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THE M3: HOTEL PRICE WAR; PACKAGE DATA

The Macau Metro Monitor, September 14, 2012

 

 

HOTEL PRICE WAR MIGHT OCCUR AT LOW SEASON THIS MONTH Macau Daily Times

Chan Chi Kit, President of the Macau Hoteliers & Innkeepers Association, said the traditional low season of September this year coincides with the launch of over 1,800 rooms and suites by Sheraton in Sands Cotai Central with promotional prices very close to those of the 3 or 4 star hotels.  According to some operators, this could trigger a price war between hotels as visitor numbers fall and no major new attractions are launched during this low ebb to draw extra tourists.  Chan pointed out that in the first ten days of September, some hotels recorded occupancy rates as low as 50 –70%, and individual establishments even saw record 20 – 50% lows.  While a price war is possible in September, the hotel industry leader hoped the Golden Week holiday starting October 1 would bring some relief to the hospitality industry by bringing more mainland visitors, as it always has done in past years. 

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR JULY 2012 DSEC

Visitor arrivals in package tours increased by 19.5% YoY to 825,464 in July 2012.  Visitors from Mainland China (606,120) went up by 20.4%, with 256,537 coming from Guangdong Province; besides, those from Taiwan (75,261); Hong Kong (35,395) and Japan (24,717) increased by 54.2%, 14.4% and 66.1% respectively.  On the contrary, visitors from the Republic of Korea (25,491) decreased by 17.9%.  In the first seven months of 2012, visitors in package tours totaled 4,908,359, up by 24.8% YoY to account for 30.6% of the total visitor arrivals.  The average length of stay decreased by 0.18 night to 1.2 nights.

 



THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 14, 2012


As we look at today’s set up for the S&P 500, the range is 36 points or -2.26% downside to 1427 and 0.21% upside to 1463. 

                                            

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 09/13 NYSE 1701
    • Increase versus the prior day’s trading of 778
  • VOLUME: on 09/13 NYSE 802.31
    • Increase versus prior day’s trading of 20.86%
  • VIX:  as of 09/13 was at 14.05
    • Decrease versus most recent day’s trading of -11.08%
    • Year-to-date decrease of -39.96%
  • SPX PUT/CALL RATIO: as of 09/13 closed at 1.11
    • Down  from the day prior at 1.12 

CREDIT/ECONOMIC MARKET LOOK:


Qe USA – never, in US economic history, has a > $4 national avg at the pump NOT slowed US economic growth; never is a long time; see our Qe note from yesterday showing you the 3 most powerful ramps in gas prices and what the US economy immediately did next (mid-2008, mid-2011, and Q1 of 2012). Its only not obvious to the willfully blind. 

  • TED SPREAD: as of this morning 29.21
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.81%
    • Increase from prior day’s trading of 1.72%
  • YIELD CURVE: as of this morning 1.58
    • Up from prior day’s trading at 1.49

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:30am: Consumer Price Index M/m, Aug., est. 0.6% (prior 0.0%)
  • 8:30am: Advance Retail Sales, Aug. est. 0.8% (prior 0.8%)
  • 9:15am: Industrial Production, Aug., est. -0.1% (prior 0.6%)
  • 9:15am: Capacity Utilization, Aug., est. 79.2% (prior 79.3%)
  • 9:55am: University of Michigan Consumer Sentiment, Sept. preliminary, est. 74.0 (prior 74.3)
  • 10am: Business Inventories, July, est. -0.3% (prior 0.1%)
  • 11am: Fed to buy $1.5b-$2b notes due 2/15/2036-8/15/2042
  • 1pm: Baker Hughes rig count
  • 1pm: Fed’s Lockhart at employment conference in Atlanta
  • 1:45pm Fed’s Raskin speaks in Michigan on economy

GOVERNMENT:

    • Washington Day Ahead agenda
    • SEC holds a public hearing on ways to promote stability in markets reliant on highly automated trading systems; will focus on how market participants design, implement and manage trading technology after glitches disrupted Facebook’s initial public offering and pushed Knight Capital to brink of bankruptcy, 10am
    • ITC Judge releases findings in patent-infringement case that Samsung filed against Apple over smartphone features and ways to transmit data, after 9am
    • Treasury Undersecretary for Domestic Finance Mary Miller speaks at American Banker conference. Arlington, Va. 2:15pm
    • Transportation Secretary Ray Lahood, FTA Administrator Peter Rogoff make transit funding announcement, 12:30pm
    • Congressional Robotics Caucus holds briefing on National Robotics Initiative, 12:30pm
    • House, Senate in session

