prev

Getting Old

“Demographics is destiny.”

-Arthur Kemp

 

Undoubtedly, there is a lot I disagree with Arthur Kemp on.  He is the Foreign Affairs Spokesperson for the British National Party, and is a self-avowed white separatist and critic of miscegenation.  Yup, definitely not that kind of cat I would spend much time socializing with or supporting.  Despite this, his quote above regarding demographics rang very true with me.

 

We employ demographics across many of our research verticals, and in fact use it from a macro perspective when analyzing countries and demand patterns.  The inevitability of demographic trends is difficult to deny.  In some instances, it may merely be getting old, which is what my mother likes to tell me I’m doing as a 37-year old bachelor.  In other situations, demographics, and the related outcomes, relate more to youth and birthrates.

 

In an intraday note yesterday titled, “Could the Kingdom Fall?”, I highlighted the importance of age to social unrest in the Middle East and North Africa.  Simply put, MENA has a young population that is severely under-employed.  If there is an elixir for social unrest, this is it - young people with too much time on their hands, and not enough money in their pockets. 

 

As a frame of reference, the median age in the United States is 36.9 years. Globally, the median age is 28.4 years.  So, the population of the United States is meaningfully older than the rest of the world.  The global median age is driven down by the Middle East and North Africa.  In the Chart of the Day, we’ve highlighted this global discrepancy broadly, but the median age in Iran is 26.8, in Iraq 20.9, in Egypt 24.3, in Libya 24.5, and in Pakistan 21.6.  The lower average and median ages in MENA have been driven by vastly improving health care over the last decade, which have driven up birthrates.

 

In Japan, the key demographic trend is the exact opposite.  In contrast to many MENA countries, and really the world, Japan is old.  Not getting old, but already there.  In fact, the median age in Japan is 44.8 years.  According to the CIA World Fact Book, this makes Japan the second oldest nation based on median age after Germany, whose median age is 44.9.  Not surprisingly then, demographics is one the key tenets in our bearish thesis on Japan’s equity and currency; or as we like to call it: Japan’s Jugular.

 

While Japan’s median age is slightly lower than Germany’s, it has by far the world’s most elderly population.  Currently, as of 2009, 22.7% of Japan’s population is above 65 years of age.  The Japanese government has modeled this ratio to grow to 29.2% by 2020 and to 39.6% thirty years after that.  The implications are that in ten years the ratio of retirees to working age will be ~48% in Japan. 

 

The aging Japanese population has dire implications related to the future fiscal and monetary health of the country.  The Japanese Government Pension Investment Fund, the world’s largest pension fund with ~$1.4 trillion in assets, has consistently been one of the largest buyers of Japanese government debt.  This fiscal year, ending March 2011, the fund will be for the first time a net seller of Japanese government bonds.  According to Takahiro Mitani, the President of GPIF, “We certainly have to come up with an adequate amount” to pay pensions.  With these bond sales, the impact of demographic headwinds has likely reached an inflection point in the Japanese economy. These sales will only accelerate in the coming decades and with them the associated risks to the Japanese economy (higher interests rates as one) will also accelerate.

 

In the United States, there is some clear destiny embedded in demographic trends as well, specifically related to healthcare and healthcare investors.  The Baby Boomer wave, which Healthcare investors commonly, and mistakenly, place as the core driver of a long-term Healthcare growth thesis, remains the most consequential domestic demographic trend. 

 

Boomer Employment (45-64 yr olds) reached its crescendo in the 1 timeframe with peak earnings and peak disposable income occurring alongside historic lows in unemployment.  Now, with this segment of the working population in deceleration mode, the U.S. workforce nearing a peak in average age, and the echo boomers (30-39 yr. olds) years away from peak consumption growth, the healthcare and broader economy face significant longer-term demographic headwinds.

 

This last point is also embedded in long-term projections for healthcare and social security entitlements in the United States.  In the Congressional Budget Office’s long-term baseline scenario, due to these aging demographic trends, social security spending accelerates from 4.8% of GDP in 2010 to 6.2% in 2035 and healthcare spending accelerates from 5.5% of GDP to 9.7% over the same time period, which will lead to a huge ramp in mandatory government spending over the coming decades with no reform.

