The Macau Metro Monitor, January 20, 2012




Macau December CPI rose 6.81% YoY and 0.74% MoM.



Visitor arrivals totaled 2,545,718 in December 2011, up by 12.1% YoY.  For 2011, total visitor arrivals recorded a historical high of  28,002,279, up by 12.2% YoY.  Visitors from Mainland China surged by 23.5% YoY to 1,482,380 in December 2011, with the majority coming from Guangdong Province, Fujian Province and Hunan Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 572,841, up by 15.8% YoY.





Singapore Changi Airport reported a 11.4% YoY increase in passenger movement for December - a new monthly record.


Expert Cues

This note was originally published at 8am on January 17, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Expert intuition strikes us as magical, but it is not.”

-Daniel Kahneman


This weekend I finally started reading Daniel Kahneman’s “Thinking, Fast and Slow” and was pleasantly surprised to see him cite one of my favorite American thinkers, Herbert Simon (read “Models of My Life”), in the Introduction:


“The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.” (Thinking, Fast and Slow, page 11)


Pattern recognition is the fulcrum principle of Chaos Theory. While neither Kahneman nor Simon have drawn that parallel to Global Macro Risk Management, if they did what we do every day I think they probably would have.


Back to the Global Macro Grind


While consensus has spent 2012 caught in the vacuum of 2011’s news (European Crisis and Growth Slowing), we’ve been letting this globally interconnected marketplace of colliding factors give us cues on Growth Slowing’s Bottom (Q1 Hedgeye Macro Theme):

  1. Strong US Dollar = Stronger US Consumption, Confidence, and Employment
  2. Deflating The Inflation = Growth Slowing at a slower rate in Asia (China in particular)
  3. German Fiscal Conservatism = Bullish German Stocks on both our TRADE and TREND durations

There should be no surprises about what’s happening in US, Chinese, or German stocks this morning. Our leading indicators have been giving us Crystal Clear Cues for the last 3 weeks. That’s why we have our largest asset allocation to US Equities in over a year. That’s why we’re long Chinese and Hong Kong Equity exposures. That’s why we’ll open this morning with no European shorts.


In the order that these Expert Cues appear in my notebook this morning:


1.   CHINA – closing up +4.2% overnight, the Shanghai Composite had its best move since October of 2009. Growth Slowing in China is a 2-year stale story that we have signaled in real-time. Looking at the higher-frequency economic data that was reported closest to now (the December data, not the quarterly), China appears to be seeing Growth Slow at a Slower Rate. Chinese Industrial Production for DEC accelerated to +12.8% y/y (vs +12.4% in NOV). Meanwhile, Singapore’s Export Growth for DEC jumped to +9% y/y (vs +1.4% in NOV). You’ll recall we use Singapore as a leading indicator for Eastern demand.


2.   GERMANY – trading up another +1.7% to an impressive +7.2% for 2012 YTD, the German DAX is proving that this morning’s concurrent indicator of confidence (the German ZEW reading) was better than bad for good reason. It was actually the biggest 1-month pop in the ZEW reading ever – and ever is a long time. Germany is proving that fiscal conservatism can support strong domestic employment (6.8% vs USA’s 8.6%). Not pandering to the political winds of the Keynesian bailout beggars should also be commended.


3.   USA – holding above both my long-term TAIL line (1267 support) and the closing high of October 29th, 2011 (1285), the SP500 is proving that Strong Dollar = Strong Consumption works where it matters in the American economy – on 71% of US GDP Growth. Neither we (nor the US Treasury Bond Market) are suggesting US Growth is great, but the US Currency and Equity markets aren’t signaling a US recession either. Provided that the US Dollar remains strong (Romney winning in South Carolina this week will continue to help), we think US Growth’s Bottom could very well be happening in Q411 through Q112.


