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It Only Takes One

Client Talking Points

One Catalyst

It's easy to look at a major even that's occurred during a trading day and blame that for whatever direction the market decided to go. For instance, many people yesterday thought Harry Reid's comments sunk the market. But in reality, there's more going on behind the scenes. Growth continues to slow, earnings are under pressure and we face a political bubble that's quite unique in regards to the fiscal cliff. All these things (and many others we fail to mention here) all factor in to trading and markets. It's easy to pick a target and lay the blame on it, but it's pointless in ways.

Asset Allocation

CASH 58% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 18% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

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

“Wells notice to Stevie Cohen…imminent wrist slap" -@ZH_Crown

QUOTE OF THE DAY

“What we call 'Progress' is the exchange of one nuisance for another nuisance.” -Havelock Ellis

STAT OF THE DAY

GETCO offers to buy Knight Capital (KCG) for $3.50 a share.


China Surprise

 

Hedgeye CEO Keith McCullough appeared on CNBC's Fast Money last night and did a web extra clip discussing what lies ahead for the commodity markets and China. Keith noted that there are three big factors that come into play: China, copper and bond yields. Global growth continues to slow and investors who believed that China had bottomed got smoked when they didn't realize that "cheap stocks" can always get cheaper.

Watch Keith's full breakdown on the markets in the clip posted above.



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Taxing Profits

“The fuel that makes people work is profit.”

-Tom Girdler

 

If you want to know one of the critical business leadership differences between Obama and FDR, I highly recommend reading the book I just finished reviewing, Freedom’s Forge, “How American Business Produced Victory in WWII”, by Arthur Herman.

 

The aforementioned quote comes from an excellent chapter (page 244) near the end of the book titled “Victory Is Our Business.” Being a businessman, I absolutely loved it.  Empowering the best and brightest of this country to lead is the answer, not Congress.

 

Tom Girdler was a steel man. He was tough; he was an innovator; and he knew how to get things done. Bill Knudsen and Henry Kaiser (key FDR businessmen) were doers leading from the front too. These guys would put Harry Reid and Johnny Boehner to shame.

 

Back to the Global Macro Grind

 

If you want to tax me and my profits, that’s fine – I’ll just have less money to hire with. So just know that. I am not Warren Buffett. Most of us aren’t. Using him as a beacon for making the USA more like France is a joke. It’s elitist too.

 

The US stock market took an intraday nose dive yesterday after Harry Reid spoke about whatever he was trying to say. Today’s market “catalyst” is Obama “speaking with business leaders.” A market that hangs on the government’s next move is no “free” market. Yes They Can do this – and yes, they (Bush and Obama, Republicans and Democrat politicians) built this.

 

This is called a bubble in US Politics. So, when you are forced to live in a bubble of Big Government Intervention (government has been taxing and slowing growth in this country for a decade), what do you do?

  1. You buy Bonds (10yr UST Yield falls again this morning to 1.62%)
  2. You hold a large Cash position (our asset allocation to Cash = 58%)
  3. You pray that someone issues you more cash now (special dividend)

Prayer, of course, is not a risk management process for your portfolio – but if God is listening, he can provide you some perks. Check out these “special dividends” from the likes of Las Vegas Sands (LVS) and Costco (COST) in the last 48 hours. Special.

 

Now, if you aren’t long Costco this morning, you aren’t getting anything special (US futures down 5). If you are Costco, you are explicitly telling your investors that what you see coming down the pike isn’t special either. Taxing Profits changes behavior.

 

In other globally interconnected news:

  1. Chinese stocks move to within a hair of crash mode (-19.9% since March)
  2. Russian stocks move back into crash mode (-20.1% since March)
  3. Brazilians stocks are only down -17.6% since March (not quite crashing yet)

Perma Bull marketing firms used to call the B, R, and C (Brazil, Russia, China) a big component of the “BRICs.” Remember those? Those were the big growth engines of the world, until Bernanke started taxing their profits.

 

There are two big taxes that I, the businessman, can see, real fast:

  1. Tax Rate
  2. Rising Expenses

In the people business (provided that you give your employees great benefits like healthcare, dental, etc.), costs to run a small business in America are going up. If you work for the US Political Bubble and don’t get that, try it with your own money.

