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All About the Dollar

Client Talking Points

YEN

One way to get the US Dollar right is to get the USD/YEN pair right. We made a call to re-short Yens at 101.21 on Friday, as that was immediate-term TRADE resistance; no support to 103.66, then 107.11; Yen down = Weimar Nikkei up too. Bottom line: Getting the USD right remains critical.

DAX

We saw a big move in European Equities this morning, led by the majors (FTSE +1.5% and DAX +1.2%). The immediate-term TRADE line for the DAX that matters to me is 8398, and its back above that now – no resistance to 8546.

UST 10YR

Treasury yields are continuing to track US jobless claims like a glove (pro growth signal with bullish momentum); 2.04% on the 10yr this morning widens the Yield Spread (10s minus 2s) to +179bps wide (new 3 month highs). That is powering the Financials (XLF) higher, up +5.5% for May alone.

Asset Allocation

CASH 36% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 

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.

Three for the Road

TWEET OF THE DAY

"Gold has been considering an end to QE for 5 months #study"

@KeithMcCullough

QUOTE OF THE DAY

“A coach is someone who can give correction without causing resentment.” -John Wooden

STAT OF THE DAY

Mass layoffs in the U.S. (cuts involving 50 employees are more) are at the lowest level since June 2007.


THE M3: S'PORE VISIT LIMIT; MACAU LEGEND IPO; CHANGI

The Macau Metro Monitor, May 28, 2013



CASINO VISIT LIMIT ON FINANCIALLY VULNERABLE TO TAKE EFFECT ON 1 JUNE Channel News Asia

The casino visit limit on financially vulnerable Singapore citizens and permanent residents will come into effect from 1 June 2013.  The visit limit, if imposed, will set a cap on the number of times an individual may visit casinos at the integrated resorts each month.


Three types of visit limits will be introduced:  1) A Voluntary Visit Limit means individuals may apply to the National Council on Problem Gambling (NCPG) to limit their visits.  2) Family members may apply to NCPG through a Family Visit Limit to limit a family member's visit.  3) Persons found to have poor credit records or are vulnerable to financial harm due to gambling could have a Third-Party Visit Limit imposed on them by a committee of assessors appointed by NCPG.  The committee will evaluate the individual's financial vulnerability, taking into account factors such as frequency and pattern of casino visits, credit record, work situation and information provided by him and family members.


Before the committee imposes a Third-Party Visit Limit on any person, there will be an opportunity for the individual to object to the proposed visit limit. 

 

MACAU LEGEND STARTS PRE-MARKETING FOR $600 MILLION HK IPO Reuters, Macau Business

Casino operator Macau Legend Development Ltd has kicked off pre-marketing for its planned approximately $600 million Hong Kong IPO.  The company, which owns Macau Fisherman's Wharf, Landmark Macau and Pharaoh's Palace Casino, plans to price the IPO on June 21, with listing scheduled for June 27.  The IPO consists of 100 percent primary shares and would value the company at $2.4 billion.

 

Macquarie wrote in a report that Macau Legend’s gaming tables come under SJM’s casino concession and are some of the under-utilized tables that SJM has.  “Macau Legend’s desire to upgrade the facilities that these tables fit in should result in table yields rising,” it said.

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

The number of Singapore's Changi airport passengers rose 0.8% YoY in April to 4,240,461.

 

THE M3: S'PORE VISIT LIMIT; MACAU LEGEND IPO; CHANGI - cc

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 28, 2013


As we look at today's setup for the S&P 500, the range is 30 points or 0.46% downside to 1642 and 1.36% upside to 1672.        

                                                                                                                       

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.79 from 1.76
  • VIX closed at 13.99 1 day percent change of -0.57%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9am: S&P/CS Comp-20 City Home Price Index M/m, March, est 1%
  • 9am: S&P/Case-Shiller Index, March (prior 146.57)
  • 9am: S&P/Case-Shiller U.S. HPI Y/y, 1Q (prior 7.33%)
  • 9am: S&P/Case-Shiller U.S. HPI, 1Q (prior 135.22)
  • 10am: Richmond Fed Manuf Index, May, est -5 (prior -6)
  • 10am: Consumer Confidence, May, est. 70.5 (prior 68.1)
  • 10:30am: Dallas Fed Manuf Act., May, est -10 (prior -15.6)
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 11:30am: U.S. to sell $30b 3M bills, $25b 6M bills
  • 1pm: U.S. to sell $35b 2Y notes
  • 8pm: Bank of Japan’s Kuroda speaks at BOJ conference
  • U.S. Rates Weekly Agenda

GOVERNMENT:

    • 10am: House Transportation and Infrastructure panel holds field hearing on oversight of high-speed rail in Calif.

