• run with the bulls

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The Macau Metro Monitor, September 19, 2012




Genting Singapore is selling its entire 4.8% stake in Echo Entertainment Group Ltd. (EGP.AU) for about 131.7 million Australian dollars (US$137.5 million) in a move to rationalize its investment portfolio.


GENT will sell its 33 million Echo shares through a block trade at A$3.99 per share, it said in a filing to the Singapore Exchange on Wednesday.



TODAY’S S&P 500 SET-UP – September 19, 2012

As we look at today’s set up for the S&P 500, the range is 28 points or -0.91% downside to 1446 and 1.01% upside to 1474. 











  • ADVANCE/DECLINE LINE: on 09/18 NYSE -341
    • Increase versus the prior day’s trading of -1137
  • VOLUME: on 09/18 NYSE 632.88
    • Decrease versus prior day’s trading of -4.96%
  • VIX:  as of 09/18 was at 14.18
    • Decrease versus most recent day’s trading of -2.81%
    • Year-to-date decrease of -39.40%
  • SPX PUT/CALL RATIO: as of 09/17 closed at 1.49
    • Up  from the day prior at 1.33 


  • TED SPREAD: as of this morning 28.24
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.79%
    • Decrease from prior day’s trading of 1.81%
  • YIELD CURVE: as of this morning 1.54
    • Down from prior day’s trading at 1.55 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am MBA Mortgage Applications, Sept. 14 (prior 11.1%)
  • 8:30am: Housing Starts, Aug. est. 767k (prior 746k)
  • 8:30am: Building Permits M/m, Aug. est. 796k (prior 811k)
  • 9:45am: Fed’s George at jobs conf. in Kansas City, Missouri
  • 10am: Existing Home Sales, Aug. est. 4.56m (prior 4.47m)
  • 10:30am: DoE Inventories
  • 11am: Fed to purchase $1.5b-$2b notes due 2/15/2036-8/15/2042
  • 7pm: Fed’s Fisher speaks on economy and policy in New York


    • Washington Day Ahead
    • House, Senate in session
    • Bernanke meets privately with Senate Finance Committee to discuss economy, automatic spending cuts, tax increases set to take effect in January, 4:30pm
    • CME Group President Terrence Duffy, SEC Commissioner Daniel Gallagher among speakers at Georgetown University conference on financial market quality
    • FDA advisory panel meets to consider using cell lines derived from human tumors for vaccine manufacture, 8am
    • U.S. Trade Representative Ron Kirk participates in Global Services Summit
    • House Oversight holds hearing on effectiveness of trade- adjustment assistance, 11am
    • Secretary Janet Napolitano testifies at Senate Homeland Security hearing on threats, agency responses, 10am


  • Bank of Japan unexpectedly expands asset-purchase fund by $126b
  • Goldman names Schwartz to succeed CFO Viniar
  • Samsung loses bid to lift Galaxy sales ban in Apple dispute
  • U.S. housing starts probably climbed to four-year high
  • ThaiBev supports Heineken bid for Fraser & Neave’s beer business
  • China resumes buying U.S. Treasury securities as trade surplus widens
  • Apple, publishers offer to shun price-fixing to end EU probe
  • Google joins Amazon, Facebook in new internet lobbying group
  • Anschutz plans to sell L.A.-based live event promoter AEG
  • Apple iPhone 5 praised for speed, faulted on maps by reviewers


    • Cracker Barrel Old Country Store (CBRL) 7am, $1.30
    • AutoZone (AZO) 7am, $8.40
    • Ascena Retail Group (ASNA) 7am, $0.29
    • General Mills (GIS) 7am, $0.62 - Preview
    • Steelcase (SCS) 4:01pm, $0.18
    • Adobe Systems (ADBE) 4:05pm, $0.59
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.02
    • Clarcor (CLC) Aft-mkt, $0.69



OIL – get the Dollar right, you get Oil right, evidently. No, that wasn’t a fat finger on Monday; that was a man operating a machine that decided to sell Oil ahead of the USD’s 1st two-day up move in almost 6wks; Oil under price momentum pressure now that my immediate-term TRADE line of $113.95 broke (that’s why we got longer US Equities yesterday).

