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THE M3: JULY VISITOR ARRIVALS; S'PORE CPI; BUSES

The Macau Metro Monitor, August 23, 2011

 

 

VISITOR ARRIVALS FOR JULY 2011 DSEC

Visitor arrivals totaled 2,550,867 in July 2011, up by 18.0% YoY.  Visitors from Mainland China increased by 27.9% YoY to 1,460,473 in July 2011, and the majority came from Guangdong Province, Fujian Province and Zhejiang Province.  Visitors from Hong Kong (720,000), Taiwan (126,000), South Korea (35,000) and Malaysia (21,000) increased by 7.3%, 4.1%, 23.6% and 16.4% respectively.  

 

Mainland visitors travelling to Macao under the Individual Visit Scheme totaled 617,591, up by 29.4% YoY.

 

THE M3: JULY VISITOR ARRIVALS; S'PORE CPI; BUSES - visitors

 

SINGAPORE CPI UP 5.4% ON-YEAR IN JULY Channel News Asia

S'pore CPI rose by 5.4% YoY and 1.5% MoM in July, due largely to higher costs of accommodation, private road transport and food. 

 

LEGISLATION PROPOSES TO REGULATE CASINO SHUTTLE BUSES Seng Pou

According to the Statistics and Census Service, the number of tourist coaches, including casino shuttle buses, is three times above the number of buses in Macau.  Authorities are advised to limit the number of shuttle buses depending on different sizes of casino hotels. Grant Bowie, executive director of MGM China, says that the company is willing to discuss with the government and will cooperate for plans to improve the bus system in Macau.


THE HBM: CHUX, DNKN, PFCB, GMCR

THE HEDGEYE BREAKFAST MENU

 

Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO


The ICSC sales index posted its 4th straight decline, falling 1% last week. Year-over-year growth slowed to 3%, the slowest pace in eight weeks.  It appears that the stock market volatility is impacting consumer behavior.

 

It’s unlikely that the consumers will lead us out of the recent economic malaise and continued unfavorable moves in equity, gasoline or house prices are significant threats to future spending.

 

Corn rose to a 10-week high in and soybeans gained as worsening crop conditions in the U.S. may be smaller than estimated.  Corn traded at $7.412, the highest for the most-active contract since June 9.

 

SUB-SECTOR PERFORMANCE

 

On the better than expected Knapp track data the Full Service sector turned in a strong performance yesterday (it should be noted that the move was not confirmed by volume studies).    The Food processors held in despite the performance of SAFM down 3.5% (as the daily volume study spiked 167%) and the upside move in corn. 

 

THE HBM: CHUX, DNKN, PFCB, GMCR - hfbrd

 

QUICK SERVICE

 

GMCR under fire for its aggressive accounting announced the appointment of Stephen L. Gibbs as its Vice President and Chief Accounting Officer effective immediately.

 

Yesterday, I highlighted DNKN’s egregious valuation…  don’t see much upside from here.

 

FULL SERVICE

 

CHUX announced that Wilson L. Craft, O’Charley’s Concept President, has resigned to pursue other opportunities.  Maybe because the opportunities at O’Charley’s are limited!!!

 

Put this in the aggressive promotion category and let’s hope this is limited to just Hawaii - For a limited time, P.F. Chang's Hawaii is offering a Buy One, Get One Free coupon! Download one and bring it in….

 

THE HBM: CHUX, DNKN, PFCB, GMCR - pgcbbogo

 

Pei Wei Asian Diner is offering new menu pricing under the combo banner of “Diner Select,” as parent company P.F. Chang’s China Bistro Inc. works to stem sliding sales.  The new “Diner Select” option lets customers choose from five popular Pei Wei meals, starting at $6.25 for a reduced-portion entrée and a choice of a spring roll, soup or Asian slaw as sides. Pricier proteins, such as beef or shrimp, cost more, as do substitutions such as fried rice for white or brown rice - NRN

 

THE HBM: CHUX, DNKN, PFCB, GMCR - qsr

THE HBM: CHUX, DNKN, PFCB, GMCR - fsr

 

Howard Penney

Managing Director

            

 

Rory Green

Analyst



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Are We Human?

“Are we human, or are we dancer?”

-The Killers

 

As many of you likely know, “Human” is a song by American Indie rock band The Killers.  Keith referenced it in Hedgeye’s last company meeting to note the infallibility of us all.  Sometimes we are right, sometimes we are wrong, but we are always human.  As well, sometimes things just aren’t as complicated as humans like to make them.

