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THE M3: POSITIVE GALAXY OUTLOOK

The Macau Metro Monitor, November 1st, 2010


GALAXY HOPING FOR A "VERY POSITIVE" FOURTH QUARTER FOR MACAU OPERATIONS macaubusiness.com

Robert Drake, CFO at Galaxy,  said, "The fourth quarter remains very positive. The first part of the quarter, October, is very strong. We remain very optimistic about the prospect of Macau. We think the future is very bright." On Galaxy Macau, he said, “We haven’t given an exact date out, it’s a little premature to give out an exact day. We want to make sure that we execute operationally and move forward. In the not too distant future we will release when our opening date is. We are on time, on budget."


WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 10 improved / 5 of 10 unchanged / 3 of 10 worsened
  • Intermediate-term (MoM): Positive / 5 of 10 improved / 3 of 10 unchanged / 2 of 10 worsened
  • Long-term (150 DMA): Negative / 1 of 10 improved / 1 of 10 unchanged / 7 of 10 improved / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - summary

 

1. US Financials CDS Monitor – Swaps were split last week, tightening for 19 reference entities and widening for 10. 

Tightened the most vs last week: COF, ACE, TRV

Widened the most vs last week: PMI, MTG, GNW

Tightened the most vs last month: ACE, ALL, TRV

Widened the most vs last month: BAC, WFC, COF

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - us cds

 

2. European Financials CDS Monitor – In Europe, swaps were similarly mixed. Swaps tightened for 23 of the 39 reference entities tightened and widened for 16, but the average level rose 13 bps, largely driven by increases in Greek bank CDS levels.    

 

Tightened the most vs last week: Commerzbank, Banco Popolare, Svenska Handelsbanken

Widened the most vs last week: Greek banks: Alpha Bank, EFG Eurobank Ergasias, National Bank of Greece

Tightened the most vs last month: Erste Bank, National Bank of Greece, Bakinter

Widened the most vs last month: Alpha Bank, Bank of Ireland, Swedbank

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - euro cds

 

3. Sovereign CDS – Sovereign CDS increased 36 bps on average last week as Greece, Ireland and Portugal continued to surge higher.   

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - sovereign

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.85 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - high yield

 

5. Leveraged Loan Index Monitor – The leveraged loan index rose 7.3 points last week, closing at a new YTD high. 

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - lev loan

 

6. TED Spread Monitor – Last week the TED spread rose, closing at 17.5 bps.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index fell 1.6 points, closing at 16.5.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields continued to climb sharply, rising 120 bps week over week, and are now rising on a month-over-month basis as well.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads fell to their lowest level for at least four months before rebounding slightly to close at 189.   

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell five points, closing at 268 versus 273 the prior week.  

 

WEEKLY FINANCIALS RISK MONITOR - SHORT-TERM OUTLOOK REMAINS NEGATIVE - baltic dry

 

Joshua Steiner, CFA

 

Allison Kaptur


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 1, 2010

As we look at today’s set up for the S&P 500, the range is 23 points or -1.21% downside to 1169 and 0.74% upside to 1192.  Equity futures are trading above fair value in what is set to be a pivotal week for the markets with QE2, ISM, mid-term US elections and payrolls on the agenda. Strong Chinese manufacturing data is supporting Asian and European markets while the soft tone to the dollar has pushed commodity prices higher.

 

Today sees the release of Oct ISM data with StreetAccount forecasting a reading of 53.6 for Oct vs a prior 54.4

  • Anworth Mortgage Asset Corp (ANH) 3Q core EPS missed ests.
  • Avanir Pharmaceuticals (AVNR)’s Nuedexta (dextromethorphan hydrobromide/quinidine sulfate) approved by FDA for treatment of pseudobulbar affect (PBA)
  • Forest Laboratories (FRX)’s Teflaro (ceftaroline fosamil) approved by FDA to treat community-acquired bacterial pneumonia, acute bacterial skin and skin structure Infections, including MRSA.
  • Fortinet (FTNT) received a takeover approach from IBM, according to two people close to the situation
  • GlaxoSmithKline (GSK) is voluntarily recalling Emo-Cort 2.5% Lotion in Canada, citing mold contamination
  • Idenix Pharmaceuticals (IDIX) 3Q loss-shr 18c vs est. loss 22c
  • Microsoft (MSFT): Barron’s Eric Savitz suggests Microsoft may be too cheap to ignore
  • Northeast Utilities (NU) raises 2010 adj. EPS forecast
  • Stryker (SYK) buys Porex Surgical, sees neutral to 2010, 2011 EPS, accretive after
  • UIL (UIL) sees 2010 EPS $1.95-$2.05 vs prev. forecast $1.92-$2.07; est. $1.90.

