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MACAU: SMALL DATAPOINT BUT BETTER

Early June data suggests 14-19% growth

 

 

It’s only 3 days so there is no real takeaway, especially related to market shares.  Average daily table revenues for June were HK$876 million versus May’s average of HK$775 million.  We think June will post a significant increase in YoY growth than May.  We are currently projecting full month GGR at HK$23-24 billion, which would represent YoY growth of 14-19%.  Remember that May only grew 7% YoY.  Given the precipitous drop in the Macau stocks, we believe June’s accelerating growth will be a positive catalyst.

 

We should be getting the May detail by tomorrow.  The detail should show stronger VIP volume growth (+10%), solid Mass growth of 25-30%, and blowout slot revenue growth of close to 50%.  Investors should react favorably to the details vis a vis the headline growth of only 7%.

 

MACAU:  SMALL DATAPOINT BUT BETTER  - macau222

 

MACAU:  SMALL DATAPOINT BUT BETTER  - june


Fortune Cookie

This note was originally published at 8am on May 21, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“A different world cannot be built by indifferent people.”

-Jack’s fortune cookie

 

My son Jack was born right around the same time that I came up with this crazy idea to start Hedgeye. I love them both dearly.

 

Last night was the typical Sunday night at the McCullough dinner table. Our kids were exhausted from spending a beautiful day outside, but fired up enough to pound back a few more fortune cookies.

 

By the time I made my last cover/buy move late on Friday afternoon, that’s pretty much how I felt too.

 

Back to the Global Macro Grind

 

As my son grows up, he’ll be taught that it’s always better to be early in life than late. If he ever gets into this business, we’re going to have to work on how early though. Being too early, for too long, is also called being wrong.

 

In buying US Equities, I’m at least a few days early. That’s definitely better than being a few months late in selling them. The last 2 months have been flat out nasty. The highest conviction position you should have had was Cash.

 

We peaked at 91% Cash. That’s 5% lower than where we went in Q3 of 2008. This morning’s Cash position in the Hedgeye Asset Allocation Model is 61% (down from 85% at the start of last week).

 

Here’s how our asset allocation looks this morning:

  1. Cash = 61%
  2. US Equities = 27% (SP500, Consumer Discretionary, Healthcare, and Apple – SPY, XLY, XLV, and AAPL)
  3. Int’l Equities = 12% (China and Brazil – CAF and EWZ)
  4. Int’l Currencies = 0%
  5. Fixed Income = 0%
  6. Commodities = 0%

Not being long anything in Commodities wasn’t something Jack came up with at dinner last night. It’s been part of our Q2 Global Macro Themes calls that include Fed Fighting and Bernanke’s Bubbles (email Sales@hedgeye.com if you’d like an updated slide deck with our refreshed risk management levels – all of the long-term bubble charts are in there, most of them Commodities).

 

Buying Brazilian Equities early was my biggest mistake on the long-side (buying anything Global Equities other than Chinese Equities has pretty much been a big mistake since the end of Q1). Of the major countries, China is the world’s top performer since April.

 

My long SPY (SP500) position is at 9% in the asset allocation model and that’s likely to have a short leash. If the SP500 doesn’t hold our long-term TAIL line of 1282 support, I won’t have a position in it at all. That’s when the crash (YTD peak to trough drop of 20% or more) risk comes into play. Being early by a few days is one thing – buying into a crash is not what we do.

 

With the SP500 down -4.3% last week, down -7.4% for the month-to-date, and down -8.7% from the YTD high, this is either the only obvious “buying opportunity” we’ve had since early January, or a not so friendly signal for the weeks and months ahead.

 

Growth Slowing and Deflating The Inflation – we get that. What we don’t get is how quickly these fundamental research factors get fully priced in. That’s why we reserve the unalienable right to change our mind any minute of the day.

 

Embrace Uncertainty.

 

If we get a lift today and/or tomorrow, we’re likely going to sell into it. That’s because A) we’re too long and B) the Macro Catalyst Calendar starts to get gnarly again starting on Wednesday:

  1. Wednesday = New Home Sales for April (expectations are high at 335,000 given the weather in Feb/Mar)
  2. Thursday = Durable Goods for April are “expected” to rise, sequentially, versus March – that’s not a given either
  3. Friday = University of Michigan Consumer Confidence (for May) is expected to hold fairly elevated gains at 77.8

Then you have the long weekend…

 

And then… you have Europe, a potential mess of a Q2 “earnings season”, and Volcker Rule implementation in July.

