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Whatever They Want

“These guys can do whatever they want, whenever they want.”

-Neil Barofsky

 

Sounds like the American Dream, right? Right. That, and the Fed proclaiming their mystery of faith this morning that “unemployment would be close to 7%... if it wasn’t for consumer doubt”, will get you a free scratch-and-sniff at the Washington Sticker Institute of fair play.

 

The aforementioned quote comes from Chapter 3 of Neil Barofsky’s Bailout, where he explains how Hank Paulson and Tim Geithner got a “blank check” to bailout GM, AIG, etc. “Well, the good news is that we didn’t approve an illegal transaction as our first official act…” (page 50)

 

At the highs, market volumes and equity fund inflows are dead right now because the America’s trust in the political system is. Both Bush and Obama have signed off on giving un-elected central planners like Ben Bernanke un-precedented powers to do Whatever They Want.

 

Back to the Global Macro Grind

 

For Obama, evidently that’s working. His probability of winning the US Presidency just hit a new high in our weekly Hedgeye Election Indicator. Week-over-week Obama just picked up another +220 basis points in our model, taking him to 63%. Romney is in trouble.

 

What does another Obama Administration mean for the US economy? Is there still a chance that Obama loses? How do you dynamically risk manage this binary event if and when the probabilities change in the coming weeks?

 

Last night, our Director of Research, Daryl Jones, and I enjoyed a dinner with pollster Scott Rasmussen. Daryl will have a more detailed note on Rasmussen’s current election thoughts tomorrow. The bottom line is that he still sees this one too close to call.

 

What isn’t too close to call is what the rest of the world’s interconnected risks are doing in the face of Ben Bernanke devaluing the US Dollar and ripping inflation higher (India consumer price inflation hit +10.03% this morning) for the sake of short-term political votes.  

 

Across our durations in our risk management model, here are some key Global Equity market callouts:

  1. Asian Equities continue to make lower-highs versus those established before growth slowing started, globally, in March
  2. Chinese Equities, down 3% in 2 days this wk, continue lower as China won’t “stimulate” during Bernanke commodity inflations
  3. Japanese Equities (down -11% since the March top) continue to languish as their 20yr experiment with Keynesian economics fails
  4. European Equities (EuroStoxx50), down -1.2% this morning, are now making lower-highs versus those established in March
  5. Italian Equities (MIB Index), down -1.8% this morning, are leading today’s decline; no Spanish bailout imminent for them
  6. Russian Equities (like Japan, down -11% from the March top), are getting tagged for a -1.7% decline this morning (Oil down)

Did something bad happen in the last 24 hours; what’s all the economic gravity and commotion about?

 

It’s called Correlation Risk to the US Dollar. Sadly, those two words are not part of the Washington, D.C. central planning narrative. And yes, dear Keynesian academics, we get that sometimes (like now) causality (monetary policy) perpetuates correlation.

 

All it took to get things like Oil and Russian Equities down was stopping the US Dollar from going down. The US Dollar Index remains the other side of the Ben Bernanke trade. He can do and say whatever he wants until that massive asymmetric risk goes the other way.

 

What would happen to stocks and commodities if the US Dollar recovered its last 6 weeks of losses? What if there was political leadership on the fiscal or monetary side to drive the US Dollar Index back to its July high of $84?

 

I don’t know. What I do know is that $84 on the US Dollar Index is +7% higher than where Bernanke Burned The Buck to yesterday – and that if a +0.14% move off the lows gets you this kind of constipation in Global Equity markets this morning, he may be spending more time in the men’s room than Paulson did in October 2008.

 

Since the speculation that Bernanke will do Whatever He Wants pre-election has found its way into commodities (and commodity linked stocks and currencies) more so than anywhere else, it’s going to be critical to monitor our immediate-term TRADE duration risk in things like oil in the coming weeks and months.

 

Across durations, here’s how Brent Oil looks in our risk management model:

  1. Immediate-term TRADE line = $114.69/barrel
  2. Intermediate-term TREND support = $105.85/barrel
  3. Long-term TAIL risk line = $111.47/barrel

In other words, the Ball Under Water trade (Dollar Down) just stopped going down, and Oil’s immediate-term TRADE line of momentum snapped almost instantly. If anything real drives the Dollar up +3-6%, our TAIL risk line for the Oil price comes into play, fast.

