The Macau Metro Monitor, March 2, 2011
GAMING INDUSTRY'S DEVELOPMENT TO SLOW DOWN: GOVERNMENT macaubusiness.com
Secretary Francis Tam said the government "is poised to control the level of expansion of the sector." He added, "We shall only see the industry increasing by a few percentage points” every year.
TICKETS TO UNIVERSAL STUDIOS LIKELY TO COST MORE Strait Times
Tickets for adults to Universal Studios Singapore now cost $66 on weekdays, and $72 on weekends and peak periods. Travel agents expect prices to rise by between $2 and $8 as a result of price hikes by RWS. RWS will charge travel agents between $1 and $3 more for tickets which they re-sell to tourists from April 30.
US REGULATORS INVESTIGATE JACOBS' ACCUSATIONS AGAINST SANDS macaubusiness.com
Las Vegas Sands has denied the allegations and will cooperate with the probe. Separately, Sands China has announced David Fleming as an alternate director to Michael Leven starting March 1. Fleming is the joint company secretary and the general counsel of LVS.
Notable news items/price action from the past twenty- four hours.
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This note was originally published at 8am on February 25, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Defense is superior to opulence.”
Stock market bulls pulled out all of their guns yesterday. From the Fed’s James Bullard beating his chest on the potential for QG3, to the Saudis banging out barrels of oil, and the media professing that the Libyan nut-job had been shot – it was all out there. Central Planners of the world unite!
Yes, it’s sad – but it’s true. The other side of the Big Government Intervention trade has been price volatility. What can the Almighty Government do for us next? Price “stability” mandate of the Federal Reserve Act of 1913 be damned. This casino is open for business.
Can US stock market bulls handle three consecutive down days anymore? The Europeans were amazingly able to stomach four. After a 3-day -2.8% drop from this intermediate-term cycle’s closing high in the SP500 of 1343, the question remains – can the bulls defend their critical support lines?
Government Supports in this market are crystal clear: immediately after the St Louis Fed dove opened his mouth, the US Dollar got Bullarded (new wiki synonym for debauched). At the same time the Saudis predictably defended their Kingdom.
Quantitative Supports are less clear: with so many of Wall Street’s finest still using the 50 and 200 day moving averages as their point and click concepts of revisionist risk management, it’s become both entertaining and frightening to watch. The bulls panic when there’s such a big gap between last price the and nearest one-factor price momentum reference point (the 50-day for the SP500 is down at 1287).
I used to do that – trade on emotion. When I was in college, someone invented the internet. And I was immediately able to punch a moving average into a chart. Then I started doing it with lots of charts. Then I started trading and realized by 2001 that I needed a lot of beers to convince myself that a simple moving average was going to be the elixir of my stock picking life.
I wrote about a basic 3-factor setup that I use in my multi-factor, multi-duration, risk management model earlier this week – PRICE, VOLUME, and VOLATILITY. So rather than attempting to make any more average-at-best jokes in a Friday note, I’ll just get on with it and show you some immediate-term TRADE lines of support and resistance.
SP500 (see attached chart)
The inverse correlation between the SP500 and the VIX is a critical one to consider when mapping out the probability of the US stock market holding onto its bullish intermediate-term TREND. What’s most interesting about the current setup is that when you expand your duration to 3 months-or-more (our TREND duration) as opposed to 3 weeks-or-less (our TRADE duration), both the SP500 and the VIX are bullishly positioned. One of the two has got to give.
Here are those two critical intermediate-term TREND lines of support:
For now, the better benefit of the doubt should be given to the stock market bulls. With the SP500 still up +93.2% from where we got bullish on US Equities in March of 2009, a tremendous amount of price momentum has been baked into this bullish cake.
Additionally, the immediate-term move in Big Government Sponsored Volatility (VIX) has been surreal (the VIX is UP +37% since February the 11th!). And most 3.5-4.5 standard deviation moves in price (oil just had one too) are subject to immediate-term mean reversion corrections.
All that said, the coming days will be critical to monitor from a PRICE, VOLUME, and VOLATILITY perspective. The fundamental Global Macro overlay of Growth Slowing as Inflation Accelerates will also be key to measure in real-time.
Most Asian and Emerging stock markets are already broken on both our TRADE and TREND durations. Concurrent VOLUME and VOLATILITY signals continue to support the bearish case for our short positions from Emerging Markets (EEM) to Brazil (EWZ).
