prev

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 25, 2012


As we look at today’s set up for the S&P 500, the range is 48 points or -2.02% downside to 1294 and 1.61% upside to 1342. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 5/24 NYSE 512
    • Down from the prior day’s trading of 643
  • VOLUME: on 5/24 NYSE 796.46
    • Decrease versus prior day’s trading of -7.71%
  • VIX:  as of 5/24 was at 21.54
    • Decrease versus most recent day’s trading of -3.54%
    • Year-to-date decrease of -7.95%
  • SPX PUT/CALL RATIO: as of 05/24 closed at 1.24
    • Down from the day prior at 1.83 

CREDIT/ECONOMIC MARKET LOOK:


CLIFF – first time we have written about the fiscal cliff in a while - that’s because it’s the 1st time we have had a quantitative signal to do so – short rates (2yr UST yields) are starting to hint at a breakout (0.28% = TRADE support). If we keep up w/ these ridiculous rumors and the denominator (GDP) keeps slowing, that US deficit/GDP ratio comes back on the table, faster. 

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.77
    • Decrease from prior day’s trading at 1.78
  • YIELD CURVE: as of this morning 1.47
    • Down from prior day’s trading at 1.48 

MACRO DATA POINTS (Bloomberg Estimates):

  • Univ. of Michigan releases confidence index for May, Est. 77.8 (prior 77.8), 9:55am
  • USDA issues monthly food inflation data, 10am
  • Baker Hughes rig count, 1pm 

GOVERNMENT:

    • Comment period ends on proposed Federal Reserve rule for determining whether a company is “predominantly engaged in financial activities”
    • House, Senate meet in pro forma sessions
    • CFTC holds closed meeting on enforcement matters, 10am     

WHAT TO WATCH: 

  • Morgan Stanley said to tell brokers it will fix Facebook orders
  • Merkel considers debt-sharing plan as Monti says she’s isolated
  • SEC staff said to end Lehman probe without finding fraud
  • JPMorgan gave risk oversight to museum head who sat on AIG board
  • Delphi open to more acquisitions after buying supplier for almost $1b
  • Dell said to weigh buying Quest to add computer-management tools
  • Lehman said to reach deal with banks to buy rest of Archstone
  • NBCUniversal is in talks to buy Microsoft’s stake in MSNBC.com
  • Fox, NBC, CBS sue Dish over ad skipping video-on-demand service
  • Gupta prosecutors try to show links with wiretaps, phone records
  • French 10-yr bond yield declines to record low of 2.422%
  • Money funds open to deal w/ SEC, WSJ says
  • U.S. markets closed on Monday for Memorial Day holiday
  • U.S. Jobs, Chinese Output, Cannes: Week Ahead May 26-June 2 

EARNINGS:

    • Mentor Graphics (MENT) 8am, $0.25 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Copper Traders Extend Bearish Streak as Prices Drop: Commodities
  • Oil Rises on Euro-Bond Speculation to Trim Fourth Weekly Drop
  • Copper Advances as European Leaders May Contain Debt Crisis
  • Gold Climbs in London as Buyers Take Advantage of Price Drop
  • Corn Climbs in Chicago as Dry Weather Threatens Crops in Midwest
  • Robusta Coffee Gains to Eight-Month High on Rising Global Demand
  • China’s Cotton Planting Drops 10% as Labor Costs Increase
  • Nigeria Losing Top Oil Buyer U.S., Turns to Asia: Energy Markets
  • Palm Oil Climbs as 10% Fall in Prices This Month Lures Investors
  • Trade Deal Spurs Flow of Arbitrage North Sea Oil to South Korea
  • Copper Set to Extend Losses to $7,100 a Ton: Technical Analysis
  • Balrampur Says Mills Losing Money on Controls: Corporate India
  • China Zinc Smelters Likely to Further Cut Output, Wang Says
  • Copper Extends Bearish Streak on Price Drop
  • Soybean Imports by Japan Seen Dropping to 43-Year Low on Yen
  • Rubber Gains First in Three Days on Thailand Purchase Plans
  • Indonesia’s Nickel-Ore Exports Seen Dropping 20% in Second Half           

 THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


RUMORS – back to the same playbook that has already killed European equity markets and, to a large degree, killed US inflows into Equities too – people don’t trust this casino, and they probably shouldn’t. Monti says that there is a consensus amongst countries that can’t fund on Eurobonds – I bet. But Germany doesn’t need a consensus.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


CHINA – 3rd consecutive day of selling in the Chinese stock market after snapping our critical TREND line of 2373 support; markets don’t think growth is slowing at a slower rate there yet – it’s consensus (and has been), but that doesn’t mean consensus can’t be right for another few months. Our models have China’s growth slowing at a slower rate in Q3/Q4, not in Q2.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team



Rumor This

“China, despite the slump of 2012-2013, has recovered its growth momentum and is economically dominant.”

-Arvind Subramanian

 

That’s my rumor this morning. Got one? How many more do we need from conflicted and compromised central planners of Keynesian states to keep this no-volume stock market ball in the air? This is really getting sad to watch.

 

Markets don’t lie; politicians do. The aforementioned quote isn’t a lie; it’s a potential long-term risk management scenario. Looking at our core Growth & Inflation macro model for China in 2013, it’s actually a very credible one.

 

The forecast comes from the introduction of a book I just started reading called “EclipseLiving In The Shadow of China’s Economic Dominance.” Since it was published by the Peterson Institute, at least some of the people sleeping in Washington right now have seen it. They don’t even have to read it. The cover is red and shows Obama bowing to Premier Wen.