WHAT TO WATCH

  • Valeant to Buy Warburg Pincus’s Bausch & Lomb
  • KKR, Silver Lake challenge Yahoo for Hulu as bidding escalates
  • Yahoo’s Hulu bid said to be $600m-$800m: AllThingsD
  • AstraZeneca to buy Omthera Pharma for up to $443m
  • Apple’s iPhone distribution still examined by EU regulator
  • Freeport mine suspension may be lifted after safety review
  • Morgan Stanley said to move Asia hedge-fund event to U.S.
  • Jet to buy more Boeing planes as AirAsia enters India market
  • Siga may rise on chance to reargue damages in PharmAthene suit
  • Chevron lends Venezuelan oil venture $2b for output boost
  • Chevron plans to sell more gas from A$52b Gorgon project
  • Clarion said to buy NYC tower in midtown south for $225m
  • Li says China targets 7% annual growth this decade
  • Oil-price manipulation may affect millions, EU official says
  • “Fast & Furious 6” is top U.S./Canada film w/ $98.5m
  • Bank of Israel lowers rate a second time this month
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • U.S. consumer spending probably little changed: Eco Preview
  • BOJ Speakers, Merkel, French Open: Week Ahead May 27-June 1

EARNINGS:

    • Canadian Solar (CSIQ) 6am, ($0.78)
    • Tiffany (TIF) 7am, $0.53
    • Bank of Nova Scotia (BNS CN) 7:30am, C$1.26 - Preview
    • United Natural Foods (UNFI) 4pm, $0.64
    • EnerSys (ENS) 4:01pm, $0.80
    • Guidewire Software (GWRE) 4:01pm, $0.02
    • Wet Seal (WTSL) 4:05pm, $0.01

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Premiums Tumble From India to Hong Kong as Demand Wanes
  • Refined Sugar Sours as Premium Shrinks Amid Glut: Commodities
  • Corn Climbs to Three-Week High as Wet Weather May Slow Planting
  • Brent Crude Rises to One-Week High; WTI Halts Four-Day Decline
  • Gold Drops With Silver as Dollar Strengthens Before U.S. Data
  • Money Managers Boost Bets on Higher Cocoa Prices on NYSE Liffe
  • Aluminum Inventories Seen by IAI at 1.22 Million Tons in April
  • Gold Futures May Drop to Lowest Since 2010: Technical Analysis
  • SHFE Plans to Expand Warehouse Network in Competition With LME
  • Rebar in Shanghai Climbs 0.2%, Reversing Earlier Decline
  • Australia May Get 10% of New LNG Contracts, Wood Mackenzie Says
  • Jet Fuel Sinks in Europe as Slowdown Hits Travel: Energy Markets
  • LPG Tanker Rates Rising Near Record in U.S. Shale Surge: Freight
  • Copper Swings Between Gains and Declines on China Growth Concern

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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

 

 

 

 

 

 

 

 

 

 

 


Early Look

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Coaching Through Corrections

“A coach is someone who can give correction without causing resentment.”

-John Wooden

 

On weekends, I coach 4-6 year olds (hockey). During the week, I sometimes coach adults (macro). All the while, Mr. Market is always coaching me through something. I bear no resentment towards him. To the contrary, I quite enjoy it when he tells me what to do (signals).

 

With US stocks down for 4 of the last 5 days, there was another choice to be made on Friday – correction or crash? This wasn’t unlike many of the learning opportunities that Mr. Market has provided us in the last 6 months. Buying the correction has been the right choice.

 

The only thing that seems to be crashing this year is the idea that we are going to crash. The #EOW (end of the world) trade has been the worst place you could be long for the month of May. When you have #GrowthAccelerating, you don’t buy Yens, Gold, and Treasuries. Ask the Coach.

 

Back to the Global Macro Grind

 

After covering all but 4 short positions on red Friday morning, I posted a note titled “Oversold: SP500 Levels, Refreshed.” I also re-shorted the Yen at our immediate-term TRADE overbought line of 101.22.

