“Hayek reminded his audience, the perfect market does not exist.”
Another day, another major easing by another major central bank. Japan’s decision to inject another 10 Trillion yens of liquidity into the market reflects, well, that they think they’re going to have a liquidity problem!
Ostensibly, Keynesians have been cheering on this type of Japanese behavior since 1997. That’s when Bernanke’s bud, Paul Krugman, told Japan to “Print Lots of Money.” Fifteen years later, Japan will have to roll over 242 Trillion Yens in debt (principal + interest) or 24.7% of its current marketable sovereign debt load in 2012.
Bubble in Keynesian Economics. Perfect.
Back to the Global Macro Grind…
Keynesians would have you believe that they can centrally plan markets so that we never have hard landings. Hayekians will take the other side of that. Market’s rarely, if ever, price tail risk perfectly. In real-life, Keynesian expectations perpetuate tail risks.
As Hayek reminded us, “economic decisions in real life are made by individuals based on partial knowledge of current conditions coupled with their best guess of what may happen. Each individual comes to a different judgment about what those conditions might be. Some get the decision right, some wrong.” (Keynes Hayek, page 180)
Dynamic, non-linear, and interconnected – words that you’ll never hear from a US central planner – but these are the Global Macro Risk Management days of our lives. There is no such thing as the Perfect Market, no less the perfect consensus pricing of globally-interconnected risk. Anyone who tells you otherwise is in the business of selling you a fairy tale about certainty.
So what happened on the “news” this morning?
- No one cared about the Moodys “news” because it’s a year old
- Japanese Yen snapped its intermediate-term TREND line of 0.013 (YEN/USD)
- Copper snapped an immediate-term TRADE line of $3.88/lb support
Notice Greece isn’t the new Global Macro news this morning. Neither is Apple. If you didn’t know that the legacy news cycle operates on a lag relative to Hayek’s “moving picture”, now you know…
Other than tacking another crumpled Barron’s cover to the cork-board behind my desk, I have no idea what to tell you about The Old Wall and its propensity to delve into these deeply intellectual debates about big round numbers.
What I can tell you is what my baseline 3 factor model (Price, Volume, Volatility) is saying about the SP500 at 1351:
- Price: all closes below 1363 are lower long-term highs versus the flailing one people chased in April of 2011
- Volume: just flat-out nasty volume signals (ie no volume) are being registered, daily now, at these lower highs
- Volatility: the VIX is making a series of higher long-term lows and building immediate-term TRADE support at 18.31
That’s an immediate-term view of the SP500. I have no idea where the SP500 or the Dow is going to close in 3 years, never mind when it’s going to pin the tail on the 15,000 donkeys. Each and every day, we reserve the free-market right to change our minds about probabilities, scenarios, and risks. As the Inflation and Growth data changes, we do.
What’s up next for the data?
- Inflation Expectations continue to rise, sequentially, so look for that in the US import price report today – then the PPI and CPI reports on Thursday and Friday.
- Growth Expectations continue to slow, sequentially, so look for that to be reconciled by the Global Macro data, daily.
Not everyone has a process to absorb Global Macro economic data so, to a degree, it shouldn’t be a surprise that people gravitate toward the “news” that’s being pumped into them. Our timing on the rate of change in both Growth and Inflation can often be early. Perfectly timing markets with 100% accuracy also implies some orange jump suit risk that we’re not willing to take on.
In addition to 10 Trillion reasons why the Japanese are implicitly acknowledging the severe Deficit/GDP issues associated with running a -2.3% year-over-year GDP number in Q4, here are some other Global Growth Slowing signals of the last 48 hours:
- Chinese Equities failed at intermediate-term TREND resistance (2372 Shanghai Comp) again, closing down -0.3% overnight
- French Equities failed at long-term TAIL resistance (3565 CAC) again, and are down for the 4thtrading day of the last 7
- US 10-year Treasury Yields failed at intermediate-term TREND resistance (2.03%), again this morning (1.97% last)
And, don’t worry, I get it – I’m highlighting the negative signals – but I also get that these are very big ones. Without Japan, China, Europe, and the US confirming whatever Apple and Greece did in the last 24 hours, I get paid to ask the question – again – how perfect has consensus been in the last 4 years in missing the most perfectly interconnected market signals?
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, and the SP500 are now $1, $115.79-120.03, $1.30-1.33, and 1, respectively.
Best of luck out there today and Happy Valentine’s day to my beautiful wife Laura,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – February 14, 2012
As we look at today’s set up for the S&P 500, the range is 20 points or -0.72% downside to 1342 and 0.76% upside to 1362.
