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THE M3: SANDS HK INVESTIGATION; MICE VISAS

The Macau Metro Monitor, March 31, 2011

 

 

MACAU'S SANDS CHINA SAYS UNDER INVESTIGATION BY HK REGULATOR Bloomberg

Sands China said it’s being investigated by the Hong Kong Securities and Futures Commission for alleged breaches of regulations. 


EASIER VISAS FOR CHINESE MICE VISITORS Macau Daily Times

Economic Services Bureau (DSE) director Sou Tim Peng said authorities from both Mainland China and Macau have agreed to implement measures to smooth the issuance of visas for MICE events.  Local authorities have already sent a list of MICE events being held in Macau this year and 40 of those events have been recognized by the Chinese authorities as relevant for mainland enterprises and businessmen, he added. 


INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K

Initial Claims 

The headline initial claims number fell 6k compared to last week's revised claims to 388k. Last week's number was revised up 12k to 394k, so this week's headline is 6k higher than last week's headline print. Rolling claims rose 4k to 391k. On a non-seasonally-adjusted basis, reported claims were flat WoW.  

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.9% rather than 8.9%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.9% actual rate.

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - rolling

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - raw

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - nsa

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - sp claims

 

Yield Curve Remains Wide

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 40 bps wider than 4Q.  The current level of 266 bps is tighter than last week (271 bps).

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - spreads

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - spreads QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

INITIAL JOBLESS CLAIMS REMAIN NARROWLY UNDER 400K - perf

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE: MCD, SBUX, COSI, BKC, HSY, DUNKIN

Notable news items and price action from the past twenty-four hours.  Today, we are adding a column on the right hand side of our price table with our fundamental views on select names. 

  • MCD is having to boost imports to Japan to counter supply-chain disruption in the wake of the recent earthquake and resulting tsunami.  A number of the company’s processing plants and a distribution center were damaged by the tsunami, Simone Hoyle, VP of Supply Chain for McDonald’s Asia, Pacific, Middle East and Africa region told The Wall Street Journal.
  • SBUX CEO is set for a mixed reception at Harvard on Friday as a protest is being planned for his appearance at Harvard Business School, according to The Harvard Crimson.  Organizers of the event, including employees of Starbucks and Harvard, hit out at Shultz’ “phoniness” in this new book and the reality of conditions for workers at SBUX being bad and getting worse.
  • Roberio Silva, Brazil’s candidate to head the International Coffee Organization told Bloomberg that “coffee prices will stay “firm” in the next two years as producing countries such as Colombia and Vietnam recover from harvest damage.
  • COSI traded down on massive volume yesterday.  Our conviction on this name remains high and we view this pullback as a buying opportunity.
  • BKC’s exodus continues.  Burger King’s manager for product innovation, Robert Thomas, stepped down Wednesday, making him the latest of several executives to leave the burger company.
  • HSY on Wednesday said it raised wholesale prices by 9.7 percent.
  • Dunkin' Brands is considering an IPO in the second half of 2011. Reuters reports, citing sources, that the IPO could be in the range of $500-750M. The company is still in preliminary discussions regarding the IPO and has not yet selected underwriters.
  • Dunkin’ is going to be sold as “growth” story…  Continuing its steady expansion around the world, Dunkin' Donuts, the world's leading baked goods and coffee chain, today announced the opening of its 3000th restaurant outside the United States

 

TALES OF THE TAPE: MCD, SBUX, COSI, BKC, HSY, DUNKIN - stocks 331

 

Howard Penney

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

CHART OF THE DAY: Until Ben Blames Himself, Stay Long of The Inflation

 

 

CHART OF THE DAY: Until Ben Blames Himself, Stay Long of The Inflation - Chart of the Day 4


Blame Yourself

“It was a matter in which we have heard some other persons blamed for what I did myself.”

-Abraham Lincoln, 1862

 

That’s one of the many outstanding leadership quotes in the book I highlighted yesterday, “Team of Rivals – The Political Genius of Abraham Lincoln.” If he wants to get re-elected, President Obama should think long and hard about Lincoln’s example of transparency, accountability, and trust. Rather than giving lip-service to being like the great American leaders who came before him, Lincoln was his own man - and he lived these principles out loud.

 

Whether you like following politics or not, you need to get the direction of their leanings right if you want to get your Global Macro positioning right. Currency markets move on policy – policy is set by politicians. And while that’s a pathetic and sad statement about our said “free market” system altogether, you can’t get bogged down by it – you need to play the game that’s in front of you.

 

Currently, the most important game in Global Macro Risk Management is the cross-asset-class correlation-risk associated with what the US Dollar does. If you get policy right, you’re likely to get the US Dollar right. If you get the US Dollar right, you’ll get fewer things wrong.

 

This is where my only political advice to the President of the United States (or whoever realizes that they could win his office) comes into play – get the US Dollar right (strengthen it) and you’ll Deflate The Inflation. If you Deflate The Inflation, The People will believe in you.

