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Bigger and Stronger America

Client Talking Points

Growth Accelerating?

Back in 2012, we went from #GrowthSlowing to #GrowthStabilizing. Now that America has had some time to digest the move and we're getting awesome labor market and housing reports week-after-week, perhaps we are ready to move to #GrowthAccelerating? Consider this data:

 

  1. ISM Manufacturing New Orders accelerated from 53.3 in JAN to 57.8 in FEB
  2. ISM Services New Orders accelerated from 54.4 in JAN to 58.2 in FEB
  3. PMI Manufacturing New Orders accelerated from 58.2 in JAN to 60.2 in FEB

"Not too shabby," some would say. Well if you combine that with falling oil prices and a stronger dollar, you get growth and an uptick in consumption. That helps drives stocks as consumers flock out to the grocery store, unafraid of what the price of milk may be this week. Things are getting good and they are willing to get better. When that happens, everybody (except the bears!) wins.

 

Asset Allocation

CASH 24% US EQUITIES 24%
INTL EQUITIES 24% COMMODITIES 4%
FIXED INCOME 0% INTL CURRENCIES 24%

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..

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

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

"I know, why use credible #WallSt2.0 sources when you can bang your head against the Old Wall #GDP" -@KeithMcCullough

QUOTE OF THE DAY

"In a mad world only the mad are sane." -Akira Kurosawa

STAT OF THE DAY

Private sector adds 198,000 jobs in February according to latest ADP report.


What Keith's Reading

Service Industries in U.S. Grow at Fastest Pace in a Year (via Bloomberg)

 

Australia Expands at Fastest Pace Since 2007 on Exports: Economy (via Bloomberg)

 

Kuroda to Hit ‘Wall of Reality’ at BOJ, Ex-Board Member Says (via Bloomberg)

 

Asian Stocks Climb on U.S. Data, Global Stimulus Bets (via Bloomberg)


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 6, 2013


As we look at today's setup for the S&P 500, the range is 24 points or 1.35% downside to 1519 and 0.21% upside to 1543.      

                                                                                                                         

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: 1.68 from 1.66
  • VIX  closed at 13.48 1 day percent change of -3.78%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 1 (prior -3.8%)
  • 8:15am: ADP Employment Change, Feb., est. 170k (prior 192k)
  • 8:15am: Fed’s Plosser speaks on economy in Lancaster, Penn.
  • 10am: Factory Orders, Jan., est. -2.2% (prior 1.8%)
  • 10:30am: DoE Energy Inventories
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2043 sector
  • 2pm: Federal Reserve releases Beige Book
  • 8:30pm: Fed’s Fisher speaks in San Antonio, Texas

GOVERNMENT:

    • 9:30am: Attorney General Eric Holder testifies at Sen. Judiciary Cmte oversight hearing
    • 10am: House Appropriations oversight hearing on Sandy disaster relief, recovery
    • 0am: House Fin Svcs panel meets on Fannie Mae, Freddie Mac role in financial crisis
    • 2pm: Congressional Gun Violence Prevention Task Force hearing on using background checks to prevent criminals, mentally ill from getting gun

WHAT TO WATCH

  • Kuroda will have limited options for easing at BOJ, ex-board member says
  • Dow index futures higher after closing at record yday
  • Obama seeks budget deal by phoning Republicans in spending talks
  • HSBC sells U.S. consumer, homeowner loans for $3.2b
  • Hewlett-Packard faces mounting pressure to remove Chairman Lane
  • Martha Stewart says J.C. Penney designs ‘absolutely allowed’
  • Home Depot sued by PayOne over patent-infringement claims
  • Artisan Partners seeks to sell 11.5m shrs in 2nd run at IPO
  • Cantor’s Johnson said to join Alcentra for U.K. direct lending
  • Capital One CEO gets cash pay for first time since 1997
  • Drought conditions in U.S. seen improving after snow, USDA says
  • LinkedIn wins dismissal of consumer privacy suit over hacking
  • Hugo Chavez, Venezuela’s anti-U.S. socialist leader, dies at 58