 

Back to the Global Macro Grind

 

If I’ve written this 100x in the last 5 years, I’ve said it 1000x – if you lose the trust of The People, you will lose the mother’s milk of markets – inflows. The more markets depend on baseless rumors for intraday moves, the less inflows you are going to have.

 

Actually, never mind inflows – at this point what you should be really worried about as an asset manager are outflows. Some people are stupid with their money. Most people aren’t – at least not after you burn them 3, 4, or 5 times with the same thing.

 

Q: What is that thing? A: Growth.

 

If you don’t have growth, a government certainly can’t manufacture it. Remember Obama’s economic “advisors” (Christina Romer and Jared Bernstein) promising a government spending multiplier on $800B of 1.5x? Lol. Thank God they’re both gone.

 

What you need to do is what the #FairShare crowd can’t handle - let it slow. Then growth slows to a point from which it can recover. When Growth Slows at a slower rate, we start to think about getting long; really long (like we did in 2009).

 

When it comes to Chinese growth, genius observers of the last 2 years of reported news will tell you that it’s slower than where it was in 2009-2010. Newsflash: that’s why the Chinese stock market was down double digits for each of the last 2 years. Markets discount future expectations.

 

Today, we’re trying to measure the slope of Chinese growth (we model the same for 86 countries in our model) and when it’s most likely to slow at a slower rate. When running our predictive tracking algorithms, we consider Growth & Inflation on all 3 of our risk management durations:

  1. TRADE (3 weeks or less) = we see Chinese growth slowing at an ACCELERATING rate
  2. TREND (3 months or more) = we see Chinese growth slowing at a SLOWER rate
  3. TAIL (3 years or less) = we see Chinese growth re-ACCELERATING at some point in 2013-2014

We use real-time market signals and high-frequency economic data to make risk managed research statements. We don’t take a survey or tell you how Chinese growth “feels.” The only feel I can give you about Global Growth Expectations right now is that they still feel heavy. And they will until Hatzius and Hyman cut their growth estimates to where the growth data currently resides.

 

Q: What’s the only way out of this thing? A: Strong Dollar.

 

That’s the only thing that will Deflate The Inflation of commodity prices. That’s the only thing that matters, on the margin, to the 71% of US Consumption growth that drives US GDP. That’s also the biggest thing that will allow China to cut rates, aggressively.

 

So instead of begging for bailouts and whatever other rumor some Keynesian can concoct in the next 4 hours of trading, let’s keep pressuring the political elite to get out of the way. Out with the academic dogma, we want our Dollar back.

 

With the US Dollar Index up for 4 consecutive weeks, it’s working.

  1. American Purchasing Power (USD) is up +4%
  2. Oil prices are down -15%
  3. US Consumer Discretionary stocks (XLY) are now the best performing Sector in the S&P 500 (+11.1% YTD)

Get the Dollar right, and you’ll get America right. If we don’t, by 2013 we’ll be stranded on an island of hopeless growth like Japan and Europe are, begging for the Chinese to bail us out.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1, $104.48-108.43, $81.53-82.61, $1.25-1.27, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Rumor This - Chart

 

Rumor This - vvvvvp


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.

THE M3: HAINAN CASINO

The Macau Metro Monitor, May 25, 2012

 

 

PONTE 16 INVESTOR HOPING TO SET UP THE MAINLAND'S FIRST CASINO ON HAINAN ISLAND Macau Business

According to Business Daily, Hoffman Ma Ho Man, deputy chairman of Success Universe Group, which owns a 49% stake in Ponte 16, a JV with SJM, said he has a commercial interest in talking up Hainan’s gaming prospects as he would like to bid to operate a casino there if the opportunity arises.

 

According to Ma, Hainan has approval in principle from the central government for a casino.  “A condition of getting the casino licence is that the central government will not support Hainan [financially]. It gives RMB30 billion [MOP37.85 billion] to RMB40 billion to Hainan per year. So Hainan would need to survive by getting the tax from the gaming," said Ma.

 

 





LV STRIP: DATA SAYS APRIL COULD BE UP

Could eke out growth in April despite calendar setback

 

 

April may have rebounded from an unlucky March on the Strip.  We're projecting April Strip gaming revenues to be up low to mid-single digits (+1 to +5%), assuming normal hold percentages.  McCarran Airport traffic in April grew 2.7% while taxi trips fell 3.2% YoY.  With April 2012 having two fewer weekend days than April 2011, any growth in the month should be seen as encouraging.  

 

As always, baccarat is a wildcard.  Baccarat volume and hold have been quite volatile the last few months but if we assume normal bacc hold along with an easy volume comp (-29%), bacc revenues could rebound in April.  We expect modest slot revenue growth, driven by a low slot hold comparison (6.8%) and a continuation of the recent slot volume strength (YoY growth in 10 out of the last 12 months).

 

Here are our projections:

 

LV STRIP: DATA SAYS APRIL COULD BE UP - vegas


SAFM - GOING LONG

We contintue to like SAFM on the the LONG side of the "chicken trade" and BWLD SHORT!

 

SAFM: While the tone from management has been cautious, we see declining corn prices and tight chicken supply over the next 18 months as strong positives for the stock.  SAFM’s superior balance sheet, versus its peers, helps its position as the industry turns. Intermediate term risk is seasonality in the stock Jul-Sep.

 

SAFM - GOING LONG - chickenprices

 

SAFM - GOING LONG - corn

 

SAFM - GOING LONG - safm


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.

next