Here at home, I maintain that the Superior Defense for America’s long-term prosperity is defending the US Dollar rather than debauching it. I want to stand alongside the brave men and women wearing Canadian and American jerseys who recognize that the names on the front of our jerseys mean more than the ones on our backs (Herb Brooks). It’s time to stop begging for Saudi barrels and Quantitative Guessing. It’s time to stand up and be accountable.
My immediate term support and resistance lines for the SP500 are 1295 and 1326, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – March 2, 2011
Equity futures have traded mixed to fair value, indicating a preference for risk aversion, amid rising geopolitical tensions. Violence in Iran yesterday, the world's fourth largest oil producer, helped push the Nymex oil contract back above $100/barrel. As we look at today’s set up for the S&P 500, the range is 18 points or -0.94% downside to 1294 and 0.43% upside to 1312.
MACRO DATA POINTS:
EARNINGS/WHAT TO WATCH:
We have 4 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.
CREDIT/ECONOMIC MARKET LOOK:
Headline consumer sentiment is on the mend, but there is once again a dramatic divergence between consumer expectations and present situation which is driving the over-all improvement. The divergence between the two is what we call the Optimism Spread.
The Conference Board Expectations Index has gained rapidly since the trough in February 2009 and is now merely 1% from its most recent peak of December 2006. Coincidentally, the Conference Board Present Situation Index has moved largely sideways since early 2009, remaining a staggering 76% off its most recent high of March 2007.
The topic of the U.S. consumer is foremost in investors’ minds and is of ten used by management teams to express when business may be good or bad in any given quarter.
The recent uptick in consumer sentiment is being driven by the increase in expectations of better times ahead and not by the “present situation.” On Monday, the inflated optimism was exposed for what it is as the government reported that “real” spending fell 0.1% in January, following a 0.3% increase in December and a 0.2% rise in November. Importantly, January’s decline was the first since April and puts real spending at 1.2% at an annualized basis in January 2011. We estimate that the current pace of annual spending needs to double to drive GDP growth above 3%.
Consumption drives approximately 70% of GDP and we have been uncomfortable with the bullish case for consumer spending since the introduction of the Consumption Cannonball theme in September of last year. We sometimes present themes that can are early, but in this case it is clear that there are acute risks pertaining to the consumer that are largely being ignored by investors. We are more comfortable with our belief that consumption is set to slow following Monday’s consumer spending data, and are further encouraged by the fact that Hedgeye’s bearish thesis on housing continues to play out. Although housing hasn’t spooked the market of late, if our Financials team’s forecast continues to play out as it has been, it will have a serious impact in 2011.
In January, personal consumption expenditure was weak despite a 1% surge in personal income. January’s gain was mainly due to a number of special factors including a $100 billion reduction in contributions for government social insurance. Social security withholdings were reduced as part of the Tax Relief, Unemployment, Insurance Reauthorization and Job Creation Act of 2010. Although employment grew by just 36,000 jobs in January, wages and salaries also expanded at a fairly strong and steady pace, increasing by 0.3%. The personal savings rate reached 5.8%; the first time since June 2010.
Rising food and energy prices are a drag on real spending and can influence expectations that the economy is getting better. In addition, the prospect of public sector cutbacks is looming large over broad swathes of the workforce. With so much inflation uncertainty inherent in the system today, why are consumers so much more about the future versus the current situation?
(1) Bernanke/QE is working?
(2) The republican takeover of Washington?
(3) Tax cuts?
(4) The jobs picture’s gradual improvement?
(5) The S&P 500 being up 5 of the last 6 months?
While our cautious stance on consumer spending appears warrented looking at the January data, it is too early to claim victory. Winter weather was a drag on January spending. As we look forward, anything less that 0.7% in personal spending for the next two months will likely lead to the consensus to reduce its GDP forecast.
Below, we attempt to interpret the usefulness of our Optimism Spread from a market standpoint and the results are interesting but less-than-conclusive. While the consumer’s rosy expectations have generally been prescient indications of recessions coming to an end, the track record from a market perspective has been less impressive.
The question I believe is most pertinent from here is whether or not we are in an economic environment that is more anomalous to the 70’s or the period following Volcker hiking rates and the ensuing equities bull market that played out as rates were cut to zero.
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