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INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE

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Initial Claims Rise 14k WoW

Initial claims rose 14k WoW last week (11k net of the revision to the prior week).  This brings the level to 428k, the highest level since late June.  On a 4-week rolling basis, claims are up 4k WoW to 419k. As a reminder, in looking at the spread between the S&P and 4-wk claims, the current S&P level would equate to a rolling claims level of 452k.  

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims rolling

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims raw

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims and sp

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims nsa

 

2-10 Spread Not Letting Up 

Acute margin pressure remains in force, looking at the 10-year yield and the 2-10 spread.  The 10-year yield is now 120 bps lower than it was at the end of 2Q. 

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS QOQ

 

Subsector Performance

The chart below shows the performance of financial stocks by subsector.

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - PERF

 

 

Joshua Steiner, CFA

 

Allison Kaptur

 

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THE M3: OCEANUS, MACAO DRAGON, S'PORE HOME SALES; JACOBS CASE

The Macau Metro Monitor, September 15, 2011

 

 

UPWARDLY MOBILE Inside Asian Gaming

Casino Oceanus has acquired its 1st VIP room partner, CCUE VIP.  CCUE is chaired by U lo Hung, who was involved in developing AMA.  CCUE currently has 6 VIP tables on the 2nd floor at Oceanus and has plans to expand to 12 tables.  CCUE also has 6 VIP tables at L'Arc and at Altira Macau.  In early August, it opened 6 VIP tables at MGM Macau.  A financial advisor to CCUE mentioned that the VIP room at Oceanus will operate on a profit-share basis with its agents and host property rather than on a commission basis. 

 

MACAO DRAGON FERRY GOES BUST AFTER JUST 14 MONTHS OF SERVICE Macau News, SCMP

Macao Dragon Company Limited has filed for bankruptcy and ceased all operations.  According to a company statement, it is no longer able to run its service due to a government passenger capacity cap that shrunk the ferry company’s passenger capacity from 1,152 to 750 on each sailing from Hong Kong to Macau, and 600 from Macau to Hong Kong.  The company was the only one of the four ferry operators that had not been issued a permit to operate night sailings.

 
Maritime Administration said that Macao Dragon had not officially informed the local authorities about its bankruptcy, adding that the cap on passenger capacity was a decision made based on the safety of the passengers and the capacity of the ferry terminal in Taipa.  Macao Dragon is also being pursued by the Hong Kong Marine Department for HK$1.88MM in unpaid berthing fees and passenger embarking fees.

 

PRIVATE HOME SALES DIP 3.6% IN AUGUST Channel News Asia

Private home sales in Singapore fell 3.6% MoM in August, compared with a rise of 17% MoM in July.  Some 1,348 units were sold in August, excluding executive condos (ECs).  The dip comes after the government increased the income ceiling for public flats and executive condominiums in August.

 

LAS VEGAS SANDS ACCUSES FORMER MACAU CEO OF STEALING INFORMATION VEGAS INC

LVS has accused Steve Jacobs of stealing sensitive and/or privileged documents and refusing to return it.  Justin Jones, one of the Las Vegas Sands attorneys, said in a court declaration he discussed the issue with Jacobs’ attorneys on Aug. 1 of this year and Jacobs’ counsel related that:  "Jacobs does not believe that he is bound to keep confidential those documents obtained during the course of his employment because he asserts that he did not sign any confidentiality policy or other document containing a confidentially provision. Jacobs believes that Macau data privacy laws do not prohibit him from disclosing documents in this matter and that Macau data privacy laws are being used by defendants as a 'farcical canard' to avoid disclosure of documents."  Jacobs and his defense team have previously argued against such claims. 



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Being the Critic

“The critic has to educate the public; the artist has to educate the critic.”

-Oscar Wilde

 

Life is short.  So short, in fact, that we should all try to find time to do things that we enjoy and derive some amount of satisfaction from doing them.  I’ll be honest, I think most Hedgeyes enjoy what they do every day.  As for other financial firms, I’m not so sure.

 

According to reports this morning, UBS lost roughly $2 billion from “unauthorized trading by a trader in its Investment Bank”.  Not to name names, but if you work at a certain investment bank this morning, that kind of sucks.

 

So, here’s the bottom line, Hedgeye is hiring. What are we looking for? Well, quite simply, people that have a passion for doing great research.  No, we aren’t going to offer anyone a super duper 3 by 10 guaranteed bonus, but if you do love what do and think your research is differentiated, well, then email me : .  Keith calls me Big Alberta and I’m more commonly known as the Director of Research at Hedgeye.

