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THE HBM: PNRA, YUM

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Notes from CEO Keith McCullough

 

After Roubini called for Euro “parity” and the Euro appeared on the cover of The Economist (on fire) last wk, the US Dollar was immediate-term overbought and Euro oversold – shocking.

  1. ASIA – mini-meltup in the markets that have been going down the most (HK, India, Korea – all up +2-3% overnight) as China and Indonesia didn’t care much to rally at all (closing up 0.12% and 0.27%, respectively). Asian Growth is still slowing and all Asian markets remain in Bearish Formations (bearish on all 3 of my risk management durations)
  2. EURO – immediate-term TRADE oversold at 1.32 is as oversold does (we covered our Euro short there) – now you get the bounce back up toward a lower-high of immediate-term resistance (1.34). Take your time with this and use the USD as your front-runner to fade the Global Macro market’s beta.
  3. COMMODITIES – same Global Macro trade (Correlation Risk) that’s associated with the USD; what went down last week goes up this morning (with the USD down) – important immediate-term TRADE lines of resistance I am watching are Gold $1726 and Copper $3.45. If both fail there, both are shorts.

Don’t forget that last week was the worst Thanksgiving week for US stocks since 1932 (not a good reference pt, fyi). The SP500 would have to close > 1203 for me to not be selling on green today. Covered all but 6 short positions last wk, so now we can re-populate the bench.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, YUM - subsector fbr

 

 

QUICK SERVICE

 

PNRA: Panera Bread is opening its second Manhattan location in 1Q12 after leasing a 4,556 square foot unit at 10 Union Square East in New York.

 

YUM: Yum! Brands has reached an agreement with Sinopec to open drive-through outlets at its gas stations and expressway service stations in China.  Zhu Zongyi, President of Yum! Brands China Division, said, “We expect to expand our business in southwest China because that’s where social economic development is moving and we will open more in Chengdu in the New Year.”

 

THE HBM: PNRA, YUM - stocks 1128

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: COTAI; UNEMPLOYMENT; HENGQIN

The Macau Metro Monitor, November 28, 2011

 

 

ALL OPERATORS TO GET COTAI PLOTS: TAM Macau Daily Times

Secretary Tam has confirmed that the government is planning to grant a plot for casino development in the Cotai area to all of the six gaming operators.  Tam also stressed the (average) 3% table growth cap from 2013-2023.  “There are reasons for this figure. We don’t want this sector to grow too much, too fast,” he said.  The official recalled that concession contracts were signed for a period of 20 years. “We are halfway there now so it’s the right timing to stop and look back,” he said.

 

Further restrictions would also pose a danger to the local economy, Tam warned.  “If we were to stop the gaming sector from developing, we would have a risky economic environment. There would be consequences for the Macau society,” he said.  "We want gaming to be just one element of a world-class tourism and leisure destination. But in the short-term, gaming will have to continue dominating the economy.”

 

UNEMPLOYMENT TO DROP: FRANCIS TAM Macau Daily Times

“We can expect a slight decrease in the unemployment levels [for 2012],” Secretary Tam said.   With two-digit economic growth expected to continue next year, the working-age population could rise by 10% in 2012, Francis Tam said.  Local hotels and restaurants had more than 7,400 vacancies at the end of September, despite hiring over 4,000 people in just half-a-year, official data shows.

 

EMPLOYMENT SURVEY FOR AUGUST - OCTOBER 2011 DSEC

The unemployment rate fell to a record low of 2.4% in August-October 2011, down by 0.2 % point compared with the previous period (July-September 2011).  Total labor force was 346,600 in August-October 2011 and the labor force participation rate reached a historical high of 73.0%, with total employment increasing by 2,900 over the previous period to 338,200. 

 

MACAU DIVERSIFICATION Reuters

MGM China's CEO, Grant Bowie, said Hengqin was a big plus for Macau and would be key to enhance engagement between mainland China and Macau.  "Its greater land area allows other tourism, leisure and recreational assets to be introduced to support the diversification of Macau, which would not be possible in Macau," he said.  Robert Drake, CEO of Galaxy Entertainment, said Galaxy was interested in investing in Hengqin and will explore options there.  In a push to lure investment to Hengqin, China is granting tax benefits to companies that operate in targeted industries and will grant duty-free status for imported goods.

