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THE M3: MACAU DEMOGRAPHICS; S'PORE JUNE CPI; MBS BLACKOUT

The Macau Metro Monitor, July 25, 2011

 

 

HOW NOT TO UNDERSTAND MACAU Intelligence Macau

IM says the driver behind Macau's growth is not China's middle class but rather its newly rich elite and its underclass.  IM characterizes the "real mass market" in Macau as people who cannot afford to gamble.  They represent more than 2/3 of the visitor market to Macau and don't say in a hotel room.  IM adds that as China's economy develops further, there will be more sophisticated spenders on a wide range of entertainment options, which would suggest, over the long term, MPEL's House of Dancing Water was the right business decision.

 

SINGAPORE'S JUNE INFLATION UP 5.2% ON-YEAR Channel News Asia

S'pore CPI in June rose 5.2% YoY but fell 0.2% MoM, in-line with expectations.  Core inflation rose 2.3% YoY and unchanged MoM.

 

MBS HOTEL TOWER HIT BY BLACKOUT Strait Times

Marina Bay Sands was hit by another power failure on Friday night, plunging all the guestrooms in one of the three towers (783 rooms) into total darkness.  Power was restored an hour later.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - July 25, 2011

 

Newsy morning on the Debt Ceiling, but where it would really matter (US Treasury rates) if these professional politicians were not going to get something done within the next week, nothing is being priced in.  As we look at today’s set up for the S&P 500, the range is 27 points or -1.71% downside to 1322 and 0.30% upside to 1349.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 725

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -145 (-2000)  
  • VOLUME: NYSE 738.24 (-23.832%)
  • VIX:  17.52 -0.23% YTD PERFORMANCE: -1.30%
  • SPX PUT/CALL RATIO: 1.58 from 1.16 (-35.41%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 21.75
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 2,99 from 3.03  
  • YIELD CURVE: 2.59 from 2.63

MACRO DATA POINTS:

  •  8:30 a.m.: Chicago Fed: est. (-0.40), prior (-0.37) 
  • 10:30 a.m.: Dallas Fed Manufacturing: est. (-5.2), prior (-17.5)
  • 11 a.m.: Export inspections: corn, wheat, soybeans
  • 11:30 a.m.: U.S. to sell $27b 3-mo., $24b 6-mo. bills
  • 4 p.m.: Crop conditions, corn, cotton, soybeans, winter wheat
  • 6 p.m.: Greece Finance Minister Venizelos speaks at Peterson Institute

WHAT TO WATCH:

  • Greece’s credit rating was cut three steps by Moody’s following EU support plan
  • E*Trade Financial Corp. (ETFC) is hiring Morgan Stanley to explore a sale following criticism from holder Citadel
  • Google (GOOG) may be the best stock pick on the outlook for mobile computing and social networking, Barron’s reported.

COMMODITY/GROWTH EXPECTATION

  • GOLD – and Silver are busting a big move to the upside on a newsy morning where people who don’t do markets (politicians) are running their mouths; we’re long both but would be selling gross exposure on this move; Gold immediate-term TRADE overbought

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Oil Declines After U.S. Lawmakers Fail to Agree on Debt Ceiling
  • Wheat Slumps as Russian Exports Erode Demand for U.S., EU Grain
  • Sugar Rises to Five-Month High on Tight Supply; Coffee Advances
  • Copper May Drop for Fourth Day on Concern About a U.S. Default
  • North Dakota Soggy Wheat Fields Dimming Prospects for Harvest
  • Gold at $1,600 ‘Fundamentally Justified,’ Franklin’s Land Says
  • Food Prices to Stay High on Underinvestment, Climate, IFAD Says
  • BHP Miners Extend Strike at World’s Biggest Copper Mine
  • Food Costs Rising as Coke, Chipotle Pass on Commodity Increases
  • Cotton Output May Climb in India as Farmers Boost Plantings
  • Corn, Soybeans May Rise as Hot Weather Threatens U.S. Yields
  • Gold Advances to Record as U.S. Debt Deadlock Boosts Demand
  • Japan’s Food Chain Threat Multiplies as Radiation Spreads
  • India Lifts 2010-11 Cotton Output Estimate to 32.5 Million Bales

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: Italy and Spain fail right where they should have post last week's squeeze to lower-highs; Italy down another -0.9% = bearish TREND

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: China got rocked (down -3%)  and the rest of Asia was weak w/ exception of India +1%.
  • CHINA – the most concerning move from overnight, with Chinese stocks getting rocked for a -2.96% loss after a tragic rail accident. Higher lows for the Shanghai Comp, but tomorrow will be important to watch on follow through. Copper down -0.4%.

