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TODAY’S S&P 500 SET-UP – October 1, 2012

As we look at today’s set up for the S&P 500, the range is 19 points or -0.60% downside to 1432 and 0.72% upside to 1451. 













  • ADVANCE/DECLINE LINE: on 09/28 NYSE -658
    • Decrease versus the prior day’s trading of 1479
  • VOLUME: on 09/28 NYSE 832.31
    • Increase versus prior day’s trading of 31.27%
  • VIX:  as of 09/28 was at 15.73
    • Increase versus most recent day’s trading of 6.00%
    • Year-to-date decrease of -32.78%
  • SPX PUT/CALL RATIO: as of 09/28 closed at 2.01
    • Up from the day prior at 1.82


  • TED SPREAD: as of this morning 26.72
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.62%
    • Decrease from prior day’s trading of 1.63%
  • YIELD CURVE: as of this morning 1.39
    • Down from prior day’s trading at 1.40

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:58am: Markit US PMI Final, Sept. est. 51.5 (prior 51.5)
  • 10am: ISM Manufacturing, Sept. est. 49.8 (prior 49.6)
  • 10am: Construction Spending M/m, Aug. est. 0.5% (prior -0.9%)
  • 11am: Fed to buy $4.5b-$5.5b Treasury debt due 11/15/2020-8/15/2022
  • 11:30am: U.S. to sell $32b 3-mo, bills, $28b 6-mo. bills
  • 12pm: Fed’s Williams speaks in San Francisco
  • 12:30pm: Bernanke speaks on monetary policy in Indianapolis
  • 4pm: USDA crop-condition reports


    • U.S. government’s fiscal year, Supreme Court term begin
    • FDA Center for Drug Evaluation and Research Director Janet Woodcock speaks on agency’s future, 8am
    • FAA advisory panel meets to review air-traffic control procedures for standardization, revision, clarification and upgrading of terminology, 8:30am
    • WTO Director-General Pascal Lamy speaks on future of international trade at Brookings, 4:45pm


  • U.S. manufacturing probably shrank in Sept. as global economy
  • Xstrata backs Glencore bid after winning board assurance
  • Kraft Foods Inc. becomes Mondelez; Kraft Foods Group spun off
  • Greek government resumes talks with international creditors
  • U.S. jobs outlook seen weak as companies see need to cut costs
  • Nokia, Oracle to unveil mapping software pact: WSJ
  • KKR said to buy stake in oil services company Acteon Group
  • Euro-area unemployment at record 11.4% in Aug., matching est.
  • Sony’s ‘Hotel Transylvania’ posts $43m in weekend N.A. sales
  • Yahoo to hold “all-hands” meeting on process, goals: AllThingsD
  • Japan Tankan sentiment worsens as slowdown hurts exports
  • Chinese markets are closed all week
  • LightSquared bankruptcy hearing over control of co.


    • Cal-Maine Foods (CALM) 6:30am, $0.35
    • Ferrellgas Partners (FGP) 7am, $(0.43)



OIL – the most bullish break-down in all of Global Macro in the last 10 days is the one associated with the USD having 2 consecutive up wks; Brent’s long-term TAIL line = $112.98, so we’ll be watching that line closely this week into and out of the Oct 3rd debate.

  • Oil Declines From One-Week High as China Manufacturing Weakens
  • Bull Wagers Tumble Most in 16 Weeks as Prices Slump: Commodities
  • Xstrata Recommends Glencore’s Revised Offer to Its Shareholders
  • Corn Reaches Two-Week High as Stocks Fall More Than Estimated
  • Raw Sugar Climbs for Third Day Before Delivery; Cocoa Declines
  • Gold Seen Falling in London as Some Investors Sell After Rally
  • Copper Seen Falling as East Asian Economies Struggle for Growth
  • Iron-Ore Price Forecast Cut by ANZ to $110/MT for Fourth Quarter
  • Hedge Funds Cut Bullish Oil Bets as Output Soars: Energy Markets
  • U.S. Beating Russia in Diesel Shipments Boosts Tankers: Freight
  • Sumitomo Sees ‘Solar Bubble’ as Japan Rejects Nuclear: Energy
  • Timah to Assess Work of Bangka Miners to Ensure Tin-Ore Supplies
  • Silver Tops Commodities First Time Since 1997: Chart of the Day
  • Iron-Ore Swaps Slide 0.5% in London, Clarkson Data Show










FRANCE – the Hollande election seems to be having some economic issues; France reported an absolute bomb of a PMI print for SEP of 42.7 this morning (vs 46 in AUG); still trying to figure out how USA becoming more like France in 2013 is a good thing…






JAPAN – if countries with Keynesian policy makers would just ban reporting of economic data, everything would be fine; after closing down -2.6% last wk, Nikkei continues its bearish divergence, down another -0.8% overnight (-14.2% since the global #GrowthSlowing top in March); Top3 economy in the world; not inconsequential.










