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Go With The Flow

Client Talking Points

The 10-Year Fight

The 10-Year US Treasury is testing its TAIL risk line of 1.84% this morning after flirting with 2.0% last week. Our current risk range for the 10-year is 1.84-1.94%, so a lot can happen today. You have to be ready to move with the markets and the newsflow at a moment’s notice and we’ll be prepared to buy or short Treasuries when our models tell us to do so. The big risk to #Growth right now is our government and the debt ceiling debacle that will occur in mid-Feb/early-March. Boehner vs ‘Bama will be the ultimate catalyst for the 10-year, so keep your eyes open and vision clear.

The Big Three

Our Q1 2013 Global Macro Themes call takes place at 1PM today. We’ll be live-tweeting it to our Twitter followers on @Hedgeye as we embrace social media and get feedback from our subscribers/followers. We’ll be focusing on #GrowthStabilizing, the housing market, and Japan’s economy and how they’re so keen on devaluing the yen. These three topics will become the focal point of our discussions over the next few weeks in addition to our regular commentary on the markets. One important thing to remember is that if you want to buy stocks, buy the ones that aren’t at 52-week highs; buy the names that have plenty of room to move to the upside.

Asset Allocation

CASH 55% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“Ugly Empire Fed... prices paid skyrockets; New Orders fall deeper into -ve territory, labor measures continue to be in contraction.” -@BergenCapital

QUOTE OF THE DAY

“A billion here, a billion there, pretty soon it adds up to real money.” -Senator Everett Dirksen

STAT OF THE DAY

U.S. December retail sales increase 0.5%; ex-autos rise 0.3%


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 15, 2013


As we look at today's setup for the S&P 500, the range is 21 points or 1.13% downside to 1454 and 0.29% upside to 1475.            

                                                                                                                   

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: 1.58 from 1.60
  • VIX closed at 13.52 1 day percent change of 1.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8am: Fed’s Rosengren speaks in Providence, R.I.
  • 8:30am: Empire Manufacturing, Jan., est. 0 (prior -8.1)
  • 8:30am: Advance Retail Sales, Dec. est. 0.2% (prior 0.3%)
  • 8:30am: Retail Sales Ex Auto & Gas, Dec., est. 0.4%
  • 8:30am: PPI M/m, Dec., est. -0.1% (prior -0.8%)
  • 8:30am: PPI Ex Food & Energy M/m, Dec., est. 0.2% (prior 0.1%)
  • 8:50am: Fed’s Kocherlakota speaks in Golden Valley, Minn.
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: Bus. Inventories, Nov., est. 0.3%
  • 11am: Fed to purchase $750m-$1b in 2023-2031 sector
  • 11:30am: Treasury to sell 4W bills
  • 12:30pm: Fed’s Plosser speaks in Rochester, N.Y.

GOVERNMENT:

    • Senate not in session
    • House may vote on $17b in aid to victims of Hurricane Sandy
    • Obama vows no negotiations on debt ceiling
    • World Bank releases Global Economic Prospects report
    • FDIC board meets to consider final rules on appraisal requirements for higher-risk mortgages, 10am
    • Washington Space Business Roundtable discussion with NASA Deputy Administrator Lori Graver on transforming agency to 21st century agency of innovation, 11:30am
    • DOT, FAA hold meeting of Commercial Space Transportation Advisory Committee on early development of regulations to protect occupants of commercial spacecraft, 1pm

WHAT TO WATCH

  • JPMorgan ordered to fix controls, pay after Whale bet
  • U.K. regulator starts JPMorgan London Whale probe
  • Citi, JPMorgan, others post monthly credit-card delinquencies
  • Facebook hosts user event later today
  • Dell buyout announcement said possible as early as this week
  • Pfizer said to weigh purchase of Strides Arcolab Agila unit
  • Morgan Stanley said to cut 15% of Asia investment bank jobs
  • Mizuho to hire senior bankers in U.S., Europe on M&A push
  • Rogers to buy Shaw’s spectrum, cable unit for C$700m
  • Warner Music sued by Gershwin heirs over royalties
  • RBS may face $800m Libor fine as soon as next week
  • Housing recovery rescuing 8m underwater borrowers in U.S.

