TODAY’S S&P 500 SET-UP – April 25, 2012

As we look at today’s set up for the S&P 500, the range is 31 points or -0.80% downside to 1361 and 1.46% upside to 1392. 












    • Up from the prior day’s trading of -1440
  • VOLUME: on 4/24 NYSE 752.12
    • Decrease versus prior day’s trading of -4.15%
  • VIX:  as of 4/24 was at 18.10
    • Decrease versus most recent day’s trading of -4.59%
    • Year-to-date decrease of -22.65%
  • SPX PUT/CALL RATIO: as of 04/24 closed at 2.67
    • Up from the day prior at 1.07 



EARNINGS last we checked, the buy-side’s expectations about earnings reflect what stocks do, not what companies do versus lowered y/y earnings expectations. Since you all work on the buy-side, you get it. Sadly, others still don’t. Some stocks have been getting hammered so far here during earnings season. Apple was a legitimate beat vs buy-side worries.


BOND YIELDS – no change in Europe (rising credit risks) or the USA (10yr bond yields at 1.98% couldn’t care less about what 1 company did at the close). Apple is a great company and Growth is Slowing, globally – mutually exclusive points, and both remain obvious.

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.98
    • Up from prior day’s trading of 1.97
  • YIELD CURVE: as of this morning 1.71
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Applications, week of Apr. 20
  • 8:30am: Durable Goods, Mar., est. -1.7% (prior 2.4%, revised)
  • 8:30am: Durables Ex/Trans, Mar., est. 0.5% (prior 1.8%, revised)
  • 8:30am: Cap Goods Nondef Ex/Air, Mar., est. 1.0% (prior 1.2%)
  • 10:30am:DOE inventories
  • 11:30am: U.S. to sell $35b 5-yr notes
  • 12:30pm: FOMC Rate Decision, est. 0.25% (prior 0.25%)
  • 2:00pm: FOMC releases economic, Fed funds projections
  • 2:15pm: Fed’s Bernanke holds press conference 


  • Supreme Court hears arguments in Obama administration’s challenge to Arizona’s crackdown on illegal immigration, 10am
  • President Obama speaks to students at University of Iowa, 2:20pm
  • House, Senate in session:
    • Senate Agriculture Committee marks up farm bill, 9am
    • House Financial Services subcommittee hears from SEC Chairwoman Mary Schapiro at oversight hearing, 10am
    • Senate Judiciary Committee hears from Homeland Security Secretary Janet Napolitano at an oversight hearing, 10am
    • Senate Banking Committee holds hearing on helping homeowners save money through refinancing, 10am
    • Senate Armed Services subcommittee holds hearing on missile defense,  2:30pm
    • Senate Appropriations subcommittee hears from FCC Chairman Julius Genachowski on expanding broadband access and promoting innovation,  2:30pm 


  • FOMC issues rate decision at 12:30pm, followed later by Bernanke press conference at 2:15pm
  • Britain unexpectedly enters first double-dip recession since 1970s as U.K. economy shrunk in 1Q
  • U.S. durable goods ex-transportation probably gained, economists est., on rising demand for cars, auto supplies
  • Amgen agreed to buy closely held Mustafa Nevzat for almost $700m
  • Watson Pharmaceuticals may announce buying Actavis for ~EU4.5b
  • Cattle futures rebounded as Japan and Taiwan said they wouldn’t alter import controls on U.S. beef
  • China Auto Rental postponed what would have been the second U.S. IPO this yr by Chinese company
  • Republican presidential candidate Mitt Romney swept five primaries, including Pennsylvania, N.Y.
  • Global earnings: Credit Suisse unexpectedly posted profit, China Unicom 1Q profit missed est.
  • Apple 2Q profit beat est., helped by Chinese iPhone demand; watch U.S. suppliers including TriQuint Semi, Cirrus Logic, Broadcom 


