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THE M3: MAINLAND TOURISTS; S'PORE HOME SALES

The Macau Metro Monitor, December 17, 2012

 

 

NO CONTROL OF MAINLAND TOURISTS: MGTO BOSS Macau Business

According to the departing director of the Macau Government Tourist Office (MTGO), João Manuel Costa Antunes, Macau will not create a mechanism to limit the number of mainland visitors based on the city’s capacity. Antunes was quoted as saying the individual visa policy is only implemented by Beijing authorities.

 

He was commenting on recent moves made by Hong Kong’s Chief Executive C. Y. Leung to control the number of visitors from the mainland, by creating a mechanism to assess the city’s capacity to receive visitors.  Leung has convinced mainland authorities to shelve its plan to relax visa restrictions for non-permanent residents in Shenzhen, which has limited the access of over 4.1 million potential visitors.  Both sides have agreed to set up a mechanism to assess Hong Kong’s capacity to receive visitors.

 

NEW PRIVATE HOME SALES PLUNGE 44% IN NOVEMBER, AFFECTED BY SCHOOL HOLIDAYS Strait Times

1,087 new private homes were sold last month, or -44% MoM, as the school holiday period dampened sales momentum.

 

CASH HANDOUT IN 2ND OR 3RD QUARTER: TAM Macau Business 

Secretary Tam said 2013's cash handout will be allocated during 2Q or 3Q.  Permanent residents will get a cash handout of MOP8,000 (US$1,000) next year, while non-permanent residents will get MOP4,800.  Last year, the cash handout was given out from April 24 to July 6.



Praying For Courage

“Courage is rightly esteemed the first of human qualities because it guarantees all others.”

-Winston Churchill

 

That’s a quote from Churchill in “Great Contemporaries” that is cited by Paul Reid in the preamble to The Last Lion. “He believed in virtue and right … he taught himself well and created a code he could live by.” (page 23)

 

While I don’t think there are any words I can write to comfort families in my neighboring town of Newtown, CT, I just wanted to take time this morning to say that they are in our thoughts and prayers.

 

Back to the Global Macro Grind

 

US stocks closed down for the 2nd consecutive day on Friday, taking their 2-day correction to -1%. Despite the fanfare of “stocks being up YTD”, US stocks have been weak since mid-September. For Q4 of 2012, the SP500 and Nasdaq are down -1.9% and 4.7%, respectively.

 

Where do we go from here?

 

If it wasn’t for Apple (AAPL) and #EarningsSlowing (Schlumberger, the #3 component of the Energy Sector ETF (XLE) guided down on Friday), everything would be pseudo-fine this morning. But you can’t back those things out – they are big things.

 

So is the Global Growth Cycle – and while we aren’t raging bulls suggesting that growth is back, we are seeing the causal factor that stabilizes global economic growth (Commodity Price Deflation) start to take hold where it matters most – price and expectations.

 

On the expectations front, check out last week’s CFTC Futures and Options net long positioning in commodities:

  1. Total Net Long commodity contracts fell another -11% wk-over-wk to 802,817
  2. Net long commodity contracts continue to crash from their all-time high (SEP 2012), down -40%!
  3. Sugar contracts had their biggest 1 wk drop in 5 years at -68% last week to 6,056 contracts
  4. Wheat contracts plummeted -67% wk-over-wk to 11,219 net long contracts
  5. Oil net long positions were down -21% wk-over-wk (biggest drop since May)
  6. Farm Goods dropped another -10% in the aggregate to 484,088 net longs

While expected commodity deflation is crystal clear in the futures/options market at this point, prices and expectations don’t always agree. Gold is the not-so-shining example of that statement:

  1. Gold bets actually keep going up as the price goes down (price = down for 3 straight wks; net longs up for 4 of the last 5 wks)
  2. Net long contracts in Gold went up another +3% last week to 129,865
  3. Gold is down another -0.33% this morning to $1690, and remains bearish TRADE and TREND in our model

With Gold’s TRADE and TREND resistance overhead at $1709 and $1719, respectively, this makes for an interesting debate (ask for Darius Dale’s Gold research note from Friday if you didn’t read it). Long-term TAIL support of $1670 is the only big line left of support for Gold. If that holds, consensus bets on the net long side could be ok, but only if they own the right strikes.

 

If Gold’s TAIL breaks, watch-out below.

 

That’s how we thought about AAPL (see Chart of The Day, TAIL = $561). That’s how we think about TAIL risk. We have a line that moves dynamically as price/volume/volatility does, and we use that as our headlights. Is the probability of incremental risk rising or falling? That’s another way to simplify how we think about that. It’s not perfect, but it’s a consistent risk management code I can live by.

 

If you go back to the 3-factor Global Growth Model I’ve been calling out for the last 3 weeks:

  1. Chinese stocks (Shanghai Composite)
  2. Bond Yields (US Treasuries)
  3. Copper

There’s emerging evidence that supports a shift from global #GrowthSlowing to #GrowthStabilizing. We’re not wedded to this – we’re just courageous enough to embrace the market’s uncertainty and change our minds as markets suggest we do.