EARNINGS:

    • Lennar (LEN) 6am, $0.45 - Preview
    • Canadian Satellite Radio (XSR CN) 7am, C$0.02
    • Commerce Bancshares (CBSH) 7am, $0.72
    • Ironwood Pharma (IRWD) 7am, $(0.49)
    • Forest Labs (FRX) 8am, $(0.08) - Preview
    • Interactive Brokers (IBKR) 4:01pm, $0.21
    • Fulton Financial (FULT) 4:29pm, $0.20
    • Linear Technology (LLTC) 5pm, $0.39

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Platinum Jumps to Three-Month High on Production Cuts, Tops Gold
  • Gold Forecasters Splitting on Peak for Bull Market: Commodities
  • Oil Trades Near Four-Month High on Colder Weather, U.S. Economy
  • Maturing North Sea Oil, Gas Production Needs More Drilling Rigs
  • Wheat Advances a Third Day as Cold Weather Threatens U.S. Supply
  • U.K. Natural Gas for Today Falls on Milder-Than-Forecast Weather
  • Cocoa Advances by 0.4% in New York, Reversing Earlier Decline
  • Palm Exports From Malaysia Slump in First 15 Days of Month
  • India May Export More Wheat From State Reserves to Cut Inventory
  • China Mills Reluctant to Restock Iron Ore as Prices Reach Highs
  • Red Kite Says Tin to Outperform Copper as Super Cycle Continues
  • Gas Exports From U.S. Surge as Sanctions Undermine Iran: Freight
  • Wheat Premium Over Corn Seen Widening on Feed: Chart of the Day
  • Copper Falls for Third Day on Concern Crisis Is Hitting Germany

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


THE M3: SMOKING BAN; PACKAGE TOURS; SHUIKE SMUGGLERS; S'PORE FINES

The Macau Metro Monitor, January 15, 2013

 

 

GOVT ASKS FOR UNDERSTANDING ON CASINO SMOKING BAN macaubusiness.com

Chief Executive Fernando Chui Sai On said that while the the government is strictly enforcing the partial smoking ban in casinos they are still fine-tuning some of the rules.  The partial smoking ban that took effect on January 1, allows casinos to have smoking areas in up to 50% of the gaming floor area. The rules do not set up a minimum ratio for the number of slots and tables to be included in smoking and non-smoking area. 

 

PACKAGE TOURS UP BY 8.6% IN NOVEMBER macaubusiness.com

According to the Statistics and Consensus Service, visitor arrivals on package tours grew 8.6% YoY to 854,000 in November. Below are the statistics by origin:

  • Mainland (643,000): +9.4%
  • Taiwan (60,000): +26.4%
  • South Korea (44,000): +59.6%
  • HK (28,000): -25.2%

MAINLAND CUSTOMS CRACK DOWN ON 'SHUIKE' SMUGGLERS macaubusiness.com

In 2012 customs officers in Guangdong province cracked down on 9,741 'shuike' smuggling cases involving MOP1.72BN, which included 11 smuggling gangs.  'Shuike' refers to people who visit HK and Macau at least once daily to smuggle goods (electronics, milk powder, food, etc) from the two cities into the mainland. According to Luo On, an official of the Guangdong provincial government, “The growing number of shuike smugglers has affected the normal operation of checkpoints in Shenzhen and Zhuhai.” 

 

MBS, RWS FINED FOR BREACHING SOCIAL SAFEGUARDS channelnewsasia.com

MBS and RWS were each fined by the CRA (Casino Regulatory Authority of Singapore).  RWS was fined S$230,000 for the breach of social safeguard requirements during the period between November 1, 2011 and April 30, 2012. RWS also faced 3 fines on 3 additional breaches during the same timeframe: S$40,000 for failure to properly enforce valid entry levies on Singaporean citizens and permanent residents, S$40,000 for failure to prevent entry of 3 excluded persons, and S$20,000 for the admission of two minors. 

 

MBS fined for breaching 3 social safeguards: S$35,000 for failure to properly enforce valid entry levies on Singaporean citizens and permanent residents, S$80,000 for failure to prevent entry of 6 excluded persons, and S$15,000 for the admission of a minor into its casino. 


