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The Lighthouse

This note was originally published November 30, 2011 at 07:49 in

“Cernowitz proved to be Schumpeter’s lighthouse.”

-Sylvia Nasar


In her outstanding chapter on Creative Destruction, Sylvia Nasar captures the most critical moment of a creative thought by comparing Joseph Schumpeter’s time at the University of Vienna to Albert Einstein’s at the Bern patent office (1902-1909).


“It gave one time to think one’s thoughts and, of course, to write them down. It also cut down on the distracting buzz of other people’s ideas.” (Grand Pursuit, page 187)


For the those of us who didn’t blow up other people’s money in 2008 (and again in 2011), we look and feel confident into year-end for good reason. Whether it’s me writing to you at the top of every risk management morning, or you delivering on Warren Buffett’s #1 Rule of Investing (“Don’t Lose Money”) for your families and clients – it’s all one and the same thing. Winning.


Together, we’ve travelled the often broken road of groupthink and we’ve seen the investment stars of bull markets rise and fall.


We are Wall Street 2.0. We are the change people can believe in.


Back to the Global Macro Grind


From what I can discern, there are two very different types of players on this globally interconnected market’s ice right now:

  1. Those who have stayed the course with the fundamental research call of 2011 – Global Growth Slowing
  2. Those who wake up every morning looking for a central planner to bail them out

Watching the US Equity futures trade this morning captures the essence of how short-term the group-thinking associated with the Type 2 Player in this game has become:

  1. At 4AM EST, I jot down in my trusty notebook “China down -3.3% to down -16.9% YTD, testing October lows”
  2. At 6AM EST, headline hits “China cuts reserve requirements, 50 basis points”

First, set aside the fact that few, if any, market sources even mentioned point #1 (no surprise there) and then realize that the S&P futures went from down 8 points to up 8 in a nanosecond of what could be best described as media panting about point #2 on Twitter.


Twitter, you see, is replacing what Old Wall Street calls “the tape.” On Wall Street 2.0, tweeters with analytical competence not only capture the China like headline “news” in real-time but have it synthesized within seconds.


Being fast isn’t being a “short-term” investor. It’s just called being smarter and faster.


Back to the China thread…


Sometimes getting your brain somewhere fast helps you recognize you need to slow down. Doing nothing in a market that’s trading on the “distracting buzz of other people’s ideas” of what the headline actually means is critical. The media’s immediate-term reaction to an alleged 1.3 TRILLION Eurocrat bazooka in late October is a good example of that (i.e. they don’t have one yet).


What does China’s decision to cut reserve requirements on banks mean?


It means China’s economic slowdown is accelerating on the downside, big time. The Chinese act, proactively, when they see a domestic demand problem.


What happens as the #1 unlevered growth engine of the world slows from double digit GDP growth to mid-single digits? You don’t even have to think too hard to figure that answer out. Global Growth Slowing matters to market multiples.



  1. The last time China started cutting reserve requirement rates was September 2008
  2. China continued to cut those rates until December of 2008
  3. US stocks didn’t stop going down until March of 2009

If you didn’t know that most US centric “stock pickers” are growth investors, now you know. As growth slows, stocks fall. Pull up charts of Apple, Amazon, or American Airlines (kidding – just needed another company starting with an A for literary purposes) and you’ll see, quite clearly, what the market is already discounting about Q4 versus Q3 Global Growth and demand.


If you flip a switch back to how that Type 2 Player continues to play the game – the Top 3 Begging For Bailouts headlines they are looking for are now as follows:

  1. European “shock & awe” money printing
  2. Fed getting sucked into to a QE3
  3. China rate cuts

From the vantage point of The Hedgeye Lighthouse this morning, all I have to say about all 3 of those options is that the Type 2 Players better be very mindful of what they wish for. Growth Slowing is a requirement for all three.


My immediate-term support and resistance ranges for Gold, Brent Oil, French stocks (CAC40), Amazon, Apple, and the SP500 are now $1661-1732, $108.53-110.59, 2923-3067, $177-209, $361-385, and 1147-1203, respectively. Lower-highs across the board.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Lighthouse - Chart of the Day


The Lighthouse - Virtual Portfolio


The Macau Metro Monitor, November 30, 2011



MELCO COULD LIST 6% SHARE IN HK Macau Daily Times, Reuters

Melco International Development signed a sale and buyback agreement for part of its 33.2% stake in Melco Crown to help support the company’s planned dual listing in Hong Kong.  Melco International Development loaned a 3% stake to the listing sponsors and pledged to lend as much as a further 3% stake to support “liquidity activities”.

