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Comanche Market

This note was originally published at 8am on August 07, 2012 for Hedgeye subscribers.

“… and meant, anyone who is against me all the time.”

-S.C Gwynne

 

That’s what the white guys in New Mexico “translated in various ways (Cumanche, Commanche), but eventually as “Comanche.” It would take the Spaniards years to figure out exactly who these new invaders were.” (S.C. Gwynne)

 

As I come to the end of what’s been a wildly educating experience reading Gwynne’s Empire of The Summer Moon, it’s twisting so many thoughts in my head that I don’t particularly know what I’m allowed to write about it. So I’ll just stop there.

 

All I can tell you is that as a professional short seller of everything US Dollar debauchery and centrally planned markets, I’m getting really comfortable having all of the same people against me all of the time. Their moves are becoming blatantly predictable.

 

Back to the Global Macro Grind

 

Against me? How about +25% at the pump against you? That’s what the price of Brent Oil has done since it bottomed at the end of June. With the US Dollar down now for 3 consecutive weeks, the purchasing power of your currency is once again under enemy attack.

 

Enemy? Who is the enemy? Is it Johnny Hilsenrath with his now almost daily Dollar debauchery articles in the Wall Street Journal? Or is it his editor? Or is it his editor’s brother’s boss who just plowed back a $35,000 plate at Obama’s CT dinner last night?

 

Whoever you are, market prices can see you now.

 

Got causality (begging for more Qe policies) that are driving immediate-term market price correlations? Here’s an update on that (USD versus Big Macro stock and commodity market moves in the last 3 weeks):

 

  1. Brent Oil vs USD = -0.74
  2. SP500 vs USD = -0.90
  3. EuroStoxx600 vs USD = -0.92

 

That’s right folks. Today’s centrally planned market is American-European. How else can Italy deliver a -2.5% year-over-year GDP disaster for Q2 2012 this morning (and 36% youth unemployment), and have their stock market “up” on that? Dollar down this morning.

 

Devaluing your currency is cool though, right? Look at how well life is going in Venezuela after Chavez devalued The People’s currency by 50%. The stock market  in Venezuela leads the world YTD at +110% YTD (not a typo). How screwed up is that?

 

President Obama and his centrally planned stock market advisors have figured this out. If the US stock market goes up, his chances of winning the Presidential Election go way up. In this morning’s Chart of The Day, we show you that in our Hedgeye Election Indicator:

 

  1. Obama’s chances went up +110 basis points wk-over-wk
  2. At 58.7% probability, this is the highest we’ve scored Obama’s chances since mid-May
  3. Unless the US Dollar stops going down (and US stock stop going up), Obama could run the tables

 

Now isn’t that a tad perverse? Burn The People’s hard earned currency at the stake, keep rates of return on hard earned Fixed Incomes at 0%, and pretend that jamming them with $4.50/gallon at the pump isn’t going to leave a mark on the 99%’s dinner table tonight.

 

#nice

 

Unfortunately, the globally interconnected growth signals around the world get that Down Dollar, Up Oil is only going to perpetuate the world’s biggest problem (#GrowthSlowing) further.

 

Here’s your latest real-time signaling on the Global Macro front:

 

  1. Chinese Stocks (Shanghai Composite) whimpered in day 2 of the “stock market rally”, closing up +0.13%, failing at resistance
  2. South Korea’s leading indicator (KOSPI) barely banged out a green close last night, closing +0.05%, failing at resistance
  3. Dr. Copper, one of the world’s best growth indicators, was down -1.7% last week, and remains broken this morning at $3.40

 

Those are just growth signals though (Asia, demand, etc.). But who needs those when we can chase Energy and Basic Material stocks in order to keep up with the SP500’s “being up” +1% already for August?

 

We’ve seen this movie before. Month by month, we’re killing whatever trust remains in our said “free” markets. Like the devastation of what was a wild, yet free, Comancheria, a centrally planned life ends in tears for many, and smiles for some.

 

Eric Rosengren, inflation is not growth.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1591-1624, $106.40-110.84, $82.05-82.84, $1.23-1.24, 782-803, and 1374-1408, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Comanche Market - Chart of the Day

 

Comanche Market - Virtual Portfolio


Idea Alert: The Bear Thesis On Cat

Takeaway: Multi-decade highs in mining/resources investment leave CAT vulnerable to a slowdown in its most profitable division.

Levels:

CAT’s TAIL remains broken = 94.27

No TRADE support to 88.04

 

 

The Resources Cycle May Be Turning Against CAT

  • Recent Results Signal Weakness: CAT’s 2Q earnings report showed that implied orders had declined year-over-year as backlogs were drained.  The company “beat” in the quarter, but only by recognizing revenue on previously accumulated orders.
  • Resources Equipment Important: Resources investment may be set to weaken, given what appears to be slowing developing market growth.  Should that occur, CAT’s most profitable could see meaningful declines.
  • Industry Structure:  While CAT is a strong competitor in an industry with a healthy structure, recent competitive entry by emerging market rivals like SANY and Zoomlion is not positive.  Should demand slowdown in key Asian markets, the additional competition would not be helpful.  Typically, we look for weaker industry structures on the short side.
  • Valuation:  If the resources investment cycle does turn against CAT, the cyclically-adjusted valuation would be shown to be meaningfully lower than current levels.  CAT does not appear to offer a wide enough discount at current levels to provide compensation for this risk, in our view. 
  • Risky US Construction Exposure: CAT is frequently owned for exposure to a rebound in developed market construction.  While CAT would benefit from higher construction equipment sales, the risks on the resources investment front far exceed the benefits of a cyclical rebound in developed market construction activity.

 

If History Rhymes, CAT Could Decline Significantly If Resources Investment Stalls

Idea Alert:  The Bear Thesis On Cat - 1

 

 

Second Quarter Results Showed Implied Order Declines

Idea Alert:  The Bear Thesis On Cat - 2

 

 

CAT’s Stock Tends To Follow The Backlog

Idea Alert:  The Bear Thesis On Cat - 3

 




THE M3: NON-CREDIT AGENTS; CPI

The Macau Metro Monitor, August 21, 2012

 

 

VIP JUNKET  EYES TO ATTRACT NON-CREDIT AGENTS Macau Business

VIP junket operator Asia Entertainment & Resources Ltd yesterday announced it would implement a new programme for large VIP agents who do not require credit.  AERL will provide an option for these non-credit large agents to share the win/loss under the revenue sharing model based on their proportionate contribution of total rolling chip turnover.  With this new programme, AERL says it expects to reignite growth in rolling chip turnover. The new programme will be effective September 1.

 

“This incremental non-credit business will have lower margins than our existing credit business, but we believe the new programme will ultimately be responsible for an increase in our net income,” said AERL chairman Lam Man Pou.

 

CONSUMER PRICE INDEX FOR JULY 2012 DSEC

Macau CPI in July increased 6.04% YoY and 0.37% MoM.


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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


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

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 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

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.


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