 

While there is inevitability embedded in many of the demographic trends outlined above, from a risk manager’s perspective we just have to manage the tail and headwinds accordingly.   And as Chuck Jones, the inventor of Wile E. Coyote, said about inevitability:

 

“There is absolutely no inevitability as long as there is a willingness to think.”

 

Indeed.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

 

Getting Old - daryl1

 

Getting Old - daryl2



THE M3: TAM COMMENTS; HIGHER USS PRICES; FLEMING

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.

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

TALES OF THE TAPE: PEET, CMG, MCD, DPZ, CBRL

Notable news items/price action from the past twenty- four hours.

  • PEET gained 0.3% on strong volume while other QSR concepts declined on the day.  Interestingly, following the outperformance of the stock yesterday, the company was upgraded today to Buy from Neutral at Janney Capital.
  • CMG was upgraded to Market Perform from Underperform at Morgan Keegan.  The stock has been trading poorly of late as concerns mount over the commodity cost outlook and the ongoing investigation into CMG’s hiring practices by immigration authorities.
  • MCD, according to Bloomberg, is expecting a 20% jump in sales in Malaysia.
  • DPZ reported earnings in line with street expectations yesterday morning but the stock declined on accelerating volume on inflationary headwinds and management’s outlook.  See our posts from yesterday.
  • CBRL declined 3.6% on strong volume.   The significant rise in gas prices at the pump will impact travel plans this summer, which could impact CBRL’s same-store sales trends.

TALES OF THE TAPE: PEET, CMG, MCD, DPZ, CBRL - stocks 32

 

Howard Penney

Managing Director


Superior Defense

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.”

-Adam Smith

 

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)

  1. TRADE line resistance = 1326 (that’s both a lower long-term and lower immediate-term high)
  2. TRADE line support = 1295

Volatility (VIX)

  1. TRADE line resistance = 22.96
  2. TRADE line support = 18.14

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:

  1. SP500 = 1251
  2. VIX = 18.11

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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Superior Defense - na1

 

Superior Defense - na2


THE HEDGEYE DAILY OUTLOOK

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:

  • MBA Mortgage Index Drops 6.5%; Purchases, Refis Down; MBA mortgage applications index fell 6.5% week ended Feb. 25.; Purchases slid 6.1%, refis down 6.5%
  • 30-yr fixed rate 4.84% vs prior 5.00%
  • 7:30 a.m.: Challenger Job Cuts
  • 8 a.m.: Fed’s Hoenig speaks on Council on Foreign Relations
  • 8:15 a.m.: ADP Employment Change, est. 180k, prior 187k
  • 10 a.m.: Bernanke testifies before the House
  • 10:30 a.m.: DoE inventories
  • 2 p.m.: Fed Beige Book
  • 2:15 p.m.: Fed’s Lockhart speaks on economic outlook in Atlanta
  • 8 p.m.: Bernanke speaks on state, local challenges in New York, no Q&A

EARNINGS/WHAT TO WATCH:

  • Yahoo! is in talks to dispose of its 35% stake in its Japanese J-V with Softbank, according to two people briefed on the matter
  • Amazon.com threatens to sever ties with >10,000 affiliates in California amid a dispute with the state over proposed taxation of Internet purchases
  • The U.S. Senate will vote on a stopgap budget bill need to prevent a government shutdown; it passed the House yesterday 335-91 vote; Ontario public hearings to discuss TMX/ LSE deal begin today
  • FDA advisory panel members discuss draft report on menthol cigarettes
  • NFL collective bargaining agreement is scheduled to expire tomorrow

PERFORMANCE:


We have 4 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow (1.38%), S&P (1.57%), Nasdaq (1.99%), Russell 2000 (1.99%)
  • Month-to-date: Dow (1.38%), S&P (1.57%), Nasdaq (1.61%), Russell (1.99%)
  • Quarter/Year-to-date: Dow +4.15%, S&P +3.87%, Nasdaq +3.19%, Russell +2.99%
  • Sector Performance: - Materials (2.3%), Industrials (2.2%), Financials (2.2%), Consumer Disc (1.8%), Telecom (1.7%), Tech (1.7%), Energy (1.5%), Utilities (1%), Healthcare (0.7%), Consumer Spls (0.5%)

