“For some of them, inflation is not so bad; they even ask for a continuation of it, because they are the first to profit from it.”
-Ludwig von Mises
“For some of them” – that’s a critical preface, to a critical economic statement, during critical global economic times. If you’re reading this right now, consider yourself just like me . We are the fortunate ones. We can make money being long inflation.
If you haven’t read von Mises’ Fourth Lecture titled “Inflation” yet (in Economic Policy, Ludwig von Mises speeches; Argentina 1959), you should. On page 45 he goes on to write that:
“And there are always people who favor inflation because they realize what is going on sooner than other people do. Their special profits are due to the fact that there will necessarily be unevenness in the process of inflation… But of course, the politician in power who proceeds toward inflation does not announce: I am proceeding toward inflation.”
Unlike the Big Government monetization of debt experiments gone bad of Jimmy Carter (and then Bernanke-Lite Fed Head, Arthur Burns), how appropriate the lessons of history are that stand the test of time…
I’m long inflation.
In fact I got longer of inflation on the “buying opportunities” I have seen in commodities and currencies throughout the week. I have taken my asset allocation to Cash down in the Hedgeye Asset Allocation Model from 61% (at the beginning of the week) to 49% as of yesterday’s close.
How does one get long of inflation?
Of course, you can be long stocks too, which we are in both Germany and the US (admittedly too light in the shoes on the US side as we are long Healthcare and Energy, but short Tech and Consumer Discretionary).
That said, too light on Equities when the rest of the world wakes up to what we are really doing to world populations with trivial things like food inflation is definitely the place that the risk manager in me wants to be.
What are we (“some of them”) doing to most of them?
We’re starving them.
Now maybe Wall Street couldn’t give a damn about this. But I do. Here’s the data on world food prices (per the United Nations, not The Ber-nank):
The wizardry of the US Government’s calculation of inflation (CPI) is in the data as well. Ben Bernanke stares into the 60 Minutes cameras and does God’s work, under oath, saying that he didn’t see 2008 inflation with $150/oil or 2010 inflation with all-time record high world food prices. Charlatanism redefined.
When a professional politician or anyone who gets paid on inflationary terms tells you there is no inflation in the US, this is what they mean:
Top 6 Current US CPI Weighting:
*they’ve changed the CPI calculation 9x since 1996 (I wonder why)
So, obviously, the takeaway here is that Bernanke doesn’t see inflation because, like Hedgeye, he is bearish on US Housing. Unlike Hedgeye, he must think that the entire world works in NYC or Washington DC, where you don’t cook or drive to work.
Here’s another way to think about Global Inflation Accelerating and its impact on an interconnected global economy:
And across the world’s populations, here are this morning’s fresh off the Macro Grind global inflation reports for December:
I know – who cares about them people in Uruguay and Kazakhstan anyway. Nice trade Heli-Ben.
My immediate term support and resistance lines for the SP500 are now 1262 and 1284, respectively.
Trade inflation and roll the bones out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP - January 6, 2011
As we look at today’s set up for the S&P 500, the range is 22 points or -1.14% downside to 1262 and 0.58% upside to 1284. Equity futures are trading higher mirroring trading in Europe and Asia following good US employment data yesterday ahead of the non-farm payrolls Friday.
MACRO DATA POINTS:
TODAY’S WHAT TO WATCH:
PERFORMANCE: ALL 9 SECTORS BULLISH ON TRADE & TREND
CREDIT/ECONOMIC MARKET LOOK:
Treasuries were on the defensive today with the better-than-expected private payrolls and service sector data.
OTHER COMMODITY NEWS:
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VIP hold was high but December was still a very strong month. Here are the property details.
As we’ve discussed, total gross gaming revenues rose 67% and slightly eclipsed October’s record setting month. We estimate approximately 13-15% of the YoY growth was related to higher VIP hold. Nevertheless, it was a very strong month. Importantly, high margin Mass gaming revenue climbed 34% off of a difficult 33% comparison. Mass growth continues to approximate the visitation plus China GDP equation. VIP Chips (junket volume) increased 59% while VIP revenue (junket and direct VIP) climbed 82%. Slot revenue increased 29%.
Direct play appears to have remained at 7.9% of VIP volume, similar to last year. Adjusted for direct play, market VIP hold appears to be about 3.1%, higher than last year's 2.7%.
In terms of market share, it was a great month for Wynn and MGM with both earning well above trend. LVS suffered its second consecutive weak share month and it wasn’t hold related. While LVS got back to trend in Mass share, VIP volume only grew 2% on a YoY basis, well below the market at 59%. We think LVS will continue to lose share in 2011.
We are still going through the models but it looks like WYNN is tracking well ahead of consensus based on its Macau performance. Preliminarily, we think total WYNN EBITDA could exceed the Street by 20-25% in Q4. For LVS, there doesn’t appear to be upside to Q4 and we remain a little below the Street for company EBITDA. Macau remains a small piece of MGM’s overall business but EBITDA there is tracking ahead of consensus which we think is sustainable and should help the IPO close this quarter. Finally, MPEL looks like it should have no problem handily besting the consensus $106MM estimate.
YoY Table Revenue Observations
LVS table revenues rose 31% YoY as VIP revenues grew 32%, reversing the decline in November, and Mass revs increased 28%. VIP RC only rose 2% because of underperformance at Four Seasons.
Wynn Macau/Encore table revenues were up 72%, driven by an 80% increase in VIP revenues and a 39% increase in Mass revenues
MPEL table revenues soared 120% with the growth driven by a 127% increase in VIP and Mass growth of 90%
SJM table revenues grew 62%
Galaxy table revenue grew 30%, despite tough hold comparisons, driven by a 31% increase in VIP win and a 25% increase in Mass. RC Volume increased 56.1%.
MGM led the market with an astounding 209% table rev growth but December's hold almost doubled that of last year.
Table Market Share
LVS table share rebounded 1.5% sequentially to 16.3%, still way below its trailing 12-mth average of 19.3%
WYNN's table share was roughly unchanged sequentially at 16.9%, but way above recent trends
MPEL's table share decreased 50bps sequentially to 14.2%, driven by a 60bps increase in Mass and an 80bps decrease in VIP share. RC volume share increased 1.4% to 15.7%.
SJM's table share decreased by 1.5% to 30.6%, driven by a 120bps loss in Mass share and 150bps decrease in VIP share. RC volume share increased 1% to 34%.
Galaxy kept its table share of 10.3%.
MGM's table share continued its climb to 11.6%, the property's highest share since July 2009
December Slot Revenue Observations
Slot revenue grew 29% YoY in December reaching a total of $99MM and accounting for 4% of total revenues
Bearish on the global economy. Daryl Jones, Managing Director of Hedgeye talks to BNN on how a New Year brings new economic headwinds.
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.