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Government Habits

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

-Aristotle

 

American, European, and Japanese governments have a habit – it’s called tax-payer funded spending. In order to finance this habit, they A) tax you and B) issue debt. Try part B) at home - levering yourself up to pay your political bills typically doesn’t end well.

 

I know. I know. ‘This time is different’, ‘print the damn coin’, ‘America voted for this’ – blah, blah, blah. This is what Big Government Interventionists of the 21st century repeatedly do. Obama, sadly, is no different than Bush on this score. They both needed to perpetuate a class struggle in order to sell it to their respective Keynesian economic constituencies.

 

My quibble isn’t political; politics are now about economics. The French have been arguing about this since at least the early 19th century. As one of the 1st economic historians, Adolphe Blanqui, wrote in 1837: “In all the revolutions, there have been but two parties confronting each other; that of the people who wish to live by their own labor, and that of those who would live by the labor of others.”

 

Back To The Global Macro Grind

 

No matter what your politics, you do have to make real-time decisions out there. What else are you supposed to do when politicians are changing the rules of the game on the fly? For the last decade, one of the main risks to growth has been government.

 

The outgoing Timmy Geithner says the timing of the #DebtCeiling D-Day is “mid-February.” At the latest, my research team has it in early March (coincidentally, March 1st is also when sequester kicks in). Now that it’s mid-January, that means this game of risk is on.

 

A game? Sadly, yes - a high-stakes game of political chess (they are playing with your money) that will likely require you to do up your chinstrap. Buying stocks in mid-January is hardly as easy as it was buying them in mid-November. Everything in markets has a time and price.

 

How is risk priced today versus 2-months ago (November 15th)?

  1. November 15th, the SP500 closed at 1353 = 8% LOWER
  2. November 15th, the Russell2000 closed at 769 = 13% LOWER
  3. November 15th, the US Equity Volatility (VIX) closed at 17.99 = 33% HIGHER

Back then (seems like forever ago you could have been long, no?):

  1. Global Growth was going from slowing to stabilizing  
  2. Fiscal Cliff Fear was all over consensus media
  3. The NHL was still on strike

Those were some pretty tough times! And today what?

  1. Global Growth has stabilized
  2. Oil is starting to break-out again
  3. Japan and the US are competing with who can “stimulate” the most with debt

And on and on and on the cycle of Big Government Interventionist policy goes….

 

But this should surprise no one at this point. This is what Keynesian Policy makers repeatedly do:

 

A)     They Shorten Economic Cycles

B)      They Amplify Market Volatility

 

Can you imagine what The Rest of Us will do if the #PoliticalClass just top ticked another market move at an all-time high in the Russell2000? What will The People do if their money manager jammed them into equities at the top of the “fund flows” news cycle?

 

On a cheerier note, Global Growth hasn’t slowed (yet) and by the looks of Lennar’s (LEN) backlog numbers this morning, our bullish call on US Housing remains intact. Risk never stops moving – it moves both ways.

 

We’ll corner all angles of this real-time risk debate on our Q1 2013 Global Macro Themes call today at 1PM (email if you’d like to join). Our Q113 Themes are:

 

1.       #GrowthStabilizing

2.       #HousingsHammer

3.       #QuadrillYen

 

The first two themes won’t sound new to any of you who read what we write every day. Our process is dynamic – as market prices, economic data, and risk management signals change, we try to. It’s never easy – but neither is excellence.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Corn, US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1 (covered our GLD short yesterday during the Obama speech), $110.32-112.82 (bullish breakout in Oil), $7.08-7.26 (shorted CORN yesterday), $79.29-79.98, $1.31-1.34, $87.43-89.41 (Yen oversold yesterday), 1.84-1.94%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Government Habits - Chart of the Day

 

Government Habits - Virtual Portfolio


What Keith's Reading

Note: Each morning, we will present up to five headlines that Hedgeye CEO Keith McCullough is reading. Please let us know what you think about the feature. Thank you.

 

-Wal-Mart Plans to Hire Any Veteran Who Wants a Job

 

-Japan to Sell Debt Worth 7.8 Trillion Yen to Pay for Stimulus

 

-Geithner Says Debt Limit Steps May Run Out by Mid-February

 

-Private Equity Flees Clean Energy as Investment Falls

 

-Morgan Stanley Said to Pare Asia Investment Bank Jobs by 15%


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