- Based on seasonality and normal hold, June could be up YoY in the high teens
- The sequential YoY acceleration from May’s disappointing +7% growth could be a positive catalyst
- Weekly comparisons are more consistent in June than May with no major calendar shifts
If you’re in Dallas Wednesday through Friday of this week, stop by The Traders’ EXPO conference at the Hyatt Regency Reunion. We have a booth there – Booth 615 – where you can meet a few of our top team members. If you sign up for one of our great subscription products like Weekly Hot Ideas when you’re at the trade show, you’ll even get a free Hedgeye hat. Click here to learn more about the Traders EXPO.
Also, on Thursday at 2:45pm, Keith is speaking at Traders EXPO where he’ll continue on his barnstorming tour across the United States and tell you why America should fire Ben Bernanke. He’ll also talk through his top global macro themes, and answer all of your questions. He’ll even be at our booth from 4pm to 5pm on Thursday to meet and greet you in person.
For those of you who can’t make it to see us in Dallas in person person, Tweet us @Hedgeye or @KeithMcCullough with questions, and Keith will answer the three best ones during his presentation there. Don’t have a Twitter handle? Email us at email@example.com and please put Dallas in the subject line of your email.
Positions in Europe: Short EUR/USD (FXE)
The ECB meets tomorrow. We think there’s a high probability the ECB stays on hold to wait and watch the economic and political developments for another month ahead of Greek elections on 17. June.
Some observers have suggested a 25bps cut. We think it’s more probable that the ECB could signal a willingness to ease, but won’t cut. To this end, we wouldn’t be surprised if the ECB resumed some of its non-standard measures, including the Securities Market Program (SMP), which has been dormant for the last 12 straight weeks, but has purchased €212B of bonds on the secondary market since May 2010. However, we don’t expect yet another long term LTRO to be announced tomorrow.
One main issue at hand is that a rate cut alone won’t solve Europe’s sovereign and banking problems. The ECB, under Trichet and now Draghi, has stressed the need of governments to reduce their fiscal imbalances. And unlike the developing Hollande-Monti handshake in support of Eurobonds and the ECB doing more, Draghi has taken a very Bundesbank approach that fears unneeded ECB intervention, in particular measures that may spur inflation.
Further, we think the ECB wants to evaluate the outcome of the Greek elections on 17. June, and monitor the discussion around a fiscal union, Eurobonds, and a Pan-European deposit insurance, all of which are programs many months out if they are ever realized. These programs should be central to the Summits and meetings approaching later in the month, and should be critical for market sentiment.
Since the ECB’s last meeting on 3. May, data continues to contract and/or disappoint. The notable highlights are the declines in Manufacturing and Services PMI surveys for the month of May, the Eurozone unemployment rate that ticked up to 11% (a 17 year high), and Eurozone confidence figures that largely deteriorated month-over-month in May.
The EMU remains a compromised Union of states. However, we still believe that Eurocrats have a tremendous resolve to keep the Union alive with the existing member states. For specific questions on anything Europe, please contact me at .
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This note was originally published at 8am on May 22, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Organisms that treat threats as more urgent than opportunities have a better chance to survive.”
If you only have time to read one chapter of Dan Kahneman’s Thinking, Fast and Slow this summer, I’d go with Chapter 26, Prospect Theory. It helped me bridge some gaps between the fractal dimensions in our models (math) and behavorial factors.
Prospect Theory is a behavioral economic framework that will be much more relevant to the next generation of economists than this one. It will take time to pound the Keynesianism out of our system. Sadly, seeing centrally planned economic systems in Europe and Japan (maybe at some point in the USA) fail, will be the only way to expedite this evolution.
On pages 282-283 of Kahneman’s latest book, you’ll get Prospect Theory both with a simple picture and three bullet points of prose:
1. “Evaluation is relative to a neutral reference point.”
2. “A principle of diminishing sensitivity applies to both sensory dimensions and the evaluation of changes in wealth.”
3. “The third principle is loss aversion… losses loom larger than gains.”
And that brings me right back to the top of this morning’s Early Look quote, to the bottom of your gut feeling at Friday’s lows, and back again to yesterday’s biggest market rip in 2 months. Your Prospects of Survival in this business depend on your process.
Back to the Global Macro Grind …
Losing other people’s money isn’t cool. Losing your own money is even less cool. If you are doing both at the same time, my sense about the matter doesn’t really matter – where your emotions fit on the slope of the loss aversion curve does.
