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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 21, 2012


As we look at today’s set up for the S&P 500, the range is 11 points or -0.71% downside to 1408 and 0.06% upside to 1419. 

                                            

SECTOR AND GLOBAL PERFORMANCE


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EQUITY SENTIMENT: 

  • ADVANCE/DECLINE LINE: on 08/20 NYSE -343
    • Decrease versus the prior day’s trading of 706
  • VOLUME: on 08/20 NYSE 550.72
    • Decrease versus prior day’s trading of -18.49%
  • VIX:  as of 08/20 was at 14.02
    • Increase versus most recent day’s trading of 4.24%
    • Year-to-date decrease of -40.09%
  • SPX PUT/CALL RATIO: as of 08/20 closed at 2.44
    • Up from the day prior at 1.77 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 34
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.82%
    • Increase from prior day’s trading of 1.81%
  • YIELD CURVE: as of this morning 1.54
    • Up from prior day’s trading of 1.52 

MACRO DATA POINTS (Bloomberg Estimates)

  • 6am: EFSF to sell up to EU1.5b 182-day bills
  • 7:55am/8:45am: ICSC/Redbook retail sales
  • 8:45am: Fed’s Lockhart speaks in Atlanta
  • 11am: Fed to sell $7b-8b notes 9/15/2014-4/30/2015
  • 11:30am: U.S. Treasury to sell $40b 4-wk., $25b 52-wk. bills

GOVERNMENT

    • House, Senate not in session
    • Manufacturers Alliance for Productivity and Innovation hosts discussion on NERA report on impact of regulations on U.S. manufacturers, 10am
    • API holds conference call briefing to discuss SEC regulations on companies that make payments to foreign governments under Section 1504 of Dodd-Frank financial regulations bill, 10:30am
    • Acting Commerce Secretary Rebecca Blank meets local business leaders in Philadelphia, Allentown Pa. on job creation
    • NRC holds conference call to discuss apparent violations of regulations regarding radiation safety, security of portable nuclear gauges at facility in Juneau, Alaska, 3pm
    • AICPA 2012 National Governmental Accounting & Auditing Update Conference
    • ITC meets on seamless carbon, alloy steel standard, line and pressure pipe imports from Germany, 9:30am
    • ITC hears patent-infringement case X2Y Attenuators filed against Intel over processor chips in Apple, HP computers, 9am 

WHAT TO WATCH: 

  • Citigroup became first Western bank to issue credit cards in China without co-branding from local financial institution
  • Lawyers for Apple, Samsung to make final arguments to jury today following three-week trial over patents
  • Spanish borrowing costs fall at 12-month bill auction
  • Conoco, Origin Energy said to be working with JPMorgan to help sell stake in their $20b natgas project in Australia
  • J&J said to agree to pay ~$600k to resolve 3 cases in first settlements of litigation over hip implants
  • Apple set U.S. record for mkt value yesterday
  • Facebook director Peter Thiel sold most of his stake yday
  • Edison to cut staff at shuttered San Onofre nuclear plant
  • Samsung to invest ~$4b in Texas factory to boost output of processors used in smartphones, tablet computers
  • President Obama raised almost $9m more in July than Mitt Romney; combined balances as of July 31 for Republican election bid $169m vs $107m for Democrats
  • Elpida Memory to get $3.5b in support from Micron
  • Consolidated Media Holdings expects to receive details from News Corp. on its takeover proposal within six weeks
  • Samick studying possible tender offer for Steinway
  • U.S. Trustee overseeing Kodak’s bankruptcy asked to probe patent auction by New York hedge fund
  • Apple sued by ex-worker who says Steve Jobs guaranteed his job
  • Wall Street struggling to find champion to replace Dimon
  • U.S. consumers rated automakers this year at same level as record-high satisfaction score in 2009: American Customer Satisfaction Index 

EARNINGS:

    • Tech Data (TECD) 6am, $1.19
    • Williams-Sonoma (WSM) 6am, $0.41
    • DSW (DSW) 7am, $0.62
    • Globe Specialty Metals (GSM) 7am, $0.15
    • Medtronic (MDT) 7:15am, $0.85; Preview
    • Best Buy (BBY) 8am, $0.31; Preview
    • Barnes & Noble (BKS) 8:30am
    • Raven Industries (RAVN) 9:10am, $0.38
    • Intuit (INTU) 4pm, $0.06
    • Analog Devices (ADI) 4:01pm, $0.56
    • Aspen Technology (AZPN) 4:01pm, $(0.04)
    • Dell (DELL) 4:01pm, $0.45 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Bear Market in Tin Shuts 70% of Indonesian Capacity: Commodities
  • Oil Supply Rises First Time in Month in Survey: Energy Markets
  • Soybeans Top $17 for First Time as Demand Jumps for U.S. Exports
  • Commodities Headed for Bull Market as U.S. Drought Withers Crops
  • Oil Advances to Three-Month High Before European Debt Meetings
  • Copper Gains as European Meetings May Aid Debt-Crisis Progress
  • Gold Advances to Three-Week High as Weaker Dollar Spurs Demand
  • Glencore CEO to Abandon Xstrata Bid Should Qatar Stymie Deal
  • China Buys Most Corn in Six Months as Imports Set for Record
  • Cocoa Seen Gaining as Dry Weather Curbs Output; Sugar Declines
  • Asia-Pacific Oil Drillers in U.S. Gulf Seen With BP Sale: Energy
  • Natural Gas Advances in New York as Tropical Storm May Develop
  • South Dakota Corn, Soybean Yields 47 Percent Lower Than 2011
  • Copper May Extend Decline While Below $7,622: Technical Analysis
  • Soybeans Advance to Record as Demand Rises
  • Ohio Corn Yield Falls 29%, Soy Counts Decline, Tour Shows
  • Norden Profits as Smallest Ships Beat Bigger Carriers: Freight 