 

Back to the global macro grind. . .

 

Far be it for the lads at Hedgeye to be contrarian, but, are you sitting down, the SP500 is currently giving us a bullish immediate-term TRADE signal.  Not only that, but 7 of 9 S&P sectors are giving us the same quantitative signal.  Aye carumba ! Are the Hedgeye lads getting all bulled up? Well, at least for a trade. . .

 

Currently, the only two sectors that remain bearish on our TRADE duration are Financials (XLF) and Industrials (XLI).  In the Virtual Portfolio, we are long Utilities (XLU) and short Industrials (XLI).  Not only has this worked in the year-to-date with Industrials down -10.1% and Financials and Utilities up 7.0%, but we think it will continue to work.

 

It has been an interesting few weeks for us at Hedgeye.   In dramatic fashion, we have seen many of the largest sell side economists capitulate to our view on the economy and growth.  For those of our subscribers that read us somewhat regularly, they know being bearish is not new to Hedgeye.  In fact, by way of a time stamp, attached is an article that I wrote for Fortune on December 31st, 2010:

 

http://finance.fortune.cnn.com/2010/12/31/a-new-year-brings-new-economic-headwinds/

 

If you don’t have time to read it, I will highlight one quote, which is as follows:

 

“Currently, according to a Bloomberg survey of the strategists from 11 of the largest brokerage firms in the United States, the mean consensus target for the S&P 500 by year end 2011 is roughly 10% above current levels. Further, every single strategist is expecting a positive performance out of the index in 2011.”

 

As my 9-year old niece might say, OMG ! Indeed, it is somewhat scary to think that the reputed smartest economists on the street got the target for the most relevant stock market in the world so wrong. 

 

Yesterday CNBC hosted its Seeking Alpha Conference, which on some level was entertaining to watch.  Actually, it was entertaining on many levels. The most interesting excerpt was from Leon Cooperman who, and I’m paraphrasing, indicated that he recently had lunch with his top friends in money management and they are all under allocated to U.S. equities.  Now, obviously, Mr. Cooperman isn’t always right, but he has been around the block and his statement yesterday was insightful.  Incidentally, and not that we planned this, our current weighting to global equities is currently 24%, which is our highest allocation since early July . . . aye carumba, indeed !

 

In the longer term, we are not so bullish. In fact, in the Chart of the Day today, we highlight the long term interest rates of Japan.  Or as our Asian Analyst and former Yale lineman Darius Dale likes to characterize it : ZIRP.   For those of you that don’t know what ZIRP means, it stands for Zero Interest Rate Policy.  In the chart, Darius has outlined the dangers of ZIRP.

 

While conventional wisdom would have you believe that ZIRP means that equities are cheap on a relative basis, the history of Japan actually suggests otherwise. ZIRP was instituted in Japan in 1999 and the Nikkei has returned -37.4% since the start of that year. So while risk assets, like equities, look cheap vis-à-vis interest rates, it all depends on the assumed economic growth rate implied by interest rates.

 

On a totally non-linear note, I would like to end with a quote from a book that Keith is currently reading called “Gates of Fire”.  As Keith emailed the team late last night:

 

“There’s an excerpt in Gates of Fire where the Spartan officer, Dienekes, was told (on the eve of battle) that the Persian archers were so many in number that when they fired their volleys, the mass of arrows would block out the sun.

Dienekes looked at the messenger and said …

 

“Good. Then we will have our battle in the shade.””

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Being the Critic - Chart of the Day

 

Being the Critic - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 15, 2011

 

As we look at today’s set up for the S&P 500, the range is 38 points or -1.40% downside to 1172 and 1.79% upside to 1210.

 

SECTOR AND GLOBAL PERFORMANCE

 

A 3 day rally finally gives us a bullish immediate-term TRADE signal for both the SP500 and 7 of 9 S&P Sectors. It’s been a long drought, but all droughts end with a fresh squeeze of water. The SP500’s TRADE line of support is now 1172.  We have been getting longer because of a heightening probability of establishing higher-YTD-lows for the SP500 and that’s still what the model is signaling (if 1172 were to break, I still have significant support at 1141 vs the YTD closing low of 1119).

