prev

Morning Reads on Our Radar Screen

Takeaway: A quick look at some top stories on the Hedgeye radar screen.

Josh Steiner – Financials

Former Bank of America workers allege it lied to home owners (via Reuters)

 

Morning Reads on Our Radar Screen - radar

 

Keith McCullough – CEO

Natto Makers to Public Baths Suffer in Abenomics Divide (via Bloomberg KM note … burning currency doesn't work)

Singapore Exports Fall More Than Estimated on Electronics Slump (via Bloomberg)

British man survives 15th floor fall in New Zealand (via BBC)


Howard Penney – Restaurants

Borghese v. Borghese: Battle for a Royal Name (via New York Times)


Daryl Jones – Macro

New Iran Leader Seen as Moderating Force (via WSJ)

Energy Journal: Will Iran Set a New Path on Energy? (via MoneyBeat)

 

Brian McGough - Retail

China’s Huge Cotton Stockpile – Bullish or Bearish for Cotton Prices? (via Sourcing Journal Online) 


Kevin Kaiser – Energy

Self assessment Monday: an old letter to a client… (via Bronte Capital)        

Saipem shares plunge after new profit warning (via Reuters)

 

Matt Hedrick – Macro

Greek PM dismisses talk of early election over TV closure (via YahooNews)

Turkey Police Escalate Crackdown as Erdogan Rallies Support (via Bloomberg)

 


MONSTER WEEK IN MACAU

Average daily table revenues jumped 45% from the comparable period last year and 39% week over week.  We are moving our full month GGR projection to YoY growth of 16-20%.  We remain very bullish on Macau over the near and long term.  July looks to be another excellent month, due in part to a very easy comparison, which should keep the momentum going.

 

We are hearing the strength was broad based:  while VIP hold percentage was likely high, both VIP and Mass volumes were strong.  The rising tide lifts all boats but Galaxy and MGM Macau are performing particularly well this month.  MPEL and MGM remain our top picks in the gaming sector.  

 

MONSTER WEEK IN MACAU - pp

 

MONSTER WEEK IN MACAU - n2


MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY

Takeaway: Credit risk continues to rise globally with Indian banks the latest group to keep tabs on. High Yield, meanwhile, continues to deteriorate.

Key Takeaways:

Overall, risk measures continue to indicate broad-based deterioration. Swaps at the global sovereign and global banking level continue to go the wrong way. Interestingly, systemic banking system gauges like TED Spread and Euribor-OIS, remain benign. High Yield continues to get hit. The weakest links always get clipped first, so keep an eye on HY.

 

* Asian Financial CDS - It's not often that we flag Asia, but it's worth noting the huge move in Indian bank swaps. ICICI bank blew out 42 bps, or +18%, while State Bank of India was wider by 23 bps (+11%) and IDB Bank of India widened by 33 bps (+14%). These are significant outliers vs. the rest of Asia.

 

* Markit MCDX Index  – Muni swaps continued to widen. Last week spreads widened a further 8.9 bps, ending the week at 84.4 bps versus 75.5 bps the prior week. 

 

* High Yield (YTM) – High Yield rates are currently our primary gauge of risk in the sector. They rose a further 11.4 bps last week, ending the week at 6.23% versus 6.11% the prior week.

 

* U.S. Financial CDS -  U.S. Financials were wider across the board last week, with the sole exception of Sallie Mae, which tightened by 21 bps (AGO gets an honorable mention as it was flat). The big movers were GS and MS, widening by 13 bps and 11 bps, respectively. 

 

* XLF Macro Quantitative Setup – Short-term upside currently 2x downside. Our Macro team’s quantitative setup in the XLF shows 2.8% upside to TRADE resistance and 1.4% downside to TRADE support.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 3 of 13 improved / 5 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Negative / 5 of 13 improved / 6 out of 13 worsened / 2 of 13 unchanged

 • Long-term(WoW): Positive / 5 of 13 improved / 1 out of 13 worsened / 7 of 13 unchanged

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 15

 

1. U.S. Financial CDS -  U.S. Financials were wider across the board last week, with the sole exception of Sallie Mae, which tightened by 21 bps (AGO gets an honorable mention as it was flat). The big movers were GS and MS, widening by 13 bps and 11 bps, respectively. BAC and C weren't far behind, widening by 8 bps each. For reference, Wells Fargo continues to be perceived as safest with a modest 1 bp widening, followed by JPM at +4 bps. Overall, swaps widened for 25 out of 27 domestic financial institutions.