Melco Crown wants to complete the listing by the end of this year but it’s not planning for a global offering in view of “current market sentiment,” it said last week.  Instead of issuing new shares, Melco Crown would instead choose a listing of shares already on issue. This alternative, called listing by introduction, would raise no additional funds. “The company will continue to evaluate future fund raising plans."  Trading in its HK shares is expected to start on Dec. 7 under the listing symbol HK6883.


"We are comfortable that we can fund our equity component of the financing of Macau studio city with existing cash and cashflow," said MPEL CFO Geoffrey Davis, adding that discussions with banks were in progress for financing.  Regarding VIP concerns, "We are not seeing any changes in patterns in terms of velocity of money. Things have been pretty consistent for the last 12-18 months," Davis stated.


CEO Lawrence Ho told reporters that Melco was ready to kickstart the project and was waiting on government processes.

Ho said Melco would aim to outperform the broader industry's gaming revenue growth in the coming year.  "Growth rates of some 50-60% are not sustainable in the long run.  In 2012, I expect industry growth to be around 15-20%," he said.



Mr. Ho does not intend to become a director of rival Macau casino operators SJM or MGM China.  Though Lawrence Ho has small effective interests in both Shun Tak and SJM, he says he doesn’t have any involvement in the companies’ management or operations.



The government announced that there are a total of 12 hotel projects under construction, supplying 10,700 hotel rooms, of which 9 projects are on the Macau peninsula, and 3 projects in Cotai, supplying 9,880 rooms.  Projects pending for approval
totaled 20, supplying 13,890 hotel rooms, where 14 projects were on the Macau peninsula, 2 on Taipa, 3 on Cotai and 1 on Coloane.  The hotel industry worries that the supply of hotel rooms will exceed the demand once the number of tourists drop, and hotels without casino support will not be able to survive the competition.


Solid weekend RevPAR data good for cruiselines.



Despite a difficult US macro environment, weekend REVPAR has been surprisingly resilient particularly over the last month.  Why do we care?  Our research has shown that net yields have a strong correlation (R: >80%) and onboard/other yields have an even stronger (R: >85%) correlation with weekend REVPAR.  


As the charts below show, not only has weekend RevPAR been strong, the spread over weekday REVPAR growth has recently widened on a 1-year, 2-year, and 3-year comparison.  The outperformance can be attributed to weekend REVPAR underperforming significantly when the economy tanked (mid-October 2008 through early December 2008), so part of what we are seeing is a catch up.  There is a calendar anomaly (Thanksgiving 2008) which will reverse some of the gains by Weekend REVPAR.


Either way, RevPAR trends remains solid, outperforming the broader economy, with leisure (weekends) doing even better.










Weekend REVPAR shows the strongest relationship with net onboard/other yields.  The charts below display Q4 trending above 10% for Weekend REVPAR, which would be a sharp acceleration from Q3.






While we are concerned about the cruisers for FQ4 due to the uncertainty stemming from Europe, the North American business has been healthy.  Furthermore, the momentum could carry into Q1 2012.  Our pricing database shows Q1 2012 pricing in the Caribbean, South America, and Mexico has been quite strong.  We will provide a pricing update in an upcoming note.

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TODAY’S S&P 500 SET-UP - November 30, 2011


Month-end is finally out of the way. Not a good month for most things other than the USD and Long-term Treasuries.  We have seen 2 down days for the USD, 2 up days for Global Equities = Correlation Risk.


As we look at today’s set up for the S&P 500, the range is 56 points or -4.03% downside to 1147 and 0.65% upside to 1203. 




Putting today’s 2ndconsecutive failure to overcome the S&P line of intermediate-term TREND resistance in context is critical: A) it was only the 2ndup day for US stocks in the last 9, and B) the SP500 is down -4.6% for November.

For the immediate-term TRADE (3 weeks or less) it’s also important to bear in mind the draw-down risk associated with the first 6 days of the new month.   Since May, the first 6 days have averaged close to -400bps.  Not perpetual. But not good either.


That’s one of the many globally interconnected reasons why only 1 of 9 Sectors are bullish on my immediate-term TRADE duration (Consumer Staples - XLP).  Financials (XLF) continue to look awful – down -24.4% YTD and crashing. Followed closely by Basic Materials (XLB) which are down -15.0% for the YTD and that Sector could very well be the worst on the next US Dollar up day.  Hedgeye is long Healthcare (XLV) and short (SPY).




THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE: -110 (-2154) 
  • VOLUME: NYSE 918.43 (-4.19%)
  • VIX:  +30.65 -4.64% YTD PERFORMANCE: +72.62%
  • SPX PUT/CALL RATIO: 2.07 from 2.71 (-23.63%)



  • TED SPREAD: 51.17
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.00 from 1.97   
  • YIELD CURVE: 1.74 from 1.74


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage, (prior -1.2%)
  • 7:30am: Challenger job cuts (prior 12.6%)
  • 8:15am: ADP Employment, est. 130k (prior 110k)
  • 8:30am: Non-farm productivity, est. 2.5%, prior 3.1%
  • 9:45am: Chicago Purchasing Manager, est. 58.5, prior 58.4
  • 10am: Pending home sales, est. 2.0% (prior -4.6%)
  • 10am: NAPM Milwaukee, est. 56.0, prior 55.5
  • 10:30am: DoE inventories
  • 11:30am: Fed’s Plosser moderates panel in SF
  • 2pm: Fed’s Beige Book



  • S&P downgrade of banks “expected” and “manageable,” Goldman says. Watch bank stocks; Bank of America hit a low of $5.03 during regular trading yday
  • FAA to increase safety inspections of American Airlines
  • President Obama travels to Scranton, Pennsylvania, to spotlight plan for jobs, then to New York for re-election fundraisers
  • Secretary of State Clinton in Myanmar




GOLD – down this morning because the US Dollar is up; this is a new correlation risk that’s developing and was only this high last in Q4 of 2008; immediate-term inverse correlation to USD now = -0.79 (vs TREND of +0.08). Liquidations and redemptions in the hedge fund business are significant and so is the gross and net long position in Gold.   Selling what they can vs. should.


  • Gold Producers Poised Like ‘Coiled Spring’ to Rally: Commodities
  • Former Goldman Traders Said to Start Hedge Fund With Mezvinsky
  • Iran Oil Sanctions Set to Shrink Circle of Foreign Buyers
  • Korean Shipbuilders’ Focus Is No Longer Ships: Chart of the Day
  • Gasoline Makers Showing First Losses in 3 Years: Energy Markets
  • Oil Pares Second Monthly Gain After U.S. Crude Stockpiles Rise
  • Iron Ore Seen Finding Floor at $120 as China Rebuilds Stockpile
  • Morgan Stanley Says Commodities Gains to Be Limited in 2012
  • Gold Falls in London, Erasing Monthly Advance, as Dollar Gains
  • Central Banks May Repeat Gold Purchases of 450 Tons, UBS Says
  • Copper Extends Monthly Decline After S&P Cuts Banks’ Ratings
  • China Lion Fund’s Asset in Gold ETFs Halved to $250 Million
  • Commodities Are Set for ‘Difficult’ Year in 2012, UBS Says
  • Palm Oil Has Longest Losing Streak in Five Years as Exports Drop
  • Commodities May Jump 7.1% in Next Two Months: Technical Analysis
  • Corn Declines on Rising Supplies From South America, Ukraine
  • Copper Falls in London as S&P Downgrades U.S. Banks: LME Preview
  • New Hope Holding Talks With ‘Several’ Potential Bidders
  • Commodities Upside Limited in 2012 on Growth Outlook, Dollar
  • Rubber Drops From One-Week High as S&P Downgrades Global Banks


THE HEDGEYE DAILY OUTLOOK - daily commodity view





EURO – just a pathetic week for European central planners and their currency’s credibility – rally to 1.34 is gone and now we’re testing intermediate-term lows of 1.32 again; bullish for the USD; bearish for Correlation Risk across Global Macro


THE HEDGEYE DAILY OUTLOOK - daily currency view





THE HEDGEYE DAILY OUTLOOK - euro performance




CHINA – not in headline news for the last few weeks but that doesn’t mean China’s growth slowdown (and implications to global growth) cease to exist; Chinese stocks got hammered overnight, closing down -3.3% close to their OCT lows (down -16.9% YTD). Thailand cut rates aggressively (125bps to 2.5%); expect more Asian rate cute (bullish for USD).


THE HEDGEYE DAILY OUTLOOK - asia performance




  • Citigroup Deal Haunts Pandit as Saudis Seek to Reclaim Fortune
  • U.K. Warns of ‘Consequences’ After Tehran Embassy Attack
  • VTB Capital Said to Hire 4 Bankers From Credit Suisse Dubai
  • Iran Oil Sanctions Set to Shrink Circle of Foreign Buyers
  • Dubai Sukuk in One of Worst Months Since 2009: Islamic Finance
  • Qatar Returns to Global Debt Market With $5 Billion Fund-Raising
  • Dubai Islamic Bank, Tamweel Hire Banks for Possible Bond Sale
  • Emirates NBD May Sell Sukuk for Acquisition, Debt: Arab Credit
  • Arabtec Expects Saudi Contract Value to Rise to $400 Million
  • Abu Dhabi Shares Rise to Week-High as FGB Spurs MSCI Optimism
  • Iran's missile base obliterated: satellite imagery
  • Ex-Saudi Spy Chief Warns Against Iran Attack, Jordan Times Says
  • Iran Blast Reports in Nuclear Province Fuels Sabotage Suspicion
  • Standard Chartered Names Hassan Jarrar CEO of Bahrain Unit
  • British Embassy Evacuates Staff From Iran, BBC Reports
  • U.A.E. Starts Investing in U.S. Treasuries, Backs Dollar Peg
  • U.K. Says Some Embassy Staff in Iran Are Leaving Tehran
  • British Embassy Staff Leave Iran Following Ransacking of Diplomatic Offices