With Expert Cues in hand, we derive our summary positioning in the Hedgeye Asset Allocation Model

  1. Cash 58% = down from 70% at the end of 2011
  2. US Equities = 18% (Consumer Discretionary, Consumer Staples, Utilities – XLY, XLP, and XLU)
  3. Int’l Currency = 15% (US Dollar – UUP)
  4. Int’l Equities = 9% (China and Hong Kong – CAF and EWH)
  5. Fixed Income = 0%
  6. Commodities = 0%

That’s a very different mix in my asset allocation than what I was carrying from April-November of 2011. I’ve moved from a big allocation to Growth Slowing at an accelerating rate (Long Fixed Income) to long Growth Slowing’s Bottom (Long Equities).


What hasn’t changed is my position in the US Dollar and Commodities. I still think that Strong Dollar = Deflates The Inflation, so look for me to potentially short some Commodities today.


Having a repeatable risk management process isn’t magical. Neither is it perfect. It’s just what we do.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Comp, German DAX, and the SP500 are now $1626-1678, $110.20-114.33, $1.25-1.28, $80.72-81.97, 2220-2301, 6151-6329, and 1284-1302, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Expert Cues - Chart of the Day


Expert Cues - Virtual Portfolio



TODAY’S S&P 500 SET-UP – January 20, 2012


As we look at today’s set up for the S&P 500, the range is 22 points or -1.64% downside to 1293 and 0.04% upside to 1315. 












OVERBOUGHT – from the Hang Seng (+9.1% YTD) to the DAX (+8.2% YTD) and back again to the SP500 (+4.5% YTD), this season is not even 3 weeks old and we’ve already realized what we think is an outstanding YTD return on equity given the Bernank calls risk free 0%. Immediate-term overbought lines for HK, DAX, and SPX are 20,113, 6424, and 1315, respectively.


DEFLATING THE INFLATION – this is Global Macro Theme #2 for us here in Q1 and it really matters – across the board we’re seeing the impact of a Strong Dollar on DEC CPI and PPI prints across the world (US CPI dropped to 3.0% DEC vs 3.4% NOV, German PPI drops this morn to 4.0% DEC vs 5.2% NOV, New Zealand CPI falls hard to 1.8% in Q4 vs 4.6% Q3).

  • ADVANCE/DECLINE LINE: 922 (-851) 
  • VOLUME: NYSE 806.03 (+1.04%)
  • VIX:  19.87 -4.88% YTD PERFORMANCE: -15.09%
  • SPX PUT/CALL RATIO: 1.11 from 1.67 (-33.53%)



TREASURIES – it took all week for the bond market to give The Fed something to think about (as Growth expectations rise, interest rates should), but this breakout above my immediate-term TRADE line of 1.95% support for 10s matters. Seeing the 10yr consistently close > 2.03% would be very bearish for the long-bond, bullish for stocks (especially Financials).

  • TED SPREAD: 52.05
  • 3-MONTH T-BILL YIELD: 0.03%
  • 10-Year: 1.99 from 1.98
  • YIELD CURVE: 1.76 from 1.74


MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Existing home sales, Dec., est. 4.65m, up 5.2% (prior 4.42m)
  • 10am: API monthly report
  • 1pm: Baker Hughes rig count



  • Sales of previously owned U.S. homes probably rose 5.2% in Dec. to 4.65m annual rate, highest level in more than a year, economists est.
  • General Electric reports pre-mkt; has outperformed since Dec. investor meeting
  • JPMorgan, State Street and Ameriprise Financial among final bidders for asset management division of Deutsche Bank: Reuters
  • U.K. Dec. retail sales rose 0.6%, matching median forecast
  • IMF cuts global growth forecast for 2012, Telegraph says, citing leaked memo
  • Eastman Kodak got approval to borrow as much as $650m to support ops as it pursues patent sales
  • European banks have until end of today to tell national regulators how they plan to meet capital targets, to then be discussed by European Banking Authority
  • NYSE Euronext head says exchange may appeal if Europe blocks merger with Deutsche Boerse: WSJ
  • Samsung Electronics lost patent infringement suit against Apple at court in Mannheim, Germany; first decision in group of patent cases cos. filed against each other in the country
  • Carnival Corp. suspended broadcast, digital and direct-mail marketing for its namesake line
  • Senate Minority Leader Mitch McConnell urged Democratic leaders to shelve anti-piracy bill; faces procedural vote Jan. 24


