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THE M3: GGR SHARE; ILLEGAL TRANSACTIONS; CHINA DEC HOUSING PRICES

The Macau Metro Monitor, January 4, 2012

 

 

SMALL CHANGES IN THE CASINO GROSS GAMING REVENUE RANKINGS Macau Business

According to sources, December Macau market share was as follows: SJM (27%), GALAXY (20%), LVS (16%), MPEL (14%), WYNN (<14%), and MGM (9%).

 

MACAU CASINO BOOM FUELLED BY ILLICIT CASH Financial Times

Many gamblers bring more cash to the casino tables by using their Unionpay debit card to withdraw money - for a fee.

 

"There is no risk. We pretend to sell the customer an expensive watch or a piece of jewelery, charge the amount in renminbi to the debit card, and then give him the equivalent amount in Macau patacas or Hong Kong dollars as if the customer had decided to return the object for an immediate cash refund," says the manager of a pawnshop up the street from the Grand Lisboa casino.

 

The manager says the cardholder's records will register the transaction as a purchase.  Unionpay, which was formed by China's big banks, says it bans such transactions, but the company declined to comment on the fact that the practice remained widespread.  Unionpay said it no longer released data on how much cardholders spent in Macau.


People familiar with the industry say the Macau government cannot afford to shut down the illegal services, which hundreds of pawn shops advertise publicly on neon signs.

 

One former junket operator and a Hong Kong owner of a mainland factory in Guangdong province described how operators also use Hong Kong business people who own companies on the mainland to transfer money illegally.  He said operators handed over renminbi debts collected on the mainland to the factory owner, who used the money to pay his staff wages. Then, the owner sent the equivalent in Hong Kong dollars from his Hong Kong bank account to the operator's account in Macau.  Both sides profited by agreeing a mutually beneficial exchange rate.

 

CHINA HOUSING PRICES SLIP IN DEC VS NOV; DOWN FOR 4TH CONSECUTIVE MONTH WSJ

According to China Real Estate Index System, average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive sequential decline.  A survey of property developers and real-estate agencies showed the average home price in December was CNY8,809 a square meter, down from CNY8,832 in November.  Compared with a year earlier, the average price of a new property in December was up 2.86% from CNY8,564 in December 2010, a slower increase than November's 4.06% YoY rise.

 



Year's End

This note was originally published at 8am on December 30, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Year’s end is neither an end or a beginning, but a going on, with all the wisdom experience can instill in us.”

-Hal Borland

 

No matter where we go this morning, here we are – at the end of a what’s been a very long year.

                                                                                                       

While the Institutionalization of US Equities can play short-term games with our hearts and minds into month, quarter, and year-end markups, the #1 game in town from a Global Macro Theme perspective in 2011 was Growth Slowing.

 

For Global Macro Risk Managers, what did that mean? 

  1. Major Asian, European, and US Financials Equities crashed from year-ago levels
  2. Commodities crashed from their 2011 YTD peaks
  3. US Treasury Bonds remained in a raging bull market 

Since, magically, the SP500 has rallied once again (on no volume) to yet another lower long-term and YTD high (-19.3% and -7.3% from OCT 2007 and APR 2011 highs, respectively), I am certain that the marketing departments of Buy-And-Hold Inc will quibble with my globally interconnected interpretation of it all…

 

Quibble away.

 

Here are some of the early Major League Macro year-end final scores: 

  1. India (BSE Sensex) = -24.8% YTD
  2. China (Shanghai Composite) = -21.6% YTD
  3. Japan (Nikkei) = -17.3% YTD 

Now an Institutionalized chap running other people’s money in “Asian Equities” might try to argue that being long Japan instead of India equated to him “beating” an Asia-Pacific Index. But “cheap” stocks look a heck of a lot cheaper in Japan -17.3% lower – and his investors may quibble with the representation of his “outperformance.”

 

How about other countries and commodities? 

  1. Hang Seng Index (Hong Kong) = -19.97% YTD
  2. CRB Commodities Index = -8.4% for 2011 YTD
  3. Copper = -23.4% YTD 

So, I guess, another Institutionalized manager could say being long Hong Kong outperformed long China and being long Gold outperformed being long Copper…  

 

True.