That’s why we bought red on Friday and sold green into yesterday’s close. When it comes to your decisions to buy or sell something, there really are no rules about reversing everything you did in the prior day. I am not Warren Buffett. I am your Risk Manager. The only rules in our profession are self imposed by the institutions who think they are managing our risk.
But what is risk? What are these institutional investing styles? Why are either measures relevant to what’s happening in your portfolio today as opposed to risk measurements and style factors you may have used in 2005-2007?
There are many more questions here than answers. My goal, at the top of every risk management morning, is to Embrace Uncertainty and have markets pick me. The more I try to pick markets, the more risk I impose on myself. What is supposed to work, rarely works. And what shouldn’t happen, usually happens. Either accept that, or whine about it – it’s reality.
I sold my SP500 (SPY) long position yesterday – here’s why:
- Immediate-term TRADE upside resistance into the close = 1329 (so I only had 1% upside left)
- Immediate-term TRADE downside support into the close = 1288 (2% downside makes my risk vs reward 2:1)
- Immediate-term RANGE of risk (3 day probability model) = 89 S&P points (that means volatility will be real)
- US Equity Volatility (VIX) was down -12.3% on the day but holding my TRADE and TREND lines of support
- US Equity Volume was down -17% versus the average volume of last week’s down days
- US Equity Correlation Risk to the US Dollar Index remains wacky elevated at -0.96 (USD vs SPY)
Multi-factor, Multi-duration Risk Management – that’s how I roll. On the immediate-term TRADE duration (3 weeks or less), those were the 6 glaringly obvious reasons to be at least a lot less net long. Catalyst wise, I gave you my calendar ones in yesterday’s note.
In the Hedgeye Portfolio, we opened the day with 16 LONGS, 4 SHORTS and closed the day with 10 LONGS, 8 SHORTS. That’s easily the most aggressive 1-day swing in what can be considered a proxy for my “net” exposure in 2012.
But was it aggressive? Or wasn’t it aggressive enough? Maybe I should have sold everything and gone to 100% Cash. Maybe I should have shifted to net short. Maybe I shouldn’t have done anything at all.
Maybe I should just stick with the process and take the high probability cut at the ball, and live with it.
And I will.
With the US Dollar Index down for the 2ndday in a row, we bought that long position back yesterday on red. That position is one we have been pounding the pavement on with clients as the most asymmetric long-term long idea in Global Macro (email Sales@Hedgeye.com for Theme #3 in our Q2 Macro Themes called “Asymmetric Risks” and you’ll see the long-term mean reversion case for Strong Dollar).
In addition to the aforementioned Correlation Risk of staying long the SP500 (SPY) in the face of a -0.96 USD/SPY correlation this morning, here’s a refresh of the other big immediate-term USD correlations jumping off the page:
- Commodities (CRB Index) = -0.92
- Euro Stoxx600 = -0.97
- Gold = -0.89
That’s why I re-shorted Gold (GLD) yesterday too.
There’s rain in Connecticut, but Prospects of Survival out there this morning look better than bad.
My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar, EUR/USD, and the SP500 are now $1573-1618, $90.57-94.12, $80.82-81.97, $1.26-1.28, and 1288-1330, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
The Macau Metro Monitor, June 5, 2012
WYNN COTAI TO BE READY IN 48 MONTHS: STEVE WYNN Macau Business
Wynn Cotai will take between 46 and 48 months to be fully ready and open. Steve Wynn said the new casino resort will cost around US$4 billion (MOP32 billion). Wynn is confident that the government will facilitate the hiring of imported labour given that Macau’s unemployment rate is virtually non-existent. He also said the company will issue in the future more dividends but refused to give more details
PONTE 16'S THIRD PHASE TO GET GOV'T OK SOON: HOFFMAN MA Macau Business
Hoffman Ma Ho Man, the deputy CEO of Ponte 16, says the third phase of the casino hotel should get government approval soon. “We hope it arrives in June. We want to start construction still within this year.” The third phase of Ponte 16 will feature a riverside commercial complex with a total floor area of approximately 40,000 square metres. The complex will also include space for the expansion of gaming areas and car parks, with construction expected to be completed by 2014.
Pier 16 – Property Development Ltd, the owner of Ponte 16 casino resort, announced in April the signing of HK$1.9 billion (US$245 million) and RMB400 million (US$63.6 million) five-year syndicated loan facilities with 11 financial institutions. Part of the proceeds are to fund the construction of the third phase of the Ponte 16 development.
Ponte 16 is a joint venture between SJM Holdings Ltd and Success Universe Group Ltd at the ratio of 51% and 49% respectively.
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