      • Schlumberger (SLB) 6 a.m., $1.09
      • SunTrust Banks (STI) 6 a.m., $0.27
      • Prosperity Bancshares (PB) 6:03 a.m., $0.76
      • Fifth Third (FITB) 6:30 a.m., $0.35
      • General Electric (GE) 6:30 a.m., $0.38
      • Comerica (CMA) 6:40 a.m., $0.51
      • First Horizon National (FHN) 7 a.m., $0.14
      • Parker Hannifin (PH) 7:30 a.m., $1.63



  • Oil Trims Weekly Gain as Greek Risk Offsets U.S. Rebound Hopes
  • Gold Falls as Dollar’s Advance, Asian Holidays May Curb Demand
  • Copper Falls as Chinese Manufacturing May Shrink for Third Month
  • Copper Bears Retreat as Prices Rally Most Since ‘87: Commodities
  • Sugar Rises on Limited Supply Before Brazil’s Crop; Coffee Gains
  • Corn Declines as Council Forecasts Record Global Production
  • Coffee Output in India May Miss Estimate on Rains, Group Says
  • Pemex’s Offering Spurs Busiest Week Since August: Mexico Credit
  • Korean Shipyards to Buy 12% Less Steel as Slump Hits Posco
  • Gold May Gain 8.7% to Near Fibonacci Level: Technical Analysis
  • Wildcatter Finds $10 Billion Drilling in North Dakota: Energy
  • Batista’s MMX Not Interested in Deal With Falcone-Backed Ferrous
  • North Korea Sees Chinese Storming in as Mineral Wealth Attracts
  • COMMODITIES DAYBOOK: Gold Set for Best Weekly Run in Two Months
  • Kinross in Play After Paying Too Much in African Gold: Real M&A
  • U.S. Steel Bonds Rebound to Par on Auto Sales: Corporate Finance
  • Copper Traders Probably Closed Out Bets on Declining Prices






















The Hedgeye Macro Team





get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Re-Shape The Debate

“I am trying to re-shape and improve my central position.”

-John Maynard Keynes


After getting publically steam-rolled for his failed government “stimulus” experiments of the late 1920s, that’s what Keynes finally admitted to Hayek in 1932. Keynes went on to tell Hayek that changing his views is “probably a better way to spend one’s time than in controversy.”


Classic. Can you imagine if Ben Bernanke and Larry Summers had it in them to change their central planning strategies as the facts have? Sadly, you probably can’t. That’s the anchor of Academic Dogma in our Ivy League towers that will take time to creatively destruct.


Keynes, of course, used willful blindness to alternative economic strategies like Hayek’s just as well as Bernanke and Geithner do: “Keynes admitted in a Treatise on Money that ‘in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language.” (Keynes Hayek, page 139).


It’s a good thing Albert Einstein was able to Re-Shape The Debate of his time in English…


Back to the Global Macro Grind


Solution - the 3 core factors our team focuses on from a Fundamental Macro Modeling perspective when we look at countries are:


Since our models have actually worked in calling the big Growth and Inflation turns for the last 4 years, we think it’s high-time to Re-Shape The Debate on how leaders (running countries, companies, or trading P&Ls) consider these 3 factors.