 

Don’t be indifferent. Keep moving out there. And keep a Fortune Cookie or two nearby if you need to feel better about America’s economic future. If we don’t evolve our policy making process soon, our kids are going to need all the help they can get.

 

My immediate-term support and resistance ranges Gold, Oil (WTIC), US Dollar Index, EUR/USD, 10-year Treasury Yield, and the SP500 are now $1575-1618, $90.57-94.42, $80.67-81.81, $1.26-1.28, 1.66-1.80%, and 1282-1335, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fortune Cookie - Chart of the Day

 

Fortune Cookie - Virtual Portfolio


MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD

Key Takeaways

 

* Junk bonds saw a sharp sell-off last week, with YTM's rising 45 bps to 8.09%. 


* European Sovereign CDS mostly widened along with European Bank CDS. French and German banks widened across the board.  


* US Financial CDS saw widespread widening.

 

* MCDX rose sharply last week, reflecting a growing probability of municipal default. 

 

* This week, we replaced the Baltic Dry Index with Chinese steel rebar prices. The average spot price of steel rebar in China continues to drop, signaling weakening demand in the Chinese construction market. 

 

* Our summary tab shows that on the short to intermediate term, the negative data points are building. This is the first time its been this red in a while. 

 

Financial Risk Monitor Summary  

• Short-term(WoW): Negative / 0 of 12 improved / 9 out of 12 worsened / 4 of 12 unchanged  

• Intermediate-term(WoW): Negative / 1 of 12 improved / 9 out of 12 worsened / 3 of 12 unchanged  

• Long-term(WoW): Positive / 4 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Summary

 

1. US Financials CDS Monitor – Swaps widened for 24 of 27 major domestic financial company reference entities last week.    

Widened the most WoW: JPM, ALL, MMC

Tightened the most WoW: SLM, MTG, RDN

Widened the most MoM: JPM, WFC, AXP

Tightened the most MoM: RDN, UNM, TRV

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - American CDS

 

2. European Financial CDS - Bank swaps were wider in Europe last week for 26 of the 39 reference entities we track. The median widening was 7 bps.  

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - European CDS

 

3. Asian Financial CDS -  Bank swaps were generally tighter in Asia last week, with 7 of the 12 reference entities we track posting improvements. The median tightening was 13 bps. 


MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Asian CDS2

 

4. Sovereign CDS – European Sovereign Swaps were notably wider last week. Spanish swaps hit a new all-time high of 604 bps, while Italian swaps were close to an all-time high at 570 bps. While Portuguese and Irish swaps cooled off nominally, the trend is up. 

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Sov Table

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Sov1

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates rose 45 bps last week, ending the week at 8.09% versus 7.60% the prior week.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 6.5 points last week, ending at 1640.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - LLI

 

7. TED Spread Monitor – The TED spread rose 2.2 points last week, ending the week at 40.4 this week versus last week’s print of 38.3.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index fell less than a point to end at -11.5 on Wednesday (5/30) versus -11.4 the prior Friday(5/25). Data was unavailable for Thursday and Friday of last week.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 40 bps.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Euribor OIS

 

10. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - ECB

 

11. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. Last week spreads widened, ending the week at 185 bps versus 168 bps the prior week.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - MCDX

 

12.Chinese Steel - This indicator is a new addition this week. We're looking at Chinese steel rebar prices as a gauge for Chinese construction demand. We look at the average Chinese rebar spot price. Steel prices in China fell 0.5% last week, or 22 yuan/ton, to 4,074 yuan/ton. Notably, Chinese steel rebar prices have been generally moving lower since August of last year.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Chinese Steel

 

13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread tightened by 24 bps to 121 bps.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 3.5% upside to TRADE resistance and 1.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - XLF

 

Margin Debt - April: +0.93 standard deviations 

We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did last April, it has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May 2011. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move. Overall, however, this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  

 

The chart shows data through April. 

 

MONDAY MORNING RISK MONITOR: RISK MEASURES DETERIORATE ACROSS THE BOARD  - Margin Debt

 

Joshua Steiner, CFA

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser. 

 

 


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Fire Bernanke

“The first thing you have to know is yourself.”

