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Client Talking Points

Ruffling Feathers

Japan is ruffling the feathers of China and Korea as it devalues the Yen in order to keep that “2% inflation target” in check. If it doesn’t end well, Japan won’t have China there to bail them out like Europe did. Caveat Emptor. What’s interesting is that while US equities are busy ripping higher week after week, South Korea, Brazil and China saw their stocks drop last week:

 

1.       South Korea = KOSPI -2.1% (breaking TRADE and TREND support)

2.       Brazil = Bovespa -1.3% (holding TRADE and TREND support)

3.       China = Shanghai Composite -1.1% (holding TRADE and TREND support)

 

When the TRADE and TREND support snaps, we wait and watch rather than buy the dip. When support holds, we’ll buy ‘em. Anyone who bought China on Friday is enjoying the upside surprise this morning to the tune of +2.4% on the Shanghai Comp. Korea’s KOSPI is doing the opposite and is heading lower after last week. It goes to show you that markets work until they don’t.

Asset Allocation

CASH 46% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

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

“US Durable Goods Orders rip the bears a new one, +4.6% vs +2% ‘expected’” -@KeithMcCullough

 

QUOTE OF THE DAY

“Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation.” -Oscar Wilde

STAT OF THE DAY

TREASURY 10-YEAR NOTE YIELD RISES TO 2% FIRST TIME SINCE APRIL


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 28, 2013


As we look at today's setup for the S&P 500, the range is 23 points or 1.19% downside to 1485 and 0.34% upside to 1508.       

                                                                                                                        

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: 1.69 from 1.68
  • VIX  closed at 12.89 1 day percent change of 1.58%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Durable Goods Orders, Dec., est. 1.9% (prior 0.8%)
  • 8:30am: Durables Ex Trans., Dec., est. 0.9% (prior 1.6%)
  • 10am: Pending Home Sales M/m, Dec., est. 0.4% (prior 1.7%)
  • 10:30am: Dallas Fed Manf. Activity, Jan. (prior 6.8)
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2042 sector
  • 11:30am: U.S. Treasury to sell $32b 3M bills, $28b 6M bills
  • 1pm: U.S. Treasury to sell $35b 2Y notes

GOVERNMENT:

    • Deadline for FERC staff to respond to Barclays over $470m penalty for alleged manipulation of energy market
    • U.S. Comptroller of the Currency Thomas Curry delivers keynote address at American Securitization Forum
    • U.S., EU, Japan to request WTO judges investigate Argentina’s import restrictions; Argentina to ask WTO to set up panel to probe U.S. curbs on imports of its animals, animal products
    • Ryan says U.S. budget needs spending cuts, not increased revenue

WHAT TO WATCH

  • Goods orders probably climbed as U.S. manufacturing stabilized
  • Boeing risks revenue of $5b on Dreamliner probe’s outcome
  • Japan’s Amari says mkts set currencies amid yen criticism
  • LodgeNet files for bankruptcy on Colony, DirecTV partner plans
  • J&J failed to forecast flaws leading to hip recall, jury told
  • China needs stricter rules on generic biologic drugs, group says
  • Barnes & Noble to cut 33% of stores over next decade: WSJ
  • Volvo to buy 45% of Dongfeng Motor Groups unit for RMB5.6b
  • U.S. air safety group urged tougher battery standards, WSJ says
  • ‘Hansel & Gretel’ top weekend N.A. film with $19m ticket sales
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • Canada Weekly Agendas: Energy, Mining
  • Fed Meeting, U.S. Jobs, Boeing: Wk Ahead Jan. 28-Feb. 2

 EARNINGS:

    • Roper Industries (ROP) 7am, $1.46
    • Biogen Idec (BIIB) 7am, $1.46 - Preview
    • Rent-A-Center (RCII) 7am, $0.84
    • Caterpillar (CAT) 7:30am, $1.70 - Preview
    • Old National Bancorp (ONB) 9am, $0.23
    • International Rectifier (IRF) 4pm, $(0.51)
    • Integrated Device Technology (IDTI) 4pm, $0.04
    • J&J Snack Foods (JJSF) 4pm, $0.44
    • VMware (VMW) 4:01pm, $0.78
    • Seagate Technology (STX) 4:01pm, $1.29
    • Plum Creek Timber Co (PCL) 4:02pm, $0.29
    • Yahoo! (YHOO) 4:05pm, $0.28
    • Illumina (ILMN) 4:05pm, $0.41
    • Sanmini-SCI (SANM) 4:05pm, $0.34
    • BMC Software (BMC) 4:05pm, $1.02
    • Zions (ZION) 4:10pm, $0.41
    • Graco (GGG) 4:30pm, $0.60
    • Brookfield Canada Office (BOX-U CN) 5pm, C$0.37
    • NewMarket (NEU) 5:01pm, $4.11
    • Crane Co (CR) 5:15pm, $0.96
    • Celanese (CE) 5:25pm, $0.63
    • Steel Dynamics (STLD) 6pm, $0.14
    • Olin (OLN) Late PM, $0.35

