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THE M3: SEPT VISITOR ARRIVALS; CHANGI DATA; S'PORE CPI; INFLATION

The Macau Metro Monitor, October 24, 2011

 

 

VISITOR ARRIVALS FOR SEPTEMBER 2011 DSEC

Visitor arrivals increased by 17.8% YoY to 2,166,627 in September 2011.  Visitors from Mainland China surged by 39.3% YoY to 1,246,256.  Mainland visitors traveling to Macau under the IVS totaled 449,098, up by 31.7% YoY.   On the contrary, visitors from Hong Kong (582,025); Taiwan (101,047); Japan (35,623) and the Republic of Korea (26,677) decreased by 2.7%, 0.6%, 12.1% and 9.5% respectively; however, visitors from Singapore (23,118) registered a notable increase of 36.2%. 

 

THE M3: SEPT VISITOR ARRIVALS; CHANGI DATA; S'PORE CPI; INFLATION - visitor

 

SEPTEMBER BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

September passenger movement at Singapore's Changi Airport increased 12.5% YoY to 3,817,720.

 

SINGAPORE'S CPI COOLS TO 5.5% IN SEPTEMBER Channel News Asia

Singapore's CPI slowed to 5.5% YoY growth in September, down from 5.7% growth in August.  Economists were expecting a 5.7% print.  The Monetary Authority of Singapore's core inflation rate eased to 2.1% YoY in September, down from 2.2% the previous month.

 

GOVT PREPARING NEW MEASURES TO FIGHT INFLATION Macau Business

Secretary Tam said the government is preparing a new package of measures, including an increase in food supply sources, to curb inflation in Macau.  Macau CEO Chui Sai On will unveil the full package in the November policy address.


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - October 24, 2011

 

President Obama embarks on 3-day western state swing, with visits to Nevada, California and Colorado and is supposed to talk on housing and other economic issues. This is evidently what the Keynesians are working Bernanke on as well behind the scenes.   Putting in more policies to slow gravity will be interesting to observe.   As we look at today’s set up for the S&P 500, the range is 19 points or -1.47% downside to 1220 and 0.06% upside to 1239. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 1024

 

THE HEDGEYE DAILY OUTLOOK - daily sector performance

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 2239 (+1608) 
  • VOLUME: NYSE 1190.31 (+24.23%)
  • VIX:  31.32 -9.95% YTD PERFORMANCE: +76.45%
  • SPX PUT/CALL RATIO: 2.12 from 1.40 (+51.23%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 40.31
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.23 from 2.20    
  • YIELD CURVE: 1.93 from 1.92

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Chicago Fed Nat Index: est. -0.21, prior -0.43
  • 8:45 a.m.: Fed’s Dudley to speak in the Bronx on the economy
  • 9:00 a.m.: Fed’s Fisher speaks in Toronto on U.S. economy
  • 11:30 a.m.: U.S. to sell $56b 3-mo., $27b 6-mo. bills
  • 1:00 p.m.: Fed’s Dudley to speak to Bronx Chamber of Commerce

WHAT TO WATCH:

  • Mattel announces acquisition of HIT Entertainment
  • European leaders ruled out tapping ECB’s balance sheet to boost the region’s rescue fund; outlined plans to aid banks
  • Turkey officials fear as many as 1,000 people died in 7.2 earthquake yesterday, worst since 1999
  • China government official says CPI has reached turning point, will be under 5% in the next two months - Securities Times
  • Swiss banks will likely settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, according to two people familiar with the matter

COMMODITY/GROWTH EXPECTATION                                             

 

COPPER – another mean reversion bounce off of an immediate-term TRADE oversold low; Copper would have to close > 3.49/lb to get above its TRADE line of resistance; TREND and TAIL for copper much higher at 3.94-4.13.