SECTOR AND GLOBAL PERFORMANCE
- ADVANCE/DECLINE LINE: 1607 (3211)
- VOLUME: NYSE 682.65 (-9.06%)
- VIX: 19.04 -8.42% YTD PERFORMANCE: -18.63%
- SPX PUT/CALL RATIO: 2.38 from 1.40 (70.00%)
CREDIT/ECONOMIC MARKET LOOK:
TREASURIES – the 10yr continues to trade between the rock (TRADE support = 1.96%) and the harder place (TREND resistance = 2.03%); still signaling a US Growth Slowdown in FEB (sequentially) as the Yield Spread (10/2s) compresses by 5bps day/day here…
- TED SPREAD: 40.60
- 3-MONTH T-BILL YIELD: 0.09%
- 10-Year: 1.98 from 1.97
- YIELD CURVE: 1.70 from 1.69
MACRO DATA POINTS (Bloomberg Estimates):
- 7:30 am: NFIB Small Business Optimism, Jan., est. 95.0 (prior 93.8)
- 7:45am/8:55am: ICSC/Redbook weekly retail sales
- 8:30am: Import price index, Jan.; Y/y est. up 7.2% (prior gain 8.5%), M/m est. up 0.3% (prior drop 0.1%)
- 8:30am: Advance retail sales, Jan., est. up 0.8% (prior up 0.1%)
- 8:45am: Fed’s Plosser speaks on economy in Newark, Del.
- 10am: Geithner testifies before Senate Finance Committee
- 10am: Business Inventories, Dec., est up 0.4% (prior up 0.3%)
- 11am: Fed to purchase $4.25-$5b notes
- 11:30am: U.S. to sell $20b 64-day cash management bills
- 1pm: U.S. to sell $40b 4-week bills
- 4:30pm: API weekly inventories
- 5:40pm: Fed’s Lockhart speaks on economic outlook in Sarasota, Fla.
- House, Senate in session:
- Senate Budget committee hearing on proposed FY2013 budget
- Senate Finance committee hearing on proposed FY2013 budget
- GE holds conference on “American Competitiveness: What Works” (through 2/16)
WHAT TO WATCH:
- Moody’s cut debt ratings of Italy, Spain, Portugal, said may strip France, U.K. of top Aaa ratings
- Senate Finance, Budget committees to have budget hearings today on Obama’s proposed $3.8t budget plan
- Deadline today for 13-F filings with the SEC for 4Q
- Santorum draws even with Romney in poll showing they trail Obama
- Boeing signs record order from Lion Air for 230 planes worth $22.4b
- Fed to issue decision “soon” on Capital One, ING Direct deal
- U.S. Volcker rule faces harsh critics as effective date nears
- Bank of Japan added $128b to asset-purchase program, set 1% inflation target
- Google wins U.S. antitrust approval to buy Motorola Mobility
- Michael Kors (KORS), premkt, $0.06
- Host Hotels & Resorts (HST) 6 a.m., $0.30
- ACI Worldwide (ACIW) 6:45 a.m., $0.72
- United Therapeutics (UTHR) 7 a.m., $0.82
- Marsh & McLennan (MMC) 7 a.m., $0.45
- Omnicom (OMC) 7 a.m., $0.95
- Fossil (FOSL) 7 a.m., $0.97
- Watson Pharmaceuticals (WPI) 7 a.m., $1.76
- Avon (AVP), 7 a.m., $0.53
- Generac Holdings (GNRC) 7 a.m., $0.63
- RioCan REIT (REI-U CN) 7:30 a.m., C$0.35
- Hospira (HSP) 7:32 a.m., $0.47
- Goodyear Tire & Rubber (GT) 8 a.m., $0.21
- HCP (HCP), 8 a.m., $0.68
- BorgWarner (BWA) 8 a.m., $1.17
- TransCanada (TRP) 8:11 a.m., C$0.55
- Valspar (VAL) 8:40 a.m., $0.48
- Textainer Group Holdings (TGH) 8:45 a.m., $0.99
- Zynga (ZNGA), post-mkt, $0.03
- Quest Software (QSFT) 4 p.m., $0.51
- FMC Technologies (FTI) 4 p.m., $0.50
- Hittite Microwave (HITT) 4 p.m., $0.53
- Bob Evans (BOBE) 4:01 p.m., $0.60
- American Capital (ACAS) 4:01 p.m. $0.20
- Hatteras Financial (HTS) 4:01 p.m., $0.90
- Chemed (CHE) 4:01 p.m., $1.48
- American Campus Communities (ACC) 4:01 p.m., $0.49
- Weight Watchers International (WTW) 4:01 p.m. $0.86
- Taleo (TLEO) 4:02 p.m., $0.23
- TastGroup Properties (EGP) 4:02 p.m., $0.78
- MetLife (MET) 4:03 p.m., $1.24
- Arch Capital Group (ACGL) 4:05 p.m., $0.62
- Masimo (MASI), 4:05 p.m., $0.23
- Sapient (SAPE), 4:05 p.m., $0.16
- Tanger Factory Outlet Centers (SKT) 4:05 p.m., $0.41
- j2 Global Inv. (JCOM) 4:15 p.m., $0.62
- Home Capital Group (HCG CN) 5:01 p.m., C$1.49
- Natural Resource Partners (NRP) 5:05 p.m., $0.48
- Valmont Industries (VMI) 5:30 p.m., $1.67
- Curtiss-Wright (CW) 5:35 p.m., $0.84
- Brookfield Office Properties (BOX-U CN) 5:45 p.m., C$0.35
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
COPPER – the Doctor took a good look at his long-term TAIL of resistance ($3.98/lb) and not only backed off but is now breaking down through 3.87/lb immediate-term TRADE support. Watching that global growth signal closely as Hong Kong’s Finance Secretary warned of potentially seeing a down y/y Q112 GDP growth print.
