the EM debt in local currencies.

CURRENT THEMES

Moody’s cut outlook on EU’s ratings to negative due to negative outlook on Aaa ratings of states with large contributions to the EU budget.

On Super Mario
Looks like he’s pushing the right buttons. The news that the 3y bonds buying program is not against the EU laws seems to be of significant importance. It suggests that Draghi’s plan has been delivered to the EU leaders. We now need Spain to ask for help and Germany to say yes.

Today Van Rompuy meets with Merkel and Monti with Hollande. We’re getting there. It’s happening now. Thursday is key. Merkel is still defending strict budget controls but she also seems a tad more inclined to follow through: ” But I also say that in such a difficult phase these countries deserve our solidarity and that we root for them to overcome their difficulties.”

STRATEGY

CITI (Hale) Global Macro Strategy
Investor Positioning Indicators.

To be honest, I’m not very familiar with Citi’s research. I really liked their down to earth call on European equities last week. It just makes sense. Yesterday, they published an interesting new weekly where they look at investors positions… I just copied and pasted:
Risk Appetite and Investor Sentiment — Our GRAMI risk aversion measure increased last week, but remains low in the big picture. In the meantime, our NISI sentiment index increased to levels not seen since mid-march.
FX — CFTC positioning shows a further reduction in net USD longs, with positioning close to neutral now. CitiFX Positioning Indicators indicate risk reduction amongst many FX crosses.
Rates — The August update of Citi’s Interest Rate Survey shows net positioning remaining in net long territory. Meanwhile, CFTC data also remains net long.  Equities — Mixed signals persist. CFTC data moved into net long territory, the AAII Bull-Bear decreased sharply, the Long-Short beta remains range-bound and Citi’s latest investor survey shows high cash balances.
Credit — Citi’s latest investor survey shows no meaningful reductions in positioning overall. Inflows remain strong relative to history, although slightly lower than last month.
Commodities — Our aggregate measure using CFTC data continued to increase, forming a fresh local high. WTI net longs and positioning in the ‘Ag’ complex continue to build too.

MS (Parker) US Equity Strategy
How Do We Know if an Industry is Over Earning?

Some interesting data in there to grasp the level of margins companies have reached in the US and the Analysts optimism… Current net margins are at 8.2% vs 50y average of 4.3%. Most of the margin improvements come from lower COGS (55%), SG&A (12%) and more worrying cuts from R&D and capital spending. This is a very interesting paper as it focuses on the fundamentals of corporate america. It helps to look at the evolution of margins throughout industries and where there is more fat to cut, or those that have been milked too far…

OTHER STUFF

Earnings Matter Most for U.S. Stocks as Economic Obsession Fades – Bloomberg http://bloom.bg/PY4OC0

Max Kamir

Louis Capital Markets UK,LLP

Authorised and regulated by the FSA and Banque de France

39-41 rue Cambon

75001 Paris

T +33 (0)1 53 45 10 74

E mkamir
I http://www.louiscapital.com

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