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THE M3: S'PORE CPI

The Macau Metro Monitor, October 23, 2012

 

 

SINGAPORE INFLATION RISES TO 4.7% IN SEPTEMBER Channel News Asia

Inflation in Singapore accelerated in September, driven by higher transport and housing costs.  Data from the Department of Statistics showed that the consumer price index (CPI) for all items rose to 4.7% in September, from 3.9% in August.  A joint statement issued by the Monetary Authority of Singapore and the Trade and Industry Ministry said: "This pick-up had been anticipated in the August inflation report and was largely attributed to the surge in COE premiums in August." 

 


 

 



Singapore: Letting It Fall

Singapore is due for a down quarter on a year-over-year basis in terms of gross gaming revenue. Gross Lettings (paid and comped room nights) in Singapore were down almost 5% year-over-year quarter-to-date through August. Since gross gaming revenue and gross lettings track each other closely, you can guess that the GGR number will be ugly. 

 

Genting Singapore probably lost volume to Marina Bay Sands (owned by LVS). We think Q3 EBITA for Marina Bay Sands will be flat. Looking at the chart, it doesn't look good for Singapore for September or October if the trend keeps up.

 

Singapore: Letting It Fall - image001


The Fed Can't Fix It

THE FED CAN’T FIX IT

 

CLIENT TALKING POINTS

 

THE FED CAN’T FIX IT

The Federal Reserve is apparently capable of “fixing” the economy through quantitative easing. It can also “fix” the market through mortgage buybacks and through statements broadcast on TV that make traders go bananas. One thing the Fed can’t do, however, is smooth the corporate EPS cycle. Earnings season is proving to be a cautionary tale as large cap and mega cap companies report misses or offer lower guidance for 2013. You’ve been warned; the Fed won’t be able to skew this one. 

 

SLOWDOWN TAKING HOLD

Permabulls better start getting with the program and realizing the market doesn’t go straight up like a rocketship. GDP is down, earnings are awful and stocks are still expensive. To those who think stocks are still cheap, you should remember that “cheap” gets “cheaper.” And that’s what’s going to happen as we head lower into November. The election will no doubt act as an important catalyst for moving the market, but until then...

 

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ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

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TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Obama bails out giants, erects barriers to entry, hands goodies to corporate friends. Media points to corp. profits as proof he's capitalist” -@TPCarney

 

 

QUOTE OF THE DAY

“You are not superior just because you see the world in an odious light.” -Vicomte de Chateaubriand

                       

 

STAT OF THE DAY

Hedge funds were up +1.04% for the month of September according to the Dow Jones-Credit Suisse Hedge fund Index.


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Speculative Governments

This note was originally published at 8am on October 09, 2012 for Hedgeye subscribers.

“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 $1755-1779, $108.83-112.71, $79.21-80.18, $1.28-1.30, 1.59-1.74%, and 1448-1464, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Speculative Governments - Chart of the Day

 

Speculative Governments - Virtual Portfolio



Earnings Deluge

“This tends to leave us less prepared when the deluge hits.”

-Nate Silver

 

If you think about all of the corrections (2-8%), draw-downs (9-19%), and crashes (20-30%) stocks and commodities have had in the last 5 years, how many of your favorite economists nailed calling all of them?

 

Almost anyone who is overpaid on the sell-side can tell you a story about why something is going up – but why do they have such are hard time articulating real-time risk on the way down?

 

Forecasting growth (slowing in Q1/Q2 of 2012) and earnings (slowing Q3/Q4) in 2012 wasn’t easy. But it’s even more difficult to comprehend how people who missed calling both are now telling you this is the “trough” and stocks are “cheap.”

 

Back to the Global Macro Grind

 

“Forecasting something as large and complex as the American economy is a very challenging task. The gap between how well these forecasts actually do and how well they are perceived to do is substantial. Some economic forecasters wouldn’t want you to know that.” (The Signal And The Noise, page 177)

 

How $50-100 Billion in market cap companies like Caterpillar (CAT) and Intel (INTC) miss these very obvious turns in both the global growth and the corporate earnings cycle at this point shocks me.

 

Does anyone get paid to have learned anything from the cycle turning in late 2007? The Fed can’t smooth the corporate EPS cycle.

 

In our top Global Macro Theme for Q4 (#EarningsSlowing – ask for the slide deck if you haven’t reviewed it), we contextualize the following:

  1. What coming off the last 5 peaks in corporate margins in the last 100 years looks like (stocks look “cheap” at the peaks)
  2. Why the risk to expectations is more in Q4 and 2013 than what’s staring CFO’s in the face in Q312
  3. Why stocks aren’t cheap if you’re using the right growth, margin, and earnings assumptions

That’s just the long-cycle data. It’s not “tail risk.” Corporate margins peaking as sales growth slows is a very high probability situation that you are seeing come across the tape with each and every Q312 earnings report. This should not be surprising you.

 

What surprises me is how disconnected the reality of this moment in the cycle has been relative to where the stock market has levitated. If you want to talk legitimate TAIL risk, that spread risk is it.

 

I often get asked what would change my view. My answer is usually a question – on what, the economy or the stock market? These have been two very different things in 2012 and all of a sudden they are colliding.

 

“Apres moi, le deluge”

 

That’s what King Louis the XV said to his mistress, meaning, en francais – ‘after me, the flood.’ And oh did he nail that one! And that’s the point of hitting the end of a long-standing narrative – everything bullish about stocks, oil, and gold at 14 VIX tends to end, fast.

 

Are the perma-bulls still serious about what they were saying in March (right as #GrowthSlowing took hold)?

  1. US GDP Growth +3-4% (US GDP = down 69% from Q411’s 4.10% to 1.26% reported most recently)
  2. Earnings are “great” (they were at the Q1 2012 top; but Q312 has been the worst in 3 years)
  3. Stocks are “cheap” (sure, if you use the wrong numbers)

Given the data, I doubt it. That would be a joke. And clients aren’t laughing. From Denver to Kansas City, Boston, Maine, and San Francisco (this morning), I have been on the road speaking with clients for the last month. They are getting very concerned about Q4 of 2012 through Q2 of 2013 – and they should be. They’ve seen this movie before.

 

The real reason stocks and commodities were straight up since June was the Fed. Since the Bernanke Top (September 14, 2012), the SP500 has had a 3% correction. What would make it a 9-19% draw-down from that “buy everything high”? Re-read the last 600 words, then factor in an Obama win, and then add a US Debt Ceiling being bonked in January, right before we hit the #FiscalCliff.

 

And remember, after stocks were up “double-digits YTD” in October of 2007, le “deluge” had a heck of a time finding its trough.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $108.22-110.84, $79.06-80.16, $1.29-1.31, 1.71-1.82%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Earnings Deluge - Chart of the Day

 

Earnings Deluge - Virtual Portfolio


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