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President Obama's Reelection Chances

President Obama's chances of being reelected climbed 1.6 percentage points week-over-week to 64%, only 0.5% under his all time high made on September 24. Romney may have won the first debate, but he'll have to keep crushing it going forward to take the White House in November.

 

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 64.5% on September 24, 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

 


Holding Our Position

This note was originally published at 8am on September 25, 2012 for Hedgeye subscribers.

“We are holding our position.”

-General George S. Patton

 

That’s what one of America’s greatest said on the eve of July 31, 1944 when Patton “outlined the basic procedure for his men until war’s end.” In specifically addressing his intentions toward the enemy, he also added that “we’re going to go through him like crap through a goose.” (The Soul of Battle, page 289)

 

In terms of how I think about our proverbial enemy in Global Economics (The Keynesian Army of Academia), that sounds about right. As I watched a good man win $30,000 after hitting a Hole-In-One yesterday at the Homes For The Brave fundraiser in CT, I said to myself ‘divine intervention!’ Somewhere, something out there is telling me Americans are smarter than our failed policy makers.

 

After their 2-day Viagra rally, Bernanke’s Bailout Beggars are back on their heels. Our Q2 2012 Global Macro Theme of “The Last War: Fed Fighting” isn’t easy. But it ain’t over till it’s over either. We’re Holding Our Position that Policies To Inflate (Qe3) will only perpetuate the global growth slowdown. We believe that Strong Dollar is the only way to long-term American prosperity.

 

Back to the Global Macro Grind

 

Don’t look now, but US stocks are down for 5 of the last 6 days and have done nothing but go down versus the YTD highs established on the day after Bernanke became completely politicized (September 13th, 2012).

 

From that goose poop intraday high on September 14th of 1474 in the SP500:

  1. US stocks are down -1.2% and -1.9% respectively (SP500 and Russell 2000)
  2. CRB Commodities Index is down hard, from 320 to 305 (-4.8%)
  3. US Treasury Bond Yields are down even harder, from 1.89% to 1.69% (-11%)

Ok, maybe calling it goose poop is a bit much. But if you bought stocks/commodities up there and shorted bonds, and put your nose real close to your P&L since, it’s closer to the truth than a rumor.

 

On a more serious note, this is getting serious. The Chairman of the Federal Reserve continues to make promises to markets that he cannot keep. Reality here is sad and simple, at the same time:

  1. Money Managers are forced to front-run Bernanke, chasing asset prices higher into central planning events
  2. Then they all need to sell, at the same time, before economic gravity takes hold, and prices correct

This is the anti-thesis of part I of Bernanke’s Congressional mandate (“price stability”). It’s also the #1 reason why A) people won’t hire and B) people won’t invest in this market at a 4.5 year top. Real people with real money don’t trust this market as far as they can throw an NFL replacement ref.

 

Now, to be fair, the equity bulls who got smoked from March-June have absolutely “nailed it” from July-September – maybe for all of the wrong reasons (#GrowthSlowing) – but nailing it is nailing it when it comes to the score.

 

But where do they go from here? In March perma-bulls said “3-4% growth is back, earnings are great, and stocks are cheap.” Today, we have both Growth and Earnings Slowing, but something like 216,000 global “easings” which are, allegedly, going to trump earnings season.

 

In addition to what Fedex (FDX), Intel (INTC), Staples (SPLS), Norfolk Southern (NSC), Bed Bath & Beyond (BBBY), and Oracle (ORCL) have previewed in the last 2 weeks, here’s the Growth and #EarningsSlowing Update from Caterpillar (CAT) last night:

  1. CAT cut 2012 and 2015 guidance without a lot of specifics
  2. Management hinted that 2012 Revenues would “come off” by about $2 Billion Dollars
  3. Management insisted cutting 2015 guidance from $15-20 in EPS to $12-18 in EPS was “not a guidance cut”

So, in our Research Meeting today I’ll ask our new long-cycle master Industrials Managing Director, Jay Van Sciver, if it’s “not a guidance cut”, what specifically does that goosy stuff smell like to you?