 

Widened the least/ tightened the most WoW: SLM, AGO, AON

Widened the most WoW: GS, RDN, C

Widened the least WoW: WFC, AON, JPM

Widened the most MoM: AXP, TRV, ALL

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 1

 

2. European Financial CDS - Financials swaps across Europe were mostly wider last week, consistent with the month-over-month trend.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 2

 

3. Asian Financial CDS - Indian banks posted significant widening. ICICI bank blew out 42 bps, or +18%, while State Bank of India was wider by 23 bps (+11%) and IDB Bank of India widened by 33 bps (+14%). In Japan and China, financials swaps were flat to modestly wider.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 17

 

4. Sovereign CDS – Sovereign swaps blew out in Portugal (+27 bps), but were only nominally wider elsewhere, and tightened again in the U.S. 

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 18

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 3

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose a further 11.4 bps last week, ending the week at 6.23% versus 6.11% the prior week.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index was flat last week at 1793.21.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 6

 

7. TED Spread Monitor – The TED spread fell 0.2 basis points last week, ending the week at 22.975 bps this week versus last week’s print of 23.215 bps.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index fell -2.6 points, ending the week at 0.32 versus 2.9 the prior week.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Liquidity deposits declined by 18 billion Euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 10

 

11. Markit MCDX Index Monitor – Last week spreads widened 8.9 bps, ending the week at 84.4 bps versus 75.5 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. 

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 11

 

12. Chinese Steel – Steel prices in China fell 1.4% last week, or 47 yuan/ton, to 3375 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 186 bps, 1 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.8% upside to TRADE resistance and 1.4% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: STILL GOING THE WRONG WAY - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


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 80.64%
  • SHORT SIGNALS 78.61%

Rolling the Bones

Client Talking Points

JAPAN

You may as well just "roll the bones" at the craps table to trade daily volume in the #WeimarNikkei. Overnight, Yen down -0.75% had Nikkei +2.7%, but that's still below our broken TREND line of 13,773. The USD/YEN pair needs to recover 96.35 TREND line now to matter in our model too. In other words, I’d fade today’s move.

KOSPI

Away from the Japanese gong show, Asia is really starting to slow in the aggregate. KOSPI and Shanghai Comp both closed -0.3% last night, despite the move in Yen/Nikkei.Meanwhile, Singapore posted an ugly export number of -4.6% year-over-year for May as well. More to be revealed.

OIL

Brent’s breakout (on USD breakdown + Syria) is not a good thing for the marginal rate of change in Consumption in our model. Brent is now back above my immediate-term TRADE line of $105.84 this morning too. That’s good for oil, not consumers. We are paying close attention to these unfolding developments.

Asset Allocation

CASH 58% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NSM

Financials sector head Josh Steiner is the Street’s head bull on residential mortgage originator/servicer Nationstar, projecting $9 in earnings for the company in 2014.  This is well above the company’s own guidance range, which tops out at around $7.50. NSM had a successful start to the year as it won servicing bids on substantial mortgage portfolios.  They also reported significant increases in their profit margins on those portfolios, and double-digit increases in their own originations.  Housing prices are ramping significantly higher, as Steiner predicted, as demand continues to exceed supply in both new and existing homes.  Steiner says this quality mortgage company could ride the crest of a sustained wave of sector improvement.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.  

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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

Three for the Road

TWEET OF THE DAY

Big day for $LINE energy on Tuesday as @HedgeyeENERGY goes through the "not so top 10" about Linn Energy ...

@HedgeyeDJ

QUOTE OF THE DAY

"He who lives by the crystal ball will eat shattered glass."
- Ray Dalio 

STAT OF THE DAY

300 million: The number of pictures uploaded to Facebook every day via Instagram.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 17, 2013


As we look at today's setup for the S&P 500, the range is 46 points or 1.34% downside to 1605 and 1.49% upside to 1651.                  