 

"We are encouraging all foreign companies to come, like Walmart for example, but just no casinos," said Zhao Zhen Wu, a Chinese government director working on the development of Hengqin.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 28, 2011

 

Don’t forget that last week was the worst Thanksgiving week for US stocks since 1932. The S&P500 would have to close > 1203 for us to not be selling on green today.  As we look at today’s set up for the S&P 500, the range is 52 points or -1.35% downside to 1143 and 3.14% upside to 1195. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels and trends 1128

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -385 (+1947) 
  • VOLUME: NYSE 441.77 (-49.57%)
  • VIX:  +34.47 +1.44% YTD PERFORMANCE: +94.20%
  • SPX PUT/CALL RATIO: 1.88 from 2.16 (-13.09%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 50.78
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.97 from 1.89   
  • YIELD CURVE: 1.69 from 1.63

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Oct. new home sales, est. 313k, prior 313k
  • 10:30am: Nov. Dallas Fed Manufacturing activity, est. 5.0, prior 2.3
  • 11am: New York Fed releases 3Q report on household debt
  • 11am: Fed to purchase $4.25b-$5b in notes/bonds
  • 11:30am: U.S. to sell 3-mo., 6-mo. bills

 

WHAT TO WATCH: 

  • U.S. retail sales up 16% to record $52.4b over Thanksgiving weekend; National Retail Federation. Cyber Monday takes place
  • German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline to calm markets
  • Biggest bond dealers in U.S. say Fed is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COMMODITIES – same Global Macro trade (Correlation Risk) that’s associated with the USD; what went down last week goes up this morning (with the USD down) – important immediate-term TRADE lines of resistance we are watching are Gold $1726 and Copper $3.45. If both fail there, both are shorts.

 

  • Raw Materials Topping Equities With Growth Intact: Commodities
  • Seaway Pipeline Creates Contango With Oil Glut: Energy Markets
  • Ternium, Tenaris Buy $2.7 Billion Stake in Usiminas
  • Oil Climbs to Highest in a Week on U.S. Sales, Syrian Sanctions
  • Gold Gains as IMF Loan Report Helps Euro, ETP Holding at Record
  • Oil Advances a Second Day on Economic Outlook, Syrian Sanctions
  • Copper Advances Most in Two Weeks on Record U.S. Holiday Sales
  • U.K. Power Use Drop ‘Symptomatic’ of Economy: Chart of the Day
  • Baosteel Cuts Costs With Biggest Corporate Dim Sum: China Credit
  • BHP Billiton Names Kerr to Succeed Vanselow as CFO
  • Ruble Bears Lifting Swap Rates Lure Uranium One: Russia Credit
  • Commodities Advance on Signs Europe Seeking to Contain Crisis
  • Codelco Cuts 2012 Copper Fees to S. Korea After China, Japan
  • Posco to Post Record Stainless Steel Production This Year
  • U.K.’s Osborne Said to Aid Steel, Aluminum Producer Energy Costs
  • Iraq Signs $17 Billion Gas Agreement With Shell, Mitsubishi
  • China Sharpens Food-Safety Fight, Condemns Man for Contamination
  • Wheat, Corn Gain on Optimism European Leaders May Stem Crisis
  • Gold Gains as Dollar’s Decline May Spur More Investment Demand

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES


EURO – immediate-term TRADE oversold at 1.32 is as oversold does (we covered our Euro short there) – now you get the bounce back up toward a lower-high of immediate-term resistance (1.34). Take your time with this and use the USD as your front-runner to fade the Global Macro market’s beta

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA – mini-meltup in the markets that have been going down the most (HK, India, Korea – all up +2-3% overnight) as China and Indonesia didn’t care much to rally at all (closing up 0.12% and 0.27%, respectively). Asian Growth is still slowing and all Asian markets remain in Bearish Formations (bearish on all 3 of my risk management durations)

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

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 80.28%
  • SHORT SIGNALS 78.51%

Available Cash

This note was originally published at 8am on November 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Desire is proof of the availability.”