 

That, of course, would be good for Consumers, globally. But, perversely, it will be very bad for the stock market (and Obama’s chances), in a hurry. If you didn’t know Obama has already figured this out, now you know. He’s smart. And for the next 50 days his boys will say whatever they want to tell you Dollar Down, Oil Up is about everything other than what the Fed is doing when you aren’t looking.

 

My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $112.49-116.86, $78.56-79.99, $1.28-1.31, 1.73-1.87%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Whatever They Want - Chart of the Day

 

Whatever They Want - Virtual Portfolio


THE M3: NEW COTAI CASINO; OKADA

The Macau Metro Monitor, September 18, 2012

 

 

BOUTIQUE HOTEL CASINO PROJECTED FOR COTAI Macau Business

A group of unidentified investors is proposing to build a US$800 million (MOP 6.4 billion) boutique-style hotel casino just next to the One Oasis Cotai South luxury residential project.  The project is eyeing to have a mid-double digit number of live gaming tables.  Construction could break ground as early as 2013 with the aim of opening in 4Q 2015 or early 2016.  The project doesn’t involve any government land grant, as it is being developed on private land.

 

Business Daily says the casino included in the project would operate under a service provider agreement, but the partnering gaming operator’s name is yet to be disclosed.  The report adds the project was submitted to the government before the 2008 moratorium on new casino projects.  The principals in the boutique scheme are understood to be Stephen Hung, Peter Coker and Walter Power, according to Business Daily.

 

OKADA RELEASES LETTER TO WYNN RESORTS WSJ, Macau Business

Kazuo Okada said investors have lost confidence in WYNN's management and the board.  That loss comes amid a "history of poor corporate governance" and "questionable actions" under Mr. Wynn, the CEO, Okada wrote.  He says that currently only 7 of the 12 board members are independent.  Okada asked a Nevada court earlier in September that he be allowed to nominate new directors for consideration at Wynn’s November annual meeting.  He has already put forward two names.

 

 

 



President Obama’s Reelection Chances

Barack Obama is on fire, with his odds of being reelected jumping +2.2% week-over-week to an all time high (on a closing basis) of 63% according to the Hedgeye Election Indicator, consistent with InTrade odds. It’s now apparent that the President will likely win the November election unless Mitt Romney can pull off a miraculous comeback or if Obama falters in policy over the next month.  

 

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 63% on September 17, 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


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Chasing The Market

 

Hedgeye CEO Keith McCullough appeared on The Kudlow Report on CNBC tonight. Politics, economics and the stock market were the talk of the night.

 

Corporate profits are a huge concern, especially for the bulls. Growth is slowing and earnings are under pressure and it’s tough to determine exactly what “cheap” stocks really are. This situation has been driven by Ben Bernanke’s central planning policies. Now with the falling dollar and extension of QE3, we’re dealt with rising costs (food, fuel, etc.) and no real economic gains.

 

We’re up 16% year-to-date for the stock market and while people might be inclined to chase gains in the market, we know that’s not proper risk management. We’re surprised Mitt Romney hasn’t come out saying he’ll strengthen the US dollar and will get rid of Ben Bernanke to counter Obama’s rhetoric heading into November.

 

Watch Keith’s full take on the market, inflation expectations and economic growth in the clip we’ve posted.

 


CHART DU JOUR: MACAU WEEKLIES

Takeaway: Looking up

  • Even beyond seasonality, average daily table revenues improving
  • September comparisons get easier in the back half which should boost the month’s YoY growth into the high teens
  • The typical seasonal slowdown pre-Golden Week could be offset by the opening of SCC’s Pacifico casino and Sheraton hotel rooms

 

CHART DU JOUR: MACAU WEEKLIES - ADTR


Oil Sentiment: Peak-A-Boo

Takeaway: Hedge funds are piled into and full on long WTI crude oil; we think it's looking quite peaky at these levels.

Over the past several weeks, NYMEX open interest contracts on WTI crude oil have been climbing higher and higher, going from 277,212 on August 21 to 305,623 on September 11. Looking at the chart below, you could argue that technicians and pattern readers would have some slick nickname for this pattern along the lines of “triple peak.” As far as we’re concerned, it looks peak-ish to us, especially with the amount of hedge funds piled in that are long WTI crude.

 

Energy Analyst Kevin Kaiser thinks we could be topping out here, noting that “oil sentiment (as measured by hedge fund net length in NYMEX) is climbing back up to the level where it’s been a good spot to sell from.” Keep an eye on it.

 

 

Oil Sentiment: Peak-A-Boo - kaiser oilsentiment


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