                                                                                                             

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: 1.85 from 1.86
  • VIX closed at 17.15 1 day percent change of 4.51%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Empire Manufacturing, June, est. 0 (prior -1.43)
  • 10am: NAHB Housing Market Index, June, est. 45 (prior 44)
  • 11am: Fed to purchase $4.75b-$5.75b notes in 2018-2019 sector
  • 11:30am: U.S. to sell $30b 3M, $25b 6M bills
  • U.S. Weekly Rates Agenda

GOVERNMENT:

    • Two day G-8 Summit in Northern Ireland begins
    • House begins debate, voting as early as this wk on Farm Bill, possibly ending subsidies for farmers regardless of what they grow and replacing them with expanded subsidized crop insurance; measure proposes reducing food-stamp spending by $20.5b over 10 yrs, vs reduction of $4b in Senate-passed bill
    • 5-day pretrial hearing in case of Khalid Sheikh Mohammed and four other men accused of planning the Sept. 11, 2001, attacks
    • 8:45am: Energy Sec. Ernest Moniz keynote at EIA Energy Conf.

WHAT TO WATCH

  • Rockwood to sell ceramics unit CeramTec to Cinven for $2b
  • GE lease unit said to order 10 of Boeing’s biggest 787 jets
  • Airbus wins A380 commitment for 20 planes valued at $8.1b
  • Paris Air Show seen w/ positive, wide-body focus
  • Smithfield investor urges producer to consider breakup: WSJ
  • Google said to negotiate with U.S. over data requests
  • Apple joins Facebook, Microsoft in outlining data requests
  • Facebook sends out invitations for event on “new product”
  • BP holders seek to sue as group over 2010 Gulf spill losses
  • Weyerhaeuser to buy Longview for $2.65b to add Timberland
  • Wells Fargo to begin 2nd Minnesota securities-lending trial
  • Telefonica denies AT&T made approach for takeover
  • CF Industries says one dead in Louisiana plant accident
  • Dole Food investors sue over CEO’s $645m buyout offer
  • Virgin seeks U.S. car-rental entry by buying Advantage
  • Citigroup, JPMorgan release May credit-card charge-off data
  • Sundance Energy will look to acquire more U.S. shale assets
  • “Man of Steel” takes $113m in year’s 2nd-best premiere
  • Tronox, Vringo, Zale among prelim. adds to Russell 3000
  • Housing mkt probably brightened in May: U.S. Wkly Eco Preview
  • 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
  • Bernanke, G-8 Summit, Paris Air Show, NBA: Wk Ahead June 17-22

EARNINGS:

    • Korn/Ferry (KFY) 4pm, $0.31

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Soybeans Drop With Corn as Drier U.S. Weather May Boost Crops
  • Hedge Funds Cut Gold Bets as Paulson’s Loss Widens: Commodities
  • WTI Crude Trades at Nine-Month High on Mideast Unrest Concern
  • Copper Declines as Investors Await Meeting of Fed Policy Makers
  • Record Soybean Glut Is Seen Worsening as China’s Appetite Eases
  • Gold Falls Before Fed Meets as Investors Weigh Stimulus Outlook
  • Sugar Rebounds After Bearish Bets Reach Record; Cocoa Retreats
  • Rebar Advances to Highest in Three Weeks on Reduced Inventory
  • Serge Schoen Resigns as CEO of Louis Dreyfus Commodities
  • Money Managers Boost Crude Bets to 15-Month High: Energy Markets
  • Monsoon Covering India in Record Time May Boost Rice, Sugar
  • Smithfield Investor Urges Producer to Consider Breakup, WSJ Says
  • Minneapolis Wheat Premium May Double Amid Rain: Chart of the Day
  • Palladium Only Precious Metal That Hasn’t Surprised in LBMA Poll

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

 

 

 

 

 

 

 

 

 

 


Speed And Surprise

This note was originally published at 8am on June 03, 2013 for Hedgeye subscribers.

“He made brilliant use of speed and surprise on the battlefield.”

-Jack Weatherford

 

In Genghis Khan And the Making of The Modern World that’s how Jack Weatherford characterized the self-made boy (Temujin) who became the man (Genghis Kahn) on his battlefield for liberty and freedom from aristocratic rule.