-Robert Collier

 

As I grind through the end of Sylvia Nasar’s “Grand Pursuit” this weekend, I’m looking forward to the most talked about book in the high-halls of intellectual hockey-head thought – Dan Kahneman’s recently published “Thinking, Fast and Slow.”

 

I love everything about that title. Being an amateur writer whose first English paper at Yale was deemed “un-grade-able”, I think the punctuation (using a comma) of the title provides a lesson for everyone in this business. Thinking is important – sometimes you need to do it fast. Sometimes you need to do it slow. Risk waits for no one.

 

Thinking back to his prior works in the 1970s (a period Bernanke should familiarize himself with), Kahneman (and Tversky) did a psychological experiment called the “Availability Heuristic” which essentially “operates on the notion that if you can think of it, it must be important.” (Wikipedia)

 

Can you think of anything going on in Europe right now?

 

Of course you can. That’s all the financial media talks and writes about every day. South Park’s Trey Parker must have Blame Europe in the works, right?

 

Right?

 

How many Old Wall Street meetings and/or interviews have you observed in recent months where the person speaking ends what they are saying with the word “right?”

 

Right?

 

That’s the business we are in. Whether people want to admit it or not, groupthink in our economic outlooks, politics, and choice of words is pervasive. Too Big To Think?

 

Back to the Global Macro Grind

 

The reason why Global Equities have been going down since Q1 of 2011 has a lot more to do with Global Growth Slowing than it does anything else. If you got US and Global Growth right at the beginning of 2011, you’re having a good year.

 

This morning’s Global Macro data continues to hammer home the deep simplicity of this fundamental research point:

  1. China’s flash HSBC Producer Manufacturing Index (PMI) dropped again, sequentially, to 48 in NOV vs 51 OCT
  2. Hong Kong’s Consumer Price Inflation (CPI) remained elevated at +5.8% y/y in OCT (inline with SEPT)
  3. Germany’s manufacturing PMI dropped again, sequentially, to 47.9 in NOV vs 49.1 OCT

Oh, that last point is about Europe. Right.

 

Well the inconvenient truth is that Globally Interconnected Macro markets aren’t all about Europe. Asian Growth Slowing and USD Correlation Risk would be 2 of the Top 3 (next to Europe) that any objective global analyst has to be proactively prepared for.

 

Get the US Dollar right, and you’ll get The Correlation Risk right.

 

On our immediate-term TRADE duration, here’s how inversely correlated the US Dollar Index remains to the big stuff moving markets:

  1. SP500 = -0.83
  2. EuroStoxx600 = -0.89
  3. CRB Commodities Index = -0.79
  4. 10-year US Treasury Yield = -0.72

Anyone who trades stocks or commodities gets points 1 through 3, but point 4 is a stealth reminder that the US Bond Market had US Growth Slowing right throughout the entire US Equity and Global Commodity head-fake rallies of October 2011.

 

With the US Dollar strengthening again intraday yesterday, that’s partly why I sold my Gold position and took my allocation to Cash in the Hedgeye Asset Allocation Model back up to 67% from 58% day-over-day.

 

Gold is one of the most over-owned, over-valued, “asset classes” left in Global Macro markets.

 

Right?

 

With Gold’s immediate-term TRADE correlation to the US Dollar becoming more intense (-0.49 last) and the hedge fund community under liquidation pressure again here in November (the industry doesn’t do well when stocks and commodities stop going up), booking a small -3.6% loss in Gold makes me more comfortable than taking a predictably larger one.

 

In the meantime, Available Cash remains King. That’s a 2011 Availability Heuristic you’ll be talking about over Thanksgiving dinner.

 

My immediate-term support and resistance ranges for Gold (bearish TREND resistance = $1724/oz), Brent Oil (Bearish Formation), France (Bearish Formation), Hong Kong (Bearish Formation), and the SP500 (Bearish Formation) are now $1670-1724, $105.67-109.59, 2801-3003, 17801-18556, and 1177-1198, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Available Cash - Chart of the Day

 

Available Cash - Virtual Portfolio


MONDAY MORNING RISK MONITOR: EU BANK SWAPS A SEA OF RED

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* Last week was a sea of red across our risk monitor categories. Most notable were the following:

 

* The TED spread made another new YTD high at 50.3 bps. As a reminder, while this is well below 2008 for structural reasons, the important consideration here isn't the level, but the trend. Higher TED spread prints continue to indicate risk in the banking system is still rising. Until we see a cooling off in the TED spread investors should remain defensively positioned, as the systemic risks have been properly addressed.