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1590 (-2681)  
  • VOLUME: NYSE 1187.03 (-5.60%)
  • VIX:  21.01 +14.50% YTD PERFORMANCE: +18.37%
  • SPX PUT/CALL RATIO: 2.31 from 2.30 (+0.69%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 18.27 0.812 (4.649%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • 10-Year: 3.41 from 3.42
  • YIELD CURVE: 2.75 from 2.70

COMMODITY/GROWTH EXPECTATION:

  • CRB: 355.18 +0.74%; YTD: +6.72%  
  • Oil: 99.63 +2.74%; YTD: +7.48% (trading +0.32% in the AM)
  • COPPER: 450.95 +0.29%; YTD: +0.86% (trading -0.49% in the AM)  
  • GOLD: 1,428.55 +1.18%; YTD: +1.02% ( trading +0.34% in the AM)  

COMMODITY HEADLINES:

  • JPMorgan Takes Delivery of Almost 1 Million Tons of Sugar, Most Since 2009
  • Cotton Jumps by Daily Limit, Rises for Fourth Day as Supply Remains Tight
  • Crude Oil Advances a Second Day in New York on Middle East Supply Concern
  • Farming in Australia Seen `Vulnerable' to Climate Change, Dryness in West
  • Palladium Seen Rising 15% in 2011 as Russian Cargoes Drop: Freight Markets
  • Gold Buying in China Jumps as Inflation Flares, Boosting Demand, UBS Says
  • Copper, Corn May Slump on Mideast Unrest as Gold Jumps to $1,500, UBS Says
  • China's Wheat-Growing Areas May Be Dry After Wetter-Than-Normal February
  • Pan Pacific May Deepen Copper Production Cut on Scarce Raw-Material Supply
  • Soybeans Advance as Rain, Flooding May Delay Brazil Harvest, Wheat Drops
  • Glencore Is Said to Brief 11 Banks as Commodities Trader Weighs Share Sale
  • Gold May Decline as Record Prices Prompt Sales, U.S. Job Prospects Improve
  • Milk Powder Climbs to Record on China Demand, Increasing Global Food Costs
  • Cocoa Arrivals From Brazil's Bahia Decline in Latest Week, Hartmann Says

CURRENCIES:

  • EURO: 1.3806 +0.10% (trading +0.20% in the AM)
  • DOLLAR: 77.049 +0.21% (trading -0.33% in the AM) 

EUROPEAN MARKETS:

  • FTSE 100: (0.43%); DAX: (0.66%); CAC 40: (0.82%) (as of 07:00AM ET)
  • European markets fell on increasing concerns over the political unrest in the Middle East and North Africa.
  • Bunds and Gilts were buoyed by safe-haven buying though investors remained cautious ahead of the ECB meeting on 3-Mar and the possibility of increased anti-inflation rhetoric.
  • Peripheral debt was pressured ahead of Portuguese T-bill auction and by S&P's warning they may still cut Greece and Portugal's debt rating further depending on the outcome of EU leaders talks over the crisis fund.

ASIAN MARKTES:

  • Nikkei (2.43%); Hang Seng (1.49%); Shanghai Composite (0.18%)
  • Though off their lows for the day, Asian markets closed lower following yesterday's declines in the US markets as higher oil prices and the turmoil in MENA returned to front-and-center.
  • China Railway Construction is among the biggest decliners, down 7.8% after saying it halted work on three projects with combined value of $4.24b in Libya.
  • The Nikkei suffered its worst percentage drop this year.
  • Airlines and automobile manufacturers led shares lower across the region, with All Nippon Airways down 3.05%, Cathay Pacific down 2.51%, Qantas down 2.15%, Toyota down 2.85%, and Honda down 2.49%.
  • Sands China closed down 6.2% after Las Vegas Sands (LVS) said it received a subpoena from the SEC regarding its Macau operations.
  • Yahoo Japan closed up almost 3.7% after Reuters reported Yahoo (YHOO) was in talks to sell its stake.
  • India said it would hold local elections in five states between 4-April and 10-April; the states send a cumulative 116 lawmakers to the lower house of Parliament.

 

Howard Penney

Managing Director

 

THE HEDGEYE DAILY OUTLOOK - setup


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next