 

Bond Yields had a big move last week with the 10yr Treasury Yield not only rising from 1.62% to 1.70% on the week, but closing above my TREND line of 1.69%. This morning, the 10yr yield is up another 2 basis points to 1.72%, confirming the move.

 

That’s also bearish for Gold. Rising bond yields always have been bearish for Gold because they compete with the long-standing expectation of #GrowthSlowing embedded in both Bond market and Gold bubbles.

 

On Friday, that’s why I cut our Fixed Income asset allocation to 0%, raised our Global Equities allocation, and stayed with what’s served us well since mid-September (0% asset allocation to Commodities).

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $105.71-108.93, $79.41-79.99, $1.29-1.31, 1.69-1.76%, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Praying For Courage - Chart of the Day

 

Praying For Courage - Virtual Portfolio


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 17, 2012


As we look at today's setup for the S&P 500, the range is 23 points or 0.39% downside to 1408 and 1.23% upside to 1431. 

                                                                                                                                                              

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: 1.49 from 1.47
  • VIX closed at 17.0 1 day percent change of 2.66%
  • UST 10YR – more commodity deflation this morning is good for #GrowthStabilizing expectations (consumption), globally. 10yr yield is +2bps this morning to 1.72%, 3bps above my TREND line (was resistance) of 1.69%; #1 way to get people to buy equities for real is get the flows back (they’re in bonds).

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, Dec., est. -1.0 (prior -5.22)
  • 9am: Total Net TIC Flows, Oct. (prior $4.7b)
  • 9am: Net L-T TIC Flows, Oct., est. $25.0b (prior $3.3b)
  • 11am: Fed’s Stein speaks on dollar funding in Frankfurt
  • 11am: Fed to buy $4.25b-$5.25b notes in 2018-2020 sector
  • 11:30am: U.S. Treasury to sell $32b 3M, $28b 6M bills
  • 1pm: U.S. Treasury to sell $35b 2Y notes
  • 1pm: Fed’s Lacker speaks on economy in Charlotte, N.C.

GOVERNMENT:

    • House, Senate in session
    • Federal Retirement Thrift Investment Board meets, 10am
    • Defense Secretary Leon Panetta discusses U.S. policy, 1pm

WHAT TO WATCH

  • Apple downgraded at Citigroup; drops below $500 pre-mkt
  • Boehner offers Obama tax-rate-boost deal w/ entitlement cuts
  • Google said to end FTC probe with letter promising changes
  • AIG offers to sell as much as $6.5b of AIA shares
  • First Quantum again raises offer for Inmet Mining
  • UBS said to face $1.6b penalty as Libor settlement looms
  • Starwood Capital nears buy of Principal Hayley: Sunday Times
  • China signals tolerance of slower growth after annual mtg
  • Abe’s LDP wins victory over Noda in Japan election rout
  • Novartis therapy wins U.S. backing for Cushing’s Disease
  • Cisco said to hire Barclays to sell Linksys routers unit
  • Jackson’s “Hobbit” tops weekend box office at $84.8m
  • Holiday spending “modest” through Dec. 8: SpendingPulse
  • SAC e-mails show Cohen consulted on Dell trade
  • Akamai Says co-founder Leighton to become CEO effective Jan. 1
  • Spending probably rose, home sales climbed: U.S. eco preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


GOLD – gold just doesn’t like rising rates - never has – and that makes sense as absolute return (up for 12 straight yrs) on gold looks less exciting when risk free rates move higher. Gold remains bearish TRADE and TREND in our model with a big zone of resistance up at $1/oz.

  • Hedge Funds Reduce Bullish Bets by Most in a Month: Commodities
  • Rubber Surges to Seven-Month High as Yen Weakens on Abe Victory
  • JPMorgan Wins SEC Approval for Physically-Backed Copper ETF
  • Gold Drops on U.S. Fiscal Cliff Talks as ETP Holdings at Record
  • Soybeans Jump to Five-Week High as U.S. Crushes Most Since 2010
  • Rebar Extends Gain on Demand Outlook as China Flags Urban Growth
  • Oil Bulls in Biggest Retreat in Seven Months: Energy Markets
  • China Cuts Natural Rubber Import Taxes to Boost Local Supplies
  • Malaysia Sets Zero Export Tax for Crude Palm Oil to Cut Reserves
  • India Cuts Benchmark Import Price of Gold to $550 Per 10 Grams
  • Malaysia Sets Crude Palm Oil Export Tax at Zero for January
  • Natural Gas Prices Need Cold Winter to Get Off Floor: Outlook
  • HKEx May Allow Chinese Cos. as LME Category 1 Members, HKET Says
  • Brent Crude Futures Drop Amid Disagreement in U.S. Budget Talks

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


JAPAN – the Japanese begged for a bailout bureaucracy and got it with a big LDP win over the weekend and follow through buying in the Nikkei (up another +0.94% to 9828, up +13.5% since mid November!). Probability continues to rise that Japan becomes 1st modern economy to fall on the sword of Keynesian economic policy (burning currency). Economic data is awful.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


The Rest Of Us

This note was originally published at 8am on December 03, 2012 for Hedgeye subscribers.

