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#Winning

This note was originally published at 8am on April 25, 2013 for Hedgeye subscribers.

“Winning is not a sometime thing; it’s an all time thing. You don’t win once in a while, you don’t do things right once in a while, you do them right all the time.  Winning is habit.  Unfortunately, so is losing.”

-Vince Lombardi

 

Last week I took a few days of vacation and had the opportunity to catch up on some reading.  One of the key books I read last week was, “Top Dog: The Science of Winning and Losing”, by Ashley Merriman and Po Bronson.  As the title suggests, the book is a deep dive into the science behind winning, losing, and competitiveness and has applications that go well beyond athletics.

 

Last week I was also continuing to enjoy the fact that my alma mater Yale recently won the NCAA ice hockey championships.  To be fair, a NCAA championship, while a big deal to the players, fans and alumni, is a far cry from a gold medal, Stanley Cup, or World Championships.  Nonetheless, it is an example of a team achieving its ultimately goal in a very competitive situation.

 

Going into the 16 team NCAA hockey tournament, Yale was seeded 15th and a 60:1 underdog according to the Vegas odds makers.  On the path to the championship, Yale also achieved a few things that no team had every done before.  First, they beat three number one seeds (each regional of four teams has a number one seed).  Second, they are the only fourth seed in the Frozen Four to ultimately win.  Clearly, this is an example of a team that overcame significant obstacles to become a champion.

 

So, what is it that enables some teams to win against extreme odds?  Counter to intuition, team members getting along and being traditional team players is not the key.  In fact according to Merriman and Bronson:

 

“In the idealized notion of a team, everyone is equal and interchangeable, and this equality drives commitments to the team effort.  But the science argues that the ideal is, if anything, a distraction. The goal is not to live up to the ideal, but to perform.  In real life, teammates are rarely true equals, and they don’t always get along. Having a hierarchy, with its clear divisions of responsibility, is most often the solution to team performance.”

 

To use economic terms, great teams are usually much more capitalist than socialist.

 

Now as Keith would say, back to the global macro grind . . .

 

In terms of global economic statistics, Spain’s unemployment rate is certainly one that signifies that the nation continues to lose economic share.  At a 27.2% rate of unemployment, with an even larger unemployment rate for those new to the work force, Spain is not going to see economic recovery without some help from her teammates.

 

The key friend to Spain is likely to be ECB President Mario Draghi, especially if he decides to cut rates as he was hired to do.  Luckily for Spain, our quantitative models are also signaling that the ECB is likely to ease again.  Specifically, every major European equity market is now in a bullish formation in our models, expect Russia.  This makes sense as Europe easing would be U.S. dollar bullish, which is negative for the price of oil and Russia is the largest exporter of oil in total barrels per day terms in the world.

 

Key sovereign debt markets also appear to be signaling some chance of the ECB incrementally easing.  Since the world didn’t end with Cyrpus’ bail under as many market pundits were urging would happen, peripheral yields in Europe have tightened meaningfully.  Despite the aforementioned employment issues, Spain’s 10-year yield is now at 4.38% and Italy’s 10-year yield is now at 4.06%.  As it relates to Italy, this is the lowest yield on the 10-year in more than a year.

 

Much of the pin action this morning in global equity markets is coming from China.  For those that tuned into our conference call on emerging markets this week, this should be no surprise.  We came into the year bullish on Chinese equities and have reversed that stance based on new data.  The China section in the emerging markets presentation given by my colleague Darius Dale was titled, “Will China Blow?”. Increasingly, this is a very fair question to ask on China.

 

A key risk or concern over China is whether real estate market prices are in a bubble and whether there is too much debt behind the Chinese real estate market.  In effect, is China about to go through a real estate correction comparable to what the U.S endured starting in 2007?  Some would argue that the high pace of Chinese economic growth inherently supports a rapid increase in real estate values and this is likely true, to a point.