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Russia, Kazakhstan Expand Gold Reserves as Central Banks Buy
  • Hedge Funds Boost Bullish Bets by Most Since July: Commodities
  • Oil Trades Near Highest Level in Four Months on Economic Outlook
  • Copper Advances as Chinese Earnings Add to Revival Indications
  • Gold Trades Near Two-Week Low Amid Signs Economy Is Improving
  • Wheat Climbs Second Day After Tenders From Bangladesh and Jordan
  • Sugar Climbs as Bets on Lower Prices Reach Record; Coffee Falls
  • ICE to Start Iron Ore Futures as Market Grows on China Bets
  • Oil Bulls Ride Longest-Winning Streak Since 2006: Energy Markets
  • Indonesia Increasing Palm Oil Export Tax Seen Curbing Shipments
  • German Green Energy Push Bites Mittelstand Hand That Feeds GDP
  • Xstrata CEO Says Markets Not Best Route to Fund New Business: FT
  • Zinc Seen Climbing in Rebound From Average: Technical Analysis
  • Fonterra CEO Seeks to Reassure China, World on Milk Safety
  • India Imported 33% More Gold in January to Beat Tax, Group Says

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

 

 

 


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 80.28%
  • SHORT SIGNALS 78.51%

THE M3: 200 MORE TABLES FOR SANDS; SANDS DIVIDEND; GONGBEI EXPANSION; UNEMPLOYMENT

The Macau Metro Monitor, January 28, 2013

 

 

SANDS CHINA GETS APPROVAL FOR 200 NEW TABLES: CEO WSJ, Macau Business

According to LVS CEO Edward Tracy, Sands China has already received official approval for 200 additional live gaming tables.  Tracy didn’t say if the tables would be made available on time for the Lunar New Year holiday, which starts on February 10.

 

Meanwhile, Mr Tracy also announced today that Sands China would soon raise salaries. But he didn’t provide details.

 

The second tower of the Sheraton Macao Hotel, located at Sands China’s Cotai Central casino resort, was officially completed today. The tower is however still waiting for government approval to start welcoming guests. Sheraton Macao managing director Josef Dolp, the property could be up and running as early as next month, ahead of the Lunar New Year, pending government approval.

 

SANDS CHINA ANNOUNCES INTERIM DIVIDEND Macau Business

Sands China declared on Friday an interim dividend of HK$0.67 (US$8.6 cents) per share, payable on or about February 28.

 

GONGBEI EXPANSION TO BE FINISHED SOON Macau Business

According to the mayor of Zhuhai, He Ningka, the Gongbei border checkpoint expansion could be ready in a few months.  The expansion will almost double the Gongbei checkpoint’s capacity.  It currently handles 260,000 to 300,000 travelers a day, but in the future it will be able to accommodate up to 500,000 crossings. The Gongbei expansion will cost RMB400 million (MOP513 million).

 

The Barrier Gate, its counterpart in Macau, through which travelers must pass before or after Gongbei, can already handle up to 500,000 people per day. 

 

EMPLOYMENT SURVEY FOR OCTOBER-DECEMBER 2012 DSEC

Macau unemployment rate for October-December held stable at 1.9% in comparison with the previous period (September-November 2012).  Total labor force was 357,000 and the labor force participation rate stood at 72.4%. Total employment reached 350,000, an increase of 500 over the previous period. 



See and Show

“To see, and to show, is the mission now undertaken.”

-Henry Luce

 

Born in China to missionary parents, Henry Luce went on to graduate from Yale in 1920 and become one of the most influential multi-media content generators in world history.