    • Cenovus Energy (CVE CN) 6am, C$0.54
    • Encana (ECA CN) 6 a.m., $0.03
    • WR Grace & Co (GRA) 6 a.m., $0.81
    • Host Hotels & Resorts (HST) 6 a.m., $(0.13)
    • Thermo Fisher Scientific (TMO) 6 a.m., $1.11
    • Wellpoint (WLP) 6 a.m., $2.29
    • TE Connectivity (TEL) 6 a.m., $0.66
    • Praxair (PX) 6:01 a.m., $1.36
    • Wyndham Worldwide (WYN) 6:30 a.m., $0.55
    • Eli Lilly & Co (LLY) 6:30 a.m., $0.78
    • AutoNation (AN) 6:45 a.m., $0.53
    • General Dynamics (GD) 7 a.m., $1.69
    • Harley-Davidson (HOG) 7 a.m., $0.71
    • Lorillard (LO) 7 a.m., $2.00
    • Motorola Solutions (MSI) 7 a.m., $0.54
    • NASDAQ OMX Group (NDAQ) 7 a.m., $0.63
    • Northrop Grumman (NOC) 7 a.m., $1.59
    • National Oilwell Varco (NOV) 7 a.m., $1.40
    • Rockwell Automation (ROK) 7 a.m., $1.27
    • Sprint Nextel (S) 7 a.m., $(0.41)
    • Tupperware Brands (TUP) 7 a.m., $0.96
    • Nielsen Holdings NV (NLSN) 7 a.m., $0.27
    • Corning (GLW) 7 a.m., $0.28
    • MeadWestvaco (MWV) 7:05 a.m., $0.24
    • Boeing (BA) 7:30 a.m., C$0.93
    • Caterpillar (CAT) 7:30 a.m., $2.13
    • Delta Air Lines (DAL) 7:30 a.m., $(0.04)
    • Hess (HES) 7:30 a.m., $1.54
    • Molex (MOLX) 7:30 a.m., $0.34
    • Owens Corning (OC) 7:30 a.m., $0.30
    • Southern (SO) 7:30 a.m., $0.45
    • NextEra Energy (NEE) 7:31 a.m., $0.97
    • Dr Pepper Snapple Group (DPS) 8 a.m., $0.48
    • US Airways Group (LCC) 8 a.m., $(0.23)
    • Bell Aliant (BA CN) 8:08 a.m., $0.41
    • Avery Dennison (AVY) 8:30 a.m., $0.44
    • Akamai Technologies (AKAM) 4 p.m., $0.38
    • Las Vegas Sands (LVS) 4 p.m., $0.60
    • Varian Medical Systems (VAR) 4 p.m., $0.96
    • Williams Cos (WMB) 4 p.m., $0.36
    • Crown Castle International (CCI) 4:01 p.m., $0.18
    • LSI (LSI) 4:01 p.m., $0.14
    • AvalonBay Communities (AVB) 4:01 p.m., $1.24
    • Williams Partners (WPZ) 4:01 p.m., $0.89
    • Tractor Supply Co (TSCO) 4:01 p.m., $0.52
    • Owens-Illinois (OI) 4:02 p.m., $0.67
    • Equinix (EQIX) 4:02 p.m., $0.53
    • Fidelity National Financial (FNF) 4:04 p.m., $0.25
    • Arch Capital Group Ltd (ACGL) 4:05 p.m., $0.71
    • Citrix Systems (CTXS) 4:05 p.m., $0.51
    • Everest Re Group Ltd (RE) 4:05 p.m., $3.45
    • Cadence Design Systems (CDNS) 4:05 p.m., $0.15
    • Raymond James Financial (RJF) 4:08 p.m., $0.57
    • Assurant (AIZ) 4:15 p.m., $1.43
    • Equity Residential (EQR) 4:15 p.m. $0.62
    • Xilinx (XLNX) 4:20 p.m. $0.41
    • Duke Realty (DRE) 4:29 p.m. $(0.06)
    • Cliffs Natural Resources (CLF) 4:31 p.m. $1.12
    • Range Resources (RRC) 5:10 p.m. $0.13
    • Gold (G CN) 5:15 p.m. $0.54
    • O’Reilly Automotive (ORLY) 6:30 p.m. $1.04
    • SL Green Realty (SLG) 6:40 p.m. $0.06
    • Lundin Mining (LUN CN) Post-Mkt $1.05
    • Cabot Oil & Gas (COG) Post-Mkt $0.89    