 

To review: when people say “stocks are cheap”, this CAT puke example really speaks to the heart of what that might mean. Cheap is cheap if the company can actually deliver on revenue and earnings expectations. “Cheap” gets cheaper when companies guide down:

  1. If you bought CAT in February 2012 at $116, assuming $20 in 2015 EPS, you paid what you thought was 6x EPS on 2015
  2. If you shorted CAT in February at $116, assuming $12 in 2015 EPS, you shorted it at 10x hopeful 2015 EPS

Ok, so 6-10x is cheap, I guess, if you use 2015! I’d need at least 6 Bud Lights and a 50% chance at Powerball to put my name on a 2015 forecast right now, by the way.

 

In the meantime, what about 2013? What if the company can’t drive earnings above $9 for the next 3yrs? What does Chinese “construction off 40%” (per CAT management) mean to Q3 and Q4 of 2012 revenues and earnings assumptions?

 

If you are long CAT, we’re guessing you don’t know the answer to those questions this morning. That’s ok, neither does CAT’s management. Therefore, goose or no goose, we are Holding Our Position: Short CAT as growth and earnings slow.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1742-1785, $106.73-111.44, $1742-1785, $78.85-80.63, $1.28-1.30, 1.63-1.79%, and 1442-1458, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Holding Our Position - Chart of the Day

 

Holding Our Position - Virtual Portfolio


THE M3: VIP; GOLDEN WEEK VISITATION; AUSTRALIA

The Macau Metro Monitor, October 9, 2012

 

 

VIP BUSINESS PICKED UP DURING GOLDEN WEEK HOLIDAY Jornal Va Kio

Despite the increasing number of tourists during the golden week holiday, the catering and retail sectors said business was not as good as expected.  However, VIP gaming business was in-line with expectations during the period.  Investors are still optimistic on fourth quarter revenues for the VIP business.

 

VISITORS WELL BELOW EXPECTATIONS Macau Daily Times

According to the Public Security Police Force (PSP), a total of 1.6 million visitors entered Macau during the Golden Week holiday.  The number of visitors registered between September 29 and October 7 was well below some expectations.  Some reports mention that about 2 million people were expected to enter the city through the Border Gate, while others were arriving thorough the ferry terminals and airport. 

 

GENTING SCIONS GAIN FOOTHOLD IN AUSTRALIA, EYE ASIA GAMING DEALS Reuters

Joey Lim Keong Yew and Ben Lim Keong Hoe, grandsons of Genting founder, the late Lim Goh Tong, and nephews of current CEO and chairman KT Lim, have acquired 95% of Two Way, an Australian wagering group. Donaco Singapore, the company controlled by Joey Lim and Ben Lim, will be renamed Donaco International Ltd.   Two Way will initially focus on the expansion of the Lao Cai International casino and hotel complex in Vietnam, which represents all of Donaco's assets, but is also planning two similar projects and a casino cruise ship.

 

The expansion of Lao Cai to a 428-room hotel with a casino housing 26 gaming tables and 150 slot machines, due for completion next year, is expected to provide a significant boost to revenue.  Mak Siew Wei, an executive director of Donaco who will join the Two Way board, said two similar casino-hotel projects in two other Asian countries were "far along" the planning stages, but declined to give more details due to the sensitivity of licensing negotiations.


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Speculative Governments

“The outcome of action is always uncertain. Action is always speculation.”

-Ludvig Von Mises

 

Conflicted and compromised governments have been rolling the bones on tax payer dollars for centuries. It’s just the 21st century where they’ve really started to speculate with some serious leverage.

 

It won’t end well. And they probably know that. But do they care? Or, more importantly, will they be around when it matters? The concept of accountability doesn’t dawn on these people as a primal fear.

 

So, with the following as one of the most read headlines on Bloomberg this morning: “IMF Sees Alarmingly High Risk of Deeper Global Slump”, what does the IMF suggest governments do about it this morning? More of what has not worked; must do more.

 

Back to the Global Macro Grind

 

Speculative Governments in the West are promising The People something very different than what a Hayekian or Chaos Theorist would – certainty. What they should be doing is embracing uncertainty. That would be a nice start towards getting back to the truth.

 

The truth is that Big Government Interventions are doing precisely the opposite of what central planners said they’d do.  The following 2 are the most glaring when it comes to structurally impairing economic growth:

  1. Piling more sovereign debt-upon-debt
  2. Suggesting Policies To Inflate aren’t inflationary

There’s another headline this morning about $5 gas in California – but, if you look at what le gas costs in Paris, there’s absolutely no inflation. Ask Ben Bernanke. He’s got the conspiracy theory about prices at the pump not being what you think they are down cold.