“History rouses man to emulate the deeds of earlier generations.”

-Ludvig von Mises

 

This weekend I forced myself to watch the Sunday morning US political talk shows. While it was sad to watch, it did inspire some leadership thoughts. One was on class warfare. The only two classes I see developing are The Political Class and The Rest Of Us.

 

Politics is a big business. And I have never been more proud to be neither a Bush Republican nor an Obama Democrat. On economic matters, both parties are Keynesian now. Unlike the Austrian school (center right), Keynesians are center-left. There is no center.

 

There’s also the left of center-left (Paul Krugman). And these guys are really amping up the Marxist (way left) rhetoric. If you don’t agree with that, read Krugman’s Sunday piece in the New York Times titled “Class Wars of 2012.” #Scary.

 

Back to the Global Macro Grind

 

In his preface to Classical Liberalism and The Austrian School, David Gordon recently wrote that, “Ideas do not, as Marxists imagine, reflect the interests of conflicting economic classes. The free market rests, not on irreparable class conflict, but on fundamental harmony of interests of people who benefit from social cooperation.”

 

I liked that. It’s progressive and collaborative as opposed to regressive and polarizing. On that score, the latter most definitely applies to our generational debate about the #KeynesianCliff. As far as I can see, the cliff debate has 3 big parts:

  1. DEBT
  2. SPENDING
  3. TAXES

This weekend, the left side of the Political Class was focused on 1 of the 3 (TAXES). Meanwhile, this is what Gene Sperling (Director of Obama’s National Economic Council) is actually asking for (he did the interview with Bloomberg TV this weekend):

  1. “a long-term extension of the legal debt limit”
  2. “some stimulus measures to support the economy”
  3. “a tax rate increase for the wealthy”

Got it on point #3 guys – you want to tax us. But what about points 1 and 2? Did some Democrats vote for social issues (that most Independents and socially liberal Republicans agree with), or did they vote for raising the US Debt and Spending levels? Or both?

 

The Political Class can obfuscate and demagogue all they want about this, but I am pretty sure that The Rest Of Us want to see an arrest of government debt and spending increases, not another moving of the #DebtCeiling goal posts and “stimulus” spending.

 

Back to the government’s math. In last week’s peculiar (but less than ironically inflated) pre-Election US GDP report of +2.67%:

  1. GOVERNMENT SPENDING contributed positively to “growth” for the 1st time in 9 quarters!
  2. At +0.67% in GOVERNMENT (G) contribution (versus -0.14%, -0.60%, and -0.43% in the last 3 quarters), spending is back!
  3. INVENTORIES contributed the rest of the positive delta, going from -0.46% in Q212 to +0.77% in Q312

Our GDP forecasting model (it’s a predictive tracking algo) couldn’t front run that. Government Spending (+0.67%) and an out of nowhere Inventory build (+0.77%) = 54% of US GDP “growth” in Q3 whereas the C (Consumption) in C +I + G + (EX-IM) = GDP fell to +0.99%. Consumption is 71% of the economy or, put another way, The Rest Of US, too.

 

All the while, last week global currency investors took USA looking more and more like Italy on debt and spending and sold down the US Dollar for the 2nd consecutive week. Both European and US stocks liked that – they were both up for the 2nd consecutive week at +0.5% and +0.9% for the SP500 and EuroStoxx600 indices, respectively.

 

Centrally planned stock markets, however, are not the economy. What investors and day traders alike have been trained to do is play the Dollar Debauchery trade that’s in front of them. With the US Dollar under Geithner policy pressure:

  1. CFTC Futures/Options net long contracts jumped +9.8% wk-over-wk (best weekly gain in net long spec since August)
  2. Gold and Silver net long contracts jumped +13% and 12%, respectively (wk-over-wk)
  3. Wheat contracts spiked +35% wk-over-wk

But, if you don’t think rising government DEBT and SPENDING is causal to blowing up the credibility of a country’s currency, you probably think I am just telling you stories this morning.

 

Sadly, the growing number of class warfare demagogues out there who are emulating the “deeds of earlier generations” are starting to story-tell like Karl Marx did too.

 

Our immediate-term Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1710-1727, $110.07-111.58, $3.54-3.65, $79.81-80.36, $1.29-1.31, 1.58-1.67%, and 1406-1424, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Rest Of Us - Chart of the Day

 

The Rest Of Us - Virtual Portfolio


THE WEEK AHEAD

The Economic Data calendar for the week of the 17th of December through the 21st is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - week


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