 

Strong US Dollar Policy isn’t a partisan thing. It’s an American thing. Reagan had it. Clinton had it. Nixon and Carter devalued it. Nixon and Carter also had a Dollar Debauchery man at the Fed named Arthur Burns.

 

Reagan had Volcker. President Obama has The Bernank.

 

Obama will be the first to tell you he took on a lot of Bush’s baggage. He’ll be the last to tell you he made a mistake in taking on Bush’s Bernanke. So, Mr. President, let’s strap on the accountability pants, Blame Yourself, and take a walk down that path – because your General-in-Chief on all things US economic policy definitely won’t be doing it for you anytime soon. Some of his Generals in the Fed’s ranks will.

 

In one of the great 2011 accountability headlines coming out of the US Federal Reserve last night, Kansas City Fed President, Thomas Hoenig, explained the following by effectively blaming himself:

  1. “Once again, there are signs that the world is building new economic imbalances and inflationary impulses…”
  2. “The longer policy remains as it is, the greater likelihood these pressures will build and ultimately undermine world growth…”
  3. “…remember, I’m not advocating tight monetary policy… I’m advocating a non-crisis policy. Zero is a crisis policy that by itself should be temporary.”

Now this isn’t Hoenig’s first rodeo. He joined the Federal Reserve Bank of Kansas City in 1973. He is the longest serving member at the Fed and his 8 consecutive “dissents” (English for publically disagreeing with The Bernank) recently tied Henry Wallich’s 1980 record for most disagreements with Fed policy (Wallich has been validated as being very right). Hoenig is a known inflation hawk – most likely because he faced it in the 1970s and joined Wallich and Volcker in fighting it.

 

Does the President of the United States really want to test the waters on $120/oil and 1970s style Jobless Stagflation? Does he want to roll the bones on The Quantitative Guessing experiments in Japan gone bad? Does he want to run against someone in 2012 who will crush him like a bug with the simple conclusion that Growth Slows As Inflation Accelerates?

 

I don’t think so. Remember, he’s a professional politician – after all…

 

As opposed to someone holed up in a room of academia’s Keynesian Kingdom, I’m in the soup. I’m managing risk in this cross-asset-class correlation-risk game each and every day. I have been writing these morning strategy notes since I started this firm without bailout moneys 3 years ago – and I’ve made 19 calls on the US Dollar since (long and short side) – and I’ve been right 19 times. If you want a USD opinion – at least ours has some credibility.

 

Call me politically irrelevant. Call me Canadian. Call me names from the heavens, Mr. Big Government Intervention man. But don’t call me a McClellan (1862) in this currency war, because it’s The US Monetary Policy that’s managed by you, the unaccountable generals, at the front of The Inflation lines who are perpetuating the problem.

 

Back to the Global Macro Grind

 

Now that the IMF is cutting their US GDP Growth estimate for 2011 this morning (to 2.8%), I’ll assume that our call for Growth Slowing As Inflation Accelerates is being absorbed into the craws of consensus. The leading indicator that is the price of Dr. Copper remains bearish and broken with intermediate term TREND resistance (which was longstanding support) at $4.38/lb.

 

Consensus doesn’t mean that Growth Slowing signals don’t continue to flash amber lights – it simply means the 6.5% intra-quarter SP500 correction had more to do with a longer-term global reality (piling sovereign debt-upon-debt-upon debt structurally amplifies inflation and impairs growth) than a tsunami of complacency.

 

Japanese and Chilean Industrial Production Growth reports for February (pre quake) came out yesterday and both slowed again sequentially. Eurozone inflation (CPI) for March accelerated again, sequentially. And while the US Dollar trading up for 2 of the last 3 weeks has helped Deflate The Inflation this week (bullish for Equities), it looks like that reverts back to the mean of Burning Buck and up oil again this morning. I’m staying long oil and long gold.

 

My immediate-term TRADE lines of support and resistance for oil are now $102.13 and $107.95, respectively. My immediate-term TRADE lines of support and resistance for the SP500 are now 1305 and 1333, respectively.

 

Looking forward to seeing everyone at Hedgeye Soho’s launch party in NYC this evening – no government bailout moneys required for us to buy you drinks.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Blame Yourself - Chart of the Day

 

Blame Yourself - Virtual Portfolio


A Thousand Illusions

This note was originally published at 8am on March 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It is the nature of inflation to give birth to a thousand illusions.”

-Henry Hazlitt

 

Last week, despite the US Dollar posting a rare gain, The Inflation didn’t come down. It’s sticky – and  that’s unfortunate because Deflating The Inflation is what America needs to get her confidence back. Not another low-volume stock market rally to lower-highs.