  • Cattle Futures Rebound as Japan, EU Unmoved by U.S. Mad Cow
  • GDF Suez Says Force Majeure Ended at Three French LNG Terminals
  • Power Shortage Hurts Chile $100 Billion Copper Push: Commodities
  • Mad Cow Case May Pose Little Threat to U.S. Feed Crop Demand
  • U.K. Gas Snaps Two-Day Decline as Imports Slow, Exports Rise
  • Copper Advances as Company Earnings Lift Equities, Commodities
  • Soybeans Climb to Three-Year High as Freeze Cuts Argentina Crop
  • Sugar Climbs as Demand Increases Before Ramadan; Cocoa Advances
  • Gold May Decline as Investors Hold Off Buying Before Fed Report
  • Commodity Trade Finance Lending Fell 15% at Most, ABN Amro Says
  • Mad Cow Disease Remains Rare Since Discovery in U.K.: Factsheet
  • Barrick Gold Joins Global War for Talent: Corporate Canada
  • Vale to Redesign Giant Ore Ships to Protect Crews From Pirates
  • German Shipping Funds Die as Investors See Losses Rise: Freight
  • Cattle Rebounds After Plunging on Mad Cow
  • Mad Cow in California Shows Need for More Tests, Groups Say
  • Japan Has No Plan to Suspend U.S. Beef Imports ‘At the Moment’ 
















INDIA  most fascinating factors we woke up to this morning were big Asian Stock markets closing down on the day (India, KOSPI, Hang Seng) despite the US Futures fanfare. India’s rating outlook was cut by S&P because it should have been – they are a net importer of $118 oil, running a big deficit, with GDP slowing. UK missed GDP as well this morning = stagflation.










The Hedgeye Macro Team

Wide Acceptance

“Wide acceptance of an idea is not proof of its validity.”

-Dan Brown (The Lost Symbol)


I continue to be fascinated by the groupthink that permeates our profession. You’d think that after all that we have been through in the last 5 years, that would have changed as the facts have. Nope.


I’m not talking about Apple. I don’t have the “edge” on that stock that the 58 sell-siders who follow it purport to have. Legitimate “edge” on a stock like that would probably raise one’s risk to wind up wearing an orange jump suit anyway.


I’m talking about the Wide Acceptances we’ve seen in 2012. From Europe is “fine now” (right before Spain started to crash, again) to “Dow 15,000” (cover of Barrons in February right as Global Growth started slowing, again). Fascinating. As a Risk Manager, you shouldn’t be tasked with chasing returns. You should be tasked with disproving every widely accepted thesis impacting your P&L.


Back to the Global Macro Grind


One of the most widely accepted one-liners from the media and sell-side this week has been some version of a Most Read (Bloomberg) headline this morning: “US Stocks Rise Amid Better Than Forecasted Earnings.”


That, of course, is nonsense. Generally speaking, stocks have been falling during this earnings season. Sure, some stocks have risen on better than expected results, but some have been getting tattooed on inline to worse results versus buy-side expectations.


The key to what I just wrote is “buy-side expectations.”


For as long as I’ve been on the buy-side of this game (since 2000), I can’t remember a time when the game wasn’t gaming the game of buy-side expectations.


The sell-side consensus that pundits refer to on “beating expectations” is just a backboard that buy-side pros play against. Consider AAPL expectations: you get multiple sell-side firms slap $1000 price targets on AAPL into March quarter end; the buy-side proceeds to sell stock into that for a -12% AAPL drawdown from April 9th-24th; and presto, the stock is up +9% on an “earnings beat.”


Obviously if AAPL wasn’t going to “beat” the sell-side’s actuall earnings expectations, the US stock market would be crashing this morning. So, we averted one of those. Nice.


Another way to think about a Wide Acceptance of an event or Storytelling line of consensus from the sell-side (the media has no choice but to use them as their research “source”) is to use that event as an opportunity to Fade Beta.


What does Fade Beta mean?


It means that if the market is up or down (beta), allegedly, on a widely accepted idea that has no proof of validity you either:

  1. Buy on red
  2. Sell on green 

I know. That’s some really complex stuff…


Here’s an example of how a Global Macro investor considers Fading Beta today. Start with simple questions: 

  1. Does Apple’s beat mean Growth is no longer Slowing, globally?
  2. Will Apple’s quarter inspire Ben Bernanke to move to iQe4 at his 215PM FOMC speech?
  3. What are Global Macro market prices telling us about questions 1 and 2 in real-time? 

