The Best and Worst of Times

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

-Charles Dickens


First of all, sorry for the long quote this morning.  I’m sure after reading some of my more eclectic quotes and missives this week, you are all awaiting Keith’s return with bated breath.  But as I was contemplating the stock market this week and the earnings results that were released, somehow Dickens’ quote from “A Tale of Two Cities” seemed appropriate.


The SP500 opened Monday up near 1,380 and closed yesterday at near 1,378.  So despite the sizeable swings mid-week, the broad equity market has done nothing all week.  It seems Mr. Market, just like the Dickens’ quote, can’t decide:  Is growth slowing? Or is growth accelerating? Is Europe out of the woods? Or is sovereign risk accelerating in Europe?  Is China going to ease more? Or is inflation more of risk than growth in China?


We’ve been somewhat definitive on our views that we believe global growth is slowing sequentially, but the market hasn’t totally come around to accept the Hedgeye views just as of yet.  (I guess we will have to get Keith on CNBC more next week to preach the gospel.)  On the growth front, an interesting data point we recently picked up was that traffic through the Suez Canal was only up 1.2% for the month of February year-over-year basis and has been in steady decline for really the last year.  In the Chart of the Day, we show this trend and have combined it with a couple pictures of Hedgeye friend and former NHLer Jeff Hamilton.  As the pictures show, life as a pro hockey player is sometimes good and sometimes bad as well.


Obviously this is but one data point, but this is literally the worst month of traffic through the Suez Canal since the end of the most recent global recession.  As well, the Suez is far from an insignificant indicator.  It is estimated that in total almost 8% of the world’s sea trade is transported through the Suez Canal.  So, this is a data point worth writing in the notebook.


Just as with the continued angst over the direction of global growth, there remains debate over the direction of Europe from a debt perspective.  Some, like Bank of America, are ready to call a bottom in Europeans debt woes as indicated by B of A’s positive call on European Banks this morning.   The actual sovereign market itself, as manipulated as it is, begs to differ though, as Spanish yields on 10-year government bonds are back above 6.0% this morning.


My brothers up in Canada are even getting into the European mix this morning.  Canadian Finance Minister Jim Flaherty came out publically yesterday to propose that non-European nations should have a collective veto when European nations come to the IMF to ask for aid.  Obviously, Flaherty sees what we see, which is that the likelihood of a Socialist getting elected in France means that “the ask” from Europe could soon get a lot bigger.


As well, you can’t really blame Canada (pun intended) for pushing back on continued carte blanche aid to Europe.  In 1993, Canada’s fiscal house was in terrible order and Standard & Poor’s rightfully downgraded Canada debt.  The Canadians then righted the fiscal ship the hard way by implementing a consumption tax and making tough budget cuts, by some estimates almost 20% across the board.  As Canadian Finance Minister Paul Martin said at the time, “Let there be no doubt about that. We will balance the books.”  There are some other nations that could use some of that Canadian fiscal resolve.  (Incidentally, we like the Loonie on the long side over the long term in part due to this.)


As usual during earnings season, we are going to have a note up on our website later today that discusses our view of the broad energy sector this earnings season.  One quote from the note is worth sharing this morning, which is as follows:


“The macro backdrop for the quarter is muddled – Brent crude averaged $118.70/bbl in the quarter, +13% YoY and +9% QoQ; NYMEX natural gas averaged $2.50/Mcf, -40% YoY and -28% QoQ; rig count growth slowed in North America to +12% YoY (vs. +19% YoY in 4Q11); and worldwide rig count growth slowed to +9% YoY (vs. +15% YoY in 4Q11).  Our proprietary US oil and gas inflation index shows that costs for producers were +8.1% YoY in 1Q12, the lowest level of inflation since 4Q10.”


To say that the energy pictures is currently muddled is definitely the Hedgeye understatement of the week, but the key fact I would point out is that natural gas is down 40% y-o-y and oil is up 13% y-o-y.  Thematically, those companies that use natural gas as an input, like certain industrial and chemical companies, are receiving the input cost boon of a life time. 

Meanwhile, any company that competes with the price of gasoline for the consumer’s wallet is certainly feeling the pinch.


The immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1, $116.71-119.34, $79.25-79.65, $81.12-82.67, $1.30-1.32, and 1, respectively.


Enjoy the weekend with your families,


Daryl G. Jones

Director of Research


The Best and Worst of Times - Chart of the Day


The Best and Worst of Times - Virtual Portfolio

Early Look

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

As we look at today’s set up for the S&P 500, the range is 39 points or -1.52% downside to 1356 and 1.31% upside to 1395. 












    • Up from the prior day’s trading of -1015
  • VOLUME: on 4/19 NYSE 822.92
    • Increase versus prior day’s trading of 14.14%
  • VIX:  as of 4/19 was at 18.36
    • Decrease versus most recent day’s trading of -1.50%
    • Year-to-date decrease of -21.54%
  • SPX PUT/CALL RATIO: as of 04/19 closed at 1.62
    • Down from the day prior at 2.74 


  • TED SPREAD: as of this morning 40
  • 3-MONTH T-BILL YIELD: as of this morning 0.07%
  • 10-Year: as of this morning 1.98
    • Up from prior day’s trading of 1.97
  • YIELD CURVE: as of this morning 1.72
    • Increase from prior day’s trading at 1.70 

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: G-20 central bankers, finance ministers meet in Washington
  • IMF, World Bank host spring meetings
  • 1pm: Baker Hughes rig count
  • 2pm: Treasury Secretary Tim Geithner hosts Deauville Partnership Ministerial on Arab Countries in Transition 