 

Here’s how the week-over-week Macro scorecard looked for Americans:

  1. US Dollar Index = UP +0.65% to $76.21
  2. CRB Commodities Index = UP +2.3% to 359
  3. WTI Crude Oil = UP +4.3% to $105.40
  4. Gold = UP +0.81% to $1427
  5. Copper = UP +1.8% to $4.41
  6. SP500 = UP +2.6% to 1313
  7. Volatility (VIX) = DOWN -26.7% to 17.91
  8. 2-year US Treasury Yield = UP +15bps to +0.73%
  9. 10-year US Treasury Yield = UP +17bps to +3.44%
  10. 30-year US Treasury Yield = UP +8bps to 4.50%

Not to put a wet Kleenex on your morning, but the reality is that well over half of America wakes up to not really caring so much about the US stock market. We, as a profession, have ourselves to blame for that. Many Americans think this game is rigged.

 

“So inflation turns out to be merely one more example of our central lesson. It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run brings ruinous consequences to the whole community.” (Henry Hazlitt, “Economics In One Lesson”, page 170, 1946).

 

Sure, stocks going down again last week (like they had in 3 of the 4 weeks prior) would have been bad. But the US Dollar going down for the 10th out of the last 13 weeks would have been worse. Despite the massive week-over-week drawdown in market volatility (VIX) and a relative easing of headline news coming out of both Japan and the Middle East, the price at the pump hit a new weekly closing high for 2011 and this part of the economic cycle.

 

What part of the economic cycle is this anyway? The Big Government Interventionists would have you believe that this is the “growth” phase of the American dream. Last week’s revisions had US GDP growth running at +3.1% for the 4th quarter of 2010. But that’s using a joke of a deflator of 0.4% for inflation (you need to subtract inflation from nominal growth to get the reported number)  – so what part of this joke are Americans missing?

 

Americans get the joke.

 

Whether you want to look at the weekly or monthly readings on American Consumer Confidence, they tell you the same story:

  1. Bloomberg Weekly Consumer Comfort Index = -48.9 last week versus -48.5 for the week prior (yes, those are minuses)
  2. University of Michigan Consumer Confidence = 67.5 for March versus 77.5 in February (one of the largest monthly drops on record)

At least stocks were rising alongside The Inflation in February. For the month of March, US stocks look like they’ll close flat to down. So my question is, As Growth Slows And Inflation Accelerates, what’s next?

 

Answering that question from a Macro Catalyst Calendar perspective, here what’s on tap in the immediate-term (this week):

  1. Monday – US Personal Income and Consumption (FEB)
  2. Tuesday – Conference Board Consumer Confidence (MAR) and Case-Shiller Home Prices (JAN)
  3. Wednesday – MBA Mortgage Applications (weekly) and II Bullish/Bearish Sentiment (weekly)
  4. Thursday – Month and Quarter End (MAR) and Producer Manufacturing Index (FEB)
  5. Friday – ISM Survey (FEB) and the Monthly US Employment Report (MAR)

Consumption will continue to be borrowed; Housing will continue to deteriorate; and High-Frequency Data (PMI, ISM, Confidence, etc.) will continue to remind us that markets are looking forward, not behind.

 

While I’ll be the first to acknowledge that a 7-day record drawdown in US stock market volatility was bullish for stocks last week, I was also the first US stock market bear to write “Short Covering Opportunity” at the SP500’s YTD low. I don’t Short-And-Hold.

 

Today, with the VIX -41.6% lower and the SP500 +4.5% higher, I’m a seller again. After moving the Hedgeye Portfolio to 16 LONGS and 4 SHORTS on Wednesday, March 16th, I closed last week with 15 LONGS and 13 SHORTS.

 

I also sold all of our exposure to US Equities in the Hedgeye Asset Allocation Model last week (sold Energy and Healthcare – XLE and XLV). Zero percent is now something The Bernank and I share in common. There’s always common ground to find somewhere.

 

On last week’s overall inflation of stock and commodity prices, I took our Cash position back up to 52%.

 

Here’s the Hedgeye Asset Allocation Model:

  1. Cash = 52%
  2. International Currencies = 27% (Chinese Yuan, Canadian Dollar, British Pound – CYB, FXC, and FXB)
  3. Commodities = 9% (Gold and Corn – GLD and CORN)
  4. Fixed Income = 9% (US Treasury Flattener and Long Term Bonds – FLAT and TLT)
  5. International Equities = 3% (China – CAF)
  6. US Equities = 0%

If you want to modernize a “Thousand Illusions” about The Inflation, check out MIT’s “Billion Prices Project” and hit the USA tab. It should provide you with some hope that reality will eventually be measured in real-time. In the meantime, as Hazlitt predicted, “The political pressure groups that have benefited from the inflation will insist upon its continuance.”

 

My immediate term support and resistance levels for the SP500 are now 1307 and 1323, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

A Thousand Illusions - Chart of the Day

 

A Thousand Illusions - Virtual Portfolio


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