THE HEDGEYE DAILY OUTLOOK - mideast perforamnce



The Hedgeye Macro Team

Howard Penney

Managing Director

Scarce Vision

This note was originally published at 8am on November 25, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Capitalism isn’t scarce; vision is.”

-Sam Walton


Get GDP Growth and the US Dollar right and you’ll get mostly everything else right. Happy Thanksgiving.


The US Dollar is up another +0.5% this morning to $79.52 on the US Dollar Index, taking its week-to-date gain to +1.7%, and its cumulative gain since Bernanke signaled the end of Quantitative Guessing II to +8.9% (since April).


Given the generationally high inverse-correlations between the US Dollar Index and everything else, we continue to see what we’ve coined as a Correlation Crash across asset classes as a direct result of this bullish Buck Breakout.


This morning’s Global Macro Grind amplifies the deep simplicity of this risk management point:

  1. S&P Futures are down another 9 handles to 1150 = down -15.6% since the US Dollar stopped going down in April
  2. EUR/USD testing its early October lows of $1.32
  3. European Equities selling off, across the board, to down -22-42% since February-April (pick your country)
  4. Asian Stocks continuing their crash (down > 20% from their YTD highs) with HK and India down -27.5% and -23.5%
  5. Commodities breaking down toward their October lows as the CRB Index’s correlation to the USD = -0.82
  6. Gold is down another -1.1% to $1679 = down -11.6% from its all-time high in August

Correlation does not always imply causality. We get that.


But A) sometimes it does and B) it can be very reflexive in the immediate to intermediate-term.


Keynesian economists/strategists try to avoid Soros’ concept of “Reflexivity” in markets and economies as much as Global Macro investors are avoiding the Hungarian-American’s birthplace this morning (Hungary’s stock market trading down -4.6% after Moody’s cut Hungary’s credit rating to junk).


Academic types have a hard time using markets as leading indicators because they have no experience managing real-time market risk. That’s a problem - a really big problem with US economic policy.


Policy = Causality.


That’s why you’ve never heard Ben Bernanke or Tim Geithner use these 2 words - Correlation Risk – to attempt to explain anything about nothing that’s happening in either Global Macro markets or the economies that underpin them.


Accepting responsibility for causality, after all, would be an admission of failed policy. At least Greenspan admitted this in 2008. Maybe Bernanke will by the time he is retired from the Fed too…


The Germans kind of get this. That’s primarily because they have to. The German People will not give the fiscally conservative leadership of the Bundesbank a hall pass on forgetting the history of hyper-inflation. At least not yet.


German stocks are down another -0.54% this morning, taking the DAX down to 5398 (down -28.2% since the US and German stock markets put in their 2011 YTD highs). If the SP500 was down that much from its April 2011 closing high (1363), it would be trading at 979 this morning. The German People aren’t as hyper about their stock market as our manic media culture is.


If I’ve said this 100 times in the last 4 years, I’ve written and/or said it 1000 times – the immediate to intermediate-term moves in a country’s stock market does not exclusively reflect a country’s long-term health. Currency stability, inflations/deflations, and employment levels are, collectively, much better long-term barometers for purchasing power and prosperity.


I could write a book about that – and maybe I will – but that’s not going to happen in the remaining 10 minutes I have to finish this note this morning. So hopefully it continues to provide a basis for long-term economic debate.


The Scarce Vision that policy makers in this country have displayed over the course of the last decade is not what we should be thankful for this Thanksgiving. What we should all be thankful for is a generational opportunity in America to change that.


My immediate-term support and resistance ranges for Gold (bearish TRADE and TREND), Brent Oil (bearish TRADE and TREND), German DAX (Bearish Formation) and the SP500 (Bearish Formation) are now $1657-1724, $105.13-109.98, 5243-5657, and 1154-1196, respectively. With the US Dollar immediate-term TRADE overbought today, plenty of market prices will be oversold.


Happy Thanksgiving to you and your loved ones,



Keith R. McCullough
Chief Executive Officer


Scarce Vision - Chart of the Day


Scarce Vision - Virtual Portfolio

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