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Client Talking Points

BRAZIL

#EmergingOutflows ... Yes, our Q2 Global Macro Theme continues to ring the bell in both Brazil and China this morning. Brazil’s Bovespa dropped below 50,000 yesterday. It is now in crash mode (It's down -22.5% since January 3). The biggest protests in 20 years are sweeping the Brazilian streets. Foreign Direct Investment to China slows to nothing year over year in May. #InterconnectedTradingPartners

OIL

Brent is toying with my emotions here. TREND line = $106.22 and TAIL resistance = $108.54/barrel. Question du jour. Will Ben Bernanke reflate oil on another Down Dollar move or not? #Syria still remains an obvious issue. As for Putin and Obama? No, they didn’t do beers and hockey last night.

10YR UST

Another big move in the 10yr UST yield yesterday is keeping bond bulls under siege. For all you home gamers out there, that's seven weeks and counting now. If Bernanke was operating independently (he's not – Obama called him a “great partner” last night), he’d taper. US employment, housing, and consumption data (aka #GrowthAccelerating) all support that. Gold and Bonds? Yes they agree. Avoid them both.

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

While I have been personally attacked, my analysis of $LINE $LNCO has not. If you think I am wrong, please tell me WHY.

@HedgeyeENERGY

QUOTE OF THE DAY

"If everyone knows you're going to print money ... you know ... welcome to Zimbabwe."
- Jim Chanos

STAT OF THE DAY

$3,410,000,000,000: The Fed’s assets now total $3.41 trillion compared with $877 billion at the end of August 2007.


June 18, 2013

June 18, 2013 - dtr2

 

BULLISH TRENDS

June 18, 2013 - 10yr

June 18, 2013 - spx

June 18, 2013 - dax

June 18, 2013 - euro

June 18, 2013 - yen

 

BEARISH TRENDS
June 18, 2013 - VIX

June 18, 2013 - dxy

June 18, 2013 - oil

June 18, 2013 - natgas

June 18, 2013 - gold 

June 18, 2013 - copper


Debating Growth

This note was originally published at 8am on June 04, 2013 for Hedgeye subscribers.

“All growth depends upon activity.  There is not development physically or intellectually without effort, and effort means work.”

-Calvin Coolidge

 

Former United States President Calvin Coolidge knew a thing or two about growth.  From a personal perspective, his life embodied steady growth of achievement.  His first foray into politics began in the Massachusetts House of Representatives in 1907.  He followed this up as Mayor of Northhampton, then became a member of the Massachusetts Senate, and after a couple of more stops became Governor of Massachusetts.

 

“Silent Cal”, as he was called due to his quiet demeanor, was then added to the Republican ticket as Vice President in 1920 and he and his running mate, Senator Harding of Ohio, went on to win in a landslide.   On August 2nd, 1923, President Harding died while on a speaking tour and Coolidge became President.  Coolidge then stood for election as President in 1924 and won his first official term as President.

 

From an economic perspective, largely based on a series of broad tax cuts, Coolidge oversaw a very economically prosperous time in U.S. economic history known as the “roaring 20s”. Interestingly, as well, as the top tax rates were cut from 58% in 1922 to 25% in 1929, the economy grew and the share of the tax burden of the wealthiest Americans, those making more than $100,000 per year, also grew from 35% to 63%.

 

In addition to the economic growth he oversaw, Coolidge also eventually outgrew his introverted personality.  In one his most outspoken moments, he said of his eventual successor Herbert Hoover, "for six years that man has given me unsolicited advice—all of it bad.”  Needless to say, the United States was not as economically fortunate under the stewardship of his successor President Hoover.

 

Back to the global macro grind . . .

 

Yesterday was a classic one for the ongoing debate over whether economic growth in the U.S. is accelerating or stagnating.  The Purchasing Managers Index (PMI) reading from Institute for Supply Chain Management (ISM) came in at a contraction indicating 49.0.  The internals of the report were negative across the board, as well, with new orders coming in at 48.8 and production coming in at 48.6.  The employment component of the index was still in expansion mode, albeit only marginally at 50.1.

