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Macau: Slowing But Still Strong

Takeaway: Gaming revenues in Macau should reach record levels in October.

With October just about to go in the books, Macau’s gaming revenues for the month should squeak out a gain compared to some tough comps and should reach record levels, according to Hedgeye’s Gaming, Lodging and Leisure research team.

 

The team also says it still believes that double-digit year-on-year growth could resume in November and December for two key reasons: easier comparisons and the Beijing government handover.  

 

Below is a chart that shows average daily table revenue for the last few months.

 

Macau: Slowing But Still Strong - macauchart


Building Momentum?

Takeaway: The NAHB Remodeling Index shows a flat reading, but is at its highest level in seven years.

The NAHB Remodeling Index moved to a level of 50 last quarter, which indicates a flat reading. The index, which tracks the number of contractors who are reporting that remodeling activity is high or lower than the previous quarter, is at its highest level since the third quarter of 2005. A reading of 50 shows equal  numbers of respondents reporting activity higher or lower compared to the previous quarter. Below is a chart of the index since its inception in 2003.

 

Building Momentum? - Josh


BACK TO BUSINESS

Client Talking Points

KEY RANGES TODAY

It’s certainly a difficult time for millions of people impacted by the devastation of Hurricane Sandy. Our CEO, Keith McCullough, hopes for health and safety to the many in the dark on the East Coast. As Keith says, “Hope isn’t a risk management process.” He is really at a loss for words, so we wanted to offer you a few risk management lines.

  • US Dollar Index immediate-term TRADE breakout line $79.57 (long-term TAIL support=$78.11)
  • SP500 TRADE (1431) and TREND (1419) resistance
  • CRB Commodities Index TRADE (305) and TAIL (312) resistance

IT’S THE END OF THE MONTH AS WE KNOW IT

It’s the last day of October, which means it’s not only Halloween, but something potentially scarier -- the year-end for many mutual funds. Futures are indicating that we’re going to get a lift thanks to these month-end markups. That doesn’t change the big picture – global growth and corporate earnings both are slowing.


CHINA SYNDROME

Many are saying that China’s stock market has bottomed. As we say, bottoms are processes, not points and we’re still bearish on a TRADE, TREND and TAIL basis for the Shanghai market. Sure, Chinese stocks rallied off two week lows to close up marginally (0.3%), but China hasn’t bottomed.

 

Asset Allocation

CASH 61% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
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.

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.

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.

Three for the Road

TWEET OF THE DAY

“All people begging for banker and #oldwall bailouts when people in the dark need them, #reflect.” -@KeithMcCullough

QUOTE OF THE DAY

“If the world was perfect, it wouldn’t be.” – Yogi Berra

                       

STAT OF THE DAY

8 million, the number of American homes without power after Hurrucane Sandy


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Investigating Truth

This note was originally published at 8am on October 17, 2012 for Hedgeye subscribers.

“The first duty of a man is the seeking after and investigation of truth.”

-Cicero

 

Hail Mary end-zone finale to Packers/Seahawks? Last night’s end to the Presidential Debate was not, but Candy Crowley played the role of an NFL replacement ref, turning what I had scored as a tie into a late Obama win.

 

What is the truth in America? Was the moderator “fact-checking” Romney into the boards at the most critical point of the debate fair? Does it matter? Like many journalists in the manic media, Candy knows where her bread is buttered. Maintaining access to the party in power = priority #1. Sadly, for the country, that included her on-the-fly interpretation of Romney vs Obama truth.

 

Not surprisingly, the stock, currency, and commodity markets front-ran the momentum swing of the debate. It was a marginal win for Obama, but what happens on the margin in Macro matters most. What’s good (on the margin) for Obama, is bad for the US Dollar. It has been since he took office. Partisan Republicans may disagree with me on last night’s score; the market doesn’t.

 

Back to the Global Macro Grind

 

With the SP500 inverse correlation to the US Dollar of -0.95 right now, the truth is that if you get the immediate-term moves in the US Dollar right, you’ll get a lot of other things right. That’s the only reason why I feel compelled to score political momentum right now.

 

Perversely (even though I think Gold is in a long-term bubble) that’s why I bought Gold in front of last night’s debate. Obama up = Dollar down = Gold Up. Bubbles can remain bubbles for as long as causality (policies to debauch the Dollar) remains intact.

 

As I investigate other truths this morning, here are some big ones:

 

1.   #EarningsSlowing – this is our top Hedgeye Global Macro Theme for Q4 2012 (send sales@Hedgeye.com an email if you want the slide-deck; I did meetings all day in Boston yesterday and we came away with plenty more long-cycle ideas to discuss on peak US Corporate margins). #EarningsSlowing remains very relevant this morning with both Intel (INTC) and IBM reiterating the same.

 

2.   Tech Stocks (XLK) – if you didn’t know global growth slowing would translate into +/- GDP businesses (semis, hardware, etc.) seeing top and bottom line slowdowns, now you know. Tech is down -2.4% for October.

