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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 5, 2013


As we look at today's setup for the S&P 500, the range is 23 points or 1.06% downside to 1509 and 0.45% upside to 1532.       

                                                                                                                        

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: 1.66 from 1.64
  • VIX  closed at 14.01 1 day percent change of -8.79%

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: ISM Non-Manf. Composite, Feb., est. 55.0 (prior 55.2)
  • 10am: IBD/TIPP Eco. Optimism, March, est. 48.1 (prior 47.3)
  • 11am: Fed to purchase $2.75b-$3.5b notes in 2020-2023 sector
  • 11:30am: U.S. to sell 4W bills, $25b 52W bills
  • 2pm: Fed’s Lacker speaks on monetary policy in Washington
  • 4:30pm: API Energy Inventories

GOVERNMENT:

    • Senate Budget Cmte holds hearing on tax code, 10:30am
    • Senate HELP Chairman Tom Harkin, D-Iowa, House Education & Workforce ranking member Rep. George Miller, D-Calif., announce introduction of legislation to raise federal minimum wage to $10.10/hr from $7.25, then provide automatic annual increases linked to changes in cost of living, 12pm
    • Agriculture Sec. Tom Vilsack among witnesses testifying on state of rural econ. at House Agriculture Cmte. hearing, 10am
    • Nuclear Regulatory Commission staff meets officials from Duke Energy to discuss whether company violated license for fire protection at a South Carolina nuclear plant, 1pm
    • Rep. Maxine Waters, D-Calif., FDIC Chairman Martin Gruenberg, SEC Commissioner Luis Aguilar speak at Greenlining Institute conference on diversity in financial industry, 8:30am
    • Treasury Dept, OCC hold a meeting to discuss the minority depository institution industry, 8:30am
    • House Fin Svcs panel holds hearing on Bernanke’s recent testimony on monetary policy, 10am
    • North American Securities Administrators Assoc. releases 2013 legislative agenda, including measures to regulate crowdfunding and fiduciary duty rule for broker-dealers, 10am
    • House Ways and Means panel holds hearing on tax provisions in Affordable Care Act, 11am
    • U.S. Homeland Security Secretary Janet Napolitano discusses airport, airspace security at International Air Transport Assn conference in Brooklyn, N.Y., 9:30am

WHAT TO WATCH

  • EU opens way for easier budgets after Italian austerity backlash
  • Martha Stewart to testify today in J.C. Penney/Macy’s suit
  • House budget bill would continue automatic spending cuts
  • Compuware said to attract private-equity firms’ buyout interest
  • Pearson CEO said to tell FT staff to brace for fewer jobs
  • Commonwealth stock sales may be completed, U.S. judge rules
  • Fannie Mae regulator sets securities platform for post-GSE world
  • J&J, Bayer fail to win U.S. backing for expanded Xarelto use
  • Heinz CEO Johnson would get $200m in post-Berkshire exit
  • Rexnord said to draw Watts as suitor for water-management unit
  • News Corp. said to start cable-sports challenge to ESPN
  • Anadarko, Dhoot start sale of Mozambique gas stake: Reuters
  • Artisan Partners Asset Mgmt IPO books close tonight, terms show
  • Senate report faults JPMorgan’s “whale” disclosures: NYT
  • Tribune said to aim to sell all newspapers in single deal
  • Chavez health worsens with second lung infection, Venezuela says

EARNINGS:

    • Bank of Nova Scotia (BNS CN) 7:30am, C$1.25
    • Infinity Pharmaceuticals (INFI) 4pm, $(0.84)
    • VeriFone Systems (PAY) 4:01pm, $0.49
    • Smith & Wesson (SWHC) 4:05pm, $0.23
    • First Quantum Minerals Ltd (FM CN) 5pm, $0.33
    • Qihoo 360 Technology Co Ltd (QIHU) 5pm, $0.17
    • Trilogy Energy (TET CN) 5pm, C$0.03
    • Allied Properties Real Estate (AP-U CN) Aft-mkt, C$0.46
    • Gibson Energy (GEI CN) Aft-mkt, C$0.34
    • Uranium One (UUU CN) Aft-mkt, $0.02
    • Taro Pharmaceutical Industries Ltd (TARO) Aft-mkt, NA

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Hoarders Turn Sellers as Bull Run Decays: Chart of the Day
  • Rice Glut Expands With Farms Poised for Record Crop: Commodities
  • Gold Rises for First Time in Five Days on Stimulus; Silver Gains
  • Copper to Climb on Chinese Demand This Year, Jiangxi Copper Says
  • Soybeans Reach One-Week High on Signs of Stronger Export Demand
  • Sugar Rises for Second Day on Ethanol Outlook; Coffee Also Gains
  • WTI Crude Rebounds From 10-Week Low; Brent Pipeline Remains Shut
  • Cooparaiso Sees Brazil Reaping Record Off-Year Coffee Harvest
  • Palm Oil to Trade at 1,950-2,500 Ringgit a Ton, Sauthoff Says
  • CME’s Asian Business Expanding 35% Stoked by Gold to Currencies
  • U.K. Natural Gas Stores May Empty in Two Weeks: Chart of the Day
  • Oil Inventories Gain a Seventh Week in Survey: Energy Markets
  • Scorpio Wins as U.S. Crude Curbs Spur Shale Refineries: Freight
  • Copper Advances Most in a Week as China Maintains Growth Goal