EARNINGS:

    • Staples (SPLS) 6am, $0.45
    • Fresh Market (TFM) 6am, $0.44
    • Big Lots (BIG) 6am, $1.98
    • Vail Resorts (MTN) 7:15am, $1.69
    • Brown-Forman (BF/B) 8am, $0.70
    • American Eagle Outfitters (AEO) 8am, $0.56
    • Laurentian Bank (LB CN) 8:40am, C$1.29
    • Hovnanian Enterprises (HOV) 9:15am, $(0.10) - Preview
    • Veresen (VSN CN) 1:54pm, C$0.10
    • PetSmart (PETM) 4:02pm, $1.21
    • Semtech (SMTC) 4:30pm, $0.43
    • DryShips (DRYS) 5:00pm, $(0.14)
    • Colony Financial (CLNY) 5:45pm, $0.38

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brazil and Colombia Seen by ICO Making Up for Coffee Rust Losses
  • DuPont Faces Another Year of Pigment Price Declines: Commodities
  • Brent Trades Near Four-Day High on Pipeline Halt; Chavez Dies
  • Wheat Falls on Indications World New-Crop Supplies Set to Climb
  • Copper Falls on Concern Demand Is Weak Amid Ample Inventories
  • Gold for Immediate Delivery Falls to $1,574.34 an Ounce
  • Coffee Falls for a Second Day on Brazil, Colombia; Cocoa Drops
  • Iron Ore Trading Doubled to 18.35 Million Tons for February
  • Japan Said to Plan Talks With South Korea on Joint LNG Purchases
  • U.K. Gold Hallmarking at Lowest Since at Least ’07 on Price Gain
  • India Seen Boosting Wheat Exports From Stockpiles Before Harvest
  • China Joining U.S. Shale Renaissance With $40 Billion: Energy
  • Hedge Funds See Coffee Slump as Supplies Grow: Chart of the Day
  • Iron Ore Price Surge Partly Due to Manipulation, NDRC 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

 

 

 

 

 


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.


American Progress

“He gave the nation the idea of American progress.”

-John Meacham

 

That’s what John Meacham wrote about Thomas Jefferson in his prologue to the latest brick I tackled on a flight yesterday to San Francisco, California: Thomas Jefferson: The Art of Power.

 

To his friends, who were numerous and devoted, Jefferson was among the greatest men who ever lived… to his foes, who were numerous and prolific, Jefferson was an atheist and a fanatic, a demagogue and a dreamer.” (Prologue xxiii)

 

Do you have a vision for your family and firm? Are you a dreamer? I am. And I’m damn proud of it too. Listening to politicians who don’t get liberty, free markets, and the purchasing power of success (#StrongDollar) has run its course. It’s a cycle. And so is American Progress.

 

Back to the Global Macro Grind

 

At this point, the sequential progress in the US Economic data from December 2012 to March 2013 is glaringly obvious. When my signals tell me to, I have no problem fighting the Fed. But I don’t fight the data.

 

From US Housing to Employment (they progressed first), to more coincident economic indicators like yesterday’s ISM Services report (best since 2011), the risk management question now isn’t “where do I sell?” It’s “could growth stabilizing become #GrowthAccelerating?”

 

We analyze a lot of “stuff”, but some of the more forward looking “stuff” comes in the form of new order growth:

  1. ISM Manufacturing New Orders accelerated from 53.3 in JAN to 57.8 in FEB
  2. ISM Services New Orders accelerated from 54.4 in JAN to 58.2 in FEB
  3. PMI Manufacturing New Orders accelerated from 58.2 in JAN to 60.2 in FEB

So, if you use that “stuff” (otherwise known as economic data), you’d answer yes to the question of recent American Progress. But these are new orders, what about new consumption growth tailwinds that we didn’t have in JAN or FEB?

 

How about Oil prices coming down? Amidst all of the #PoliticalClass fear-mongering about the spending problem they created, could Sequestration = Strong Dollar = Down Oil = Stronger real (inflation adjusted) Consumption Growth?