 

The key read through from this reading is that as it relates to growth in the industrial sector in the U.S., headwinds remain.  On a relative basis, the United States is still faring better than the Eurozone where a 48.3 was reported in its latest PMI report, the latest in almost two straight years of factory output contraction in Europe.  The Chinese economy is also struggling on the industrial front as the HSBC PMI came in at 49.2 most recently.

 

Another data point that came out yesterday that supported the slowing growth case was government spending on construction.  Public construction spending dropped 1.2% in April to the lowest level since 2006 and down 5.7% from October.  This decline is obviously due to sequestration that is being implemented at the federal level.  In the short term, this may be an economic headwind, though the offset is that the deficit is declining much faster than expected.  In its most recent update the non-partisan Congressional Budget Office (CBO) projected that the deficit for fiscal year 2013 will fall to $624 billion, or about 4% of GDP, and almost $200 billion less than the CBOs estimate from three months before.

 

Our view of economic growth in the U.S. continues to be underscored by the consumer side of the economy.  On this front, the economic data released yesterday was positive as auto sales for May came in at an annualized rate of 15.3 million.  This was the fourth straight month of sales over 15.0 million and continues to show strong growth over the 14.5 million in auto sales from last year.  Certainly, auto sales are being driven by compelling financing programs, but as a proxy for consumer demand, they remain a positive indicator.

 

A key emerging American growth industry that will be a key tailwind for strong car production numbers is the U.S. energy industry.  In the Chart of the Day, we highlight this in a chart of U.S. oil production going back twenty years.  As the chart shows, largely thanks to technology advances, U.S. daily oil production is hitting 20-year highs.  This of course follows decades of production declines starting in the 1970s.

 

The International Energy Administration recently published a report that projected the North American oil supplies will grow by 3.9 million barrels by 2018.  This is almost 2/3rds of the non-OPEC production growth projected over that period.   If accurate, this will also reduce American imports by almost 40% over that period.  If the IEA is correct and this growth in production leads to a global “supply shock”, in coming years, the upside to global growth may be dramatic with declining oil prices.

 

Turning back to the shorter term and the U.S. stock market, another key positive we see relating to growth is expectations.  Currently, consensus aggregate SP500 revenue growth for the next three quarters is 0.5%, 3.4% and 2.3% respectively.  This is an expected revenue growth rate of  just over 2.0% in the projected period and less than half the average reported year-over-year growth rate of north of 4% in the prior three quarters.  For U.S. stock market bulls, these low expectations are very supportive.  For U.S. stock market bears, these expectations may well be, as Shakespeare said, “the root of all heart ache.”

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1351-1424, $100.27-103.29, $82.48-83.74, 99.98-103.24, 2.07-2.23%, 14.63-16.59, and 1630-1651, respectively.

 

Daryl G. Jones

Director of Research

 

Debating Growth - Chart of the Day

 

Debating Growth - Virtual Portfolio


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 18, 2013


As we look at today's setup for the S&P 500, the range is 47 points or 2.08% downside to 1605 and 0.79% upside to 1652.           

                                                                                                                    

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: 1.92 from 1.92
  • VIX closed at 16.8 1 day percent change of -2.04%

MACRO DATA POINTS (Bloomberg Estimates):

  • FOMC starts two-day meeting
  • 7:45am: ICSC weekly sales
  • 8:30am: Consumer Price Index, May, est. 0.2% (prior -0.4%)
  • 8:30am: CPI Core Index, May, est. 233.255 (prior 232.879)
  • 8:30am: Housing Starts, May, est. 950k (prior 853k)
  • 8:30am: Building Permits, May, est. 975k (prior 1.005m)
  • 8:55am: Johnson/Redbook weekly sales
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 4:30pm: API weekly inventory data

GOVERNMENT:

    • President Barack Obama leaves G8 summit in Northern Ireland to travel to Berlin on official visit
    • Swiss lawmakers in lower house of parliament to discuss “black box” agreement to allow banks to cooperate with U.S., end a tax evasion dispute
    • 8:45am: Senate Energy and Natural Resources ranking member Sen. Lisa Murkowski, R-Alaska, delivers opening keynote address at U.S. EIA Energy Conf.
    • 10am: Senate Finance Cmte holds hearing on health care costs, issues of transparency
    • 11am: Rep. Steve Daines, R-Mont., leads group of lawmakers in news conf. on opposition to the Marketplace Fairness Act
    • 1pm: Vice President Joe Biden speaks on administration plan for improving gun safety

WHAT TO WATCH

  • Obama says Bernanke staying at Fed “longer than he wanted”
  • Liberty Global bids for Kabel Deutschland to rival Vodafone
  • Johnson Controls said to mull auto-electronics unit breakup
  • Third Point boosts stake in Sony as Daniel Loeb seeks talks
  • ECB has “open mind” on non-standard monetary policy: Draghi
  • Sprint sues Dish in Delaware seeking to block Clearwire buyout
  • Verizon said to have interest in buying Canada’s Wind Mobile
  • Boeing unveils 787-10 Dreamliner, has 102 commitments
  • Yahoo received up to 13k data requests from U.S. authorities
  • Mengniu to buy 75.3% stake in Yashili from Zhang, Carlyle
  • EasyJet orders Airbus jets, risking clash with founder
  • GM Holden says labor costs need cuts to save Australian plants
  • Housing starts probably rose in May as expansion gets boost
  • EU car sales reach 20-yr low as recession hurts GM demand
  • U.S. video-game retail sales fell 25% in May, NPD says
  • Microsoft’s Xbox tops U.S. retail game console sales in May
  • Ex-UBS trader Hayes said to face U.K. Libor charge this week
  • Tissue Regenix licenses dCell technology to U.S. tissue bank

EARNINGS:

    • John Wiley & Sons (JW/A) 7am, $0.84
    • FactSet Research (FDS) 7am, $1.26
    • Adobe Systems (ADBE) 4:02pm, $0.34 - Preview
    • La-Z-Boy (LZB) 4:05pm, $0.28

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Palm Exports From Indonesia Rising for First Time Since January
  • Rubber Poised for Record Glut as Shippers End Curbs: Commodities
  • WTI Trades Near Four-Month High as U.S. Stockpiles Seen Falling
  • Wheat Prices Seen Extending Decline as Global Production Surges
  • Copper Falls a Second Day as Investors Await Fed Stimulus Signs
  • Gold Retreats a Second Day in London Before Fed Policy Meeting
  • Coffee Resumes Decline on Vietnam, Bearish Bets; Sugar Retreats
  • Americans Exporting Oil First Time Since ’70s Seen on Production
  • Keystone Seen Failing to Sop Up Canada Oil Glut: Energy Markets
  • India Plans to Sell 17.5 Million Tons of Grain From Stockpiles
  • Keystone XL Pipeline Shuns High-Tech Oil Spill Detectors: Energy
  • Marubeni, Partners to Set Up Floating Wind Turbine Off Fukushima
  • Mongolia Taps North Korea Oil Potential to Ease Russian Grip
  • Wheat Advances on Indications Rain Is Delaying Harvest in U.S.

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

 

 

 

 

 

 

 

 

 

 


THE M3: GALAXY PAVILIOIN CLUB

THE MACAU METRO MONITOR, JUNE 18, 2013


 

GALAXY MACAU OPENS NEW HIGH LIMITS GAMING AREA Macau Business

Galaxy opened a new high limits area on the casino floor of Galaxy Macau, “in response to increasing demand from the premium mass segment market”, the company said.  The Pavilion Club High Limits area follows the openings at Galaxy Macau of two other high limits zones, for tables and slots, respectively.

 

The Pavilion Club High Limits area comprises a main hall of around 370 square metres and two private gaming rooms.


Trade of the Day: FCX

Takeaway: We covered Freeport (FCX) at 3:43 PM at $29.65.

Freeport is flat in an up tape (alpha). We'll go ahead and book our 13th consecutive gain on the short side for a tidy 3.86% gain. We are batting 100% all-time on this one.

 

Trade of the Day: FCX - FCX


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