 

If you live in Italy (unless you are one of the many 30-40 year old men still living with their Mammas) you’re out in the cold this morning. Even if you believe the Italian government’s version of the truth, here’s the deal on that:

  1. Italy’s GDP growth slowing -0.8% sequentially to down -2.6% year-over-year
  2. Italy’s consumer price inflation (un-adjusted for things you actually consumer) is still +3.4% year-over-year!

How’s the Bailout Beggar model treating everyone now? Wasn’t the Keynesian “multiplier effect” on all those Euros supposed to help in the whole living large thing? When your cost of living is out-running your economic growth, you’re stagflating.

 

Stagflation? Shh! Bad word says Krugman. He and The Ben Bernank don’t believe in that. They can “smooth” that. They believe that if you inflate commodity and stock market prices you will, at some point, reach “escape velocity” from economic gravity.

 

Cool.

 

How’s that been going since the September ECB and Fed printing to Infinity & Beyond?

  1. Italian stocks (MIB Index) have corrected by -6.5% to 15,540 and failed to re-capture the flag of TAIL risk support
  2. Spanish stocks (IBEX Index) have corrected by -5.1% to 7,809 and failed to re-capture the flag of TAIL risk support
  3. But “US stocks are up double-digits year-to-date”

Yep. So the storytelling goes. It feels like yesterday that the SP500 was “up double-digit year-to-date” in October of 2007. That’s when both Growth and #EarningsSlowing were becoming as obvious as they are today (ratio of SP500 companies pre-announcing on the downside/upside = 4.33; highest since Q3 of 2001).

 

October of 2007 was also when Perma Bulls kept saying Bernanke was going to “cut rates” and we were going to have some “shock and awe.”

 

Oh bro, did we ever get both!

 

With the SP500 only down -1.3% since the Bernanke Top (September 14th, 2012), everything in lah-lah land must be fine, no? US stocks aren’t outperforming Venezuelan stocks, but they are definitely beating up on these speculative Europeans.

 

Or are they?

  1. Apple (AAPL) = down -9.1% since its performance-chasing top of $702 (September 19th, 2012)
  2. Tech (XLK) = down -3.6% since September 19th, 2012
  3. Commodities (CRB Index) = down -4.6% since the same Bernanke Top

It’s a good thing there’s no one in the US who bought AAPL or Oil up there.

 

Speculative markets are what they are. They are not new. But Speculative Governments driving speculative expectations about growth and asset price inflation that turn out to be completely wrong at least two-thirds of the time? Now that’s special.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $108.83-112.71, $79.21-80.18, $1.28-1.30, 1.59-1.74%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Speculative Governments - Chart of the Day

 

Speculative Governments - Virtual Portfolio


Q3 HOTEL TRANSACTIONS

Takeaway: US UUP transaction volume remains lower year-over-year

M&A and Other Trends for Q3 2012

 

  • Q3 2012 US hotel transaction volume was $2.6 billion, up from Q2 2012's $1.5 billion, but lower than Q3 2011's $2.8 billion.
    • The number of US luxury/upper upscale hotel transactions were almost unchanged QoQ and YoY 
    • There was a pickup in multi-asset sales
    • Relative to a 6 quarter trailing average, US average price per key (APPK) in the Upper Upscale segment fell 29% to $190k - One reason that Upper Upscale pricing is down is that many of the hotel transactions had a lot of deferred capex and were in secondary cities
    • There were two transactions that surpassed $1MM in APPK:  New York's Plaza Hotel and the Cavendish Hotel in London
    • Starwood Hotels sold the W Los Angeles and the W Chicago to Pebblebrook Hotel Trust and Chesapeake Lodging Trust, respectively
  • According to Fitch, August hotel delinquency rate was 10.82%, slightly lower than May's 11.15%.  The delinquency rate remains below the 14% seen in Q3 2011.
  • According to STR, YTD cap rate has been 9.3%.  The average interest rate is 4.25%.

 

Q3 HOTEL TRANSACTIONS - appk2

 

Q3 HOTEL TRANSACTIONS - luxury

 

Q3 HOTEL TRANSACTIONS - uup


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