- Zinc Glut Rising to Two-Decade High Threatens Rally: Commodities
- Copper Swings Between Gains, Losses on Confidence, Rating Cuts
- Corn Declines as U.S. Acres May Increase to Highest Since 1944
- Oil Rises to Three-Week High as Iran Threat Counters Europe Debt
- Cocoa Falls as Rains May Help West African Crops; Sugar Drops
- Iron Ore May Advance Amid Seasonal Demand Increase, UBS Says
- Gold May Decline as Stronger Dollar Cuts Demand After Downgrades
- Wheat Exports From Australia Seen at Record as Output Gains
- BP Boosts Cash Before Trial Threatening Image: Corporate Finance
- Soybeans May Advance on Fibonacci, ADM Says: Technical Analysis
- BHP, Rio Approve $4.5 Billion Escondida Copper Mine Expansion
- Oil Supplies Expand to Five-Month High in Survey: Energy Markets
- China Shale Delay to Boost LNG Imports in Boon for Exxon: Energy
- Container Rates Rebounding 29% as Cargo to U.S. Expands: Freight
- U.S. Farmers to Plant Most Corn Acres Since 1944, USDA Says
- BP Must Face Investors’ Fraud Claims Spurred by Gulf Oil Spill
- Sino-Forest Truth May Never Be Known as Ardell Defends Founder
JAPAN – evidently the Bank of Japan agrees with us in that they could have liquidity issues come the ides of March (massive sovereign debt spike). Surprisingly, the BOJ announced another 10 TRILLION Yens (lots of Yens) in easing last night; this lifted stocks and debauched the Yen. We’re finally seeing the 1.30 TREND line of YEN/USD snap. Stay tuned…
The Hedgeye Macro Team
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THE HEDGEYE BREAKFAST MONITOR
Comments from CEO Keith McCullough
US stocks continue to hang in at their YTD highs on really bad volume and skew signals:
- JAPAN – evidently the Bank of Japan agrees with us in that they could have liquidity issues come the ides of March (massive sov debt spike). Surprisingly, the BOJ announced another 10 TRILLION Yens (lots of Yens) in easing last night; this lifted stocks and debauched the Yen. We’re finally seeing the 1.30 TREND line of YEN/USD snap. Stay tuned…
- COPPER – the Doctor took a good look at his long-term TAIL of resistance ($3.98/lb) and not only backed off but is now breaking down through 3.87/lb immediate-term TRADE support. Watching that global growth signal closely as Hong Kong’s Finance Secretary warned of potentially seeing a down y/y Q111 GDP growth print.
- TREASURIES – the 10yr continues to trade between the rock (TRADE support = 1.96%) and the harder place (TREND resistance = 2.03%); still signaling a US Growth Slowdown in FEB (sequentially) as the Yield Spread (10/2s) compresses by 5bps day/day here…
Moodys, thanks for coming out.
DPZ: Domino’s Pizza was rated New Hold at Miller Tabek, price target $36.
MCD: McDonald’s said on Monday that it will work with its U.S. pork suppliers to phase out the use of gestation crates, the cramped stalls that millions of mother sows are confined to while they raise piglets, according to Reuters.
CMG: Chipotle’s first national TV ad, aired during the Grammy’s, overshadowed even Coldplay’s performance according to adage.com.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
PNRA: Panera Bread underperformed yesterday. Earnings last Tuesday disappointed on the top line.
DRI: Darden Restaurants is rated New Equalweight at Stephens.
TXRH: SAC Capital reported a passive stake in Texas Roadhouse equal to 5.4%.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
Volume was low overall in the casual dining space yesterday.