WHAT TO WATCH:

  • Germany’s Schaeuble cautions Spain against a full bailout
  • U.S. retail sales probably improved in Aug. on auto demand
  • Western Digital cuts rev. view, begins div. and $1.5b buyback
  • Peregrine’s Wasendorf released on bails after guilty plea
  • Visteon said to consider Leuliette as CEO while eyeing electronics unit
  • Time CEO Lang seeks to unify web and print advertising
  • Japan tells China to withdraw ships near disputed islands
  • Italian 10y yields fall below 5% for first time since March
  • California Attorney General investigates doctor-hospital deals: WSJ

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Corn Bulls Retreat as Near-Record Costs Curb Demand: Commodities
  • Beef Premium Spurring Demand for Cheaper Pork: Chart of the Day
  • Oil Rises to $100 for First Time Since May After Fed Stimulus
  • Commodities Post Longest Rally Since 2010 as Fed Boosts Outlook
  • Platinum Heads for Longest Winning Run in 25 Years; Gold Rallies
  • Aluminum Heads for the Longest Rally in at Least 25 Years
  • Wheat Rises on Egyptian Purchase of French Grain, U.S. Drought
  • Coffee Headed for Longest Rally in Four Months; Cocoa Advances
  • Japan Draws Curtain on Nuclear Energy Following Germany: Energy
  • Rebar in Shanghai Gains to Three-Week High on Fed Stimulus Plan
  • Aluminum Backwardation Looms as Warehouse Backlog Limits Supply
  • Pemex’s Missing Oil Surges to All-Time High: Chart of the Day
  • Oil May Fall on Projected Supply Gain After Isaac, Survey Shows
  • Sugar Bulls Ascend as Rain Returning to Top Producer Brazil
  • Copper Jumps, Heads for Highest Close Since May on Fed Stimulus
  • Storm Effect on Oil Prices Waning as Shale Booms: Energy Markets

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


Qe EUROPE – ok, when you have economic stagflation (zero to negative growth + inflation), what you really need (if you have a growth problem) is another rip in food/energy prices; that’ll get things fixed! $117.35 Brent Oil last, +33% since June.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


Qe ASIA – straight up moves in the KOSPI +3.2%, Hang Seng +2.9%, and Nikkei +1.8%, but all to lower-highs vs Feb-March; no idea how the math works on commodity demand slowing as prices are rising for Asian export producers; Bernanke doesn’t care.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


Duration Neglect

This note was originally published at 8am on August 31, 2012 for Hedgeye subscribers.

“Duration neglect is normal in a story, and the ending often defines its character.”

-Daniel Kahneman

 

That’s one of my favorite risk management quotes from Kahneman’s Thinking, Fast and Slow. It comes from Chapter 36 titled “Life As a Story.” After this morning’s central planning event, take some time to think this weekend. Re-read the last 30 pages of one of the most important books of the year. If there ever was a time to embrace the uncertainty of Behavioral Economics, it’s now.

 

Storytelling is at the core of everything we do. Storytelling can be personal and political. Storytelling can be short or long-term. But no matter what your confirmation bias or duration, storytelling, at some point, meets a fork in the road between fact and fiction. Whether or not you are proactively prepared for that moment is purely up to you.

 

Two weeks ago, the Bailout Bull Storytelling was that “Bernanke and Draghi are going to provide a one-two punch in Jackson Hole.” Stock were higher and bonds were lower. Since then: 1. Draghi bagged the meeting, 2. Bernanke’s boys are waffling with “it’s too close to call”, and 3. US Equity Volatility (VIX) is up +34%.

 

As Ray Dalio likes to say, look in the mirror and ask yourself, “what is true?”

 

Back to the Global Macro Grind

 

The other thing Ray Dalio reminds us (from the Introduction of Ray Dalio’s Principles) is to “above all else, think for yourself.” That’s pretty important when considering what sources are credible in this profession. Many of them have not evolved since 2007.

 

Duration Neglect is one thing, but being unable to tell the difference between fact and fiction can bankrupt you at the poker table as fast as it can in your personal and professional life. From a Global Macro perspective, no matter what these broken sources tell you this weekend as they live large on your dime in Jackson Hole, Growth Is Slowing.