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


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EUROPEAN MARKETS

 

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ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 


THE M3: SO GGR FORECAST; WYNN COTAI

The Macau Metro Monitor, March 5, 2013

 

 

CASINO REVENUE GROWTH BELOW 15% IN 2013: AMBROSE SO Macau Business

The CEO of SJM Holdings, Ambrose So, forecasts Macau’s overall casino revenue growth will be 'in the low teens.'

 

WYNN MACAU'S COTAI PROJECT MAY NEED MORE FINANCING Macau Business

Wynn Resorts said it might need to borrow more money to fund its Cotai project, forecast to cost up to US$4 billion (MOP32 billion).  “As our project budget is an estimate only as of the date of this report, we may require additional financing to complete construction of our Cotai project,” Wynn Resorts said in the filing of its annual results.  Wynn Resorts also admitted that the company’s profit might drop if former director Kazuo Okada wins a lawsuit challenging the company’s purchase of his shares.

 

Okada is still challenging the forcible buyout. He has meanwhile made a request to a Nevada court, that an escrow account be set up to hold the money payable to him by Wynn Resorts from the forcible buyout, totalling US$1.9 billion.






Trust Mr. Market

This note was originally published at 8am on February 19, 2013 for Hedgeye subscribers.

“He knew that he had a gift: the power to make people trust him.”

-Evan Thomas

 

With the Chinese allegedly hacking US corporations and the Keynesians in an all-out currency war with the world’s savers this morning, what could possibly go wrong? The US stock market doesn’t seem to care. Do you trust it?

 

The aforementioned quote about old-school trust comes from an excellent leadership book I’m reading titled “Ike’s Bluff: President Eishenhower’s Secret Battle to Save The World.” Since I am finishing up our year-end review process, trust is a factor I thought a lot about while I was in London last week. The people you choose to work with either get it, or they don’t.

 

Americans believed in President Dwight Eisenhower, big time. He had the highest approval rating of any post WWII President, not because he gave the best speeches (he hated the teleprompter, and it showed) – it was because poll after poll revealed an endearing quality that the modern polarizing #PoliticalClass has not been able to achieve – the underlying trust of The People.

 

Back to the Global Macro Grind

 

I trust Mr. Market. I believe in his real-time signals. I trust that The People ultimately trust his scorecard too (he might be a she by the way). You don’t have to like someone in order to trust them.

 

You don’t get paid to play the market you’d like to have either. You get paid to play the game that’s in front of you.

 

That’s just too complicated for a dumb bunny like me.” –President Eisenhower (page 29)

 

Or is it?

 

At the end of the day, it’s all about your attitude. Sure, it really is hard to let Mr. Market humble you into the daily position of A) embracing uncertainty and B) accepting that risk doesn’t care about your positioning.

 

You can, however, dynamically (daily) risk adjust your positioning based on the highest probabilities that Mr. Market is giving you. Would you play any other game any other way? For us, since late November, that overall Global Macro position has been:

  1. Long US Dollar, Short Japanese Yen
  2. Long Equities (Asian and US specifically, not Europe)
  3. Short Gold and Treasury Bonds

I can be a dumb bunny too. That’s why I maintain a model that accepts dumb government policy as causal to currency moves. That’s also why we get currencies more right than wrong. Stocks, Bonds, and Commodities tend to react to big policy driven currency moves.

 

The US Dollar was up for the 2nd consecutive week last week (+1.8% over that time) and for the #1 concern my competitors are signaling as the US stock market’s greatest risk (inflation), Strong Dollar did what it should have done – it Deflated The Inflation:

  1. CRB Commodities Index = down another -0.9% last week (down -2.2% in the 2 weeks of Dollar Up)
  2. Gold = down another -3.5% last week to a fresh YTD low (down for the last 2 weeks as well)
  3. Silver = down -5.3% on the week and Food Prices deflated too (Cocoa -4.1%, Corn -1.4%, etc.)

Now a lot of people in this world (especially Americans) like it when the purchasing power of their hard earned currency appreciates. Others (like Venezuelans for example) don’t have a say in the matter. Their overlords debauch their currency whenever they please.

 

Eisenhower was lucky in that he was able to compete with British and French debaucherers of currency. These were weak governments who were addicted to debt and the cowardly messaging of #ClassWarfare. No one trusted that then – and they don’t trust it now.