 

In June of 1944 in Life magazine, Luce declared the following about America: “With the establishment of a firm lodgment on the continent, we are now the most powerful nation on earth.” (The Last Lion, page 847)

 

That’s one way to get Americans to like you. Another is calling it like it is. Now that central planners of the world have saved us from themselves (again), I wonder how Luce would characterize the new world order today.

 

Back to the Global Macro Grind

 

If there was another Luce born in China in the 21st century, she probably wouldn’t be able to publish what she really thinks about China’s role as a burgeoning super-power anyway. Power and influence have some ugly disclosures.

 

This morning China’s power-center is ticked-off (expressing it in their state controlled media) because the Japanese are adding 287 people to their military. That’s not a typo, 287. Since Japan’s armed forces number north of 225,000, what’s the point?

 

The point is that we are in a Currency War, and the Japanese continue to tick just about everyone from South Korea to China off. This isn’t going to end any time soon. Neither will the longstanding cultural differences between Japan and China. If we are right on how it ends for the currency debaucherers in Japan, the Chinese won’t be there to bail them out like they did Europe.

 

Last week, in what was nothing short of another fantastic one for US Equities (SP500 and Russell2000 up another +1.1% and +1.5% to fresh YTD highs, respectively), there were 3 major divergences in Global Equities:

  1. South Korea = KOSPI -2.1% (breaking TRADE and TREND support)
  2. Brazil = Bovespa -1.3% (holding TRADE and TREND support)
  3. China = Shanghai Composite -1.1% (holding TRADE and TREND support)

Now, when a market price snaps TRADE and TREND support in our model, we don’t buy-the-the-damn-dip. We wait and watch. When a market price holds TRADE/TREND support, we like buying those instead.

 

If you bought China on Friday (we’re long Taiwan via EWT), nice job. This morning, Chinese stocks ripped a fresh new YTD high, closing up another +2.4% at 2364 in Shanghai. That’s what bull markets do – they correct and climb.

 

South Korea’s stock market didn’t do that however. The KOSPI saw follow through selling overnight, down another -0.36% to immediate-term TRADE oversold within its freshly established bearish intermediate-term TREND (1961 = resistance).

 

Since the KOSPI is an important leading indicator in our multi-factor Global Macro model, what is this signal telling us?

 

In any risk management model with Chaos Theory at its core, the 1st answer to an early signal is ‘I don’t know.’ That might not sound as smart as someone who allegedly knows something about everything, but over the years the limits of my thick hockey skull remain readily apparent – so I’ll stick with Embracing Uncertainty.

 

The other big question you should be asking yourself is could we see a 6% handle on the US unemployment rate in 2013?

 

Remember, expectations of the Fed getting out of the way matter more than them actually doing so. Looking at this week’s Macro Catalyst Calendar, there will be plenty of data to consider on that front:

  1. Monday – Pending Home Sales and Durable Goods are both released for the USA
  2. Tuesday – Case Shiller Home Prices and US Consumer Confidence
  3. Wednesday – PMI (JAN), Q412 GDP, and the Fed’s decision/commentary on rates
  4. Thursday – US weekly Jobless Claims (and month end)
  5. Friday – US Employment Report (JAN) and the ISM report for January

And, as usual, the market has already front-run some of these considerations via its own expectations:

  1. US Treasury Bonds (10yr Yield) continued lower again last week, with the 10yr rising to 1.95% from 1.84%
  2. Gold continued lower last week, closing down another -1.7% in a broadly bullish Global Equity tape
  3. CRB Commodities Index continued to make a series of lower-highs, closing down -0.6% last week

Now I know some people are calling for both epic levels of inflation and the end of the world – but the good news is that we have neither of those two things, yet. Nor do we expect them before you have to report results to your investors at month-end.

 

What we have so far (and for the last 2 months really) is a Growth Scare, and it’s to the upside. How else can you explain another all-time high in the Russell2000 of 905 (all-time is a long time) and confirmed 5-yr lows in US Equity Volatility (VIX)?

 

To see and show our Top 3 Global Macro Themes (#GrowthStabilizing, #HousingsHammer, and #QuadrillYen) as they are happening helps illustrate that Global Macro A) works both ways and B) is interconnected. This is our mission, undertaken.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $111.75-114.28, $79.62-80.14, $1.32-1.34, 89.55-91.11, 1.88-1.98%, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

See and Show - Chart of the Day

 

See and Show - Virtual Portfolio


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