  • Lithium Boom Spurs Production From California Brine: Commodities
  • Oil at $100 No Spur Yet to Release Stockpiles: Energy Markets
  • Oil Extends Losses as Signs of More Supply Offset Japan Stimulus
  • Gold Seen Gaining From Six-Month High as Stimulus Spurs Demand
  • Soybeans Climb as Price Slump May Draw Importers and Investors
  • Copper Seen Advancing on Japanese Stimulus, Lower Stockpiles
  • Sugar Falls on Signs of Ample Supplies From Brazil; Cocoa Gains
  • BHP Says Pace of China Iron Ore Demand Has Slowed by Half
  • Farmer’s Daughter Haugerud Reaps Riches on Drought-Struck Corn
  • B2Gold to Buy CGA for $1.13 Billion to Add Philippine Mine
  • Saudi Arabia Acting to Reduce Oil Price, Gulf Official Says
  • Platinum Holdings Expand to Record on Mine Disruptions, QE3
  • Milk Powder Prices Advance to Five-Month High Amid U.S. Drought
  • China Sugar Output Seen Curbing Imports
  • Rebar in Shanghai Rises for Second Day on Ore Price, Cash Market
  • Chinese Ore Imports Seen Falling 24% as Australia Cuts Forecast
  • Uranium Recovery Postponed as Price Drops to 2-Year Low: Energy










ITALY – watch this Italian Equity market closely as it diverges negatively vs Spain this wk (Italy has to beg for their bailout later); MIB index just snapped my immediate-term TRADE line of 16,239 as it makes lower-highs vs March.






JAPAN – what’s another 10T, amongst Keynesian friends? Currency War remains on as Japan expands money printing operations to 80 TRILLION yens; Dollar up, Yen down, Japanese stocks up +1.2% (still -10% since March).










The Hedgeye Macro Team

The Death Of Yield

 The US Treasury is the all-important instrument that’s truly considered safe to invest in. Five years ago, you might have gotten a nice yield on as 10-year note or even the 30-year if you went further out on the yield curve. The problem now is twofold. Ben Bernanke has destroyed the current interest rate environment and everyone’s scared and flocking to Treasuries all the time. Both of these factors have pummeled yields so low that people are scratching their heads and going “what’s the point?” We can’t blame them, but we can blame Bernanke.



The Death Of Yield  - 10yr ytields

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Manufacturing To Nowhere

This note was originally published at 8am on September 05, 2012 for Hedgeye subscribers.

“You can’t build a railroad from nowhere to nowhere.”

-Cornelius Vanderbilt


While I am sure some partisan politician had a rebuttal to one of America’s most successful businessman’s thoughts on the matter at the time, that remains one of the most poignant risk management quotes from 1873.


“The Panic of 1873 began shortly before 11AM on Thursday, September 18, when the Wall Street branch of the nation’s most prestigious private banking house, Jay Cooke & Associates, unexpectedly ushered its customers out and then literally closed its doors, signaling it was bankrupt.” (John Lubetkin, in Jay Cooke’s Gamble)


Yes, I know. We have centrally planned our way to never worrying about fundamentally flawed policies and business risks again in this country. Right?


Back to the Global Macro Grind


While the Keynesians are storytelling about needing “more time”, the fact remains that Policies To Inflate haven’t done a darn thing they were designed to do:

  1. Debauching the Dollar was supposed to generate “export and manufacturing growth”
  2. Economic growth slowing was supposed to be met with a “growth recovery” that lasted more than 3 months
  3. Corporate growth and earnings were supposed to remain at all-time highs; hiring would follow

Political theory versus economic reality: let’s fast forward to, well, yesterday:

  1. America’s ISM Manufacturing Survey for August slowed for the 3rd consecutive month to 49.6 (signaling economic contraction)
  2. The Prices Paid component of the ISM survey ripped higher month-over-month to 54 vs 39.5 in July (+37% sequentially)
  3. Fedex, a $28B US company, pre-announced another revenue and earnings miss after the market close

But no worries…


We need to beg for more of what has not worked – must do something – need more stimulus – need more time so that we can build elevated stock market prices, on no-volume, into the market’s risk matrix so that we can get from nowhere to nowhere, again.


To review what the aforementioned data points mean to real business people in this country in September 2012:

  1. Global Demand (yes, including Asia) slowed in August as inflation, on the margin, rose
  2. As inflation (prices paid by manufacturers, consumers, etc.) rises, on the margin, profits slow
  3. As profits slow, hiring slows – again

This isn’t a vicious cycle anymore. It’s just a sad one to watch. How definitively insane it is to watch people make the same mistakes over, and over, and over again?


I know, I know. After they are wrong on growth, and half-baked right on how bailout policies keep market prices up for 6 week intervals, perma-bulls say “the market is up and stocks are cheap.”


Well, there’s a little fibbing in that too. Since the 2007 top (1565 SPX) and lower 2012 high (1419 SPX) that followed it, stocks are down – and they’re expensive, if you don’t use the wrong growth and earnings numbers.


So where does the great Keynesian economic vision of building bridges and railway tracks to end demand that’s slowing take us? I don’t know. And, if they tell you the truth, neither do they.


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1672-1699, $111.51-115.78, $81.19-81.98, $1.24-1.26, 1.54-1.63%, and 1398-1407, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Manufacturing To Nowhere - Chart of the Day


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Mitten and Nobama

“If you put the federal government in charge of the Sahara desert, in 5 years there’d be a shortage of sand.”