 

Not all Equity markets like Commodity Deflation. Brazil’s Bovespa Index is the poster child for commodity exposure – it was down another -1% last week and is now down -5% for 2013 YTD.

 

What could really get this US and Asian Equity party started would be another blast higher in the US Dollar from here:

  1. Then Oil will eventually start to mean revert versus the rest of the CRB Commodities Index (which is breaking down)
  2. And Consumers, globally, will get a much needed TAX CUT at the pump

What’s actually quite amazing is that US Consumption hasn’t been hammered with Brent Oil trading up here at $117-118. In our GIP Model (Growth, Inflation, Policy), a Brent Oil price that is in a Bullish Formation is an explicit headwind.

 

But maybe that’s more of a headwind for those cheering on a weak currency in Europe. Enter France:

  1. France’s CAC40 snapped its immediate-term TRADE line of 3711 support in the last few weeks
  2. French Services PMI of 43.6 in JAN was god awful relative to A) itself (45.2 in DEC) or any other major country

So, the French have economic issues that, evidently, weren’t resolved with a 75% tax rate…

 

Now that their economic data really sucks again, the first thing their conflicted and compromised #PoliticalClass does is jawbones for a weaker Euro – then they tell the world they really didn’t do that at the G20 meetings, n’est-ce pas? But, with the CAC and the Euro breaking immediate-term TRADE support, who do you trust? Mr. Market doesn’t trust them.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1602-1652, $116.09-118.91, $3.67-3.72, $1.31-1.33, 92.53-94.38, 1.96-2.05%, and 1516-1524, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Trust Mr. Market - Chart of the Day

 

Trust Mr. Market - Virtual Portfolio


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TRADE OF THE DAY: CAF

Today we bought the Morgan Stanley China A Share Fund (CAF) at $23.93 at 12:40 PM EDT in our Real-Time Alerts. Buying China back on an immediate-term TRADE Oversold signal in the CAF. See Darius Dale's intraday note on China for details in risk managing the catalysts for this position.

 

TRADE OF THE DAY: CAF  - image001


Key Retail Macro Chart

Takeaway: Key Retail Chart: Apparel inflation spreads, which have a direct gross margin impact, are trending slightly positive.

Here’s a key retail chart. With the apparel industry at peak margins (both cyclical and secular) there is one chart we look at more than any other – and that is the group’s margins compared to the spread between industry buying costs and selling costs. The trend suggests that buying costs are trending below the change in retail prices (ie margin bullish). We need a lot to go right in order for this to sustain itself throughout 2013. But it’s a positive trend nonetheless.  

 

Key Retail Macro Chart - macro2

 

Key Retail Macro Chart - macro1


BWLD BECOMING A LESS ATTRACTIVE ON SHORT SIDE

Buffalo Wild Wings is screening less conclusively as a short as chicken wing prices have declined dramatically over the last few weeks.  We believe that the “conversation” around BWLD’s main input cost has changed significantly and this has important implications for our short thesis.

 

Hedgeye’s macroeconomic outlook has differed from consensus of late but market prices are vindicating the stance that a stronger dollar, and the lower commodity prices that tend to accompany that, is boosting the purchasing power of the American Consumer. 

 

From Buffalo Wild Wing’s perspective, the implications of this are two-fold:

  • Top-line demand should benefit from the stronger dollar, overall consumption growth
  • Chicken wing prices should come down as a derivative effect of a stronger dollar, lower corn prices

We believe that issues at the company level preclude us gaining sufficient conviction on the top line to suggest buying BWLD, but some facts pertaining to our short thesis have changed.

 

 

Traffic Still a Potential Problem

 

We retain a healthy level of skepticism that Buffalo Wild Wings will ultimately meet consensus expectations.  While the consumer, overall, seems to be holding up well despite the payroll tax increase, casual dining is not a point of strength.  We doubt there are any restaurant companies, particularly within casual dining, that have the power to raise prices 6% year-over-year and not see a drop off in traffic growth.  Management has implied that tests have “gone well” with the changes in how portions are sized (by weight versus number of wings) but we believe that bulls may be underestimating the sensitivity of traffic to price increases.

 

 

 

Wing Prices Coming Down?

 

Over the last year we have heard management’s tone on commodity costs change drastically.  This thorn in the company’s side may finally be going away as prices seem to be steadily declining.  Management is aiming to bring cost of sales down to 30%, from 32% in 4Q12.  This is largely dependent on how comps trend but wing prices coming down should make this goal easier to achieve. 

 

At this point, it is difficult to know where wing prices will trend, but if prices were to continue to trend lower, it could have a dual impact of improving sentiment on the stock and supporting EPS expectations.

 

BWLD BECOMING A LESS ATTRACTIVE ON SHORT SIDE - bwld cogs vs wing prices1

 

BWLD BECOMING A LESS ATTRACTIVE ON SHORT SIDE - chicken wings

 

 

Call with questions.

 

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 


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