The Hedgeye Macro Team







Strip revenues may have fallen YoY in August

  • Assuming normal slot and table hold, our model is predicting -3% to +1% for August Strip gaming revenue YoY change.  Baccarat, as usual, will be the wild card.
  • McCarran airport passengers grew 0.3% while NV taxi trips fell 1.7% in August.
  • Slot volume, the most important Strip metric in our opinion, could fall again in August, which would be the 5th consecutive month of declines.  Slot win faces a difficult slot hold comp of 8.1%.





The Economic Data calendar for the week of the 1st of October through the 5th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




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Weekly European Monitor: Spain – Who Cares?

Takeaway: Spain’s growth assumption, and therefore budget, is way off! Markets wait for a Spanish bailout.

-- For specific questions on anything Europe, please contact me at to set up a call.


Positions in Europe: Short EUR/USD (FXE); Long German Bonds (BUNL)


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -2.6% week-over-week vs -0.1% last week. Bottom performers: Cyprus -9.7%; Spain -6.3%; Italy -5.6%; France -5.0%; Greece -4.7%; Portugal -4.2%; Ukraine -4.1%; Belgium -4.0%; Netherlands -3.3%; Germany -3.2%. Top performers: Poland +0.1%; Hungary -0.3%; Czech Republic -1%. [Other: UK -1.9%].
  • FX:  The EUR/USD is down -0.94% week-over-week.  W/W Divergences: NOK/EUR +1.23%; SEK/EUR +1.02%; PLN/EUR +0.46%; GBP/EUR +0.44%; RUB/EUR +0.42%; CHF/EUR +0.20%; DKK/EUR 0.00%; HUF/EUR -1.01%; CZK/EUR -1.12%.
  • Sovereign CDS:  Sovereign CDS were higher on the week. On a week-over-week basis Ireland led the charge at +46bps to 323bps, followed by Portugal +43bps to 517bps, Italy +34bps to 362bps, and Spain +25bps to 392bps.
  • Fixed Income:  The 10YR yield for sovereigns were higher on week for the peripherals with the exception of Greece.  Portugal climbed the most week-over-week at +40bps to 9.00% followed by Spain +39bps to 6.05% and Italy +15bps to 5.17%.  Greece declined a monster -84bps on the week, Germany fell -18bps to 1.42% and France declined -10bps to 2.18%.

Weekly European Monitor: Spain – Who Cares? - ff. 1


Weekly European Monitor: Spain – Who Cares? - ff. 2


Weekly European Monitor: Spain – Who Cares? - ff. 3



Spain – Who Cares?


While Greece in economic terms is a small fry compared to Spain, markets are once again showing the influence that political/economic events in just one country (in this case Spain) can have on global markets. Yet understanding the political developments in Spain this week takes a rather fine-toothed comb and a bit of head scratching on the economic side.


Is Spain asking for a sovereign bailout or not? Is the ESM the funding vehicle by which Spanish banks can tap funds to recapitalize its banks or not?


Both questions are unclear. To the first one, PM Rajoy continues to drag his feet and provide ambiguous responses. 


A few considerations:

  • Rajoy is simply politicking to play the best cards he can get from the ECB via the OMTs.
  • Rajoy see that yields are not astronomical (the 10YR is currently at 6.05% vs a high of 7.58% on 7/24) so there’s no need for a bailout until this changes.
  • Rajoy announced his 2013 budget yesterday (more below) and wants to first test the waters of the newest fiscal consolidation measures on his populous.
  • Rajoy is waiting for the results of the Catalan elections (brought forward to November 25th) before asking for a bailout. [While the chances of an independent Catalonia appear small, the outcome could have an impact on the political mood which Rajoy will have to address].

To the second question on the ESM, finance ministers of Germany, Netherlands, Finland, and Austria stirred up the proverbial pot (and brought further uncertainty) this week when they said they were against allowing the ESM to take over Spain’s current bank recapitalization scheme. Despite the confusion over the language of this statement, the group is for the ESM “financing” the recapitalization, yet against the ESM (and possibly EFSF) subordinating bond holders in the event of a restructuring. 