 

I’m no atheist, and my loathers can call me fanatic about this Strong Dollar Tax Cut idea all they want, but history sides with the Canadian on this front, bros. As you can see in today’s Chart of The Day, under both Reagan (1) and Clinton (1), American Progress was built on the back of a Strong Dollar, pro growth, recovery.

 

How does Mr Market score our theme of being long Consumption?

  1. US Healthcare Stocks (very much an American Consumption story) = +11.33% YTD (XLV)
  2. US Consumer Staples Stocks = +10.72% YTD (XLP)
  3. US Consumer Discretionary Stocks = +9.66% YTD (XLY)

Yes. All of those are beating what’s been a fantastic +7.9% YTD return for the SP500. And how does Mr Market score being short (or underweight) Commodity Inflation Expectations?

  1. US Basic Materials Stocks = +3.41% YTD (XLB is the worst performing Sector in the S&P Sector Model)
  2. CRB Index (19 commodities) = -1.35% YTD (awful relative to any major asset class)
  3. WTI Crude Oil = -1.4% YTD (having recently broke our $93.79/barrel TREND line of support)

OK. So being long Consumption growth and short Commodity exposures is still working. How is the end of the world trade going?

  1. Gold = down again this morning to $1574, = down -6.02% YTD
  2. US Treasuries = 10yr Yield up to 1.92% this morning = up +9.09% YTD

Again, if the world was going to end: A) all US economic data wouldn’t have gone from slowing to stabilizing to accelerating (look at the slope of the line) and B) Gold and Treasuries wouldn’t be losing you money in 2013 YTD.

 

I know, I know. People want to bring up what happened last year, and the year before that. I know, it’s like arguing with my college girlfriend. It was painful. But I got over it.

 

I don’t live a regressive life. I’m writing about American Progress because we have a tremendous opportunity here. What’s not only been happening for 3 months, but what could keep happening if the #StrongDollar setup remains excites me. It should excite you too.

 

Look at your screens. Markets are testing all-time highs. Be a leader. Be proud. Cut government spending. Get these people you already have on mute off TV. Let’s get back to what makes this country the most progressive that the world has ever seen. This is our chance.

 

Our immediate-term Risk Ranges for Gold, Oil (WTIC), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000 and the SP500 are now $1, $89.76-91.98, $81.76-82.38, 91.79-94.68, 12.21-14.63, 910-932, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

American Progress - Chart of the Day

 

American Progress - Virtual Portfolio


THE M3: CASHLESS CASINOS

The Macau Metro Monitor, March 6, 2013

 

 

GAMING ALERT: MORE "CASHLESS CASINO" LICENSES ALLEGEDLY ISSUED IN HAINAN Macau Daily Times

According to gaming insiders, Jester Bar owned by real estate mogul, Zhang Baoquan, wasn’t the only operator “licensed” to test the cashless casinos.  Sources say “up to 10 licenses were issued or were about to be issued,” when Jester’s was shut down apparently following a Reuters’ dispatch revealing the activities of the casino bar at the Mangrove Tree Resort World. 

 

A Shanghainese living in Sanya, surnamed Lin, confirmed the “rumors” that “they want to have a special zone for gambling in China. So Sanya officials are very willing to try gaming here.”  Lin said, “There are other bars like this in Sanya. I know at least three. The first time I went to one was three years ago. Many people go there. They open and close all the time. Jesters will open again. They closed it because of troubles during a visit by government officials.” 

 

A former Galaxy Macau executive, Eric Coskun is managing the casino operations at Jester’s and was subsequently “advised to keep a low profile”.  Hainan is purported to have the most illegal gambling operations in China. 


Despite the denials from Sanya’s government stating no gaming operations were ever officially sanctioned “it’s obvious that Zhang Baoquan has had the tacit approval of central government officials, even if only by turning a blind eye on the tycoon’s operations,” a gaming expert told the Times.

 



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