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Top-Notchers

This note was originally published at 8am on July 20, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I like them more than all of the top-notchers.”

-Harry Truman  

 

I smiled last night as I was reading that passage on page 808 of what my son calls the “heavy book” – David McCullough’s “Truman”:

 

“He liked the Secret Service agents who watched over him, most of whom came from small towns or backgrounds much like his own and none of whom ever asked anything of him. “I like them more than all of the top-notchers,” he once told Margaret.”

 

Harry Truman, like all of us, had his issues – but, ultimately, he was victorious in what most of us want to accomplish in life. He achieved above and beyond what anyone ever expected of him.

 

Markets, too, are like that. They are all about expectations. I think that’s why they resonate with so many of us. They can make you laugh. They can make you cry. And, every once in a while, they can put a sparkle in your eye.

 

Apple did that last night. The proverbial love-affair Americans have had with this stock extends itself from the product all the way back to the man who bet on himself to create it. Steve Jobs is another great American success story who has travelled the broken road of expectations to infinity and beyond.

 

With a Debt-Ceiling Compromise finally appearing in the rear-view mirror, Americans have a great opportunity to move forward today. No matter what you think about Steve Jobs or the Global Market – I can assure you of this on both - they are looking forward. And they will both leave those who are caught up in yesterday behind.

 

Back to the Global Macro Grind

 

1.   ASIA - surprisingly Asian stocks had a mixed reaction to Debt Ceiling Compromise and the Apple news. Both China and India closed down overnight (-0.1% and -0.8%, respectively), while Korea, Australia, and Japan all closed up over +1%. China and India in particular did not like the food and energy inflation that was marked-to-market yesterday. So keep your eye on that.

 

2.   EUROPE - wet Kleenex reaction to American earnings and Italian Equities in particular look very vulnerable if the MIB Index fails to overcome the 19,559 line in the very immediate-term. We don’t think that there is any irony in the timing of $12.4B in Italian CDS that traded last wk (2x that of the next country in terms of notional size - France). Sovereign Debt maturities for both Italy and Spain are going to be huge in August and September - and the EUR/USD remains bearish/broken below my $1.43 TREND line.

 

3.   USA – S&P futures look as good as they should look with Apple taking over from the Bankers of America and changing the tone of the earning season to something the winners in this world can believe in. The idea is to think, re-think, and evolve; not suck compensation from a Europig’s nipple of a socialized banking system. That’s all I have to say about that.

 

In terms of risk management levels in the US, as usual, I think you need to take the Apple out of your eye and focus on being multi-factor and multi-duration. That means Stock, Bond, and Currency market moves altogether:

 

1.   STOCKS – what was our intermediate-term TREND line resistance in the SP500 at 1319 is now support. For the immediate-term TRADE (different duration) that’s bullish and should support a new Risk Ranger range for the SP500 of 1319-1352. From a long-term TAIL perspective, my topside target for the SP500 in 2011 remains 1377.

 

2.   BONDS – on our Q3 Macro Themes conference call last week, and really since April, we’ve been saying that A) a Debt-Ceiling Compromise will get done and B) that’s very bullish for US Treasuries. Why? It takes out some of the shorts that are either trading on lagging indicators (Moodys and S&P ratings fears) or short UST bonds on US credit risk. We are long both long-term Treasuries (TLT) and a US Treasury Flattener (FLAT) as we think the long-end of the bond market will continue to see yields fall.

 

3.   CURRENCY – in a strong US Dollar can Americans trust? I guess that depends on which constituency of Americans you ask. I think well over 90% of us say yes (lower gas prices, Deflating The Inflation, and higher employment correlate with a strong US currency). The other 5-10% of you who want to Debauch The Dollar can’t possibly want that for your country in the long-run – you probably want it for yourself.

 

Whether it’s some Top-Notcher in Washington or a lobbyist trying to convince a professional politician of another policy to inflate, Americans have had enough. They get it. They are America’s “Secret Service.” From small towns to big ideas and sweat capital to big hiring, they are The People who make this country work.

 

My immediate-term support and resistance ranges for Gold (we’re long), Oil (we covered our short on Monday), and the SP500 are now $1572-1623, $95.51-99.20, and 1319-1352, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Top-Notchers - Chart of the Day

 

Top-Notchers - Virtual Portfolio


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Forecasts of Doom

“Plainly, MacArthur’s bleak assessment of the situation, his forecasts of doom, had been wrong.”