The beauty of our process is that A) we built it ourselves B) it’s repeatable and C) there are specific answers to question #3: 

  1. Hong Kong, South Korea, and India’s stock markets all closed DOWN by the end of the session = #GrowthSlowing
  2. Hong Kong’s Export report for March came in at a startling -6.8% y/y = leading indicator for Global Growth
  3. Singapore’s Export report for March came in at a almost-as-startling -4.3% y/y = nasty
  4. Chinese stocks closed up +0.75% and we think they really work during a Deflating The Inflation (ie no iQe4 from Bernanke)
  5. UK GDP missed and moves back into the official “recession” zone of -0.2% for Q1 = #GrowthSlowing
  6. UK stocks (FTSE) have reversed their early morning Apple gains, barely up on the day
  7. Spanish stocks (IBEX) lead the short-term squeeze rally in Europe (after crashing, again) = low quality signal for bulls
  8. German Stocks (DAX) are up, but need to recover and sustain intermediate-term TREND support of 6688 to be bullish
  9. European bond yields don’t seem to care, at all, about iStuff
  10. Latin American debt, currency, and interest rate risk continues to accelerate in Mexico, Argentina, and Venezuela
  11. Oil prices are pushing higher = the #1 factor in our model for continued #GrowthSlowing, globally
  12. Copper is up small (+0.6%) and remains in a Bearish Formation (bearish across all 3 risk management durations)
  13. Gold is down, again, implying to me that the answer to Question #2 is a no today (Gold goes up when Bernanke devalues)
  14. Treasuries couldn’t care less about the US Equity Futures move; 10yr yields remain in a Bearish Formation at 1.98%
  15. US Treasury Yield Spread (10yr minus 2yr) remains 17bps below where it was when Growth Slowing wasn’t consensus 

Sure, I picked all of the factors that are bearish signals, on the margin, relative to widely accepted storytelling that suggests otherwise. That’s the point. That’s what I do. I don’t change what I do based on what other people are forced to do.


In other news, Donald Trump is going after Scottish Parliament in Edinburgh today for proposing to fire up a wind farm near the ole Don’s latest golf course project. Wide Acceptance from The Scottish People to Mr. Trump’s self-interested whining is not expected.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index and the SP500 are now $1, $118.51-121.60, $79.01-79.46, and 1, respectively.


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer




Wide Acceptance - 1



Wide Acceptance - 2

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I was wrong on the stock yesterday but believe that higher estimates will soon be reflected in the stock.



If I was a criminal and privy to inside information that BYD was going to beat the Q1 EBITDA estimate by $7.5m (a 6% beat) and provide in-line Q2 guidance, I’d be poor right now.  BYD closed down 4% yesterday and I would’ve thought up at least 4%. 


The only negative I can see in the quarter was in the LV Locals market.  Even that region would’ve beaten our EBITDA estimate with normal hold.  The problem is the Street was too high, which we knew, since they tend to overreact to the Nevada gaming figures which are gross, not net.  However, our estimates for the other regions and Borgata were so much higher, and ended up being correct, that we thought the good far outweighed the bad relative to consensus.  I guess we underestimated the Street’s disdain for BYD and their ability to so narrowly focus their investment thesis on the one negative.  However, I don’t think the Street can continue to hold back a stock for very long against the fundamental tailwind of higher earnings.


BYD’s commentary about Borgata should’ve pleased a sell-side overly concerned with Revel’s impact on Borgata.  Don’t get me wrong, Borgata will take its lumps and it’s difficult to disprove the bear story with only a few weeks of data.  However, due to demand patterns, we expect the property to beat estimates for the next two quarters before finally succumbing to the slack visitation in the seasonally slow Q4.  We will cross that bridge when we get to it. 


In terms of guidance, it was pretty much what we expected.  Since they resumed providing guidance a few quarters ago, management has developed a pattern of setting a low bar that is easily beatable – strategy followed by IGT, HOT, and others.  Once again, the low bar didn’t exactly jive with their positive forward commentary.  We thought the Street would’ve figured that out by now.  On the Q4 earnings call, they low balled Q1 which seemed obvious at the time.  Indeed, Q1 actual was much better.  We expect the same for Q2.


The Macau Metro Monitor, April 25, 2012




Steve Wynn says he is “hopeful” that the company’s Cotai land grant could be in place by next week when he is in Macau.  Wynn says he will be in Macau for a number of reasons, one being a meeting with the government.  


Changi Airport passenger traffic grew 15.3% in March.  For 1Q 2012, visitation grew 12.9% YoY.





Visitor arrivals totaled 2,349,703 in March 2012, up by 7.3% YoY.  In the first quarter of 2012, visitor arrivals increased by 7.9% YoY to 6,942,320.  The average length of stay of visitors decreased by 0.1 day YoY to 0.9 day.  Visitors from Mainland China increased by 15.4% YoY to 1,447,564, with those traveling to Macau under the Individual Visit Scheme rising by 10.9% to 555,876.






In preparation for LVS's FQ2 2012 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.