 

In general, debt and real estate are very much driving Chinese equity markets.  Overnight, the Shanghai Composite closed on its lows as the property subsector once again dramatically underperformed.  This was on the back of a Minister of Taxation official warning that if property prices in second tier cities continue to rise then more property taxes will be implemented.  On one hand, you do have to hand it to Chinese officials attempting to proactively manage bubbles.  On the other hand, the history of government intervention is that governments rarely get things right.

 

In the Chart of the Day below we’ve highlighted a key slide from the emerging market presentation from earlier this week.  This chart shows the performance of the SP500 and MSCI Emerging Market Index in strong dollar periods and weak dollar periods, respectively.  They key takeaway is that in strong U.S. dollar periods emerging markets underperform dramatically as, among other things, capital flows out of emerging markets.  On the back of this research, we added the emerging markets ETF, EEM, as a short idea on our best ideas list.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1321-1478, $97.31-103.34, $82.55-83.44, 97.45-101.36, 1.70-1.76%, 11.33-14.89, and 1564-1595, respectively.

 

Keep your head up, stick on the ice, and keep #winning,

 

Daryl G. Jones

Director of Research

 

#Winning - Chart of the Day

 

#Winning - Virtual Portfolio


THE M3: FOUR SEASONS FALSE REPORTS

The Macau Metro Monitor, May 9, 2013

 

 

SANDS CHINA STATES REPORTS OF FOUR SEASONS SALES "INTENTIONALLY FALSE" Macau Daily Times, Macau Business Daily

In response to Hong Kong media reports that Sands China is selling its Four Seasons Hotel Macau through a timeshare arrangement, the government has asked the company to clarify the alleged sale.  The government has suggested that this form of sale might become an alternative form of real estate development, and the authority hinted the possibility of blocking any property transfer that violates the land concession contracts that the casino resorts signed with the authority.   

 

In a statement issued yesterday, Sands China said: “The Company wished to emphasize that although it has consistently stated in its annual reports that its business strategy includes the monetization of its non-core assets, there is absolutely no basis to the information in the news reports (on the alleged sales of the Four Seasons Hotel Macau and the alleged spinning off of the shopping mall). The company considers these reports to be intentionally false and is seeking legal advice accordingly.”  

 

Jaime Carion, the director of the Land, Public Works and Transport Bureau, said, “According to the land grant contract, any transfer [of ownership] needs the approval from the MSAR administration.  We have already sent the company [Venetian Macau] a letter asking them to explain to us what the whole thing is about”.

 

The sales of properties within casino-resorts is a public concern, as some critics stressed that the lands are granted to the operators at low prices and such sales may cause controversy relating to the fairness of the granting of the land concessions.  In addition, news reports also said Sands China is proposing the sale of its shopping mall project by way of BT or REITs for listing. The project is estimated to be worth HKD24 billion.



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Einhorn's Table

“Don't blindly follow me or anyone else into a stock.”

-David Einhorn

 

Yesterday was a great day for transparency in our profession. Some of the world’s best players stepped up to the podium at the Ira Sohn Foundation’s Conference in NYC and dealt the investing community their best card. Well, sort of.

 

First, there was Bloomberg Messaging, then there was AOL Instant Messenger, and now there’s Twitter. If you didn’t know that Twitter Is The New Tape, now you know. Watching the #Sohn2013 handle yesterday made you feel like you were right there at the poker table.

 

If you’ve played the game, you get it. If you haven’t, watching the game and all its subtleties helps. Were these guys throwing up aces, kings, or bluffs? What was already on the table before the game even started? These guys (yes, they were all guys) had to show something. Don’t underestimate the peer pressure to not look dumb. That’s the ante.

 

Back to the Global Macro Grind

 

I love this game, so watching the game within the game like that while the market’s macro clock is ticking is about as exciting as my day in this business can get. I know, nice life.

 

With the SP500 up for the 5th consecutive day, hitting another all-time (which is a long-time) record closing high of 1632 (+14.4% YTD), I was selling all day as I watched the #Sohn2013 ideas roll onto the new tape.

