Financial Risk Monitor Summary (Across 3 Durations):
1. US Financials CDS Monitor – Swaps were mixed across domestic financials last week, widening for just 9 of the 28 reference entities and tightening for the other 19.
Tightened the most vs last week: BAC, PRU, GNW
Widened the most vs last week: ALL, CB, TRV
Tightened the most vs last month: SLM, PRU, GNW
Widened the most vs last month: ALL, CB, TRV
2. European Financials CDS Monitor – In Europe, banks swaps were similarly mixed. Swaps widened for 20 of the 39 reference entities.
3. Sovereign CDS – Sovereign CDS rose less than one basis point on average last week.
4. High Yield (YTM) Monitor – High Yield rates rose very slightly last week, closing at 8.39 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit a new high, rising 8 points to close at 1564.
6. TED Spread Monitor – The TED spread backed up late in the week to close at 20.2.
7. Journal of Commerce Commodity Price Index – Last week, the index fell half a point, closing at 25.1 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose slightly, ending the week 22 bps above the prior week’s close.
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 increased sharply last week, closing at 195 bps, 13 bps lower than last week.
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 10 points to close at 200.
11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.9% upside to TRADE resistance, 2.4% downside to TRADE support.
Joshua Steiner, CFA
TODAY’S S&P 500 SET-UP - December 20, 2010
As we look at today’s set up for the S&P 500, the range is 13 points or -0.64% downside to 1236 and 0.41% upside to 1249. Equity futures are trading mixed to fair value as investors keep an eye on events on the Korean peninsula where tensions threaten to escalate after South Korea went ahead with its drill with live ammunition. Treasuries and the dollar are benefiting as investors apply safe haven trades. European markets are frozen amid some pretty awful weather which has shut much of the continent's transport systems, with the UK particularly badly hit. Elsewhere, news flow is thin in what looks like being a quiet run in to the festive break assuming the situation in Korea does not escalate beyond current tensions
CREDIT/ECONOMIC MARKET LOOK:
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“Nothing is more obstinate than a fashionable consensus.”
You’d think that some of the sell side’s finest would have learned something from being unanimously bullish on the US stock market in December 2007. Think again. It’s December of 2010 and, after a few minor bailouts and major bonus seasons, the bulls are back.
Don’t wince. Without a Fashionable Consensus, how else would we generate long term absolute returns? This weekend’s edition of Barron’s “Outlook For 2011” may be one of the finest gifts of Groupthink that we’ve been offered in years.
As Barron’s themselves reminds risk managers (not in the cover story article), the SP500 has only seen double-digit gains for 3 consecutive years twice since World War II (1951 and 1994). Looking at the bullish 2011 predictions for US stocks that way, maybe consensus is contrarian!
Will 2011 mark a 3rd year in a row of double-digit gains?
Well, let’s go through that…
Let’s start with a level. My immediate term TRADE zone of resistance for the SP500 into year-end is 1. Giving year-end bonus and mark-up season the bullish benefit of the doubt, let’s use the top end of that range and round the number up to 1256.
Since a +10% or better gain in the SP500 for 2011 (versus 1256) = 1382, let’s take a gander at who is more bullish than that:
Now, to be fair, we’ll need to provide some disclosures (it’s a sell side thing)
*the aforementioned 2011 targets are from last week’s Bloomberg survey and subject to revision
**some of these estimates are the mid-point of Big Broker’s internal range (that’s a CYA thing)
***some estimates are from economists and bond strategists (yes, on Wall Street, cops are sometimes firefighters for commission)
The only person we can find who is more bullish than Binky Chada at Deutsche Bank isn’t a sell-sider, but he was equally as Bullish As Binky back in 2008. Don Luskin called for a +30% move in US stocks when I debated him on Kudlow on Friday night. Luskin’s made for YouTubing estimate implies a +377 point move in the SP500 to all-time highs in 2011 to 1633.
Now let’s not get caught up in what’s going on in the rest of the world this morning (Global Growth Slowing, Inflation Accelerating, and Interconnected Risk Compounding). Chinese stocks closed down for the 4th straight session to -13% for 2010 YTD and the CRB Commodities Index level of 320 is +25.5% inflated since the beginning of July.
Per the US stock market centric bulls, these interconnected global economic realities don’t matter, until they do.
Let’s get back to the US stock market’s 2011 Fashionable Consensus and dig a little deeper into its tapestry.
Most risk managers realize that doing what everyone else is doing isn’t a great idea (especially if you want to charge your clients 2 and 20). That’s why I’m short Tech (XLK) and Industrials (XLI) going into year-end. Both are reaching extreme levels of being intermediate-term TREND overbought.
I’m bearish on US Equities (SPY) and US Bonds (SHY). I’m bullish on the US Dollar (UUP). As a result, I’m bullish on building up a large cash position as we head into what I think is going to be at least a 7% correction in the next 3-6 months (SP500 downside target = 1168).
No, I’m not reckless enough to give you my “year-end target” for the SP500 (that’s what unaccountable Big Brokers do). But I will tell you what I think every day between now and then. I’ll tell you what my upside/downside probabilities are across my 3 investment durations (TRADE, TREND, and TAIL), and I’ll take a long or short position that I’m accountable to.
If I’m wrong on US Equities in the next 3-6 months, I think some combination of the scenario laid out by Jeff Knight at Putnam (buy side PM) and Doug Cliggott (ex buy-sider at Credit Suisse) has the highest probability. Upside in the SP500 to the 1 range with the two sectors that I think auger best to an environment of US style Jobless Stagflation (Energy and Healthcare) outperforming.
My immediate term TRADE lines of support and resistance lines for the SP500 are now 1236 and 1249, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
With table revenues at HK$8.0 billion through the 15th we are now projecting HK$17.0-17.5 billion in total revs for the full month of December.
Our new projection range represents YoY growth of 55-60% - still strong but a slight slowdown from the first 10 days of the month. Our projection takes into account slot revenue and the number of weekend days and weekdays. Market shares are shown in the table below. We continue to highlight Wynn’s impressive bounce back in market share and MGM's elevated share. We think both will continue.
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