  • "Our Four Seasons operations are evidence of our successes recently in the Junket area. We believe this is just the beginning of our ability to build the Junket segment throughout all LVS properties, be it Cotai or in the peninsula."
  • "But it's the mass tables that I believe present the most compelling case for the LVS investment in Macau. We will have over 1,000 mass tables before the year is out. Margins in this segment can exceed 40%, which is about roughly 3.5, four times the Junket segment and only we have the key components to the segment's success. One is capacity, which is a place to gamble, obviously; sleeping rooms, which we think are pivotal; and affordable food and retail. And the same attributes which drive mass tables also drive slot revenue."
  • "When we finish with Cotai Central, we'll have over 5,000, almost 6,000, slot/ETG positions. And contrary to opinion of 10 years ago, Asians do like slot machines and ETGs. We think someday this will be a very important market. Again, huge, huge margins and with our rooms and our ability to grow this market, we feel very good about it."
  • "We are the biggest driver of hotel rooms and we'll represent 40% of the market by the time 2013 comes to a close."
  • "We are looking at second-tier junkets, especially out of the North. We are looking to those upper provinces that have been underrepresented, the North and the Far East, and out of Shanghai because we think that's where the growth opportunities present themselves.
  • "We're 19% of the VIP market and 23% of mass gaming tables."
  • "There is a commission war happening in the peninsula in some of the second tier properties.  I don't think it happens in the major properties.  I think commission rates are pretty much, at this point, fixed. We upped ours a notch to get our competitive situation going.  We do bonus you in the back end, but we maintain a very healthy margin. I don't think it's a real issue at this point. Again, one of the problems is we'd like to have more tables, especially, obviously, Wynn, MGM, et cetera. I don't see them increasing commissions, nor would we. And so I don't think commissions are a material problem for the foreseeable future."
  • "I don't see it slowing, I think you're going to see junkets continue to grow."


  • "On the casino side, I would say Sunday through Thursday, capacity is not a problem. The problem comes in on weekends, high demand Saturdays and Saturday nights, Sundays, where you do have 85% usage on the slot machines and table games get maxed out...There's a couple of things you can do to address that. One, obviously you can change limits on the table side, which we do. We're very aggressive in the table limits. Two is we constantly move machines around to do a better job of providing the right machines because even 85% occupancy, in essence, you're sold out because maybe the remaining 15% aren't desirable to the customer."
  • "We have, at this point, no opportunity to add more rooms."
  • "I think more and more mainlanders will find their way to Singapore in the years to come. But again, I think the driver you must keep your eye on is the mass market has been the driver for the most part, the high end is certainly a wonderful place to be as well, but the two together have driven us so far to numbers we never anticipated two years ago. You also should be aware that the hotel runs 90% plus occupancy. The rates exceed US$300 a day. I believe that will continue to grow and grow."


  • "Our average cost of debt is, at the end of 2011 was about 3%. With the recently announced refinancing of our Marina Bay Sands credit facility, that number will go down below the 3% level."





  • "Not that we run our business for market share, but our re-affiliation with Macau's most important gaming promoters can help drive our market share above 25% or even higher in the future. I remember discussing this on a previous telephone call, that I expect that when our new relationships with new junket reps would bring us back to the mid- 20%s."
  • "The junkets we're seeing no issues on the collections side....Same thing on our direct business. We have no issues that we're concerned about whatsoever."
  • "I predict that we're going to outperform the market on the slot ETG."
  • [SCC] "I think I would look for VIP to start faster than mass, but then mass will catch up over time."


  • [Mass win per day]  "We're moving towards $5 million in my opinion. When that happens, I don't know, but I think it's achievable at the $5 million per day."
  • "Saturation point in yielding more on the [mass] floor? No."
  • "The foreigner percentage has increased to about 80%, which is very good because the foreigners come in with more money than the local Singaporeans."
  • "Our margins in rooms run about 83%, our margins in food and beverage close to 30%. The volumes continue to increase and our banquet margins are terrific. We have some pricing opportunities left there, of course. And we are managing our rooms in a way to maximize our room rates all the've got an 83% margin in retail as well. So all these nongaming areas represent significant margin, and they will continue to operate at that level."


  • "The anticipation is that the Sands China Board will approve in June the same dividend as was given out in the first
    quarter. Legally, the shareholders have to approve at the June meeting. The anticipation is that it will be an
    annual dividend given in two slots – one in February, and one in, I think, July."
  • "By the way, if and when we do lot 3 that will be an additional, an additional tables. It's not going to be moving
    around the tables that we have."

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