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Buy Consumer: SP500 Levels, Refeshed

Takeaway: If oil (and food) continues to deflate, consumers get a real-time tax cut. That’s bullish, for consumers.

POSITIONS: Long Consumer Discretionary (XLY), Short Industrials (XLI) and Utilities (XLU)

 

I have no idea what the next government catalyst is going to be, but those who begged for more government have no business whining about it.

 

The only thing I know is that if oil (and food) continues to deflate, consumers get a real-time tax cut. That’s bullish, for consumers. Period.

 

Across our core risk management durations, here are the lines that matter to me most:

 

  1. Intermediate-term TREND resistance = 1419
  2. Immediate-term TRADE support = 1404
  3. Long-term TAIL support = 1366

 

In other words, if 1404 holds, a re-test of 1419 on the upside is probable. A close above 1419 would be explicitly bullish. On the downside, if 1404 doesn’t hold, it’s a long way to 1366. But that long-term TAIL support is good to have underneath.

 

Keep moving out there,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buy Consumer: SP500 Levels, Refeshed - SPX


HMA: Truth Be Told?

The 60 Minutes investigation into healthcare costs has thrust Health Management Associates (HMA) into the spotlight. The report alleges that HMA pressured doctors to admit as many patients as they could regardless of actual medical needs. It also states that nearly half of the company’s revenue comes from Medicare and Medicaid.

 

 

HMA: Truth Be Told?  - ERvisits

 

 

Overall, 12.9% of emergency room visits are admitted to a hospital. That percentage encompasses different patients, payor types and other factors that vary greatly. HMA’s admissions target rate is 20%, nearly double the industry norm. Evidence shows that the company pushed its doctors to find reasons to admit patients regardless of their medical condition. Computer programs automatically admitted patients and ordered tests before being seen by a physician. HMA says that their admission rates are near or below the industry average.

 

HMA’s stock hasn’t been affected by the investigation but that can easily change if the allegations have legs. Hedgeye Healthcare Sector Head Tom Tobin notes that the government will have a tough time proving HMA is guilty but if successful, the company will face an enormous fine:

 

“Medicare billing fraud under FCA regulations carries a 3X damages award plus a civil charge per case, which quickly spins into A LOT OF MONEY if HMA is found to be guilty.” 

 


Repairing The Eurozone

The sovereign debt crisis in the Eurozone has cooled off in the mainstream media lately, but the situation is far from being fixed completely. 10-year bond yields have declined significantly from the heightened levels experienced in June of this year. Greece, Portugal and Italy remain the biggest at-risk countries for investors and Germany and France continue to plow forward without any hiccups. Keep an eye on maturing debt for various countries in 2013 as some (particularly Italy) have nasty situations they must face.

 

Repairing The Eurozone - EuropeRates


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

Risky Business

Client Talking Points

Trading The Range

We have a method here at Hedgeye and we stick to it. It creates order and discourages chaos in a market where chaos can be the norm. An important part of our method is trading the risk and the range. That means we determine the risk involved with a trade and set ranges we’re comfortable trading. For instance, our risk range for the S&P 500 this morning is 1404 and 1419. The former is support where we think it’s a good idea to buy and the latter is where we’d sell at. Our levels change as the market changes, but if we stick to the plan, we won’t get burned. 

Bad Company

The corporate earnings environment looks dreadful as we close out 2012. Our theme of #EarningsSlowing has never been more relevant as the Q4 earnings come in. Want to know how bad it is out there? Keith breaks it down for us:

 

1.       For Q4 2012 so far, 78 companies have issued negative EPS guidance (29 companies have issued positive EPS guidance)

2.       That means 73% (78 out of 107) of the companies that have said something, said something negative, on the margin

3.       73% = 2nd highest percentage of companies issuing negative EPS guidance since FactSet began tracking the data in Q1 2006

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 18% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
YUM

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.

 

 

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

ASCA

We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road

TWEET OF THE DAY

“Brazil NOV Exports: -6% YoY from -1.7%, global #GrowthSlowing” -@KeithMcCullough

QUOTE OF THE DAY

Australia's central bank cuts benchmark interest rate by 25 basis points to 3%.

STAT OF THE DAY

“Experience is that marvelous thing that enables you to recognize a mistake when you make it again.” -Franklin P. Jones


Expert Call; What's Next For Agricultural Prices?

Expert Call; What's Next For Agricultural Prices? - Ag.Call

 

Restaurant Tickers Affected:

DRI, BLMN, TXRH, WEN, JACK, MCD, PNRA, PZZA, DPZ, YUM, CAKE, EAT and CMG

 

Food Processing Tickers Affected:
TSN, SAFM, SFD, HRL, PPC, CAG, DF and MON 

 

 

On Tuesday, December 4th, at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends.

 

Please dial in 5-10 minutes prior to the 11:00 EST start time using the number provided below. If you have any further questions email 

 

Please dial in 5-10 minutes prior to the 11:00 EST start time using the number provided below. If you have any further questions email 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762#

 

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  

 

Good's Background

 

Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  

 


THE M3: MACAU LAUNDERING CRACKDOWN

The Macau Metro Monitor, December 4, 2012

 

 

CHINA TIGHTENS REINS ON MACAU WSJ

In recent weeks, police in mainland China and Macau have detained people from at least three of Macau's biggest junkets.  Some of the detentions have occurred in China and in other cases, the detainees have been moved there.  The recent detentions "are an attempt by the Chinese government to tell people in the market that they need to behave, especially regarding underground money transfers," said Hoffman Ma, deputy chief executive of Ponte 16, an SJM property. 

 

Last month at Wynn Macau, police detained a partner of one of Macau's major junket operators who has ties to Bo Xilai, the disgraced Chinese politician. The partner, Pang Yufeng, and his associates, including his driver, were taken to China at the request of Chinese authorities.  Pang is one of four partners at junket operator David Star, which has a presence at all six of Macau's casino operators, including properties owned by WYNN and LVS.  Pang is also the director of a David Star affiliate called Zhong Ying Sociedade Unipessoal Lda., which operates at Venetian Macau. 

 

Qin Si Xin, another partner of David Star, is among those who have been detained in China.  Qin, a mainlander, is listed on a LVS ledger viewed by the Journal that shows intracompany transactions between Macau and Las Vegas.  In September 2009, he received $1.65 million at the Venetian in Las Vegas from a junket operator in Macau, according to the ledger. It is unclear what the payment was for, but there is no evidence that Mr. Qin's transaction violated any laws. 

 

Transfers where money flows across borders via casino accounts have raised concerns among casino executives and U.S. authorities that customers could exploit the intracompany accounts to launder money. The apparent crackdown comes as the Macau government conducts a major review of its antimoney-laundering rules. Hong Kong tightened its antimoney-laundering rules in April, which pushed banking business to Macau, people familiar with the transactions said.

 


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