-George Goodman, The Money Game

 

Chapter 2 of The Money Game is about ‘You: Identity, Anxiety, and Money.’ It walks through some very basic training leadership lessons from “Mister Johnson” (as in Ned Johnson, the Founder of Fidelity Investments) on how to make it in this business.

 

A man who knows himself can step outside of himself and watch his own reactions like an observer… With the good men, you can see the learning juices churning around every mistake. You learn from mistakes. When I look back, my life seems to be an endless chain of mistakes.” (pages 26-27)

 

If only America’s economic pundits and politicians had the humility to reflect upon all of the forecasting and policy mistakes we have been making in this country for the last 6 years… if only we had the kind of accountable leadership that The People could trust…

 

Back to the Global Macro Grind

 

At the end of the day, you need to know yourself and your process, or your time in this profession will be relatively short. This is a profession that is in the middle of a revolution. We all need to Re-Think and Re-do what has not been working.

 

What is it that you do? Why did you do it that way? Is your risk management process malleable and repeatable?

 

Credible Sources and Accountable Leadership – find both and you’ll weather this Globally Interconnected economic storm just fine. Today is not a day to be freaking out and selling low. Friday was a Shorting Covering Opportunity. Today is a wait and watch day.

 

Know yourself; know your position:

  1. Cash = 82%
  2. International Currencies = 9% (US Dollar – UUP)
  3. US Equities = 9% (Utilities and Apple – XLU and AAPL)
  4. Fixed Income = 0%
  5. International Equities = 0%
  6. Commodities = 0%

That’s the Hedgeye Asset Allocation Model that we #TimeStamp each and every day. We update these positions daily because we believe strongly that there should be responsibility in recommendation.

 

Not being long anything Commodities in Q2 has been a choice. Not being long anything big beta (Basic Materials, Energy, or Financial stocks) was also a choice. So was not chasing Treasuries higher on Friday.

 

While Growth Slowing and Deflating The Inflation of Bernanke’s Bubbles (Commodities) remains our Q2 Global Macro Theme, that doesn’t mean we short-and-hold. From a time and price, almost everything that ticks is interesting.

 

So is the ongoing Macro Catalyst Calendar – here’s how that looks to us this week:

  1. Monday – capitulation selling on Asia’s Equity market open (despite Asian Equities being red since Feb-Mar)
  2. Tuesday – ISM non-Manufacturing data in the US, where #GrowthSlowing will remain a consensus concern
  3. Wednesday – ECB decision on rates, money printings, bailouts, etc.
  4. Thursday – Fed musings about whatever it is that they can/cannot do as Bernanke gives his economic “outlook”
  5. Friday – Chinese inflation data for May (CPI and PPI), which should slow as we see continued Deflating of The Inflation

Overall, the news-flow will get more policy-centric as we move into the belly of the week. Begging for Bernanke was already the focus of this weekend’s media coverage. So expect more of that – i.e. more of the same that slowed growth to begin with after Bernanke independently opted to debauch the Dollar on January 25thwith another Policy To Inflate.

 

A perpetual policy to inflate is only as good as its economic outcomes. Most people are figuring this out. In addition to their policy mistakes, The Fed has failed miserably on the two scores that matter most within their mandate:

  1. Price Stability
  2. Full Employment

So, rather than hoping for him to do more of the same, I think the best scenario for the 71% (i.e. US Consumption as a % of US GDP) is to fire Ben Bernanke.

 

Either Obama figures this out and shows that he is an executive leader who makes mistakes, understands them, and has the mental flexibility to change – or, Romney will run on it and state plainly that he’ll fire Bernanke himself.

 

Fire Bernanke? Yes. Just like you would any other Coach or Executive who is failing. If we fire Bernanke, I think whatever is left of Oil’s iQe4 upgrade speculation would go away, Gold would crash, and the US Dollar would remind the world who is going to wear the pants in this fiat world of European and Japanese policy makers threatening to blow us all up.

 

I know myself. And I know real people who will celebrate the only way out of this – and that’s by growing the 71% of US GDP by giving this country a monster $2/gallon tax cut at the pump. If you want that, you want a Strong Dollar. If you want a Strong Dollar, you want to get rid of Ben Bernanke too.

 

My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar, EUR/USD, and the SP500 are now $1, $81.29-89.43, $82.42-83.19, $1.22-1.25, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fire Bernanke - Chart of the Day

 

Fire Bernanke - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 4, 2012


As we look at today’s set up for the S&P 500, the range is 32 points or -0.79% downside to 1268 and 1.72% upside to 1300. 