 

“Year by year, he gradually defeated everyone more powerful than he was… Genghis Kahn conquered more than twice as much as any man in history… In American terms, the accomplishment of Genghis Kahn might be understood if the United States had been founded by one of its illiterate slaves who by sheer force of personality, charisma, and determination liberated America from foreign rule.” (Introduction)

 

Needless to say, I am loving this case study in human history. We aren’t all Keynesians yet.

 

Back to the Global Macro Grind

 

Got speed and surprise? How about that move in the last few hours of trading on a summer Friday into month end? With the US stock market down -1.4% on the day (only -2.3% from its all-time high), the US stock market bears claimed victory over the weekend.

 

Winning a no volume battle doesn’t mean they’ve won the war. Ironically enough, it was US #GrowthAccelerating to the upside (again) on Friday that drove the Fed fear (PMI 58.7 vs 49 last month and US Consumer Confidence hitting another new YTD high).

 

Context is always critical. To put the 2 hour selloff in perspective, this is what happened to markets in May:

  1. SP500 +2.1% to +14.3% YTD
  2. US Financials (XLF) +6.1% to +21.1% YTD
  3. Utilities -9.1% to +7.9% YTD

In other words, May was the best month of 2013 to be long US #GrowthAccelerating, and short the #GrowthSlowing trade.

 

To review why getting the slope of growth (accelerating or decelerating) matters to markets:

  1. When Growth Accelerates, Treasury Bond yields rise – Gold and low growth (high yield chasing) Equities weaken
  2. When Growth Decelerates, Treasury Bond yields fall – Gold and low growth (high yield chasing) Equities strengthen

And the speed really catches the growth bears by surprise when inflation slows as growth accelerates.

 

On that score, for 2013 YTD:

  1. #StrongDollar = +4.4%
  2. #CommodityDeflation (CRB Index) = -4.5%

Reminder - the highest multiples ever paid for US stocks have occurred when:

 

1.       Growth is accelerating

2.       Inflation is slowing

 

That was the mid to late 1990s. US Consumption Growth was ripping alongside #StrongDollar and then people ultimately paid way too much for the growth that became more a perception than a reality.

 

But there was speed and surprise coming out of the 1991-1992 recession too don’t forget. And, from a US economic cycle perspective, today is a lot more like 1992 than 1999.

 

During Clinton’s presidency, here’s what the American people had:

  1. Average US Dollar Index price of $97.89
  2. Average price of Brent Oil of $19.69/barrel
  3. Average pace of US GDP +3.5%

That last part of the equation is what I really care about next. What will the speed and surprise be on the downside for prices at the pump? Last week, the price of Brent Oil (lead pump prices by 3-4 weeks) dropped another -2.5% to -9.9% YTD. Alongside a ripping consumer confidence report from the University of Michigan in May (new YTD high), what did we hear from bears about that?

 

#crickets

 

US Consumption bears (@DougKass) being rattled don’t matter as much as the speculators in the Oil markets. Last week’s CFTC (futures and options) data finally showed the 1st downtick in net long oil contracts since April 23rd. Oil bulls don’t like the idea of Bernanke getting out of our way either. There’s still a +217,531 net long position to burn off in Oil. Oh what a #TaxCut for consumption that would be.

 

I’m tired of our conflicted/compromised governments getting paid to burn our currency. Getting Bernanke out of the way is the most misunderstood bullish catalyst I can think of. #StrongDollar is already sniffing that out. There are huge benefits. It will pulverize the bubbles Bernanke has left – two of the biggest ones being Commodity Prices and 0% you earn on your hard earned savings accounts.

 

“As he smashed the feudal system of aristocratic privilege and birth, he built a new and unique system based on individual merit, loyalty, and achievement… Genghis Kahn insisted on laws holding rulers as equally accountable as the lowest herder … (Introduction, pg xix)” and with more speed and surprise, the American People I know best will surprise governments and bears on growth too.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1354-1410, $100.27-102.95, $82.91-83.79, 100.27-103.34, 2.06-2.19%, 14.27-17.21, and 1624-1653, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Speed And Surprise - Chart of the Day

 

Speed And Surprise - Virtual Portfolio


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.

next