Rather than compounding Keynesian mistakes in forecasting Growth and Inflation by slapping random multiples on the economic growth that countries do or do note generate (with a 30-80% tracking error in their forecasts), this is what we do:

  1. Measure the Slope (accelerating or decelerating) of Growth and Inflation
  2. Apply Predictive Tracking Algorithms to all Growth and Inflation data we can find to generate an estimated range of outcomes
  3. Hammer out the reps each and every morning across all of Global Macro to adjust our models for any new Growth/Inflation data

Then, on a risk adjusted basis, we decide if there is:


A)     An acceleration in the existing slope (going from good to great is the same thing as going from bad to toxic)

B)      A deceleration in the existing slope (going from great to good is the same thing as going from toxic to bad)

C)      A centrally planned policy to attempt to arrest the gravitational force of the slope


Hopefully I didn’t lose you yet (I didn’t write it in German, but it’s math – which, seemingly, Bernanke and Summers should understand even if I wrote this in Mandarin-Canadian).


If I did lose you, here’s what it means in term of what’s changed from a Fundamental Macro Modeling perspective since we’ve made an explicit change in our call on Global Macro markets in December (we’re long Growth (Equities) and out of Fixed Income):

  1. GROWTH: US, Chinese, and German Growth (our Big Mac-cro 3) have all decelerated at a slower rate = bullish
  2. INFLATION: Globally, we’ve seen a Deflation of the Inflation (US CPI dropped from 3.4% NOV to 3.0% in DEC) = bullish
  3. POLICY: Bernanke/Geithner haven’t been able to debauch the US Dollar and Germany is being fiscally/monetarily conservative

What would make our models change back to the bearish side (i.e. Growth Slowing re-accelerates on the downside and Inflation re-accelerates on the upside)?

  1. Ben Bernanke goes to Qe3
  2. Obama and Geithner go way left on fiscal spending
  3. Germany folds to French demands for Euro bonds (money printing) and bank bailouts

After 4 long years of Jobless Stagflation, look at what getting Bernanke, Geithner, and Sarkozy out of the way is doing – yesterday’s US jobless claims print of 352,000 was the best jobs number we’ve seen since March of 2008!


Strong Dollar = Stronger Consumption (inflation deflates), Stronger Confidence, and Stronger Employment. Period.


Whoever is begging Bernanke for policies to inflate (Qe3) is effectively begging for my model to break down (begging for Inflation to accelerate and slow real (inflation adjusted) US, Chinese, Brazilian, etc. Consumption Growth).


If you’re an exporter in Michigan, you don’t like this. If you’re making BMW’s in Germany, or putting gas in yours in New Jersey, you love it. The only people that want weak currencies are the people who need them to get paid.


Rather than having CNN focus a US Presidential Debate on “open marriages”, it’s time to get real in this country. It’s time to get serious about the evolution in our economic thinking. It’s time to Inspire, Re-work, and Re-Shape the Real-Time Economic Debate.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, German DAX, and the SP500 are now $1, $109.85-112.11, $1.26-1.30, $80.19-80.97, 2, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Re-Shape The Debate - Chart of the Day


Re-Shape The Debate - Virtual Portfolio

Squeezy: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Consumer Staples (XLP) and Utilities. Short Russell 2000 (IWM).


While the short squeeze (see chart) from my long-term TAIL breakout line (1267) has been proactively predictable, the short squeeze you’re seeing at the top of this immediate-term TRADE move in certain high-short interest stocks/ETFs/etc has been epic.


In the very immediate-term (I mean 3 trading hours to 3 days) this is where the Pain Trade tends to capitulate – more so in certain stocks than the stock index. Ultimately, provided that the US Dollar strength and US employment improvement continues, I think we’re headed toward a 1363 test. That will take more time.


For now, here are the lines I want to be managing gross and net exposure risk around: 

  1. Immediate-term TRADE overbought = 1314
  2. Immediate-term TRADE support = 1293
  3. Long-term TAIL support = 1267 

Another way to think about this is in terms of your beta-adjusted gross and net exposure. On the way towards 1314, you want to beta-shift to lower beta long positions, and take a few shots at higher-beta shorts that have been squeezed.




Keith R. McCullough
Chief Executive Officer


Squeezy: SP500 Levels, Refreshed - SPX

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.