 PERFORMANCE

  • One day: Dow +0.04%, S&P (0.04%), Nasdaq (flat), Russell +0.33%
  • Month/Quarter-to-date: Dow +3.06%, S&P +3.69%, Nasdaq +5.86%, Russell +4.02%.
  • Year-to-date: Dow +6.62%, S&P +6.11%, Nasdaq +10.50%, Russell +12.47%
  • Sector Performance: Materials +0.81%, Consumer Staples +0.35%, Utilities +0.16%, Industrials +0.16%, Energy +0.07%), Tech +0.16%, Consumer Discretionary (0.03%), Financials (0.11%), and Healthcare (0.42%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Monster WW +25.5%, Estee Lauder +10.50% and US Steel +5.73%/Genworth Financial -9.86%, First Solar -8.91% and Sunoco -5.66%.

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 574 (+556)  
  • VOLUME: NYSE: 1036.73 (+3.36%)
  • VIX: 21.20 +1.53% - YTD PERFORMANCE: (-2.21%) - THE VIX IS UP 12.9% LAST WEEK
  • SPX PUT/CALL RATIO: 3.37 from 2.22 +51.85% - UP EVERY DAY LAST WEEK

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.84 0.304 (1.735%)
  • 3-MONTH T-BILL YIELD: 0.12% -0.01%    
  • YIELD CURVE: 2.29 from 2.32

COMMODITY/GROWTH EXPECTATION:

  • CRB: 300.67 +0.26%
  • Oil: 81.43 -0.91% - BULLISH
  • COPPER: 373.35 -1.43% - OVERBOUGHT
  • GOLD: 1,357.88 +1.26% - BULLISH

CURRENCIES:

  • EURO: 1.3947 +0.18% - BULLISH
  • DOLLAR: 77.266 -0.05%  - BEARISH

OVERSEAS MARKETS:

 

European markets:

  • FTSE 100: +0.30%; DAX +0.35%; CAC 40 +0.03%
  • Major indices are firmer in reaction to Chinese manufacturing data which shows manufacturing activity strengthened markedly in Oct. The upside move looks broad based with Basic Resources, Oil & Gas and Autos pacing gainers.
  • While there has been little news flow across the continent so far, the week will be a busy one with central bank decisions on Thursday, plus the earnings season continues.
  • Markets will take comfort from news that Portugal's minority Socialist government and opposition Social Democrats have been able to reach an agreement on the 2011 budget and averting a potential political crisis
  • BHP Billiton is preparing to "sweeten" its $39B hostile takeover bid for Potash.

Asian markets: 

  • Nikkei (0.52%); Hang Seng +2.39%; Shanghai Composite +2.52%
  • Most markets closed higher although the strong yen knocked export orientated stocks in Tokyo.
  • China and Hong Kong led the region on strong manufacturing data.
  • South Korea rose, led by automakers who jumped on results
  • China Oct PMI +54.7 vs prior +53.8, Oct HSBC PMI 54.8 vs prior 52.9
  • Japan Oct domestic auto sales (26.7%) y/y 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



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Taking Sanity Seriously

“Everything is changing. People are taking their comedians seriously and the politicians as a joke.”

- Will Rogers

 

This weekend during his 200,000 plus people “Rally To Restore Sanity And/Or Fear”, Jon Stewart joined the ranks of calling the press out as the Manic Media. “If we amplify everything, we hear nothing,” he said. “The press is our immune system. If it overreacts to everything, we eventually get sicker.”

 

I don’t think he was precluding the financial media from that statement either. At least in politics there’s a core competency in being raging Republican or Democrat. In the arena of finance, the incompetence of academic dogma and Keynesian policy is pervasive. What sell-side lovers amplify as “news” becomes a contra-indicator that we make money from. Thank God for that.

 

This week brings us the Super Bowl of market hope:

  1. Tuesday = Midterm Elections
  2. Wednesday = Federal Reserve’s Decision to Debauch The Dollar
  3. Thursday = European Central Bank and Bank of England Fiat Fool statements

Then on Friday, everyone will come back from their mid-term election and Dollar debasement parties in Washington DC to be hung-over by Hedgeye reminding them that neither Republicans or Quantitative Guessing will result in anything more than what we already have in this country, Jobless Stagflation.

 

Jobless Stagflation? What’s that? Don’t ask Barron’s – they decided to title this weekend’s cover story “Bye-Bye, Bear”…

 

No, I couldn’t make that up if I tried… and no, I don’t think the probability is very high that Barron’s is a leading indicator on the US stock market’s next major move either.

 

Let’s start Taking Sanity Seriously and understand what’s occurred since Ben Bernanke exercised his conflicted and compromised right to give the perma-bulls and financial media alike something to cheer on since the Jackson Hole Groupthink Summit on August 27th:

  1. The SP500 is up +13%
  2. The CRB Commodities Index is up +14.5%
  3. The Input Price component of Chinese manufacturing is up +15.5%

Seriously? Yes, this is a very serious level of expedited inflation folks.

 

But what does it mean? Doesn’t this mean that Burning The Buck at the stake is a credible, everybody-wins, strategy? Or does the Manic Media on the Western side of the world get paid to suspend disbelief and take the Groupthinker’s word for it that this is going to end in jobs?