-David McCullough (“Truman”, page 834)

 

We’ve all experienced getting too bearish at bottoms. Historically, when this emotional capitulation comes from the political leaders of our country, we often look back at their Forecasts of Doom as the catalysts for change. Politics are a lagging indicator.

 

While I’m not sure I’d be accused of being bullish on Keynesian Economic policies or their impacts to the US Dollar since the 2008 US stock market crash, I’m certainly not the US Dollar bears’ huckleberry on this matter right here and now.

 

Not to name names, but PIMCO’s Mohammed El-Erian has been getting plenty of air-time in recent weeks (Barrons this weekend, Bloomberg article again this morning, etc.) talking up the credit risk in US Treasury Bonds.

 

Not to callout timing, but this has been El-Erian’s view since PIMCO effectively sold almost all of their US Treasury exposure in Q1 and Q2 of 2011. While I respect Bill Gross and all of his risk management accomplishments over the years, his partner’s Forecasts of Doom for the US Treasury Bond market have not only been wrong since March, but they are wrong, again, on this morning’s Debt Ceiling “news.”

 

The “news” on anything being commandeered by central planners of the 112thCongress is that the news is going to change. This weekend’s “news” of a Debt Ceiling debate failure may have been good for the Sunday talk show ratings, but it wasn’t bad for what matters to markets – the marked-to-market rating on US Treasury Yields.

 

If you didn’t know that market prices don’t lie (politicians do) – now you know. Or at least Mr. Macro Market in US Treasuries thinks he knows. Here’s this morning’s reaction to the “news” of doom:

  1. Short-term Treasuries (2-year yields) – didn’t move 1 basis point versus where they were priced into the end of last week (0.39%)
  2. Long-term Treasuries (10-year yields) – moved a whole 2 basis points versus Friday to 2.98%

But Mr. El-Erian has a Top 10 article on Bloomberg’s most read that delivers the headline “El-Erian Says US Vulnerable To Downgrade”… Qu’est ce qui se passe avec Le Analysis if the market isn’t reacting to PIMCO’s bleak assessment?

 

I’m long US Treasuries and have been writing about why since we launched our Q2 Macro Themes at Hedgeye in April. Sure, partly because I’m bearish on US Growth (Mr. El-Erian says he’s bearish on US Growth, but evidently not Bearish Enough or he’d be long the long-bond).

 

As most of the lagging of lagging indicators (Moody’s, S&P, etc) downgrade the likes of Greece (again!) this morning, I’m moving the Hedgeye Asset Allocation Model to its most invested position of 2011.

 

Yes, we still have 40% Cash – but that’s less than the 67% Cash we held at the end of February when Wall Street/Washington expectations for growth were will too high by about a double!

 

Ahead of this Friday’s preliminary US GDP Growth Report for Q2, Hedgeye’s estimate for US GDP Growth remains 1.7%-2.1%. Since the government, to a degree, makes up this number, we make up a range of expectations around current made-up numbers.

 

Here’s where the Hedgeye Asset Allocation Model stands as of this morning:

  1. Cash = 40% (down from 46% last Monday)
  2. Fixed Income = 24% (US Treasury Flattener and Long-term Treasuries – FLAT and TLT)
  3. International Equities = 12% (China and S&P International Dividend ETF – CAF and DWX)
  4. Commodities = 9% (Gold and Silver – GLD and SLV)
  5. International Currencies = 9% (US Dollar and Canadian Dollar – UUP and FXC)
  6. US Equities = 6% (Healthcare – XLV)

Obviously as Global Economic Growth Slows and Fiat Fool Policies whip around between Europe and the US like a ping pong ball (see our Q3 Macro Theme presentation, “Policy Pong”), we don’t want to be “fully invested” – not with our own money at least.

 

As for today, what we’d like to do on this “newsy” morning is sell some Gold high and buy some US Equity and Currency exposure low. We get the bleak assessment about Congress and a President who has a hard time making hard decisions. We also get that markets discount the obvious – and we could very well be looking at “news” of a Debt Ceiling resolution by the end of the week.

 

My immediate-term support and resistance ranges for Gold (long), Oil (no position), and the SP500 (no position) are now $1, $97.72-100.24, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Forecasts of Doom - Chart of the Day

 

Forecasts of Doom - Virtual Portfolio


The Week Ahead

The Economic Data calendar for the week of the 25th of July through the 29th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - ccal1

The Week Ahead - ccal2


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 80.28%
  • SHORT SIGNALS 78.51%
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