 

THE HEDGEYE DAILY OUTLOOK - daily commodity monitor

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • China Manufacturing Gauge Rises as Japanese Exports Advance
  • Hedge Funds Raise Bullish Bets Most in Two Months: Commodities
  • Thai Floods Spill Into Northern Bangkok After Levee Violence
  • Buffett-Backed Carmaker Comes Late With Fewer Jobs Than Promised
  • Sprott Buys Energy With Commodities at Recession Valuation
  • Saudi Crown Prince’s Death Raises Succession Questions
  • Roubini Sees 50% Chance of Recession in U.S., Eurozone, U.K.
  • Base Metals Extend Biggest Rally in Two Years on China Outlook
  • Gold Gains for a Second Day as Europe Debt Concerns Spur Demand
  • Oil Advances a Second Day on Asian Economic Growth, Europe Plan
  • Vale Losing to BHP on China Market-Share Concern: Brazil Credit
  • Hedge Funds Boost Oil Bets as Crude Prices Climb: Energy Markets
  • China Must Control Food Prices to Curb Inflation, Premier Says
  • China’s Steel Prices Decline Most Since 2008 Global Crisis
  • Floods in Southeast Asia May Cause Food Shortages, UN Says
  • Wal-Mart’s Rivals in China May Gain Ground After Pork Probe
  • Oil Advances a Second Day on Asian Economic Growth, Europe Plan
  • ABN Expands Energy, Commodities and Transportation Division
  • JSW Steel Said to Consider a Bid for Australian Miner New Hope

 

CURRENCIES                                                        

 

EURO – With the ECB backing off being a big part of the bazooka, I don’t think the media gets what that means – markets do; the Euro is backing off my TAIL zone of resistance 1.39-1.40 and every single market in Europe (stocks) has failed at my TREND lines of resistance again – Greece and Cyprus are crashing again, down -4.9% and -6.9% on the day, respectively.

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

Eurozone Oct Manufacturing preliminary 47.3 PMI  vs consensus 48.0 and prior 48.5

Eurozone Aug Industrial new orders +6.2% y/y vs +5.7% consensus and prior revised to +8.9% from +8.4%; Eurozone Aug Industrial new orders +1.9% m/m vs consensus +0.2% and prior revised (1.6%) from (2.1%)


THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

CHINA – the flash PMI print came in at 51.1 which means Asia could stop going down for the day; context: last week, Asian equity markets were down -1.2% week/week on a median basis.   Losses were led by China (-4.7%) and Thailand (-4.1%), as both struggled with heightening domestic risks. The Hang Seng closed back > its TRADE line of 18,344 on a +4.1% move.

 

 

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director


MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE

Credit default swaps for banks and sovereigns were slightly wider overall last week.  French swaps widened the most among sovereigns, increasing 6.4% to 192.  The TED spread made a new YTD high while the JOC index made a new YTD low.

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 2 of 11 improved / 0 out of 11 worsened / 9 of 11 unchanged
  • Intermediate-term (MoM): Positive / 4 of 11 improved / 1 of 11 worsened / 6 of 11 unchanged
  • Long-term (150 DMA): Negative / 2 of 11 improved / 7 of 11 worsened / 2 of 11 unchanged

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Summary

 

1. US Financials CDS Monitor – Swaps tightened across 18 of 28 major domestic financials last week.

Tightened the most vs last week: GS, MS, LNC

Widened the most vs last week:  PMI, MTG, AGO

Tightened the most vs last month: PMI, CB, MMC

Tightened the Least/Widened the most vs last month: GS, AGO, AIG

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - CDS  US

 

2. European Financials CDS Monitor – Bank swaps were mixed in Europe last week, with swaps tightened for 21 of the 40 reference entities. Greek banks were the worst performers, as Alpha Bank A.E. and EFG Eurobank Ergasias S.A widened 30% and 15.2% respectively. German banks also saw deteriorations, with swaps widening an average of 7.5% WoW.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - CDS  Europe

 

3. European Sovereign CDS – European sovereign swaps widened slightly last week. Only German and American spreads tightened. American spreads tightened by 12%.  French swaps widened 6.4% to 192 from 180. 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Sovereign CDS  1

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Sovereign CDS  2

 

4. High Yield (YTM) Monitor – High Yield rates fell 36 bps last week.  Rates retraced back to their late-September levels, ending the week at 8.13 versus 8.49 the prior week.

 MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - High Yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 18 points last week, ending at 1566. 

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - LLI LT

 

6. TED Spread Monitor – Last week the TED spread hit another new YTD high, ending the week at 40.3 bps.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index continued its decline, falling 3.3 points to end the week at -23.3.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - JOC LT

 

8. Greek Yield Monitor – Last week the 10-year yield on Greek debt rose 11 bps to end the week at 2404 bps versus 2393 bps the prior week. Bond yields are currently just 164 bps off of their all-time high.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Gr Bond LT

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1.  Last week, spreads rose 1.3 bps and closed at 174 bps.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - MCDX

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 20 points, ending the week at 2153 versus 2173 the prior week.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - Baltic Dry Index

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 10-year yield fell to 2.22, pushing the 2-10 spread to 195 bps, 3 bps tighter than a week ago.   

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.8% upside to TREND resistance and 3.7% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - XLF Macro setup

 

Margin Debt Falls in August

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year.

 

 The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which has retraced back to +0.64 standard deviations as of August, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. We’ve dropped 230 S&P handles in getting from +1.5 standard deviations to +0.64 standard deviations. There’s plenty of room for short/intermediate term reversals within this broader secular move, but overall this setup represents a material headwind for the market.  

One limitation of this series is that it is reported on a lag.  The chart shows data through August.

 

MONDAY MORNING RISK MONITOR: FRENCH SWAPS SHOW WIDEST NEGATIVE DIVERGENCE - margin debt

 

Joshua Steiner, CFA

 

Allison Kaptur


Early Look

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Fighting the Bull

This note was originally published at 8am on October 19, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Bullfighting is the only art in which the artist is in danger of death and in which the degree of brilliance in the performance is left to the fighter's honor.”

-Ernest Hemingway

 

Keith and a few other members of our senior management team are up at the Pop Tech Conference in Camden, Maine, and as a result I’ve been handed the proverbial hockey stick on the Early Look this morning.  Given that one of the last major Republican primary debates occurred last night, I wanted to touch upon a topic that we all have an opinion or view on: politics.

 

The most noteworthy news in the Republican political arena in the last few weeks has been the startling decline of Texas Governor Rick Perry.  According to the Real Clear Politics poll aggregate, on September 13th, Perry was at 31.8% in a poll of the major candidates, while Romney was at a distant second with 19.8%.   As of yesterday, Perry’s support had declined dramatically to 12.9%.  As the public has seen more and more of Perry in televised debates, they have seemingly become less and less comfortable with his ability to be President of the United States. 

 

Last night appears to have been Perry’s best debate showing, though this largely came on the back of a more personal attack on former Massachusetts Governor Mitt Romney related to hiring illegal aliens in his home.  Specifically, Perry stated:

 

“Mitt, you lose all of your standing from my perspective because you hired illegals in your home.  And you knew for — about it for a year.”

 

Perry has actually been effective at raising money in this race and according to recent reports currently has more money on hand than Romney.  Money aside, though, Perry appears to have outworn his welcome on the national stage and attacks like the one above are starting to reek of desperation.

 

Alongside Rick Perry’s rapid decline, the other key surprise in Republican circles has been the rapid ascent of Herman Cain.  In the aforementioned poll aggregate from Real Clear Politics, Herman Cain has gone from barely registering, at 4.2%, to now running a close second to Romney with 23.4% support amongst the Republican field.  As we wrote about Herman Cain a few weeks ago to our Macro Subscribers in a post titled, “This Isn’t Herman Cain’s First Rodeo (Though It Could Be Rick Perry’s Last):

 

“In the current race for the Republican nomination, Cain has quickly gone from being a long shot candidate to being considered a serious candidate.  This has occurred on the back of a number of straw poll victories, including Illinois, Florida, and at the National Federation of Republican Women.”