 

The 2 of 9 Sectors that remain bearish on our immediate-term TRADE duration are Financials (XLF) and Industrials (XLI) which are down -21% and -10.1% for the YTD, respectively. We are short Industrials (XLI) and long Utilities (XLU) which remains the top performing sector in the SP500 at +7.0% YTD.

 

THE HEDGEYE DAILY OUTLOOK - LEVELS 915

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

 

  • ADVANCE/DECLINE LINE: +1430 (-139)  
  • VOLUME: NYSE 1085.46 (+1.37%)
  • VIX:  34.60 -6.26% YTD PERFORMANCE: +94.93%
  • SPX PUT/CALL RATIO: 1.49 from 1.71 -12.57%

CREDIT/ECONOMIC MARKET LOOK:

 

  • TED SPREAD: 34.91
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.03 from 2.00     
  • YIELD CURVE: 1.84 from 1.79

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Consumer price index, est. 0.2%, prior 0.5%
  • 8:30 a.m.: Empire manufacturing, est. (-4.00), prior (-7.72)
  • 8:30 a.m.: Jobless claims, est. 411k, prior 414k
  • 8:45 a.m.: Fed’s Bernanke gives brief remarks at risk conference (text, no questions)
  • 9:15 a.m.: Industrial production, est. 0.0%, prior 0.9%
  • 9:15 a.m.: Capacity utilization, est. 77.5%, prior 77.5%
  • 9:45 a.m.: Bloomberg consumer comfort, est. (-49.0), prior (-49.3)
  • 10 a.m.: Philadelphia Fed, est. (-15.0), prior (-30.7)
  • 10 a.m.: Freddie Mac mortgage rates
  • 1:45 p.m.: Fed’s Tarullo speaks at systemic risk conference

WHAT TO WATCH:

  • UBS said it may post 3Q loss after $2b loss from unauthorized trading
  • Groupon now said to be aiming for IPO as early as next month: NYT
  • Texas Gov. Rick Perry is preferred presidential choice of 26% of Republicans, Republican-leaning independents: Bloomberg poll
  • European stocks climbed for 3rd day as assurance from Germany and France that Greece will remain a member of the euro outweighed a $2b trading loss at UBS.


COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Gold-Backed Dollar Signals $10,000 Metal Price: Chart of the Day
  • Goldman Sticks With Oil, Copper Forecasts as Risks Climb
  • Oil Rises a Second Day in London on European Support for Greece
  • Ralcorp Costing Investors $1 Billion Opposing ConAgra: Real M&A
  • China to Install First Gold Vending Machine, ND Daily Says
  • Copper Gains From One-Month Low on Easing Debt Concern, Strikes
  • Freeport Weighs Grasberg Strike Impact on Output, Shipments
  • SocGen Goes ‘Underweight’ on Commodities ‘in Danger Zone’
  • Australia Wheat Exports Seen Trailing Government Forecast
  • Rio Tinto to Invest Further $833 Million in Pilbara Expansion
  • China’s Refined Copper Use May Reach 8.5 Million Tons in 2015
  • Palm Oil Retreats as Global Cooking-Oil Supplies Set to Climb
  • Libya to Resume Oil Exports Within Four Days, Official Says
  • Record Texas Drought Burns Cotton Farmers as White Gold Withers

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • European stocks climbed for 3rd day as assurance from Germany and France that Greece will remain a member of the euro outweighed a $2b trading loss at UBS.
  • EUROPE: Germany has sufficiently ripped the shorts a new one ... But the DAX trade line of resistance remains above last price at 5569 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: much better morning for Asian equities than yesterday with both Japan and Korea coming off their lows

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director

 


Fiat Fool Monday

This note was originally published at 8am on September 12, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Any fool can know. The point is to understand.”

-Albert Einstein

 

After spending some much needed time with my beautiful wife on a non-Greek island in the middle of nowhere last week, I’m feeling good this morning. I’m re-charged and ready to go after some Fiat Fools in France.

 

Actually, I’m not ready for that. That would be boring. Playing yesterday’s game all over again usually is. Being short European or US Equities is yesterday’s news. Today we are tasked with playing the game that’s in front of us.

 

Whether yesterday was 2008 in the US or 2011 in Europe is really for history to decide. Crashing market prices are what they are and I highly doubt blowing up other people’s money a second time around is going to be tolerated by at least that one core constituency – those other people. Equity market fund “outflows” and “sentiment” will be the final stage for the 2011 Equities bears to navigate.