 

But these guys better not be on the record at the beginning of 2011 telling you that they nailed those relative outperformers because they thought Global Growth was going to be just fine. That’s like me telling you my Power-Ball ticket was closer to the winning number than yours. There’s only so many times you can change the thesis on why you were long!

 

Understanding that Piling-Debt-Upon-Debt Structurally Impairs Growth was critical to getting out of the way of most of these nasty 2011 draw-downs. That’s why the ladies and gentlemen who preferred to buy US Treasury Bonds on January 1st and hold them through today are smiling right now.

 

Check this out: 

  1. 10-year US Treasury Yield started 2011 at 3.29%
  2. 30-year US Treasury Yield started 2011 at 4.33%
  3. Today, 10 and 30 year Yields are trading at 1.89% and 2.89%, respectively! 

The math on that generates -43% and -33% drops in 10 and 30 year UST Bond Yields for 2011 YTD. The inverse picture of that math is best shown in the powerful 2011 chart of the TLT (which uses 20-year yields, splitting the difference between my two bellwethers).

 

Growth Slowing?

 

Yep. That was the #1 macro call of 2011. And you could have expressed that in many different ways (long FLAT, which we bought in FEB of 2011 is up +28.01% since).

 

As I flip the switches on my risk management machines to 2012, I’m getting peer pressure to make another outside of consensus call. Sorry, I can’t do that, yet. Timing matters. Rarely do we get a signal on December 31st.

 

I’m not going to broker you a gratuitous “2012 Outlook” or sell you some ad space either. In the New Year, I’m going to do exactly what I did this morning – and the morning before that… 

  1. I’m going to stick with my process
  2. I’m going to buy on red
  3. I’m going to sell on green 

And I’ll try my best to not be overly bullish or bearish on anything that worked and/or didn’t work for us in 2011, because “all the wisdom experience can instill in us” reminds me that past performance is no predictor of future results.

 

My immediate-term support and resistance levels for Gold (covered our short yesterday), Oil (we’re short Brent Oil), China (we bought the CAF yesterday), Consumer Discretionary (we’re long XLY), Long-term Treasuries (TLT), and the SP500 are now $1537-1568, $106.89-109.11, 2154-2226 (Shanghai Comp), $38.24-39.98 (XLY), $119.16-123.87 (TLT), and 1245-1270, respectively.

 

It’s been a pleasure and a privilege to both play on this team and earn your business in 2011. On behalf of all of us at Hedgeye at Year’s End, we’d like to wish you the very best of health and capital preservation in 2012.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Year's End - Chart of the Day

 

Year's End - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 4, 2012

 

Raging European bears are begging for bad news and they just aren’t getting it 4 days into the year, yet… KM

 

As we look at today’s set up for the S&P 500, the range is 18 points or -0.79% downside to 1267 and 0.62% upside to 1285. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE:  +1659 (+1813) 
  • VOLUME: NYSE 855.12 (+45.42%)
  • VIX:  22.97 -1.84% YTD PERFORMANCE: -1.84%
  • SPX PUT/CALL RATIO: 1.88 from 1.49 (+26%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

10YR – really bullish for German Bunds to see 4.06B of 10yr paper printed 4bps below 10yr UST’s (1.93% on Bunds vs 1.97% on USTs). Keith is watching 10yr UST’s like a hawk for a confirmation that Growth’s Bottom (2011 Slowdown) is in. He'd need to see a sustained breakout > 2.03% to sell TLT and keep ramping up Global and US Equity exposure (moved to 12% Global Equities yest).

  • TED SPREAD: 57.23
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.97 from 1.89   
  • YIELD CURVE: 1.64 from 1.70

 

GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • 7am, MBA Mortgage Applications, Dec. 30
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 10am: Factory Orders, Nov., est. 2.0% (prior -0.4%)
  • 11:30am: U.S. to sell $30b 4-week bills
  • 4:30pm: API inventories
  • Eurozone Dec preliminary CPI +2.8% y/y vs consensus +2.8% and prior +3.0%
  • Eurozone Dec Final services PMI 48.8 vs consensus 48.3 and prior 48.3

WHAT TO WATCH:

  • President Obama to discuss economy at high school in Shaker Heights, Ohio, 1:15pm
  • Yahoo may name CEO this morning; PayPal president Scott Thompson a leading candidate: AllThingsD
  • Mitt Romney beat Rick Santorum by 8 votes in Iowa caucuses, each capturing less than 25%; Ron Paul third, Rick Perry considering whether to continue campaign
  • Bullish sentiment decreases to 49.5% from 50.5% in the latest US Investor's Intelligence poll

 

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Citigroup Sues Hedge Fund Manager in Singapore Over Gold Losses
  • China’s Wen Jiabao Sees ‘Relatively Difficult’ First Quarter
  • Raw-Materials Rebound Seen as Economy Skirts Slump: Commodities
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Exxon in Talks to Restructure Stake in Japan Refining Unit
  • Gold May Advance for a Fourth Day on Outlook for Asian Demand
  • Dalian to ‘Seriously Consider’ Vale-Ship Protests, Owners Say
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Vedanta Plans India Caustic Soda Unit, Cost-Cuts as Prices Dip
  • Copper Drops as Europe Crisis Boosts Demand Concern; Tin Slumps
  • Chesapeake Comes Up Short of Investment-Grade: Corporate Finance
  • Hong Kong Keeps Ban on Some Poultry Imports Due to Avian Flu Tie
  • Copper Falls as Societe Generale Says Prices May Drop Almost 10%
  • Gold Demand in India Is ‘Moderate,’ Rajesh Exports Says
  • Dow Climbs to Highest Since July, Oil Surges on Manufacturing
  • Saudi Arabia May Cut Oil Premiums for February From Record Highs
  • Silver Will Lead Gains in 2012 Among Raw Materials: Table

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

GERMANY – shaping up on the long side after really impressive employment data this wk (6.8% unemployment rate for DEC amidst the mayhem) and a better than bad Services PMI this morn (52.4 DEC vs 52,7 NOV). German 10yr bond auction was solid too - KM

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA – after 2 solid up days to start 2012, the 3rd was not a charm – China down -1.4%, HK -0.8%, and India -0.5% reminds us that Equity market bottoms are processes, not points. December data implies growth slowing at a slower rate in Asia (but it’s still slowing).

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST (HEADLINES FROM BLOOMBERG)

  • U.S. Spurns Iran’s Demand to Keep Aircraft Carrier Out of Gulf
  • U.A.E. Deposit Fall May Squeeze Banks as Debt Looms: Arab Credit
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Afghan Taliban Takes Step Toward Peace Talks to End War With U.S
  • Huawei’s Work in Iran May Violate U.S. Sanctions, Lawmakers Say
  • U.S. Defense Strategy Plan Focuses on Thwarting China, Iran
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Aldar’s May 2014 Bond Yield Drops to Record on Asset Sale
  • Arabtec Wins 561 Million Dirhams Contract at Dubai Airport
  • Saudi Arabia May Cut Oil Premiums for February From Record Highs
  • Iran’s Nuclear Fuel Rod Isn’t Military Threat, U.S. Analysts Say
  • Dana Gas Bond Yield Jumps Most in Two Weeks Ahead of Meeting
  • OPEC Crude Production Rises to Three-Year High, Survey Shows
  • Kuwait Oil Tanker Will Award Contracts to Daewoo, Al-Anba Says
  • Gold Rallies Most in 10 Weeks on Iran, Dollar; Wien Sees $1,800
  • Biggest Hedge Fund in Ships Sees Frozen Gas Beating Oil: Freight
  • Jarir Fourth-Quarter Profit Jumps 21% on Phone, Laptop Sales

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director


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OLD DOGS

“New Year's Day is every man's birthday.”

-Charles Lamb

 

For Wall Street, and many people around the world, the New Year is a big deal.  The New Year offers a chance to leave behind the past and focus on our goals going forward.  While every new day, technically, offers us the same opportunity, no other time of year inspires the same level of introspection and resolution as early January. 

 

After the excesses of the Holiday season, such a mood can seem particularly apropos.  Along those lines, in Christian tradition, the Tuesday before Ash Wednesday and the beginning of the Lenten season is typically an indulgent time.  Whether this day is referred to as Mardi Gras in New Orleans or Pancake Tuesday in London, the idea is generally the same: enjoy this day before Lent begins – a time of soul searching and repentance.