On Spain’s 2013 Budget

On Thursday Spain released its 2013 Budget.  It’s hard to say why the U.S. market bounced on the news (the S&P500 closed up +0.95% on the day) but the IBEX closed down -0.2% on the day. Below are some of the notable tenants of the budget, however what’s critical is the government’s assumption for growth next year was unchanged at -0.5%.


Consensus has 2013 growth down at -1.3 to -1.6% and we think it could be closer to -2%!  In short, slower growth will reduce tax revenues and prevent Spain from hitting its deficit target (from 6.3% this year to 4.5% next). You only have to look to 2011 to see how off the target the government has been: it once estimated the 2011 deficit to be 8% vs the most recently stated 8.9%.

  • €13 billion ($16.7 billion) of spending cuts and tax increases for 2013 and said it will place new limits on early retirements.
  • 58% of the budget adjustment will come from spending cuts, 42% from income measures.
  • Increases taxes on lotteries, short-term capital gains, extended a wealth tax, and scraps rebates for large companies and mortgage holders.
  • Goal, as presented in July, is designed to cut the deficit by €65 billion through the year 2014.
  • Rajoy is chopping €40 billion from his ministries.
  • Rajoy took €3B from the €67B pension reserve fund to boost payment for retirees. 1% increase in 2013.
  • Budget plan will reduce the deficit to 4.5% of GDP in 2013 from the targeted 6.3% in 2012.


On forecasts:

  • 'Soft' recession in 2013 with GDP (0.5%) = unchanged vs previous estimates.
  • Hopes 2013 will be last year of recession.
  • See's jobless rate at the end of 2013 at 24.3% vs 24.6% at the end of 2012.
  • An increase of more than 30% in debt-servicing costs next year.


The Pain Continues    

  • Spain has over €40B in debt maturities (principal + interest) coming due in the next two months alone.
  • Bank of Spain noted that bad loans held by Spanish banks hit a fresh record high in July. Non-performing loans rose to €169.3B in July, or 9.9% of outstanding credit, from €168.4B in July, or +9.4%.
  • July bank deposits in Spain were €1.287T, down 7.8% Y/Y.
  • Egon-Jones cut Spain’s sovereign credit rating to CC from CC+.
  • Today’s audit release from Oliver Wyman’s stress tests of 14 Spanish banks showed a capital deficit of €59.3B, just shy of the €60B expected:
    • Bankia was a notable underperformer with a €24.7B capital deficit shortfall.
    • Banco Popular Espanol had a €3.2B shortfall.
    • Notable lenders without capital needs included: Banco Santander SA, Banco Bilbao, and Banco Sabadell SA.

(Note: Oliver Wyman assumed a real decline in GDP of -4.1% in 2012, -2.1% in 2013 and -0.3% in 2014. It estimated that unemployment would keep rising to 27.2% in two years’ time and the tests factored in the Spanish 10YR yield of 7.4% this year and 7.7% in 2013 and 2014.)


One saving grace in the Spanish drama may be Germany. After all, its banks have the highest exposure in Europe to Spain, at $139.9B, of which $45.B alone is exposure to banks. While the figure is under the cap sum of €190B Frau Merkel pledged via the ESM, we still believe that fear of the repercussions of a Spanish default on the broader region and economy outweighs letting Spain fail in the mind of Merkel.


Otherwise, it’s pretty clear to us that Spain is hostage to the market, which will surely be pricing its debt higher, and that the government is underfunded to take care of its bank recapitalization alone. As always, fears from the sovereign will play into the perceived health of its banks and vice versa. While we can’t pin-point an additional bailout for Spain, we think one is inevitable, and probably before year-end.


Weekly European Monitor: Spain – Who Cares? - ff. 4






Our immediate term TRADE range for the cross is $1.27 to $1.29. Our long-term TAIL line of resistance is $1.31.  While Draghi’s “unlimited” promise has boosted the currency pair, we see a heavy line of resistance at our TAIL resistance level that we do not expect to be overcome. We’re currently short the EUR/USD via the etf FXE. 


In the second chart below we look at CFTC data for net contracts of Euro non-commercial positions. Interestingly, since a high in short positions in the Euro on 6/5/12 (-213.060 contracts), investors have been less bearish (and covering). Week over week, contracts are 18% less bearish, -95,080 to -77,671 as of 9/18. 