 

Unfortunately for Cain, it all seems like too little too late.  Currently Romney has the fundraising and organizational advantage, as well as the advantage of being a known entity, for better or worse, to voters, so his potential of imploding has limited.  The InTrade market for political futures, which we flagged in the Chart of the Day today, reflects as much about Romney in a 65% probability that he will be the nominee.

 

On the Democratic side, of course, stands the incumbent, President Barack Obama.   To say Obama is in a world of hurt, currently, would be an understatement.  According to the Real Clear Politics Aggregate, Obama’s approval rating is 43.6% and his disapproval rating 52.0%.  His re-election chances are further thwarted by the fact that unemployment stands at north of 9%.  No incumbent in the history of the U.S. Presidency has been re-elected with approval and economic numbers this abysmal.

 

On the positive, President Obama still seems to be moderately well-liked.  In fact, despite the extremely negative numbers outlined above, Obama still outpolls all of his potential Republican challengers on a head-to-head basis.  Romney is by far the closest, but still trails by 0.6%.  So, while Obama is down, he is far from out. 

 

That said, the key missing factor in head-to-head polls is a measure of enthusiasm to vote.  According to a recent CNN poll, some 64% of Republicans say they are extremely enthusiastic to vote compared to only 43% of Democrats.  If this trend sustains, it will be the Republican nominee by a landslide.

 

The emerging wild card in this race appears to be the Occupy Wall Street movement.  I’ve spent a fair amount of time both researching the movement and visiting their headquarters in Zuccotti Park.  The mainstream media, especially CNBC, has certainly been validating this group with exposure, but so far, to me at least, it is very unclear that this group has the organizational skills or money needed to make an impact.

 

As well, even if the group does appear, so far, to represent largely leftist interests, they do represent a broad discontent with American elites both on Wall Street and in Washington.  Despite a lack of real leadership, Occupy Wall Street has flourished geographically.  Occupy Wall Street, ultimately, may be a leading indicator that the door remains open for a truly tenable independent candidate to run for President.   Who the candidate would be and where he or she would come from, though, remains to be seen.

 

I do have a recommended skill set for any third party candidate that enters the Presidential ring, which is that of bullfighting.  Ironically, a good friend of mine from home, Jason Hale, is taking on the political establishment in Alberta in a race for the Provincial legislature and, as you can see from his bio - http://www.jasonhale.ca/bio - he has 10 years of professional bull fighting experience.  Not a bad skill set to have with all the bull in politics these days.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Fighting the Bull - Chart of the Day

 

Fighting the Bull - Virtual Portfolio



Deceiving Themselves

We should not deceive ourselves into thinking that when we die we shall be remembered intensively for more than a limited number of days.”

-Siegmund Warburg, 1974

 

Last week I started reading Niall Ferguson’s “High FinancierThe Lives and Time of Siegmund Warburg.” Interestingly, but not surprisingly, Ferguson chooses to preface the 19th century history of the Rothschild and Warburg families by giving you a hint about how it all ended for central bankers in the 1970s (it didn’t end well).

 

If you re-read the aforementioned quote and think about it within the context of what is going on in the world of banking today (either central banking or bailout banking, or both), this is the root of the problem. These people don’t appreciate the lessons of history. They live in the now and react to whatever fire they need to put out next. There is no such thing as being proactively prepared for the long-term.

 

In the long-run, Keynes excused himself (and the responsibility in the recommendation of his policies) by reminding politicians that “we are all dead.” That’s a sad and pathetic way to think about leadership and legacy. It’s also one that the Western World had enough of come 1978.