 

While some may ridicule others for using New Year’s or Lent as catalysts for self-improvement, the fact is that every year occasions such as this offer valuable reminders for people not to live an unexamined life, a life that Socrates would say is not worth living.  Are you convinced that Wall Street follows a similar process of self-examination and reflection?  Have the Old Wall Street follies of times past been faced up to following hours of soul-searching?  Or is Old Wall Street simply unwilling or unable to learn new tricks?

 

One trick that these Old Dogs love to perform is year-end S&P 500 targets and targets for U.S. GDP growth.  We wake up every morning trying to embody our vision of what Wall Street 2.0 is all about.  Taking pot shots at numbers (made up in the case of GDP) a year out is not what we do because it is not helpful for our clients, which is our number one priority.  We focus on shorter durations based on scenarios, probabilities and ranges.  In doing this, we offer our clients more than just a “target”; over time they develop an understanding of our process and incorporate it into their own.  So, before anyone else asks: we don’t do full year targets – let the Old Dogs perform Old Tricks. 

 

One of the classic Old Dogs doing the same Old Trick is Byron Wien of the Blackstone group with his 10 surprises.  The inception of 10 surprises for the New Year came nearly three decades ago.  Right on time, Bloomberg reported the 2012 predictions despite a less-than-stellar showing from Wien in his 2011 predictions (S&P 1500, Real GDP growth of 5%).  While we did not make similar predictions, we were early in stating our view that U.S. growth would slow in 2011 – at a time when consensus was calling for accelerating growth.

 

One of his 10 surprises of 2012 might not have made it to January 4th; “Spain/Ireland will strengthen finances in 2012.” Well unfortunately today the new Spanish government has warned the 2011 deficit could top 8% of gross domestic product, versus a target of 6%. In addition, Spanish Prime Minister Mariano Rajoy’s is considering applying for loans from the European Union’s rescue fund and the International Monetary Fund to finance the restructuring of the ailing banks. There are 361 more days to go, but that particular “surprise” is one that I think seems unlikely to win Wien any plaudits in a year’s time. 

 

What are the implications for GDP growth if Byron’s prediction that the “yield on the 10-year Treasury will go to 4%?”  Unfortunately, the Old Dogs of Washington continue performing their same old tricks coming into the New Year!  According to the U.S. Treasury, America ended 2011 with debt at an all time record $15.2T, with the implications being now the U.S. debt-to-GDP ratio is over 100%.  The USA cannot afford to pay a 4% yield; the implications to the debt and deficits are staggering not to mention it will stifle US GDP growth.  Furthermore, Wien’s prediction is based on China shifting investment from bonds into hard assets and raw materials.   Given that the country holds roughly $1.5 Trillion in American government debt, an investment so great that there is little else China can do but continue to support the value of Treasury bonds.

 

We like to say that Hedgeye is redefining how the investment community operates and we are defining Wall Street 2.0.  Thus, it is not surprising that we continue to get questions from clients asking us to conform to the old mentality of year end predictions.  Clearly, our goals are going to take time to achieve but we are heartened by the feedback we have received from our hard-won clients at this early stage.  In our view, any parties claiming to be able to accurately forecast, rather than guess, Real GDP growth a year out is not being entirely honest.  

 

Rather than waste people’s time with Old Tricks, we prefer to offer up themes quarterly that are relevant to the investing landscape that is in front of you.  Our 1Q12 MACRO Themes call will be held on January 13th, 2012.  We will be sending out details of the themes in due course, but avid readers of the Early Look will know our view on “King Dollar” and the implications for consumption in the USA.  Bernanke staying out of the way and allowing the Greenback to appreciate has boosted the U.S. Consumer and the Macro Team will be sharing its thoughts on this trend in 2012 a week from Friday.  Our immediate-term support and resistance ranges for Gold, Oil (brent), EUR/USD, Shanghai Composite, France’s CAC40, and the SP500 are now $1, $111.26-112.13, $1.29-1.31, 2157-2219, 3149-3276, and 1, respectively.

 

Function in Disaster; Finish in style

 

 

Howard Penney
Managing Director

 

OLD DOGS - Chart of the Day

 

OLD DOGS - Virtual Portfolio


NKE: KM Buying More

 

Keith added Nike to the virtual portfolio again. Zero change to our fundamental view. All that's changed is the price. 

 

NKE: KM Buying More - NKE TTT

 

 


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