Weekly European Monitor: Spain – Who Cares? - FF. 5


Weekly European Monitor: Spain – Who Cares? - ff. 6



Data Dump:


Eurozone Business Climate -1.34 SEPT vs -1.18 AUG

Eurozone Consumer Confidence -25.9 SPET Final (inline)

Eurozone Economic Confidence 85 SEPT vs 86.1 AUG
Eurozone Industrial Confidence -16.1 SEPT vs -15.4 AUG

Eurozone Services Confidence -12 SEPT vs -10.8 AUG

Eurozone M3 2.9% AUG Y/Y vs 3.6% JUL

Eurozone CPI Estimate 2.7% SEPT Y/Y vs 2.6% AUG


Germany CPI (Preliminary) 2.1% SEPT Y/Y vs 2.2% AUG

Germany Import Price Index 1.3% AUG M/M (exp. 0.8%) vs 0.7% JUL   [3.2% AUG Y/Y (exp. 2.7%) vs 1.2% JUL]

Germany Retail Sales -0.8% AUG Y/Y vs -1.6% JUL

Germany IFO Business Climate 101.4 SEPT (exp. 102.5) vs 102.3 AUG [falls for a 5th consecutive month]

Germany IFO Current Assessment 110.3 SEPT (exp. 111) vs 111.1 AUG

Germany IFO Expectations 93.2 SEPT (exp. 95) vs 94.2 AUG

Germany GfK Consumer Confidence 5.9 OCT (exp. 5.9) vs 5.9 SEPT

Germany Unemployment Change 9K SEPT vs 11K AUG [increased for a sixth month]

Germany Unemployment Rate 6.8% SEPT vs 6.8% AUG


UK Q2 GDP FINAL -0.4% Q/Q (initial -0.5%) and -0.5% Y/Y (inline)


France Consumer Confidence 85 SEPT vs 86 AUG

France Q2 GDP Final 0.0% Q/Q (UNCH) and 0.3% Y/Y (UNCH)

France Own-Company Production Outlook -6 SEPT vs -7 AUG

France Production Outlook Indicator -52 SEPT (exp. -44) vs -44 AUG

France Business Confidence 90 SEPT (exp. 89) vs 90 AUG

France Producer Price 2.6% AUG Y/Y vs 1.3% JUL

France Consumer Spending -0.5% AUG Y/Y vs 1% JUL


Italy Retail Sales -3.2% JUL Y/Y vs -0.5% JUN

Italy CPI (Preliminary) 3.4% SEPT Y/Y vs 3.3% AUG

Italy PPI 3% AUG Y/Y vs 2.2% JUL

Italy Hourly Wages 1.6% AUG Y/Y vs 1.5% JUL

Italy Consumer Confidence 86.2 SEPT (exp. 86) vs 86.1 AUG

Italy Business Confidence 88.3 SEPT vs 87.3 AUG

Italy Economic Sentiment 75.5 SEPT vs 79 AUG


Spain CPI (Preliminary) 3.5% SEPT Y/Y vs 2.7% JUL

Spain Producer Prices 4.1% AUG Y/Y vs 2.6% JUL

Spain Total Housing Permits -37.1% JUL Y/Y vs -49.7% JUN

Spain Retail Sales -2.1% AUG Y/Y vs -7% JUL


Belgium CPI 2.76% SEPT Y/Y vs 2.86% AUG


Netherlands Q2 GDP Final -0.4% Y/Y (vs original -0.5%) and 0.2% Q/Q (inline)