    • Quinnipiac University releases poll of American voters on economy, bailout of auto industry, health care law, 6am
    • Mitt Romney speaks to RNC State Chairman’s National Meeting in Scottsdale, Ariz, Noon
    • Filing deadline for campaign finance reports
    • Senate, House not in session
    • CFTC holds closed hearing on enforcement matters, 10am   


  • Consumer Financial Protection Bureau said to be scrutinizing nine banks including JPMorgan, Wells Fargo and BofA on overdraft protection programs
  • German business confidence unexpectedly increased to nine- month high in April; U.K. retail sales beat est.
  • Former Chinese President Jiang Zemin said to have met Starbucks CEO Howard Schultz on April 17 in Beijing
  • TPG Capital won’t improve its $816m bid for GlobeOp Financial Services, clearing way for SS&C Technologies to buy the hedge fund administrator
  • JPMorgan, fighting Lehman Brothers over $8.6b the defunct firm wants back, won dismissal yesterday of some claims
  • Samsung Electronics sued Apple again in the U.S. over patent infringements, one day after cos. ordered by federal court to discuss settling year-long IP dispute
  • Rio Tinto has withdrawn from talks with Queensland state govt. for $9.3b expansion of Abbot Point coal export harbor due to shift in global economic markets, higher costs
  • Lubrizol CEO James Hambrick plans to increase rev. by ~60% as he sets goals under new ownership of Berkshire Hathaway
  • General Electric seeking $6b in contracts out of Australia by end of decade as it taps country’s growing role as supplier of LNG, iron ore and wind power
  • Interactive Brokers Chairman Thomas Peterffy tells WSJ he plans to cede responsibilities over next several years, has no immediate plans to step down
  • Disney, Viacom’s Paramount Pictures among Hollywood’s biggest movie studios that lost piracy lawsuit in Australia
  • Bernanke, Apple Earnings, French Vote: Week Ahead April 21-28 


    • Schlumberger (SLB) 6 a.m., $0.97
    • General Electric (GE) 6:30 a.m., $0.33
    • American Electric Power (AEP) 6:57 a.m., $0.78
    • AO Smith (AOS) 7 a.m., $0.61
    • Honeywell International (HON) 7 a.m., $0.99
    • National Penn Bancshares (NPBC) 7 a.m., $0.14
    • Under Armour (UA) 7 a.m., $0.24
    • IDXX Laboratories (IDXX) 7 a.m., $0.71
    • Johnson Controls (JCI) 7 a.m., $0.53
    • Ingersoll Rand (IR) 7 a.m., $0.25
    • Manpower (MAN) 7:30 a.m., $0.35
    • Kimberly-Clark (KMB) 7:30 a.m., $1.17
    • Canadian Pacific Railway Ltd (CP CN) 7:30 a.m., $0.79
    • Sensient Technologies (SXT) 7:57 a.m., $0.57
    • McDonald’s (MCD) 7:58 a.m., $1.23
    • Royal Caribbean Cruises (RCL) 8:30 a.m., $0.15 


  • Copper Traders Turn Bullish as Growth Accelerates: Commodities
  • Oil Rises First Time in Three Days as German Confidence Improves
  • Corn Gains as China Signals Rising Demand; Soybeans Advance
  • Guar Crop in India to Climb, Lifting Supply for Halliburton
  • Cocoa Falls After North American Grindings Drop; Coffee Rises
  • Gold May Advance for a Second Day as Weaker Dollar Spurs Demand
  • Copper May Rise on Shrinking Stocks, Demand From Auto Makers
  • Plantation Stocks to Rally as Palm Oil Surges: Chart of the Day
  • Oil-Dollar Link Tightens as Iran Tension Eases: Energy Markets
  • Indonesian Miners Exempted From Ban Need Permits, Saleh Says
  • Grape-Crop Freeze Damages Fruit Used in U.S. Juice, Welch’s Says
  • Nuclear Exit Cuts Steelmakers’ Bond Cost to Record: Japan Credit
  • Oil May Fall as Slower Economy Reduces Demand, Survey Shows
  • Copper Traders Turn Bullish as Growth Gains
  • Guar at Record May Fail to Boost U.S. Output, Help Halliburton
  • China Hog-Farmers Profits Drop to 19-Month Low: Chart of the Day
  • Mistry Sticks With 4,000 Ringgit Palm-Oil Call, Likes Wilmar 






















The Hedgeye Macro Team



After predicting a consensus beating Q1, our projection is now even higher following the release of the March Louisiana numbers.



Louisiana released March gaming revenues yesterday and BYD performed much better than expected.  We had already predicted a strong quarter in our 04/13/12 note “THE REGIONALS: Q1 THOUGHTS”, but we’re upping that projection.  Our Q1 EPS and EBITDA estimates are now $0.12 and $133 million versus consensus of $0.08 and $126 million, respectively.  On their Q4 conference call, BYD provided Q1 guidance ranges of $0.06-0.09 for EPS and $120-127 million for EBITDA.


BYD will report earnings next Tuesday morning.  As always, Q1 earnings will not be the only story.  BYD should provide Q2 guidance on the conference call.  We’re above the Street for Q2 as well - $0.12 vs. $0.11 – but we expect management will once again be conservative with their guidance.  Accurate guidance should be in the $0.11-0.14 range but something lower like $0.09-$0.12 is more likely.


As measured by sell side ratings, BYD remains an underappreciated stock.  Our long-term thesis for domestic gaming is not positive but with BYD’s operational and financial leverage, better demand trends in the LV locals market and some of the regional markets should drive potentially significant EPS upside over the remainder of 2012.


The Macau Metro Monitor, April 20, 2012




According to a survey by the University of Macau, around 53% of visitors to Macau don’t gamble while visiting the city a new survey shows.  The survey involved 7,300 visitors, 61% of whom were from the mainland.

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