 

In Global Cycle businesses (transports, mining, etc.), when Bernanke devalues the currency in which your cost of goods sold (food, energy, etc.) are primarily priced, your margins are going down.

 

Since long-term commodity, healthcare, etc. inflation is sticky, there’s deleverage to your profits when global growth slows (sales slow faster than your costs). Then businesses are forced to right size their cost structure (i.e. fire people).

 

And on and on the profit cycle goes…

 

Or so it should. This is the fulcrum fault line in Keynesian Economic (Central Planning) assumptions – these people that both Bush and Obama empowered aren’t business people. They are academics who fundamentally believe they can “smooth” the profit cycle.

 

In March 2012, when we started making the global #GrowthSlowing call, this is why we got so loud about it. Yes, Bernanke was able to suspend the pricing of this economic gravity for 3 months. But now we are all hostage to it, again.

 

On Qe3, Emerson said that “for every benefit you receive, a tax is levied.” On taxing under the veil of class warfare, Andrew Jackson reminded Americans that “the wisdom of man never yet contrived a system of taxation that would operate with perfect equality.”

 

I’m here to remind you that a tax is a tax – and it’s up to you to figure out who is in your back pocket before it’s too late.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $107.52-110.38, $3.43-3.56, $80.06-80.63, $1.28-1.30, 1.55-1.68%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Taxing Profits - 44. tax

 

Taxing Profits - 44.vp


THE M3: SJM AFFORDABLE HOTEL; MARINE LIFE PARK

The Macau Metro Monitor, November 28, 2012

 

 

SJM AIMS TO BUILD "AFFORDABLE HOTEL" IN COTAI Macau Daily Times

Ambrose So said, “Most hotels in Cotai will be 5-star ones; we want to meet the different needs of a wider range of customers, in the hope of their longer stay in Macau…It is a good direction, if we could have more affordable hotel accommodation in order to satisfy a varied spectrum of customers."  Dr. So also expressed his agreement with the proposal put forth by Angela Leong for a complete smoking-ban in casinos. “I think it’s doable. The wind air curtain that divides 50 percent of the smoking area with the remaining smoke-free areas is never effective. Eventually, after two or three years, you have to give in to the ban all together, why not do it now?” Furthermore, SJM said they may consider expansion into the Hengqin new zone, “It depends on how the customers change,” So reflected. 

 

MARINE LIFE PARK DRAWS 12,000 VISITORS Asia One

The Marine Life Park at RWS in Singapore has drawn 12,000 people since it opened last Thursday.  Saying it is pleased with the response over the first weekend of operations, a Marine Life Park spokesman said it believes the numbers will increase in coming weeks when "our overseas marketing picks up and if the weather turns, hopefully, dry for our Adventure Cove Waterpark".  Besides the waterpark, the other allure is S.E.A. Aquarium which currently has 40,000 animals from 500 species.

 

Admission tickets for the S.E.A Aquarium and Adventure Cove Waterpark are sold separately at $29 per attraction for adults, and $20 per attraction for children and senior citizens.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 28, 2012


As we look at today's setup for the S&P 500, the range is 36 points or 1.14% downside to 1383 and 1.43% upside to 1419.        

                                                                                                                                                                       

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.35 from 1.38
  • BONDS – you can love to hate them on “valuation”, or just buy them on dips and smile into yr end; UST 10yr yield makes another lower-high last wk, dropping to 1.62% (from 1.69% at the start of the wk); no support to 1.55%.

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 23 (prior -2.2%)
  • 10am: New Home Sales, Oct. est. 390k (prior 389k)
  • 10:30am: DoE inventories
  • 11am: Fed to buy $1.75b-$2.25b notes due 2/15/36-11/15/42
  • 12:15pm: Fed’s Tarullo speaks in New Haven
  • 1pm: U.S. to sell $35b 5Y notes
  • 2pm: Fed’s Beige Book Economic Survey

GOVERNMENT:

    • House, Senate in session
    • President Barack Obama, House Speaker John Boehner hold meetings with Goldman Sachs CEO Lloyd Blankfein, other business leaders to discuss fiscal cliff
    • Pandora CEO Joseph Kennedy to testify at music-licensing hearing by House subcommittee
    • U.S. will auction ~3.8k blocks covering about 20.5m acres off Texas coast in western Gulf of Mexico, first sale of oil, gas exploration leases under Obama administration’s five-year plan for developing Outer Continental Shelf
    • Ex-BP Plc vice president, two former well-site supervisors arraigned on criminal charges for actions after 2010 oil spill
    • Treasury holds meeting of President’s Advisory Council on Financial Capability, with Undersecretary for Domestic Finance Mary Miller, 8am
    • House Energy and Commerce panel holds hearing on waste, fraud and abuse in Medicare, 10am

WHAT TO WATCH

  • Fed said to weigh forcing foreign banks to boost capital in U.S.
  • Goldman’s Blankfein among 13 CEOs meeting with Obama today
  • Groupon board said to consider CEO change amid growth slowdown
  • Costco to pay out $3b with $7/shr special cash div.
  • Smith & Nephew buys assets of Healthpoint Bio for $782m cash
  • Google said to oppose consent decree in any FTC antitrust deal
  • Samsung says IPhone relies on patented technology in U.K. trial
  • BP seen paying billions more in oil spill claims after deal
  • Hewlett-Packard’s war of words escalates with Autonomy’s founder
  • Tobacco companies must admit lying on products, U.S. judge rules
  • Obama urged to declare emergency as Mississippi water levels ebb
  • Fiscal-cliff pressure is on for cuts to entitlement programs

EARNINGS:

    • Fresh Market (TFM) 6am, $0.26
    • Jos A Bank Clothiers (JOSB) 6am, $0.56
    • Yingli Green (YGE) 6:07am, $(0.61)
    • CGI Group (GIB/A CN) 6:30am, C$0.42
    • JA Solar (JASO) 6:33am, $(0.21)
    • Express (EXPR) 7am, $0.17
    • Suburban Propane Partners (SPH) 7:30am, $(0.91)
    • ANN (ANN) 8am, $0.74
    • American Eagle Outfitters (AEO) 8am, $0.39
    • Golar LNG Partners (GMLP) 8:30am, $0.56
    • TiVo (TIVO) 4pm, $(0.24)
    • Aeropostale (ARO) 4:01pm, $0.29
    • Guess? (GES) 4:03pm, $0.44
    • Semtech (SMTC) 4:30pm, $0.43
    • Pall (PLL) 5pm, $0.66
    • Workday (WDAY) Aft-mkt, $(0.49)
    • Post Holdings (POST) Aft-mkt, $0.35

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Trades Near One-Week Low on Supply Gain, U.S. Budget Concern
  • DuPont Sends in Former Cops to Enforce Seed Patents: Commodities
  • Gold Declines for a Third Day in London on Improving U.S. Data
  • Olam Says No Insolvency Risk as It Rebuts Muddy Waters Claims
  • Copper Declines on Concern About Progress of Fiscal-Cliff Talks
  • U.S. May Double Soybean Exports to Russia After Obama Signs Law
  • Soybeans Drop From Two-Week High as South American Concern Eases
  • Sugar Falls as Harvesting Progresses in Brazil; Cocoa Declines
  • Copper Demand in China to Improve Next Year, Aurubis Says
  • India Iron Ore Dilemma May Reshape Seaborne Market: Outlook
  • Coal Heads for Best Quarter Since 2010 on Cold: Energy Markets
  • Larger Gold Miners Outperform Metal; Smaller Rivals Trail
  • Copper Faces Resistance in London at $7,865: Technical Analysis
  • Iranian Tanker Leaving Greek Island After Cargo Investigation

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKET


RUSSIA – the RTSI is beating the Chinese to the crash table this morning, down -1.2%, breaking the -20% barrier again for the 2nd time since September; Oil (Brent) failed at our long-term TAIL line of $111.48 resistance and there’s a commodity bubble unwinding.


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


CHINA – moves to within a hair of crash mode overnight (Shanghai Comp down another -0.9% to 1973 = -19.9% from its March #GrowthSlowing top); remember our baseline 3-factor model on global growth: China/Copper/BondYields.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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