 

#TimeStamps: 3 days ago I had 18% Cash in the Hedgeye Asset Allocation Model – this morning I have 32%. In other words, from a gross exposure perspective, we are raising some cash now. In terms of a measurable hybrid net exposure, I’ve gone from 12 LONGS, 5 SHORTS (Monday) to 9 LONGS, 7 SHORTS @Hedgeye as of yesterday’s close.

 

But let’s get real here, who cares about my hand? I don’t run a real-fund anymore. I just run my mouth. So here’s my synthesis of what 5 players at the big boy table (Einhorn’s Table) were doing – what my team would act on, and why:

 

1.   Kyle Bass – pitched a small cap ($284M) stock (DXM) that had already moved (annoying). Then he told some great jokes about the Japanese as he re-hashed what we have been saying since September 2012 when we started shorting the Yen (see our #QuadrillYen Global Macro Theme, it’s hash tagged). The Yen is up this morning; JGBs doing nothing; no impact.

 

2.   Bill Ackman – put in the least impressive performance of the day re-pitching a very well known big cap stock (Procter & Gamble, PG) that hurt him in April (PG went straight down on its earnings report from $82 to $76). He reminded us that it’s a great company. Thanks. Stock acted like market beta on the day. No impact.

 

3.   Stan Druckenmiller – finally brought the thunder with the best macro presentation of the day (because his Global Macro call is the exact same as ours, of course). Long US Stocks. Short Commodities. And Short Ben Bernanke. Druckenmiller’s retirement account (his own money) is bigger than most funds, and he is clearly having a great year. Loves GOOG still – stock looks great.

 

4.   David Stemerman – did two things that we like: 1. Played a short idea (Short South African Retailers) and 2. Played a short idea that is not a consensus amongst hedge funds. If we’re right on #StrongDollar and Down Gold, short South African Equities scores very well. So did Stemerman in taking his first seat at the big boy table. #impact

 

5.   Jim Chanos – Doc brought the thunder for the hedge fund brothers and played the hand we all want to see – a full house idea that you can get big and liquid in (short legacy Personal Computers, Components, etc.). When Seagate (STX) opens this morning, you’ll see why Chanos remains The Man on well researched, high conviction, short selling.

 

Jacobson (Highfields) said he likes an idea we have been very vocal on (Kevin Kaiser’s Short/Sell call on Linn Energy – LINE, LINCO, BRY). Gundlach said short a stock that we’ll probably buy today if it hits our signal level (Chipotle, CMG – we made that short call last year, it’s stale) and Einhorn played a hand that everyone loves (a value stock that is starting to trade like a bull market momentum stock, in OIS).

 

All-in it was a great event for a great cause (pediatric cancer). Twitter didn’t sponsor the event, but the transparency/accountability pipe for #WallSt2.0 certainly helped bring the event’s profile to new heights (next to #Bengahzi, #Sohn2013 was the Top Trending Handle in the USA yesterday). That’s cool, and so is any opportunity the world has to eavesdrop on the table of some of the world’s best players.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $99.39-106.19, $81.51-82.92, 97.89-99.94, 1.73-1.86%, 12.06-14.01, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Einhorn's Table - Chart of the Day

 

Einhorn's Table - Virtual Portfolio


TRADE OF THE DAY: UNH

Today we shorted UnitedHealth Group (UNH) at $61.11 a share at 10:02 AM EDT in our Real-Time Alerts. Re-shorting UNH. Hedgeye Healthcare Sector Head Tom Tobin's utilization theme hasn't change. We are long Hospitals (HCA) and Baby Making (MD) against insurers (UNH) short. 

 

TRADE OF THE DAY: UNH - UNH


CHINA: Time To Play

Better late than never, right? China is now joining the likes of the United States and Japan in an all out free-for-all stock market bonanza. The Shanghai Composite Index has been up four days in a row and is putting up impressive gains post-export data shock (+14.7% exports last month? Gnarly.) TREND support for the Shanghai Composite is at 2206 and resistance is hanging out at 2246. 

 

CHINA: Time To Play - shanghai


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