 

The Manic Media doesn’t do buy-side equations, but we’ll give them another one to chew on now that our clients have their positions on:

 

QG = COGS inflation

 

Seriously. It’s sort of one of those IF/THEN equations that they can build upon using the equation we gave them a few weeks back:

 

QE = i

 

Take these equations very seriously.

 

If, Quantitative Easing (QE) = inflation, and QE = QG (Quantitative Guessing), then QG = COGS (cost of goods) inflation. I know, I know. This is as brilliant a mathematical revelation as Morgan Stanley cutting its US Dollar forecast this morning “As The Federal Reserve Sets To Ease.” That and “Thirty Three Hour Race May Induce ECB Surrender on Weak Dollar” are top Bloomberg headlines this morning, fyi.

 

Notwithstanding the analytical incompetence of the political media on financial matters, this turns Jon Stewart into a very savvy politician, of sorts. Or is he a politician? Maybe he’s just simplifying the common sense signals that normal human beings have in their heads as Washington attempts to fear-monger you into believing that there is only deflation and, as a result, you should earn 0.17% on your hard earned savings in perpetuity?

 

Here’s what the Chinese think about this American style Burning of the Buck this morning:

  1. “US Dollar depreciation exacerbates currency war” –China Trade Ministry
  2. “China should buy gold, oil, to avoid US Dollar losses” –Chinese Business Reports
  3. “Yuan deposits rise as Hong Kong currency peg debate heats up” –Bloomberg Asia

Seriously? Yes, the Chinese  are seemingly sane folks.

 

Oh, and they have the real-time price data to support it. There was a creepy little Halloween critter in China’s better than expected PMI reports last night (54.7 OCT vs 53.8 SEP) called COGS (cost of goods) that showed input prices rise to 69.9 in October versus 65.5 and 60.5 in September and August, respectively. At the same time, South Korea released a new high in their inflation report of 4.1% overnight versus 3.6% in September.

 

If you’re taking the global interconnectedness of markets and prices seriously, you’re seeing inflation rise, globally, as joblessness stagnates locally. This is called Jobless Stagflation. And we don’t think the Manic Media’s stock market cheerleaders will make that go away by the end of this week.

 

My immediate term support and resistance lines for the SP500 are now 1169 and 1192, respectively. In the Hedgeye Portfolio, I remain short both the US Dollar (UUP) and the SP500 (SPY). I’ll be a seller of all buy-and-hope oriented strength this week.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Taking Sanity Seriously - SERIOUS


The Week Ahead

 The Economic Data calendar for the week of the 1st of November through the 5th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - cal1

The Week Ahead - cal2


We Are Long Oil As A Weak Dollar Dominates

Conclusion: Even though inventory is at a 10-year high domestically, the U.S. dollar continues to drive the price of oil.

 

Position: We are long oil via the etf, USO.

 

Yesterday, we added a position in oil to the Hedgeye Virtual Portfolio via the etf, USO.  One of the primary reasons we are upping our allocation to commodities is to protect ourselves against inflation.  With the Fed continuing to signal that dollar debasement will continue via quantitative easing, those commodities that are priced in U.S. dollars really only have one direction to go . . . up.

 

In addition to the position in the USO, we also have positions in two oil producers, Suncor (SU) and Lukoil (LUKOY).  Our Energy Sector Head Lou Gagliardi described these two stocks this way in a recent note:

  • Suncor (SU) – “This veteran plays the game the old way, hard and dirty, the son of miners and oil sands. A patient hitter, who likes to work the count into long lead projects and wait for his bitumen pitch, he hits from both sides of the plate, mining and in-situ, a power hitter, who plays the gaps and hits for average. SU can hit the ball deep into the resources, a steady glove he brings economies to scale at third base.”
  • Lukoil (LUKOY) – “This old veteran Odeki Russo, set all-time batting records back in his home country Russia. A long ball hitter, Lefty likes to go deep into the resources, excellent balance sheet, with solid arm can throw into International plays. A truly five tool player, deep assets with speed on the base paths, strong glove balance sheet, field a deep discount, throws well with great upside, and brings economies to scale in the field.”

If you would like more information on these stocks, please email and we can plug you in directly to our global energy team.

 

Setting the impact of a weaker U.S. dollar to the side, the short term fundamentals for oil are not overly bullish, specifically as it relates to inventory. Crude oil inventories in the United States are now at 366.2 million barrels, which is up almost 8% y-o-y.  In fact, days of supply is at almost 26.1 days, which is literally the highest level of days of supply on hand in the last decade.

 

Below we’ve charted oil versus the Canadian Dollar / U.S. Dollar exchange rate.  The chart tells us a few things.  First, as we note above, a weak dollar will lead to a higher price for oil.  In addition, it will lead to an increase in those currencies that are supported by high oil prices, such as the Loonie and the Ruble.  This of course also creates more risk as we noted in the Early Look today, which is that of interconnected global risk.  So, while we can be long commodities due to dollar weakness and to protect against inflation, we also must be aware of the increase correlations that are occurring globally and the fundamental supply / demand backdrop.

 

Daryl G. Jones

Managing Director

 

We Are Long Oil As A Weak Dollar Dominates - DJ comm


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