-Milton Friedman


I’ve used the jocular nicknames of both President Obama and Republican nominee Mitt Romney to emphasize the point that both candidates are having a tough time earning broad national respect.  Before I get into a preview of our election call being held later today (we will be distributing the dial-in and materials later this morning), I actually want to acknowledge both candidates.  Running for President is no easy task and both men should be given some credit for putting it all out there and taking a shot at serving the greater good.


Getting back to the race, the primary issue, which I alluded to above, is that both candidates are struggling with favorability and approval.  As I’ve touched on in previous notes, President Obama’s approval rating is on par with prior Presidents that have not been re-elected.  According to Gallup, the pollster that has tracked presidential approval going back the furthest, Obama’s approval rating is currently at +49.  Typically the share of the two-party vote roughly equates to the President’s approval rating, so on this metric Obama is in a tenuous position.


Fortunately for the Democrats and unfortunately for the Republicans, Romney has very low favorability ratings. In the last five major polls starting in the first week of September, Romney has had an average favorability rating of +43.8.  Even with meaningfully higher Republican turnout, a point I will delve into in more detail on today’s call, this is a favorability rating that is going to make the path to the Presidency challenging for Romney.


Given some of his recent misstatements, Romney does not appear to be doing his campaign any favors.  As such, the media has begun writing him off over the last couple of days.  Some of the more recent headlines include:


“Is This the End of Mitt Romney” –The New Yorker

“The Real Romney Is a Sneering Plutocrat” –New York Magazine

“Thurston Howell Romney” –The New York Times


Actually, now that I’ve put on my analytical lens, those aren’t really broadly representative of the media, though they are broadly representative of the New York media.  The point being that while Romney has not helped his campaign with his recent comments, the interpretation from the media on the coasts and in more liberal bastions is not necessarily representative of how the broad electorate interprets these comments.


The truth is, though, that the Romney campaign, at least so far, has failed to make their candidate broadly appealing.  The last few days of missteps, especially Romney’s comment about 47% of the country being dependent on the government, is likely not a death blow for the campaign, though they surely did not increase Romney’s changes of winning the Presidency either.


The most recent national polls suggest this race remains basically a dead heat.  Respectively, the Rasmussen, Wall Street Journal and Gallup polls have Obama leading on average by +2.  Two nights ago in a small group dinner, pollster Scott Rasmussen suggested to Keith and I that a potential wild card could be the fact that Republican enthusiasm, a proxy for turnout, may be higher than the Democrats by 4 – 6 points.  If this margin is valid, it would put the race in a virtual statistical tie.  (The caveat to these polls is that on other indicators, such as our own Hedgeye Election Indicator, which is highlighted in the Chart of the Day, Obama has 2/3s probability of being re-elected.)


This race is tight enough that clearly there is room for things to changes on the margin to still impact the outcome.  In 2012, based on the Real Clear Politics average, Bush was up +5.9 points versus Kerry.  In 2008, Obama was only up +2.0 points versus McCain.  Obviously Kerry would go on to narrow the margin and Obama would go on to expand the margin.  In fact, Kerry would narrow the race by +4.4 points as Bush’s eventual margin of error was only +1.5.


The Obama strategy so far has been based on playing it safe and pouncing on Romney’s errors, which have helped keep Romney’s favorability ratings low.  Setting the other side’s strategy aside, Romney is actually the only Presidential candidate since 1988 to not get a bounce from his convention so this has been an easy task for the Democrats.  Given that, it is likely time for the Romney campaign to stop with the personal appeals for the candidate and focus on what really matters to the electorate – the economy.  In every gauge of issues, the economy dominates.


In addition, even if his language has been poorly worded, Romney’s attacks on the size and role of the government will continue to resonate with the electorate.  In fact, in a recent Gallup poll, likely voters indicated by a margin of 54 – 39 that they believe the government is doing too much as opposed to not enough.  More importantly, more than six in 10 independents think the government is doing too much.


For the next 50 days, Romney’s messaging should be very simply focused on getting the government out of the way to improve the economy.  Potential voters may not view him favorably (yet), but these are the topics that will resonate with the electorate.


In our call later today, I will be joined by our Financials Sector Head Josh Steiner and Healthcare Sector Head Tom Tobin to discuss the potential impact on their sectors depending on who wins the Presidency and Congress. I will also touch on the outlook for some key asset classes. The big one is the U.S. dollar. 


Based on what we’ve heard from some “in the know” Republican sources, Romney is toying with a massive cut in government spending on the order of $500 billion per year during his first term.  We really won’t know if this is true until if and when Romney is elected, but this kind of deficit hawkishness could be very bullish for the U.S. dollar.


Even as Obama appears to have the edge in many statistical categories, this is a race that is not yet over and if the recently released video of Romney from Mother Jones tells us anything, it may be that this race is just starting to heat up.  As Mao Tse-Tung famously said:


“Politics is war without bloodshed, while war is politics with bloodshed.”




Our 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, $111.87-113.89, $78.48-79.73, $1.29-1.31, 1.75-1.87%, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


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