 

*Credit default swaps for Eurozone countries were generally wider. German swaps were particularly noteworthy, widening by 15% to 111 bps.

 

*Credit default swaps for European banks widened 16% last week, on average. There is a sharp divergence between the Scandinavian/UK/Swiss banks and the rest of the group.

 

* Short-term Silver Lining: Our macro quantitative model indicates that in the short term (TRADE), there is currently around 2 times more upside than downside in the XLF (5.2% upside vs. 2.5% downside).

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 0 of 11 improved / 7 out of 11 worsened / 4 of 11 unchanged
  • Intermediate-term (MoM): Negative / 0 of 11 improved / 9 of 11 worsened / 2 of 11 unchanged
  • Long-term (150 DMA): Negative / 1 of 11 improved / 8 of 11 worsened / 2 of 11 unchanged 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Summary2

 

1. US Financials CDS Monitor – Bloody. Swaps widened for all 27 major domestic financial company reference entities last week.   

Widened the most vs last week: BAC, PRU, XL

Widened the least vs last week: COF, CB, AGO

Widened the most vs last month: GS, MS, PRU

Widened the least vs last month: MBI, AGO, MMC

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - US  cds

 

2. European Financials CDS Monitor – A Sea of Red. Bank swaps were wider in Europe last week for 35 of the 40 reference entities. The average widening was 5.4% and the median widening was 16.1%.  Bank swaps remain below 300 in Norway, Sweden, Switzerland, and the UK.  Across the 29 banks in Austria, Belgium, Denmark, France, Germany, Greece, Italy, Portugal, Russia, Scotland, and Spain, there is only one bank with swaps trading below 300 bps. While no one needs reminding that the systemic risk in the European banking system is extraordinarily high, this morning's data serves as a reminder nonetheless.  

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - EURO  cds

 

3. European Sovereign CDS – European sovereign swaps mostly widened last week. German sovereign swaps widened by 15.3% (+15 bps to 111.5) and American swaps by 7.8% (+4 bps to 55.5).

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Sovereign 1

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Sovereign 2

 

4. High Yield (YTM) Monitor – High Yield rates rose 39 bps last week, ending the week at 8.45 versus 8.06 the prior week. 

 MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - High Yield

 

5. Leveraged Loan Index Monitor - The Leveraged Loan Index fell 15 points last week, ending at 1572.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - LLI

 

6. TED Spread Monitor – The TED spread rose 1.5 points last week, ending the week at 50.3 this week, a new YTD high.

The TED spread has eclipsed its highs from April/May 2010 and now stands at its highest level since May 2009.  

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index fell 1.4 points, ending the week at -24.16 versus -22.78 the prior week. Negative commodity momentum is reflective of the strong Dollar, which is benefiting from the weak Euro.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - JOC

 

 8. Greek Yield Monitor – The 10-year yield on Greek debt rose on Thursday to 2988 bps, a new all time high, but retreated 1 bp on Friday and ended 168 bps higher over last week at 2987 bps.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Gr Bonds

 

9. Markit MCDX Index Monitor – Worsening. 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 widened, ending the week at 193 bps versus 183 bps the prior week.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - 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 88 points, ending the week at 1807 versus 1895 the prior week.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Baltic Dry

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread tightened to 170 bps, 3 bps tighter than a week ago.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 5.2% upside to TRADE resistance and 2.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - XLF macro quant setup

 

Margin Debt in October


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

 

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 retraced back to +0.43 standard deviations in September, 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. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in October’s print of +0.78 standard deviations. But overall, this setup represents an ongoing material headwind for the market.  

 

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

 

MONDAY MORNING RISK MONITOR:  EU BANK SWAPS A SEA OF RED - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

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