 

3.   The sun rises in the East

 

While Obama, Geithner, and Bernanke continue to believe that they can “smooth” the economic cycle (Keynesian Economics 101), points #1 and #2 are now colliding with point #3 (gravity). The stock market hasn’t been the economy in 2012 but, eventually, they’ll collide.

 

What’s the market’s truth (last price) telling you this morning?

  1. Lower-highs in stocks (globally)
  2. Higher-lows in bonds (globally)
  3. EUR/USD testing its TAIL risk line of resistance

On that last point, I can’t overstate how important the next currency move is from here.

 

A)     IF the US Dollar snaps its TAIL line of support ($78.11)

B)      AND the Euro (vs USD) breaks out above its TAIL risk line of resistance ($1.31)

C)      THEN the market is probably telling you that Obama is going to win the Election

 

Four more years of the same (Big Government Interventions, Spending, and Regulation/Rule-Making on-the-fly) might actually be fantastic for the stock market – but it will continue to crush both real (inflation adjusted) economic growth, hiring, and confidence. I wonder what the 47% think about that?

 

Collectively, the American people aren’t as dumb as some of the media’s partisans. I highly doubt they’ll trust the stock market anymore today than they didn’t yesterday (stocks at 5yr highs = Equity Fund outflows and Financial Media ratings at YTD lows).

 

If you didn’t know Candy’s role in the debate was as politically rigged as Bernanke’s has been at the Fed, now you know that too. The truth about America 2.0: your un-elected and un-accountable pundits and politicians are running the gong-show.

 

My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Russell2000, and the SP500 are now $1734-1766, $112.60-115.26, $79.08-80.07, $1.29-1.31, 1.64-1.76%, 813-842, and 1419-1469, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Investigating Truth - Chart of the Day

 

Investigating Truth - Virtual Portfolio



Surviving Storms

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

-Charles Darwin

 

Suffice it to say, from a survival perspective, the last 48 hours have been humbling. As my generator teeters on running out of gas again this morning, I write this Early Look to you under a flickering light with a heavy heart.

 

We will move forward today. We will adapt and change. We will get through this together.

 

Yes We Will.

 

Back to the Global Macro Grind

 

Today is month-end for October (year-end for many mutual funds). Early morning futures are indicating we’ll get a lift into those month-end markups. Unfortunately, the broader risk management picture of Global Growth and #EarningsSlowing has not yet changed.

 

From The Bernanke Top (September 14, 2012), US stocks (SP500) and commodities (CRB Index) are down -4.3% and -8.1%, respectively. For October to-date, the SP500 is down -2% and the Tech Sector (XLK) is down -6%.

 

What will November bring?

 

I sincerely hope health and safety to the many of us who are in the dark here on the East Coast. But from a stock and commodity market perspective, hope is obviously not a risk management process.

 

On that score, because I’m really at a loss for words this morning – here are some risk management lines to consider that will be highly influential to US stocks and commodities in the coming weeks:

  1. US Dollar Index immediate-term TRADE breakout line of $79.57 (long-term TAIL support = $78.11)
  2. Euro (EUR/USD) long-term TAIL resistance = $1.31
  3. SP500 TRADE (1431) and TREND (1419) resistance
  4. Russell2000 TRADE (824) and TREND (846) resistance
  5. Tech Sector ETF (XLK) TRADE ($29.62) and TREND ($30.28) resistance
  6. Apple (AAPL) TRADE ($624) and TREND ($640) resistance
  7. US Equity Volatility (VIX) immediate-term TRADE support = 16.61; TAIL resistance = 19.05
  8. CRB Commodities Index TRADE (305) and TAIL (312) resistance
  9. Oil (WTIC) TRADE ($88.32) and TREND ($91.77) resistance
  10. Gold TRADE ($1735) resistance; TREND ($1699) support

At the same time, it will be important to monitor what the US Bond market thinks about risk. The 10-year US Treasury Yield has been as good a leading indicator as any on US growth in 2012 – here are the levels that matter most in our model:

  1. UST 10yr TRADE resistance = 1.81%
  2. UST 10yr TREND support = 1.72%
  3. UST 10yr TAIL resistance = 1.91%

In other words, if the 10yr yield can’t find a way to breakout > 1.91% in the coming weeks and months, the high probability situation in our model is that US growth will remain below 2% in Q4.

 

All the while, Chinese demand will be an open question. While our research and risk management views currently say that the “China has bottomed” crowd has no confirming data to support that claim, our views are always subject to real-time change.

 

Across risk management durations in our model, here are the lines that matter most on the Shanghai Composite:

  1. Immediate-term TRADE resistance = 2112
  2. Intermediate-term TREND resistance = 2151
  3. Long-term TAIL resistance = 2294

When an asset class is bearish across all 3 of our core risk management durations, we call that a Bearish Formation (when last price is above all 3 we call that a Bullish Formation). We don’t have to be bullish or bearish. We simply have to embrace uncertainty, change our minds, and adapt as the data does. That’s how we survive storms.

 

Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, 10yr UST Yield, and the SP500 are now $1, $106.21-109.97, $79.57-80.45, $1.28-1.30, 1.72-1.81%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Surviving Storms - DXY

 

Surviving Storms - aa. vp


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