 

While I am prone to typos, the typo, or rather grammatical error, is not my doing in this instance.  The Killers actually wrote the song with dancer, and not dancers.  In fact, the song was motivated by a derogatory comment by Hunter S. Thompson, when he stated that America was raising a “generation of dancers”.  According to Wikipedia, in an interview in Rolling Stone, the lead singer of The Killers, Brandon Flowers, was asked about confusion over the lyric and responded:

 

“It’s supposed to be a dance song, the beat goes with the chorus . . . if you can’t put that together, you’re an idiot.  I just don’t get why there’s confusion.”

 

Certainly, Brandon Flowers and his band mates are human, but grammatical error and all, their song, “Human”, was voted the top song of 2008 by Rolling Stone Magazine.

 

The investment business is perhaps one of the most humbling of all professions and reminds its participants every day that they are human.  In the Chart of the Day, we show the SP500 versus 10-year Treasuries over the last six months.  Certainly, there were very few investors on the right side of both trades six months ago.

 

This morning I went back to our Early Look strategy note from exactly six months ago and on February 23rd, Keith wrote:

 

“And this is really where I can look myself in the mirror and say, despite the fierce lobbying for me to chase US stock market fund “flows” into their mid-February crescendo, I stayed true to the best top-down risk management process I know – when Global Inflation Is Accelerating, and Global Growth Is Slowing, it’s time to build up a large asset allocation to Cash.”

 

At that point, the SP500 had been chugging upwards since the start of the year and was up roughly 4% year-to-date and on trajectory for a more than 25% annualized return.  Back then, it was hard to be bearish, now it is pretty easy.

 

Akin to The Killers song, we aren’t bears, we aren’t bulls, we are only human.  While Keith, myself, and our team are happy that our research process helped us alert our clients early to the confluence of global economic issues that has led to the dramatic decline in global equities year-to-date, the next challenge is to have the correct view of the next major move in global equity markets. 

 

For us to turn more positive on U.S. economic growth we would likely need to see a positive change on the margin in three key areas: housing, employment, and debt.  It is really that simple.  The first two relate to the largest portion of the U.S. economy, which is consumer spending.  Stable house prices provide consumers the confidence to spend, and fuller employment broadens U.S. consumption.  The third factor, debt, relates to the U.S. government balance sheet.  Just like any corporate or individual balance sheet, the federal balance sheet has become constrained by debt, which will impede future organic growth.

 

Underscoring all of this, as it relates to securities prices, is, of course, the perspective of expectations.  That is, what is priced in?  With the SP500 now down more than 10% in the year-to-date, there is certainly a reasonable amount of bad news priced in.   Often, though, securities prices tend to be a leading indicator versus a lagging indicator and a key question to consider now is what the dramatic decline in equity prices we have seen in the last month means for confidence and economic growth over the coming quarters.

 

A couple of days ago, President Obama stated that he doesn’t expect a recession in the next twelve months.  This was supported this morning by a survey from the Associated Press that indicated that a majority of economists believe that another recession is unlikely in the next twelve months.  This is, of course, the same group of economists whose group GDP growth estimate for 2011 was +3.2% on February 23rd. . .

 

Flagging our competitors on their errors in groupthink only gets us so far, but looking at the consensus view does provide us some insight into what is priced into the market.  That said, we certainly understand, as former Yale President and Commissioner of Major League Baseball Bartlett Giamatti famously said:

 

“No one man is superior to the game.”

 

Isn’t that the truth . . .

 

Keep your head up and stick on the ice,

 

 

Daryl G. Jones

Director of Research

 

Are We Human? - Chart of the Day

 

Are We Human? - Virtual Portfolio


Bullish Babble

This note was originally published at 8am on August 18, 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 can forecast confidently that it will vary.”

-Lord John Browne

 

That was a quote from the former CEO of British Petroleum on forecasting the price of oil. It’s the opening line in Chapter 2 of a must-read book that’s in my summer pile titled “BabbleWhy Expert Predictions Fail and Why We Believe Them Anyway.” Good thing our Keynesian overlords in Washington and the manic media that fawns on them don’t consider me an “expert”…

 

I was on what we affectionately refer to as a Hedgeye Client Roady in New York City with our all-star European analyst Matt Hedrick yesterday. It was hot. We were sweaty. And, oh, were we all beared up (to be “beared up” means to be Bearish Enough).