 

When I say Growth, I mean Global Growth Data – here it is in the last 48 hours:

  1. US Jobless Claims rose wk-over-wk to 374,000 vs 366,000 two weeks ago
  2. US Consumer Confidence fell -8% month-over-month in AUG to 60.6 vs 65.9 in JUL
  3. Japanese Retail Sales fell -0.8% year-over-year
  4. Hong Kong Retail Sales volumes dropped from +8.3% year-over-year to +1.3%
  5. Brazil cut interest rates as inflation ramped +100bps month-over-month to +7.7%
  6. Spain’s Retail Sales fell -7.3% in JULY (year-over-year) vs -5.2% JUN
  7. Italy’s unemployment rate ramped to 10.6% in Q2 vs 9.8% in Q1
  8. Italy’s inflation rate remains at +3.5% in AUG vs +3.6% in JULY (stagflation)
  9. US GDP Growth for Q212 slowed to 1.73% vs +1.97% in Q112

So, even if you’re still in the “growth is back and earnings are great camp” (Tom Lee, Ed Hyman, Laszlo Birinyi, etc.) from March of 2012 – at this point, if your storytelling is based on the USA alone – you’ve just gotta change your story to begging for bailouts.

 

To review, the call we made in March of 2012 was that Global Growth Slows As Inflation Accelerates. That, on the margin, is precisely what’s happened here in August versus July – primarily because of the inflation part of that statement. Food and Oil prices matter.

 

Now if you turn around and tell me that inflation fell in May versus where it was in March, I’ll agree with you. It did. That’s why we bought the SP500 at its long-term TAIL support line of 1283. But, to be consistent, don’t forget what central planning does: A) It Shortens Economic Cycles and B) Amplifies Market Volatility. So you have to keep moving.

 

Back to that US GDP Growth print this week of 1.73%:

  1. It implied a “Deflator” of 1.59% in Q2 versus +2.16% in Q1; therefore GDP, inflation adjusted, was overstated in Q2
  2. Assuming inflation is the same as the government says it was in Q1 here in Q3 (it’s higher), #GrowthSlowing continues
  3. Irrespective of the storytelling on what inflation rate you use, US GDP is down -57.8% from Q411 to Q2 of 2012

In this No Trust; No Volume market, one of the most neglected long-term issues remains confidence. Small business owners in America like me aren’t morons. We aren’t going to ramp Fixed Investment growth, Inventories, and Hiring into a central planning event.

 

That’s not me telling my own story – the only inventory I have in oversupply are tweets. That’s the story within the latest US GDP report:

  1. US Fixed Investment Growth was basically cut in half, sequentially, from Q1 to Q2 (+0.63% vs +1.18%)
  2. US Inventory Growth went from +2.53% in Q411 (when Growth was solid) to -0.23% in Q212
  3. US Export-Import Growth (+0.3% in Q212) remains nowhere to be found as an offset to 1 and 2

Keynesian Quacks will tell you that if you debauch the currency of a nation, “exports will ramp” and a bunch of other stuff will multiply upon that as Ben Bernanke and Larry Summers raise the oceans to escape velocity.

 

Not true.

 

Not this time. No dear Sirs; this time is not different. This story will have an ending - and your Duration Neglect will be the cross of the families bearing your name for many years to come.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1627-1679, $111.12-113.74, $81.11-82.18, $1.23-1.26, 1.56-1.65%, and 1397-1409, respectively.

 

Enjoy your long weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Duration Neglect - Chart of the Day

 

Duration Neglect - Virtual Portfolio


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COMMODITY CHARTBOOK

Takeaway: Coffee prices have taken a turn higher this week but favorable outlook remains for $SBUX, $GMCR, $DNKN, $THI, $CBOU

Corn dropped over the last week but beef retained the limelight as prices gained another 1.2%.  Coffee prices snapped higher as speculation grew that Columbia’s Arabica harvest is likely to come up short versus growers’ expectations.  We do not view this as overly material for the coffee retailer stocks given that prices are still down 33% versus last year.  Chicken wings moved slightly lower to +103% year-over-year.