                                            

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 6/01NYSE -2193
    • Down from the prior day’s trading of -124
  • VOLUME: on 6/01 NYSE 999.49
    • Decrease versus prior day’s trading of -24.72%
  • VIX:  as of 6/01 was at 26.66
    • Increase versus most recent day’s trading of 10.81%
    • Year-to-date increase of 13.93%
  • SPX PUT/CALL RATIO: as of 6/01 closed at 2.64
    • Up from the day prior at 1.74 

CREDIT/ECONOMIC MARKET LOOK:


USA – futures have gone from down 10 to down 3 and, more importantly, bond yields stopped falling – the 10yr is already up 5bps this morning vs Friday’s smack-down close; yield spread 5bps wider on that, which this market direly needs. 

  • TED SPREAD: as of this morning 41
  • 3-MONTH T-BILL YIELD: as of this morning 0.06%
  • 10-Year: as of this morning 1.49
    • Increase from prior day’s trading at 1.45
  • YIELD CURVE: as of this morning 1.24
    • Up from prior day’s trading at 1.21 

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: ISM New York, May (prior 61.2)
  • 10am: Factory Orders, Apr. est. 0.2% (prior rev. -1.9%)

GOVERNMENT: 

    • Pres. Obama attends fundraisers in New York with Bill Clinton
    • House, Senate in session
    • CFTC adopts Swap Dealer and Major Swap Participant Recordkeeping, Reporting and Duty rules

WHAT TO WATCH:  

  • EU said to prepare start of perm. bailout fund for July 9
  • ASCO conference continues; Conference preview
  • Spain calls on Merkel to further protect banks
  • Walgreen, Express Scripts agreed to dismiss contract claims
  • China non-manufacturing industries expand at slowest pace since March 2011
  • ISS recommends AOL shareholders vote for 2 Starboard Value nominees, 6 AOL nominees, as directors
  • Wal-Mart to release vote totals after all 16 board members were re-elected on Fri.
  • Yahoo, Facebook in talks to end patent disputes: AllThingsD
  • EFG-Hermes rejects $1.1b bid to pursue QInvest venture
  • Service industries probably kept growing: U.S. econ. preview 

EARNINGS:

    • Conn’s (CONN) 7am, $0.33
    • Dollar General (DG) 4:05pm, $0.60
    • Shuffle Master (SHFL) 4:05pm, $0.20 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Hedge Funds in Longest Rout Since Global Recession: Commodities
  • Copper Drops to Five-Month Low in New York After Data From China
  • Gold Drops as Investors Seek Cash on Equities, Commodities Slump
  • Commodities Drop to 18-Month Low as Slowdown Concern Deepens
  • China’s Gold Imports From Hong Kong Climb to Record in April
  • Speculators Cut Bullish Oil Wagers Before Plunge: Energy Markets
  • Natural Gas Rebounds in New York After Drop on Cooler Weather
  • Palm Oil Slumps to Seven-Month Low Over Global Growth Concern
  • Waterway Petroleum Said to Buy ONGC Naphtha for Loading in June
  • Burundi in Talks With Foreign Investors to Boost Power Output
  • BP Exit From Russia Venture Seen Risking Investor Return: Energy
  • Commodities Slumping as China Sees Weaker Yuan: Chart of the Day
  • Nickel May Drop 3.7 Percent on Retracement: Technical Analysis
  • Funds in Longest Rout Since World Recession
  • Cotton Falls to 31-Month Low on Concern Global Glut Set to Swell
  • China’s Easing Grip on Gas Opening Door to North America Exports
  • Vitol Said to Buy July-Loading Gasoil From Mangalore Refiners

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


EUROPE – shorting Spain and Italy on Friday didn’t work – both are green this morning; again, markets discount reality and these markets have been crashing for months, so be careful on the short side until we get the bounces; then study those. IBEX +1.7% this morning and the Euro actually has not moved at 1.24.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


ASIA – Asian stocks have been going down since Feb/Mar, so last night was more of an immediate-term capitulation more than anything else (Japan down -1.7% = down -19.1% from its March top); interesting that India almost closed flat (given that it was the 1st market to stop going up, it was the 1st to stop going down – for a day).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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