 

Is the Sell-Side Bearish Enough?

 

Given that most of the Bullish Babble I have been reading from Wall Street’s “Sell-Side” (investment banks and brokers who market the Perma-Bull) in 2011 has not yet turned bearish (never mind Bearish Enough), the answer to that question is unequivocally no.

 

Is the Buy Side Bearish Enough?

 

The “Buy-Side” (asset managers) is definitely not bullish like the Sell-Side. But I don’t think they are Bearish Enough yet either. There’s certainly a qualitative element to that conclusion (my gut), but there’s also quantitative evidence (S&P Futures down -23 handles this morning and yesterday’s Institutional Investor Sentiment survey showed only 23.7% of people admitting they are bearish.

 

Back to the Global Macro Grind

 

Wall Street/Washington “blue chip” forecasts on US GDP Growth continue to be so far away from the area code of reality that S&P actually looks accurate (S&P cut its Q4 US GDP estimate to 1.8% yesterday – Hedgeye’s Q4 GDP range is 0.6%-1.3% for Q4).

 

From a risk management modeling process perspective, we use a range because we aren’t yet dumb enough to take the government’s word for it when they can revise the GDP number down by 81% in 3 months (Q1 2011).

 

In terms of Global GDP Growth, Morgan Stanley is snagging the #1 “Most Read” headline on Bloomberg Economic News this morning by “Lowering Global Growth Forecast” by a whole 30 basis points to 3.9%. Oooh, lah, lah… the bearishness of it all.

 

Meanwhile, the Global Macro Economic Data continues to confirm our baseline case for Global Equities – that stocks will be assigned a lower multiple because A) the Street is using the wrong GDP and earnings numbers and B) The Stagflation earns a much lower multiple.

 

Around the world this morning, Gentlemen and Ladies of Hedgeye, here are your real-time economic taps:

  1. SINGAPORE (ASIA) EXPORT SLOWDOWN – exports down -2.8% in July (that’s a year-over-year number!) and if you didn’t know that the Singaporeans A) advise the Chinese and B) were dead serious about what they said on growth when I signaled it last week… now you know.
  2. BRITISH STAGFLATION – after reporting a whopper of a Consumer Price Inflation (CPI) number for July on Tuesday (+4.4% y/y), the Brits printed a 0.00% Retail Sales growth number for July this morning. ZERO growth + inflation = The Stagflation.
  3. AMERICAN STAGFLATION – yesterday’s Producer Price Index (PPI) for July came in at +7.2% year-over-year growth and this morning’s Consumer Price Inflation (CPI) print should be close to +3.5% y/y. ZERO point 36 percent Q1 GDP Growth + 1.3% Q2 GDP Growth + Inflation readings that are orders of magnitude higher than real-growth = Le Stagflation, Monsieur Bernank.

So what do you do with that this morning? Hopefully the answer to that question resides in what you’ve already done to preserve and protect your family’s capital. We’ve already made the “call” to go to ZERO percent asset allocation to both US and European Equities and on Monday we cut our asset allocation to Chinese Equities in half (from 6% to 3%) in the Hedgeye Asset Allocation Model.

 

Q (on yesterday’s Client Roady): “what would change your mind?”

 

A:

  1. Global Macro Economic Data
  2. Sentiment/Expectations
  3. Market Prices

While plenty of Fed Heads have changed their tunes to a more passive-aggressive Rick Perry sounding country song in the last 24 hours (Bullard, Fisher, Plosser, etc), I have not changed mine.

 

I am forecasting, confidently, that market prices will vary – and that managing risk starts with accepting uncertainty.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1755-1834, $80.07-89.87, and 1172-1207, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Babble - Chart of the Day

 

Bullish Babble - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - August 23, 2011

 

Bottoms are processes, not points – and, globally, that’s going to take some time as long as the economic data and market prices continue to lean bearish.  As we look at today’s set up for the S&P 500, the range is 64 points or -2.39% downside to 1097 and 3.31% upside to 1161.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

THE HEDGEYE DAILY OUTLOOK - bpgm1

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -356 (+1217)  
  • VOLUME: NYSE 1191.57 (-21.03%)
  • VIX:  42.44 -1.42% YTD PERFORMANCE: +139.10%
  • SPX PUT/CALL RATIO: 2.01 from 1.67 +20.01%

CREDIT/ECONOMIC MARKET LOOK:

 

UST YIELDS – The Hedgeye downside target in the 10-year was hit right on the nose on Friday (2.06%) and now you’re seeing the proactively predictable bounce in bond yields that is inversely correlated with Gold/Silver; remember Gold/Silver really outperforms when real-rates-of return on bonds are negative; the immediate-term TRADE range for 10s is now 2.01%-2.19%; manage risk around that range.