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CURRENCIES

 

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EUROPEAN MARKETS

 

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ASIAN MARKETS

 

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MIDDLE EAST


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The Hedgeye Macro Team


President Obama’s Reelection Chances

It appears President Obama is on the fast track to another four years in the White House according to the latest results from the Hedgeye Election Indicator (HEI). President Obama’s reelection chances jumped 80 basis points (0.8%) to 59.8% and is fast approaching his peak of 62.3% that occurred back in March. No one knows what the catalyst is, but several weeks of consecutive gains indicate Mitt Romney has his work cut out for him going into September.

 

Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.

 

Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.

 

President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.

 

 

President Obama’s Reelection Chances  - HEI


Rebound: The Macau Trade

Takeaway: With the boost to Macau, $LVS and $MPEL look attractive. Conversely, $MGM is levered to Vegas and no one is hitting the Strip these days.

Sentiment for Macau has been pretty lousy over the past two months or so. While people abandoned Vegas as a gaming destination long ago (don’t even think about Atlantic City at this point), Macau has for the most part weathered the storm amid the global macroeconomic environment. But in May and June of this year, numbers were down across the board from VIP numbers to slot revenue.

 

 

Rebound: The Macau Trade  - macau tablenumbers

 

 

Things just weren’t looking good and it makes sense considering the state of the global economy at the moment.  But the latest numbers show there is hope out there. Hedgeye Gaming, Leisure and Lodging (GLL) Sector Head Todd Jordan wrote a note this morning showing that trends are improving in the Far East:

 

“Following a bottoming of revenue growth in July and investor sentiment, we expect improving Macau trends. August is off to a great start and September should be even better. Melco Crown Entertainment (MPEL) has the most leverage to a Macau rebound while Las Vegas Sands (LVS) should benefit from the opening of 2,500 additional rooms in mid-september. Both stocks remain attractively valued.”

 

If you’re looking for a Macau trade, going long Jordan’s two favorites (LVS and MPEL) works while conversely going short MGM Resorts (MGM). MGM is highly levered to Las Vegas and no one is excited about the Strip these days – especially in the summer when it’s busy hitting 120 degrees during the day.


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.

CHART DU JOUR: TAXIS ON THE STRIP

Takeaway: Taxi data portends low Strip volumes but hold comparisons are very easy

  • Taxi trips were down 3.3% YoY partly due to two fewer weekend days in July
  • Table volume ex Baccarat correlates very highly with taxi activity
  • Table and slot volumes are likely to be down YoY but low slot and table hold last year make July a likely positive revenue growth month

CHART DU JOUR: TAXIS ON THE STRIP - taxi


AETNA: The Government Healthcare Play

Takeaway: Healthcare providers are gearing up to take advantage of the influx of Medicare/Medicaid customers.

Consolidation in the healthcare sector is on everyone’s mind today with Aetna (AET) buying Coventry Healthcare (CVH) for $42.08 a share – a 20.4% premium. Our Healthcare Sector Head Tom Tobin is not surprised as he sees further consolidation in the industry as a dominant trend going forward. This morning, Tobin noted:

 

• Consolidation and government revenue are the last reliable sources of growth, but ultimately lower quality given the volatile political landscape.

• AET’s presentation promotes increased government sourced revenue from Medicare and Medicaid.

• Forecast accretion is meaningful, as are costs, and extends for several years to 2015.

• Only a few consolidation candidates remain: HNT, HUM, CI

 

 

AETNA: The Government Healthcare Play - AET healthcare

 

The real takeaway here is that Aetna is looking to make a Medicaid/Medicare play. Big government is big business. The company thinks that the Affordable Care Act (aka Obamacare) is going to stick around. This reform will cover millions more people under the government Medicaid umbrella, which bodes well for Aetna and others who are deriving revenues from Washington.

 


HUGE WEEK IN MACAU

Takeaway: August GGR trending +4-10%

Average daily table revenue jumped to HK$996 million from HK$757 million last week and up 47% YoY.  By monthly sequential comparison, ADTR was HK$735 million in July.  As a result of the strong week, we are raising our full month August GGR projection to $HK25.0-HK26.5 which would represent YoY growth of 4-10%.  We continue to believe that July was the near-term low in terms of YoY growth and growth will accelerate sequentially in August and September.

 

HUGE WEEK IN MACAU - MACAU1

 

It’s unclear whether hold played a major role in the week’s strength.  We have heard anecdotally that the Mass floors have been very busy.  Additionally, the junkets appear to be pretty optimistic about the recent activity.

 

In terms of market share, MGM and MPEL experienced the biggest jump in market share over the past week.  However, both companies are close to recent trend.  LVS’s share dipped from last week but is still above its recent trend as is WYNN.

 

HUGE WEEK IN MACAU - MACAU2


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