 

The last week has been mixed for commodity prices but today’s Fed announcement is likely to sustain the volatility in commodity markets that have made life difficult for investors, analysts, and company executives alike.  As the chart below indicates, the CRB Foodstuffs Index turned sharply higher during the implementation of both prior rounds of quantitative easing.  While there are different schools of thought on the relationship, or lack thereof, between monetary policy and commodity prices, and other factors such as drought clearly have an impact.  As long as interest rates are artificially pushed lower, and QE3 seems likely to have that effect, investors will speculatively seek yield in alternative asset classes such as commodities.  Joe Sanderson, CEO of SAFM, and others have noted Federal Reserve intervention have had an impact on commodity markets.

 

COMMODITY CHARTBOOK - QE crb

 

 

Summary View

 

The USDA World Agricultural Supply & Demand (WASDE) report was released yesterday and there were some surprises.

  • Corn declined yesterday as the USDA unexpectedly raised its corn ending stock forecast to 733 million bushels from 650 million prior.  Lower production and yield were offset by higher beginning stocks.  We believe that a slowing in consumption, as well as the market anticipating more drought damage to the crop than seems to have materialized, was behind the move lower
  • Wheat supply and consumption estimates were unchanged for the current U.S. marketing year. 
  • The 2011/2012 marketing year estimate of U.S. exports of soybeans was increased by 10 million bushels

Coffee prices gained 13.1% week-over-week as speculation grew that Columbia’s Arabica harvest is likely to come up short versus growers’ expectations.  Coffee prices are still down 33% from year-ago levels and the outlook remains favorable for PEET, SBUX, GMCR and other coffee retailers from a cost of sales perspective.

 

Beef prices gained over the last week and U.S. Meat Export Federation President and CEO Philip Seng had the following to say: “With higher operating costs, the beef sector is facing serious economic challenges.  Tight beef supplies have pushed prices higher and strong demand from our international customers is helping support higher beef cutout values. With these factors in mind, it is absolutely critical that we remain aggressive with our international promotions and continue to capture the highest return possible on the products we export.”  Beef price gaining is a negative for WEN (20% of spend), BLMN (30%), and JACK (20%).

 

Drought is undoubtedly still an issue in several areas of the world, including the U.S., but the USDA’s -1% corn output revision was much less dramatic than feared.  That said, the drought is nearing its fourth month

 

COMMODITY CHARTBOOK - commod

 

 

Macro Callout

 

Gasoline prices continue to head higher.  As Hedgeye CEO Keith McCullough has been pointing out – particularly in light of QE3 today – gas prices north of $4 have had a destructive impact on consumption (71% of U.S. GDP) in 2008, 2011, and in 1Q12.

 

COMMODITY CHARTBOOK - gas prices

 

 

Correlation

 

COMMODITY CHARTBOOK - correl

 

 

Charts

 

COMMODITY CHARTBOOK - crb foodstuffs

 

COMMODITY CHARTBOOK - corn

 

COMMODITY CHARTBOOK - wheat

 

COMMODITY CHARTBOOK - soybeans

 

COMMODITY CHARTBOOK - rough rice

 

COMMODITY CHARTBOOK - live cattle

 

COMMODITY CHARTBOOK - chicken whole breast

 

COMMODITY CHARTBOOK - chicken broilers

 

COMMODITY CHARTBOOK - chicken wings

 

COMMODITY CHARTBOOK - coffee

 

COMMODITY CHARTBOOK - milk

 

COMMODITY CHARTBOOK - cheese

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


CHART DE LA NUIT: DEMOGRAPHICS TO PLAGUE THE DOMESTIC CASINO INDUSTRY

Takeaway: Rate of growth in core demographic falling and will soon go negative

  • The core age group for domestic gaming visitors has been 50 to 59 years old. The baby boomer generation caused this group to grow rapidly until 2003. 
  • The rate of growth was consistent between 2007 and 2010 but began a sharp downward trend.  The absolute population in this segment may actually fall in 2016.
  • Compounding the demographic issue is the fact that younger generations are not embracing the slot machine

 

CHART DE LA NUIT:  DEMOGRAPHICS TO PLAGUE THE DOMESTIC CASINO INDUSTRY - cas


Bernanke's Market

 

With the Federal Reserve announcing today that it would extend Operation Twist by purchasing agency mortgage-backed securities each month and extending 0% rates into 2015, the market rallied in full force and volume picked up. With the extension of QE3 out of the way, the question on everyone's mind is: what's next?

Hedgeye CEO Keith McCullough appeared on CNBC's Fast Money to discuss how the Fed's actions affect economic growth, stocks and bonds and the US dollar. Also discussed was our bullish thesis on Nike and President Obama's chances of being reelected.


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