 

  • TED SPREAD: 30.84
  • 3-MONTH T-BILL YIELD: 0.01% -0.01%
  • 10-Year: 2.10 from 2.07    
  • YIELD CURVE: 1.88 from 1.87

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45 a.m.: ICSC weekly sales 
  • 8:45 a.m.: Alan Greenspan Q&A at Washington Convention Center
  • 8:55 a.m.: Johnson/Redbook weekly sales
  • 10 a.m.: July new home sales, est. 310k, prior 312k
  • 10 a.m.: Aug. Richmond Fed manufacturing, est. -5, prior -1
  • 11:30 a.m.: U.S. to auction $35b 4-wk bills, $25b 52-wk bills
  • 1 p.m.: U.S. to auction $35b 2-year notes
  • 4:30 p.m.: API inventories, prior crude build 1.75m bbl

WHAT TO WATCH:

  • New homes sales in the US due out this morning should be another bearish data point for both Americans and the financial stocks.
  • Newmont Mining (NEM); Plans new underground exploration in New Zealand, may extend gold, silver mining to 2020 and beyond
  • Hurricane Irene strengthens to category 2 storm, threatening U.S. coast
  • McGraw-Hill has “underperformed its potential” and should break into 4 parts, shareholders Jana Partners, Ontario Teachers’ Pension Plan proposed

 

COMMODITY/GROWTH EXPECTATION

  • STAGFLATION – begging for the Bernank to QE3 us is keeping a lid on any USD recovery and that’s a problem for Sticky Stagflation – yesterday the CRB Index was up 2pts on the day and this morning commodities are in many cases outpacing equity market gains. We will get less bearish on Equities, globally, when Oil is at $72.

 

THE HEDGEYE DAILY OUTLOOK - dcommv

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Gold Tops $1,910 for First Time as Platinum Reaches 3-Year High
  • Silver `Neckline' Break May Signal 15% Rally: Technical Analysis
  • Oil Gains a Second Day on U.S. Fuel Demand, Libya Supply Outlook
  • Australia May Ship Most Wheat Since 2004: Freight Markets
  • Oil Supplies Gain in Survey on Reserve Release: Energy Markets
  • Copper Rises on Improving Chinese Demand, U.S. Stimulus Outlook
  • Shanghai Gold Exchange Raises Margin Requirement to 12%
  • Irene Strengthens to Category 2 Storm, Threatening U.S. Coast
  • ‘Saudi Arabia’ of Copper Fails to Lift Output: Chart of the Day
  • Corn Advances to 10-Week High as U.S. Crop Condition Worsens
  • King Says Commodity Price Drop to Ease Income Squeeze Sooner
  • Palm Oil Gains as Dry Weather Threatens Soybean Crop Prospects
  •  Gold Extends Rally Above $1,900 as Economic Concerns Lift Demand

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

  • EUROPE – PMI numbers across the board for August are plain bearish, but markets have been pricing that in so we’re seeing another low-volume, low-conviction, rally in everything that’s been going down (other than Greece, which is down again this morn and down -45% since FEB); most interesting number was France dropping below the 50 line on PMI; GDP expectations in France (and their AAA rating) need to come down.
  • EuroZone Aug preliminary Manufacturing PMI 49.7 vs consensus 49.5 and prior 50.4
  • EuroZone Aug preliminary Services PMI 51.5 vs consensus 50.9 and prior 51.6
  • EuroZone Aug preliminary Composite PMI 51.1 vs consensus 50.1 and prior 51.1
  • German Aug ZEW current conditions 53.5 vs consensus 87.0; economic sentiment (37.6) vs con (25.0)

 

THE HEDGEYE DAILY OUTLOOK - bpem1

 

ASIAN MARKETS

  • ASIA: China put up a better than bad number last night and stocks stopped going down +1.5% overnight; Korea stopped crashing, which is nice.
  • HSBC Flash Manufacturing PMI for China beat expectations and came in higher m/m, still indicated a contraction.

 

THE HEDGEYE DAILY OUTLOOK - bpam1

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - me

 

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%
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