 

Back to the Global Macro Grind

 

Regardless of how I continue to think the biggest man-made money printing bazooka in world history is going to end (structurally impaired long-term growth), our risk management task this morning also needs to consider dealing with the right here and now.

 

In the last 3 weeks I have dropped my Cash position in the Hedgeye Asset Allocation Model from 73% to 58%, and here’s how I’m thinking of positioning into and out of what should be a disappointing European Summit “catalyst” on Wednesday:

 

  1. Cash = 58% (down from 61% last week)
  2. International Currency = 18% (US Dollar – UUP)
  3. Fixed Income = 18% (US Treasury Flattener, Long-term Treasuries, and Corporate Bonds – FLAT, TLT, and LQD)
  4. US Equities = 6% (Consumer Discretionary – XLY)
  5. International Equities = 0%
  6. Commodities = 0%

 

Looking at these positions in the order that they appear:

 

1.   US Dollar – the US Dollar Index was down -0.3% last week, closing down for the 2nd consecutive week, but remains up +4.7% since Ben Bernanke’s beginning of the end of QE2. Despite Obama and his politicized Fed whispering everything they can about stimulus and housing bailouts last week, I think the political inertia remains at the US Dollar’s back.

 

2.   Fixed Income – the Growth Slowing TREND we’ve been calling for throughout all of 2011 has manifested in the US Treasury Curve flattening. While the market is telling me that growth is slowing at a slower pace (bullish for the immediate-term TRADE in stocks and bearish for bonds), the intermediate-term TREND levels for both the Flattener and long-term Bonds remain bullish.

 

3.   US Equities – my two favorite S&P Sectors (Utilities and Consumer Discretionary) are now up +11.3% and +5.1% for 2011 YTD, respectively. With Utilities finally achieving immediate-term TRADE overbought last week, I sold our XLU and stayed with the Strong Dollar = Strong America trade (US Consumption). Most of the domestic consumption stocks we like fit this same theme (MAR, TGT, etc…).

 

4.   International Equities – not being long most things Asian Equities last week was a good call. Asian equity markets closed down another -1.2% wk/wk. Losses were led by China (-4.7%) and Thailand (-4.1%), as both struggled with heightening domestic risks associated with Growth Slowing. I’m not touching anything European Equities at these lower-highs with a 1,000 foot Keynesian pole.

 

5.   Commodities – not here, not now. The US Dollar’s 2 weeks of weakness does not a TREND make. Inclusive of this morning’s +3.2% mean reversion bounce in the price of Copper, the Doctor remains in what we call a Bearish Formation (bearish TRADE, TREND, and TAIL). The CRB Commodities Index and Gold were both down another -1.9% and -2.8% last week. That’s good for consumers, not commodity long positions – which just saw their long “bets” (CFTC options contracts) rise +12% last week with hedge funds chasing.

 

On weakness (earlier in the week), I covered our short positions in US Housing (ITB), Oil (OIL), and the Financials (MS and C), so we actually had a pretty good week. No one ever went to the poor-house booking gains on the short side.

 

Where could I be wrong from here?

 

That answer obviously resides where it has for all of 2011 – led by the direction of the US Dollar Index versus the Euro.

 

Get the US Dollar right and you’ll get a lot of other things right. This is something our political and academic elite should think long and hard about as they try to fix their long-term policy mistakes with more short-term policies.

 

Sadly, in the short-term, I have no reason to believe that these people won’t continue to Deceive Themselves into thinking whatever it is that they think as the rest of us commoners are thinking about meeting payrolls.

 

In the short and long-run, I am fairly certain that if I do not succeed, both my family and firm will remember my mistakes intensively for plenty more than “a limited number of days.”

 

My immediate-term support and resistance ranges for Gold, Oil, the German DAX, and the SP500 are now $1, $86.34-88.98, 5, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Deceiving Themselves - Chart of the Day

 

Deceiving Themselves - Virtual Portfolio


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