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LV LOCALS: THE FEB PIVOT

Nevada just released February gaming revenues and the Las Vegas Locals Market declined only 5% versus a 22% year-over-year drop in January.  The comparison wasn't necessarily easy either.  Last year February declined only 6% and February 2009 had one less Saturday, one less Sunday, and compared against a leap year. 

 

Why are we getting excited about a 5% decline?  We recognize that it is only one month of data but in this environment we are very focused on deltas.  In this case, the delta is clearly better.  Business could be getting less bad.  We also focus on six month moving averages in our Delta Charts.  Here, the six month moving average turned up for the first time in a year, potentially indicative of an intermediate pivot. 

 

LV LOCALS: THE FEB PIVOT - lv locals feb pivot

 

It is highly unlikely that March will result in continued upward momentum in the moving average line, but April most certainly will.  March 2009 revenues would have to increase almost 5% for this to happen since September, the only positive growth month in the last 8, exits the 6 month average in March.  However, March revenue growth, while likely negative, should exceed the 6 month moving average and the delta would remain positive.

 

Our intermediate thesis on the Locals Las Vegas market is that 2009 will be "less bad" (positive delta) and 2010 could actually show growth.  We predicted as much in our 02/05/09 note "THE LOCALS LAS VEGAS MACRO MODEL".  This would be a positive scenario for BYD, the largest public company operating in this market.


Some Love For Lloyd...

Most of our clients know that I have had a bone to pick with the way that Goldman Sachs has managed the risk associated with public (and now government) shareholder capital for a long time now (I started shorting it in November of 2007). They privatized their profits and socialized their losses.

 

Today, Goldman's CEO, Lloyd Blankfein (under the duress associated with protestors with pink banners) is giving the most straight talk that I have yet to hear from a CEO running a horse and buggy whip in the land of public Investment Banking Inc.

 

Dear Lloyd,

 

For whatever it's worth, I am going to give you some love. You are talking my language - the language of Partnership and Capital Preservation. You even used some Research Edge lingo when it came to discussing Risk Management, Team Based Compensation, and the "Global Interconnectedness" of the world's markets.

 

In terms of measuring the delta in my own mind about GS stock, this is a meaningful shift. I, for one, will stop shorting your stock... for now.

 

We all know that you abandoned true Partnership for the payout associated with being a public company. With public funds you are now hostage to public accountability.

 

Today, for both America and her stock market, you made a very important step.

 

Thanking you for seeing The New Reality,

Keith R. McCullough
Chief Executive Officer

Some Love For Lloyd...  - blankfein


HPQ breaking down

The TREND line of Hewlett is $33.33; watch it closely...


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%

MCD breaking down

Penney doesn't like it, and breaking down through the $55.47 line puts $53.80 in play...


The Oracle of Obama?

"We are what we repeatedly do."
-Aristotle
 
We certainly didn't win yesterday. The Asset Allocation Portfolio was down less than the market, but down on the day isn't winning. Everything we do here is absolute. Having a 21% position in Commodities helped us on Friday, and it hurt us yesterday - no matter where we go this morning, there those prices are.
 
Chalk up another win on the scoreboard for President Obama. No, this isn't a partisan point meant to enrage the inferno of a raging Republican - this is simply a fact. Obama made the call that the North Carolina Tar Heels would win the NCAA tournament, and they did. Our congrats to the boys in baby blue!
 
People like to make fun of this guy whenever he makes a call, and understandably so. Politicians aren't supposed to have spines - or at least call basketball tournaments and crazier stuff like, say, the stock market. For whatever reason though, on both counts - from the Tar Heels to saying the stock market was a "bargain" at SP500 696 - Obama's calls have been right.
 
There are plenty a rich man, woman, and some who behave like my child who run money in this business that think their calls on everything from the NFL Sunday to American Idol is the second coming of Christ. Money does that to some people. Check out these two American cats Stanford and Merkin who are all over the You Tubes this morning. Sanford threatened to punch a reporter in the face and Merkin's Made-up Madoff business apparently earned him $470M in fees. C'mon guys - this is embarrassing us all and The Client (China) is watching.
 
Losing money, or being associated with people who make their moneys illegitimately, is not what I aspire to do. What I do is simply what I do. If someone else in this business from George Soros to Marc Faber (who are dueling bear vs. bull on Bloomberg this morning) says or does something that's additive to my process, I do that. There's no shame in evolving. "We are what we repeatedly do."
 
What's the market doing? Well, it had its first down day here in the US in the last six. It has been up for four consecutive weeks, and at yesterday's 835 close, the SP500 remains +23.5% from its March 9th low and +20% from the Community Organizer's low. Oracle of Obama?
 
Imagine that all of these fancy endowment gurus and charitable trust managers sat in cash and used Obama's market timing. Wow, would this country be a lot less depressed about those 18 month returns of the super duper "smart" people...
 
Market timing? No one does that - or do they? I know I do. What is it that other people do? I have no idea. But I do know that any risk manager worth the plastic buttons on their poplin shirt understands that timing and sizing are what differentiates investment returns.
 
I need to wake-up every morning to a risk/reward probability matrix. I need to have a proactive plan when it comes to a market's range. Volatility and volumetric assumptions need to be embedded in everything that I do. "We are what we repeatedly do."
 
I think that it is funny when I hear people talk about "not having a crystal ball." What if they could have one? Would they use it? What's the difference between a "one-on-one" with the CFO of a company who effectively tells you that he could beat his numbers versus my telling you that there is a high probability of sun or rain in your portfolio?
 