Netherlands Producer Confidence -6.7 SEPT vs -4.6 AUG


Austria Industrial Production 2% JUL Y/Y vs 0.3% JUN

Austria Producer Price Index 1% AUG Y/Y vs 0.2% JUL


Switzerland UBS Consumption Indicator 1.03 AUG vs 1.48 JUL

Switzerland KOF Swiss Leading Indicator 1.67 SEPT vs 1.59 AUG


Portugal Consumer Confidence -51.4 SEPT vs -49.2 AUG

Portugal Economic Climate -4.2 SEPT vs -4 AUG

Portugal Industrial Production -2.2% AUG Y/Y vs -0.3% JUL

Portugal Retail Sales -6.1% AUG Y/Y vs -7.7% JUL


Ireland Property Prices -11.8% AUG Y/Y vs -13.6% JUL


Sweden Consumer Confidence 2 SEPT vs 5.4 AUG

Sweden Manufacturing Confidence -10 SEPT vs -9 AUG

Sweden Economic Tendency Survey 95.8 SEPT vs 96.9 AUG

Sweden PPI -1.9% AUG Y/Y vs -1.1% JUL

Sweden Household Lending 4.6% AUG Y/Y vs 4.5% JUL

Sweden Retail Sales 1.8% AUG Y/Y vs 2.3% JUL


Norway Retail Sales 2.7% AUG Y/Y vs 2.7% JUL

Norway Unemployment Rate 2.4% SEPT vs 2.6% AUG


Finland Business Confidence -8 SEPT vs -9 AUG

Finland Consumer Confidence 3.4 SEPT vs 0.5 AUG

Finland PPI 1.5% AUG Y/Y vs 0.2% JUL

Finland Unemployment Rate 7.3% AUG vs 6.9% JUL


Greece Retail Sales -8% JUL Y/Y vs -9.6% JUN


Poland Retail Sales 5.8% AUG Y/Y vs 6.9% JUL

Poland Unemployment Rate 12.4% AUG vs 12.3% JUL


Hungary Unemployment Rate 10.4% AUG vs 10.5% JUL

Czech Republic Business Confidence 2.7 SEPT vs 2.4 AUG

Czech Republic Consumer and Business Confidence -3.8 SEPT vs -3.6 AUG

Czech Republic Consumer Confidence -29.8 SEPT vs -27.3 AUG


Slovakia Consumer Confidence -31.6 SEPT vs -25.9 AUG
Slovakia Industrial Confidence -0.3 SEPT vs -4.7 AUG

Slovakia PPI 4.1% AUG Y/Y vs 3.6% JUL

Slovenia CPI 3.3% SEPT Y/Y vs 2.9% JUL


Turkey Foreign Tourist Arrivals 9.7% AUG Y/Y vs -0.6% JUL



Interest Rate Decisions:


(9/25) Hungary Base Rate Announcement CUT 25bps to 6.50%



The European Week Ahead:


Monday: Sep. Eurozone PMI Manufacturing - Final; Aug. Eurozone Unemployment Rate; Sep. Germany PMI Manufacturing – Final; Sep. UK PMI Manufacturing; Aug. UK Net Consumer Credit, Net Lending Sec. on Dwellings, Mortgage Approvals, M4 Money Supply; Sep. France PMI Manufacturing – Final; Sep. Italy PMI Manufacturing, New Car Registrations, Budget Balance; Aug. Italy Unemployment Rate Preliminary; Greece Manufacturing PMI


Tuesday: Aug. Eurozone PPI; Sep. UK House Prices; PMI Construction; BRC Shop Price Index


Wednesday: Sep. Eurozone PMI Composite and Services - Final; Aug. Eurozone Retail Sales; Sep. Germany PMI Services – Final; Sep. UK PMI Services, Official Reserves; Sep. France PMI Services – Final; Sep. Spain Services PMI; Sep. Italy PMI Services


Thursday: Oct. Eurozone ECB Announces Interest Rates; Oct. Germany BoE Asset Purchase Target, BoE Announces Rates; Sep. UK New Car Registrations; 2Q BoE Housing Equity Withdrawal


Friday: Aug. Germany Factory Orders; Aug. Spain Industrial Output



Matthew Hedrick

Senior Analyst

Silver Continues To Climb

Gold may be more popular in the mainstream media but silver is where speculators are allocating capital. The metal continues to trend higher thanks to Bernanke's easing methods and year-to-date, the SLV ETF is up +23.6% compared with GLD which is only up +9.1% during the same time period.


The chart below shows the price of spot silver over the years.


Silver Continues To Climb - silverchart

BYI: King Of Content

Takeaway: BYI's announcements at G2E next week should be a long-term positive catalyst. Management has a positive outlook for the road ahead.

Bally Technologies (BYI) will likely provide a bullish outlook to investors next week at industry gaming event G2E, backing it up with strong content and new devices. Hedgeye Gaming, Leisure and Lodging Sector Head Todd Jordan has been out in Las Vegas this week meeting with Bally management and discussing all segments of their business.


Management has told us they’re very bullish on not just upcoming content but their outlook for future quarters as well. This is the kind of optimism we like to see at a company. The stock has done well relative to its competitors and is up nearly +25% year-to-date. Right now we’re not making any calls on their September quarter; we’re essentially in-line with expectations and think next week’s G2E announcements could be a positive long-term catalyst.



BYI: King Of Content  - slotsups



Jordan highlights some data points from high trip to Vegas and meeting with BYI below:


“We’re usually sober regarding the pre-G2E commentary and glowing press releases regarding each company’s upcoming G2E exhibits.  What’s different for BYI is that this historically reel spinning slot supplier is going to display mostly video content that has apparently been getting great feedback from customers.  Remember that approximately 80% of units shipped are video and unbeknownst to most investors, BYI’s recent slot shipments have also been around 80% of total.  So their video content is already driving higher share recently and with what they are going to show at G2E, will likely increase their high teens overall share.  This is not your father’s Bally Gaming.”

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