 

Back to the Global Macro Grind

 

Even for a central planner of modern day money printing, arresting gravity is difficult. With that risk management thought in mind, here are the Top 3 things I am looking at this morning:

  1. GERMANY – the German DAX continues to tell us all we need to know about not being long anything Europe (stocks, bonds, or currency). With the healthiest fiscal situation and balance sheet of a bad Western European bunch, if Germany can’t stop going down, I don’t see why France or Italy can; DAX, CAC, and MIB Index crashes are now -33%, -30%, -39% since the end of April.
  2. EURO/USD – from The Correlation Risk perspective, this remains the most important relationship in all of Global Macro. We like to say, “get the EUR/USD pair right and you’ll get a lot of other things right.” Both the TAIL ($1.39) and TREND ($1.43) for the Euro have broken expeditiously here in September.
  3. SEPTEMBER – after going net short for the 1st time since June 23rd  at the end of August (more SHORTS than LONGS in the Hedgeye Portfolio), we showed the “Month-End Markup” factor (last 6 days of the month vs first 6 in the new month for US Equities). The average 6 day drawdown since April = -4.5%. For September to-date the SP500 is down -5.3%.

Of course, any fool can know most of these things after they have occurred. Yesterday’s score is the score. Since the 2007 and 2011 highs, the SP500 is down -26.3% and -15.3%, respectively. The point now is to understand what to do next.

 

On today’s down move, this is what I’m going to do:

  1. COVER shorts that have gone down
  2. BUY Asian Equities where the rate cycle is about to become accommodative (no more rate hikes)
  3. BUY US Equities (Utilities and Healthcare first) as we SELL more of our US Fixed Income exposure

Now before I get accused of being all horned up like a bull here, we’re in a very good position to take our time. After all, rotating your assets from one asset class to another should be a proactive process, not an emotional point.

 

Last week, on US Bond market strength and US Equity market weakness, I sold Fixed Income Exposure (TLT) and started buying some US stock market exposure (XLU and XLV). As a reminder, I moved to ZERO percent US and European Equity exposure before this morning’s episode of the Fiat Fool Monday gong show began.

 

Here’s the Hedgeye Asset Allocation Model as of Friday’s market close:

  1. CASH = 55% (down from 64% last week and down from 70% at my peak Cash position for 2011)
  2. FIXED INCOME = 18% (US Treasury Flattener, Long-term US Treasuries, and Treasury Bond ETF – FLAT, TLT, and BWX)
  3. INTERNATIONAL EQUITIES = 12% (Philippines, China, and S&P International Dividend ETF- EPHE, CAF, and DWX)
  4. US EQUITIES = 9% (Utilities and Healthcare – XLU and XLV)
  5. COMMODITIES = 6% (Silver and Corn – SLV and CORN)
  6. INTERNATIONAL FX = 0%

Cutting an exposure to ZERO percent can be considered “aggressive” by someone who doesn’t understand what we do. Most recently, I’ve opted to cut my International Currency exposure to ZERO percent. The #1 reason for that has been my being bullish on the US Dollar for the first time in a long time.

 

With Global Growth Slowing being priced in and Americans leaning more conservatively in the polls than they have in years on both fiscal and monetary policy (Fiat Fools are politicians and, yes, they follow the polls), the US Dollar has put on one heck of a move “off the lows.” Last week alone, the US Dollar Index was +3.3%. That’s very good for Americans.

 

Yes, Americans. As in the other 90% of Americans who don’t really own stocks anymore. Either by liquidation, capitulation, or californication (housing bust), that’s your New Reality of a financial system that people don’t trust. The top 10% of America’s wealthy own 98.5% of the US stock market (source: G. William Domhoff, UC Santa Cruz). And 10% of America isn’t America.

 

If I’ve said this 100x in the last 3 years, I’ve said it 1000x – the best path to American prosperity is through a strong US Dollar. This isn’t a political point. Both Reagan and Clinton got this as right in America as Bush II and Obama have had it wrong. Strong Dollar reduces inflation at the pump and creates more spending power in this brave, new, globally-interconnected world.

 

The Monday morning Fiat Fool quarterbacks of the Keynesian Kingdom don’t get that, yet. But markets have always had a not so funny way of helping them eventually understand.

 

My immediate-term TRADE ranges of support for Gold, Oil, and the SP500 are now $1844-1903, $85.81-88.09, and 1126-1177, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fiat Fool Monday - Chart of the Day

 

Fiat Fool Monday - Virtual Portfolio


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