In preparation for PNK's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
Pinnacle Entertainment Enters Into Definitive Agreements to Divest Boomtown Reno and Adjoining Land Acreage (11/10/2011)
- Total proceeds from the transactions are expected to be approximately $22.2 million, with the potential for an additional $3.8 million if an option granted to the casino-resort buyer is exercised.
- Sold to M1 Gaming Reno, LLC and SJP Reno Property, LLC for total cash consideration of approximately $12.9 million. In addition, the Company granted the buyers a one year option to purchase 100% of the Company's membership interest in the current gaming licensee, PNK (Reno), LLC and additional land adjacent to Boomtown Reno for $3.8 million. This transaction is subject to regulatory approval and is expected to close by mid-2012.
YOUTUBE FROM Q3 CONFERENCE CALL
- "An interesting trend we're seeing is the growth from the younger customers, although the core growth is coming from 40 to 59 year olds, guests under 40 are increasing when compared to prior years. This growth from those under 40 is seen in both slots and tables, whereas tables usually skew younger."
- "Bossier continues to be a difficult market while we have outperformed the market over quarter-to-quarter across our market segment, we believe this market will continue to be under some pressure."
- "At Belterra, we believe the competitive dynamics of this smart deal will continue to be challenged for some time where our focus on rationalizing marketing reinvestment as well across all our portfolio, but particularly at this property, to improve results."
- [myChoice] "We are recognizing expenses on our books ahead of the actual cash out flow. We have been very pleased with the performance of the program and the program remains at least cost neutral, and we expect to see additional improvements into operations as the program continues to see them."
- "We continue to work through some of these changes and as stated we expect that the increase will be no more than 3% of the budget. And our opening day continues to be summer of 2012. We expect to have a more definitive timeframe with a specific date by the end of the year as well."
- "At River Downs we expect resolution of regards to the horsemen's fee subsidy by the end of the year. All of you likely saw the losses that was filed last week challenging the constitutionality of VLTs at racetracks. So there's more to come on this development in the coming weeks and months ahead. We remain hopeful that we will have authorizations to add VLTs at River Downs and that the redevelopment of that facility will start in 2012."
- "Approximately $32 million was drawn at the end of the quarter, and as far as liquidity we also expect to receive a refund of the $25 million deposit that we had with the Louisiana Gaming Control Board for the Baton Rouge project following the opening of that facility."
- [Capex] "We expect the fourth quarter to be roughly around $65 million of which $45 million of that should be Baton Rouge."
- [St. Louis capex] "To relate to the second question on regards to the $82 million, about two-thirds of that won't get spent until '13, and the reason for this ageing is we wanted to limit our parking disruption associated with the construction there, so we're building the garage first, that should be in line by the end of the year, next year, and the hotel which is a big piece of that $82 million, and the multi-purpose room won't actually get going until '13. So from a timing perspective, two-thirds would probably be a good benchmark to assume goes into '13 versus what will go into '12. And we expect the complete project to be completed by the end of '13."
- [Margin progression] "I will tell you that we're still in middle innings."
- "The hotel on the Ho Tram Strip is already topped off and the low rise is closed to being topped off. MGM, as the operator, is fully engaged and we are extremely encouraged by what we see the progress that they're making. We expect that that property will open the early part of '13, and to date, there's nothing to report on a change in the budget. There was a financing that was completed prior to us investing of a syndicate of Vietnamese banks as we've noted earlier, and that financing is in place, there will be additional financing mostly driven by working capital needs that will get secured later on through the construction process, at some point towards the end of next year."
- "We think that the environment from a marketing spend perspective has been very traditional throughout every market that we are in, and I think you've seen similar commentary I think from all our competitors, and that we hope it's sustainable, think that it has been tough to judge what other people will do."
- "We continue with River Downs and every property to look at the most efficient way to run that property. It's highly unlikely that we're out of racing season right now. We in the simulcast. It's highly unlikely that you'll see in the current quarter where we're in, or even the first quarter, that we would achieve breakeven. You saw from the release that we did have an unusual one-time medical expense there, which we don't know, there could be another medical expense there, but we're working to just try to keep the loss there as small as we can while running a property that we feel good about our guests walking into. So, I would tell you the next couple of quarters you shouldn't expect to see us at a breakeven there, but you shouldn't expect it to be beyond what we reported this quarter, should be even a bit better."
- [Baton Rouge] "A lot of the actual spend will actually come due until after the facility opens. In River City we saw our last set of bills, call it five, six months after the property opened. So, while it is going to be rather accelerated, by virtue of the delay we're actually able to go into fixed priced contracts on a lot of the things that were part of the GMP on the construction side, and over 95% of the hard cost is now known and under contract. So, we do think that while it will be accelerated next year, that we will be able to maintain that schedule."
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