 

These aren’t victory laps; they are timestamps – and I am 100% accountable to them. Two of the four short positions we have left are related to Japanese Policies to Inflate (short Yens and JGBs). The other two are short Russia (world’s 3rd worst stock market YTD, next to Peru and Cyprus) and short Emerging Markets (EEM) which do not like #StrongDollar (and are down YTD).

 

What if I didn’t listen to the Macro Coach? What if I just ignored my signals and went with “feel”? Been there, done that – many times over, in many arenas and markets – and, in general, it doesn’t work. For us what works is the combination of A) Risk Signals and B) Research Views – when we have both, we move.

 

Last week’s US Equity market risk wasn’t the economic fundamentals – it was Ben Bernanke. He tried his best to confuse economic gravity (#GrowthAccelerating) with his longstanding and dogmatic view that he needs a weaker US Dollar to achieve his goals. #wrong

 

He got that last week – the Dollar weakened and so did the US stock market in kind (they now have a very positive correlation, Ben). Bernanke’s jawboning arrested #StrongDollar momentarily (-0.65% on the week), and the SP500 corrected -1.2% from its all-time weekly closing high.

 

Back to the Research View - whether Bernanke wants to acknowledge it or not, last week’s US economic data was decisively bullish:

  1. New Home Sales for April ripped +8.8% sequentially (month-over-month) to 454,000
  2. US weekly Jobless Claims surprised on the downside (again) at 340,000 (-8.9% year-over-year)
  3. US Durable Goods #GrowthAccelerated +3.3% in April (versus March)

That’s why US Treasury Yields continued to back up (despite Bernanke trying to talk them down). The US 10yr Yield is up again this morning to 2.04% and has no intermediate-term TREND resistance to 2.41%. So Mr. Market is trying to coach @FederalReserve through this…

 

Whether Bernanke tells his boys to listen to the market’s message will be his legacy. His boss (President Obama) cares about his political legacy too. On the cover of The Economist this weekend is a picture of Barry looking a little confused alongside the titled “How To Save His Second Term.”

 

Coach says the best way to make Obama look good is via our #StrongDollar, Strong America strategy. It worked for Reagan and Clinton – and it can work for Obama too. If he doesn’t get it, Hillary will – this isn’t that complicated, folks.

 

Coaching you through corrections in Yens, Gold, and Treasuries starts with reminding you that these aren’t corrections – in 2 of 3, they are crashes – and for many Americans still choking on Bernanke Yield Chasing trade, the third may very well become his Waterloo.

 

Just to show you how horrendous being long no-growth “yield” is performing in the last month, here’s the score:

  1. Utilities (XLU) are already down -6.3% for the month of May alone!
  2. With Treasuries down (Treasury Yields up +38bps in the last month!), Financials (XLF) lead the SP500 at +5.5% for May to-date
  3. Low Yield Stocks (i.e. Growth Stocks) are up +6.7% in the last month and now +20.1% for 2013 YTD

Got that Messrs Bernanke and Obama?”

 

With the US Dollar +5.1% YTD and Commodities -3.7% YTD, Coach says get the US Dollar right and you’ll start to get America right. Freedom, Liberty, and Growth are the best paths to prosperity – not Dollar Debauchery, fear-mongering, and sketch balls at the IRS.

 

We can get you guys through this. Yes We Can. Embrace #StrongDollar, and be the change.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $101.48-103.94, $83.62-84.29, 101.21-103.66, 1.96-2.06%, 12.27-14.46, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Coaching Through Corrections - Chart of the Day

 

Coaching Through Corrections - xx. VP


SLIGHTLY LOWER MAY PROJECTIONS FOR MACAU

This past week came in a bit softer than anticipated but still 10% above the comparable week of last year.  Average daily table revenues were HK$782 million, down 11% from April’s levels.  Our new projection, including slots, assumes 12-14% YoY growth over May.  We expect similar YoY growth in June (maybe slightly higher) and accelerating growth for July.

 

Wynn and MGM are the biggest winners in terms of market share this month relative to trend with SJM as the big winner.  We suspect hold has played a big role in Wynn’s May market share gain but MGM may be more volume related.  We continue to be impressed with MGM Macau’s operating performance.

 

SLIGHTLY LOWER MAY PROJECTIONS FOR MACAU - m1

 

SLIGHTLY LOWER MAY PROJECTIONS FOR MACAU - m2


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