When I get up in the morning, I'm not doing it for giggles. In fact, most guys on my team will tell you that I am one grumpy man in the morning (Dad, am I grumpier than you though? That remains THE question!) I am doing it because that is what I do. That's the only way that I can proactively predict, given all of the global macro information that is publicly released prior to the US market open, what the probabilities are of markets going up or down.
 
This morning, I have immediate term downside support for the SP500 at 823, and I'll be buying/covering market weakness from there to the 819 line. If those lines breakdown, I'll start selling/shorting again more aggressively. On the upside, I see an immediate term probability of the SP500 seeing 854 sometime this week. What hour of what day? I have no idea. But I do know that when it's there, there it is...
 
President Obama, I have been objectively critical of the economic team you have surrounded yourself with and some of your socialist rhetoric, but when it comes to the leadership associated with standing up and making these TWO real calls, knuckles to you my man - well done. As a new friend of Research Edge reminded me yesterday here in New Haven, "Gentlemen, keep doing what you do - there is responsibility in recommendation."
 
Best of luck out there today,
KM


LONG ETFS

XLK - SPDR Technology - Technology looks positive on a TRADE and TREND basis. Fundamentally, the sector has shown signs of stabilization over the last six+ weeks.   As the world demand environment becomes more predictable, M&A should pick up given cash rich balance sheets in this sector (despite recent doubts about an IBM/JAVA deal being done).  The other big near-term factors to watch will be 1Q09 earnings - which is typically the toughest for tech, along with 2Q09 guide.  There are also preliminary signs that technology spending could be an early beneficiary of the stimulus plan.

TIP - iShares TIPS- The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%.  We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

XLB - SPDR Materials -Materials was the third worst performing sector yesterday (4/06) and has a tough time when the USD is up. It's a bull on both a TREND and TRADE duration. The Materials sector is, obviously, a key beneficiary of our re-flation thesis.  Domestically, materials equities should also benefit as the stimulus plan begins to move into action.

RSX - Market Vectors Russia-The Russian macro fundamentals line up with our quantitative view on a TREND duration. Oil has benefited from the breakdown of the USD, which has buoyed the commodity levered economy. We're seeing the Ruble stabilize and are bullish Russia's decision to mark prices to market, which has allowed it to purge its ills earlier in the financial crisis cycle via a quicker decline in asset prices. Russia recognizes the important of THE client, China, and its oil agreement in February with China in return for a loan of $25 Billion will help recapitalize two of the country's important energy producers and suppliers.  

USO - Oil Fund-We bought oil on Wednesday (3/25) for a TRADE and are positive on the commodity from a TREND perspective. With the uptick of volatility in the contango, we're buying the curve with USO rather than the front month contract.  

EWC - iShares Canada-We bought Canada on Friday (3/20) into the selloff. We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resource rich Vancouver should provide a positive catalyst for investors to get long the country.   

DJP - iPath Dow Jones-AIG Commodity -With the USD breaking down we want to be long commodity re-flation. DJP broadens our asset class allocation beyond oil and gold.

GLD - SPDR Gold-We bought more gold on 4/02. We believe gold will re-assert its bullish TREND as the yellow metal continues to be a hedge against future inflation expectations.

DVY - Dow Jones Select Dividend -We like DVY's high dividend yield of 5.85%.


SHORT ETFS
 
UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. The Euro is down versus the USD at $1.3274. The USD is down versus the Yen at 100,4100 and up versus the Pound at $1.4627 as of 6am today.

EWJ - iShares Japan -We re-shorted the Japanese equity market rally via EWJ. This is a tactical short; we expect the market there to pull back when reality sinks in over the coming weeks. Japan has experienced major GDP contraction-it dropped 3.2% in Q4 '08 on a quarterly basis, and we see no catalyst for growth to return this year. We believe the BOJ's recent program to provide $10 Billion in loans to repair banks' capital ratios and a plan to combat rising yields by buying treasuries are at best a "band aid".
 
DIA -Diamonds Trust-We shorted the DJIA on Friday (3/13) and Tuesday (3/24).

XLP - SPDR Consumer Staples- Consumer Staples was the second best sector yesterday (4/06), showing its defensiveness. This group is low beta and won't perform like Tech and Basic Materials do on market up days. There is a lot of currency and demand risk embedded in the P&L's of some of the large consumer staple multi-nationals; particularly in Latin America, Europe, and Japan.


Teasing The Shark: SP500 Levels, Refreshed...

The short sellers really want to believe here, but I'm taking the other side of that - covering/buying where I see prices I like.

 

Volume is light - and this selloff is eerily quiet, if you're teasing The Shark that is... This 823 line (solid green in chart below) of TREND line support is one that has been toyed with enough times here today for me to have confidence in its relevance. That's the TREND's Shark Line, and I see another squeeze potentially occurring from there - we could shoot straight up to the 853 line on the SPX (dotted red line), and I would not be surprised.

 

Yes, the VIX and the US Dollar are up on the day (bearish for stocks), but neither has traded up through what I would consider material resistance. TRADE resistance for the VIX is $44.36, and TREND resistance for the USD is $84.90.

 

Riding a bull within a bear cave is not for the faint of heart, but be careful if you're out there shorting this selloff - teasing Sharks isn't a repeatable process.
KM

 

Keith R. McCullough
Chief Executive Officer

Teasing The Shark: SP500 Levels, Refreshed...  - aaaata


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