prev

Morning Reads on Our Radar Screen

Takeaway: A quick look at top stories on Hedgeye's radar screen.

Keith McCullough – CEO

Pushed to Limit, James and Miami Repeat as N.B.A. Champions (via New York Times)

Ford’s CEO Calls Japan Currency Manipulator Amid Weaker Yen (via Bloomberg)

Brazil unrest: 'Million' join protests in 100 cities (via BBC)

 

Morning Reads on Our Radar Screen - reading


Kevin Kaiser – Energy

Hess, Newfield launch sale of $3 billion of Asian assets (via Reuters)

 

Josh Steiner – Financials

U.S. Weighs Doubling Leverage Standard for Biggest Banks (via Bloomberg)

 

Brian McGough – Retail

Survey Says: 60% of Bangladesh Factories Could Collapse (via Sourcing Journal Online)

Nike’s Second in Command to Retire Amid Management Shift (via Bloomberg)

 

Matt Hedrick - Macro

EU to decide who pays when banks fail (via Reuters)

 

Jonathan Casteleyn – Financials

Morgan Stanley Receives Approval to Purchase Smith Barney (via Bloomberg)


Today Matters. A Lot.

Client Talking Points

ASIA

Away from Japan, the bounce wasn’t even a bounce – Weimar Nikkei +1.66%, but still closed inside of my 13,696 TREND line of resistance. The rest of Asia acted horribly. KOSPI -1.5% is clean cut broken and the more EM looking indices (Indonesia, Philippines) down -1.6 and -2.3%. Asian #GrowthSlowing happening here at an accelerating rate #EmergingOutflows.

USD

The only good news this week? The US Dollar Index has recovered TREND support of $81.11. (The upside down of that is YEN back over 96.18 TREND support vs USD). Bottom line: If there’s one quote - just one - that I was allowed to get live in a dark room to make decisions, this one would be it. It’s been triggering everything else. #CorrelationRisk 

UST 10YR

After banging the top end of my immediate-term 2.24-2.46% risk range yesterday, the 10-year yield backs off to 2.38% here. But this thing is a beast. 0% asset allocation to Treasuries is the obvious call. Where to re-short bonds will be an important exercise here on the bounce today too. 

Asset Allocation

CASH 53% US EQUITIES 19%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

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

I've decided to launch a new hedge fund, using only the proprietary "LINN Energy Put Option Accounting Strategy."

 

Buy a put for $10, sell it for $5. $5 realized gain. Simple. Sooo who wants to invest w me?? $line $lnco

@HedgeyeENERGY

QUOTE OF THE DAY

"The truth is, I've never fooled anyone. I've let men sometimes fool themselves" - Marilyn Monroe

STAT OF THE DAY

Among smartphone owners age 18-44, making phone calls accounts for only 16% of the total time spent with their devices, whereas the remaining 84% of time is spent texting and interacting with email and social networks. (Source:Marketingprofs)


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 21, 2013


As we look at today's setup for the S&P 500, the range is 46 points or 0.33% downside to 1583 and 2.57% upside to 1629.                 

                                                                                                              

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: 2.07 from 2.09
  • VIX closed at 20.49 1 day percent change of 23.14%

MACRO DATA POINTS (Bloomberg Estimates):

  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • President Obama to announce Jim Comey as pick for FBI director
    • 9am: Natl Housing Conf. holds symposium on neighborhoods, household recovery from housing crisis; HUD Sec. Shaun Donovan delivers keynote remarks
    • 9am: Transportation Undersec. for Policy Polly Trottenberg, Deputy Energy Sec. Daniel Poneman participate in discussion of IEA report, “Redrawing the Energy-Climate Map.”
    • 1pm: Vice President Joe Biden speaks at U.S. Conf. of Mayors
    • 3pm: Senate Homeland Security and Governmental Affairs Cmte holds hearing on curbing prescription drug abuse in Medicare

WHAT TO WATCH

  • Oracle 4Q adj. rev. misses; co. applies to list on NYSE
  • News Corp. publishing spinoff to join S&P 500
  • U.S. said to consider doubling leverage standard for big banks
  • Apple wins suit against Samsung in Japan on screen effects
  • Tesla adding model S battery swap for faster refuels, credit
  • CME raises gold margins as prices fall to lowest since 2010
  • Nike’s second-in-command to retire amid management overhaul
  • ADM in talks on sale of cocoa ops after margins squeezed
  • United 787 to Houston diverts to Newark on low oil alert
  • Endo Health unit pays $54.5m in vaginal mesh settlement
  • CBRE plans to invest in Chinese offices even as rents slow
  • U.S. Supreme Ct, EU Summit, Wimbledon: Wk Ahead June 22-29

EARNINGS:

    • Darden Restaurants (DRI) 7am, $1.04
    • CarMax (KMX) 7:35am, $0.58

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Rises as Aluminum Nears Longest Losing Streak Since 1987
  • Gold Trade Most Bearish Since ’10 as Fed Spurs Drop: Commodities
  • WTI Crude Trims Weekly Drop After Biggest Slump in Seven Months
  • Gold Rebounds in New York After Slumping to Cheapest Since 2010
  • India Approves Wheat, Rice Sale From Inventories to Curb Prices
  • Anil Ambani’s Reliance Halts Gold Sales in India to Cut Imports
  • Rebar Rises on Optimism Government Policies May Boost Demand
  • Ichimoku Beats Copper Charts Over Five Years: Technical Analysis
  • Arabica Coffee Rebounds After Nearing a 4-Year Low; Sugar Rises
  • Rajoy Targets Endesa to EDP’s Revenue to Cut Spain Debt: Energy
  • HKEx to Sign MOU With Bank of China on RMB Commodity Contracts
  • Anemic Growth Pressures Metal Prices and Capex Plans: Bear Case
  • ADM in Talks on Sale of Cocoa Operations After Margins Squeezed
  • CME Raises Margins for Gold as Prices Fall to Lowest Since 2010

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

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

June 21, 2013

June 21, 2013 - 20

 

BULLISH TRENDS

 

June 21, 2013 - 10yr

June 21, 2013 - spx

June 21, 2013 - VIX

June 21, 2013 - dxy

June 21, 2013 - euro

 

 

 

BEARISH TRENDS

 

June 21, 2013 - nik

June 21, 2013 - dax

June 21, 2013 - yen

June 21, 2013 - oil

June 21, 2013 - natgas

June 21, 2013 - gold 


The Paradox of Weather

This note was originally published at 8am on June 07, 2013 for Hedgeye subscribers.

“And when it rains on your parade, look up rather than down.  Without the rain, there would be no rainbow.”

-Gilbert K. Chesterton

 

It is a rainy day in the Northeast.  And rain can be depressing if we let it get to us.  The point that Chesterton makes above though is spot on.  Without the disruption of rain, there would ultimately be no rainbow and subsequently the hope of a pot of gold. 

 

The idea that we have to suffer through bad times to get to good times is of course a bit of a paradox.  To Chesterton, who is often referred to as the “prince of paradox” this was fine.  After all, he was an orthodox Christian who had friendly enemies.   (He was also 6’4, wore a cape, and carried around a swordstick in his hand.)

 

In mathematical terms, we would probably characterize this concept of bad weather becoming good as reversion to the mean.  Due to mathematical impossibilities, no price goes up forever and no price goes down forever.  In the same vein, rain doesn’t last forever and when it stops the weather is typically very nice.  Unfortunately for those hoping for good weather, the forecast is for showers through Tuesday of next week.  But as Longfellow said:

 

“The best thing one can do when it’s raining is to let it rain.”

 

For the last week or so, the U.S. equity market has been raining on our growth is accelerating parade.  So is this a temporary rainy spell and will the sunshine of a positive economic growth return shortly? Well, we certainly still believe this to be the case.

 

We had a good email discussion with one of our subscribers yesterday who asked us about an assertion Keith made that employment is continuing to improve.  The distinction between our view and the view of much of consensus is that we believe that seasonally adjusting the employment number distorts the data series.   Unfortunately for us, the market continues to cue off the seasonally adjusted number and those appear to be stagnating.

 

The impact over the last four years is that the seasonal adjustments have created a tailwind from September to February and a headwind from March through August. This is highlighted in the first chart below.  This “seasonally adjusted” slowdown in employment has also been a headwind for the equity market for the last few years. Nonetheless, even on a seasonally adjusted basis, as highlighted by the purple line in the first chart, employment is decelerating at a slower pace than in the prior four years.

 

More instructive though is the second chart below, which highlights rolling initial unemployment claims that are non-seasonally adjusted.  The trend here is clear, which is that employment is improving and somewhat decisively so.  To the extent that the market continues to focus on the seasonally adjusted series, though, we are likely to have a few more months of employment rain.  On that front, the May employment report is at 830am, so be wary as we are in the season of employment rain!

 

We would be remiss if we didn’t touch on Asia this morning where the storm clouds are creating a down pour on the global macro markets.  For those that chased Japan into its Abenomic highs, they are now quite literally having a mother of a time.  Specifically, the MOTHERS index closed down -11.5% over night and is now down -38% from its highs.  (This index holds smaller companies so is naturally more volatile.)

 

The driver of this mother of a correction in Japan was the strength in the Yen versus the dollar. From our purview, the break through the 99 barrier seemingly triggered a massive stop loss program and, as they say, when it rains, it pours.   As a result, the Yen / Dollar went from 99 to 96 in a straight line yesterday.  (Some have speculated that one catalyst may have been a leaking of today’s jobs number, but who are we to distrust the government . . .!)

 

As it relates to the Yen, which remains one of our Best Ideas on the short side, we still think that relative monetary policy will inform the direction of the currency.   As my colleague Darius Dale emphasized yesterday in a note to subscribers, the BOJ is already committed to monetizing ¥132 trillion through EOY ’14 (27.7% of 2012 nominal GDP) vs. the Fed’s $2.04 trillion (13% of 2012 nominal GDP) over the same time period – assuming the Fed continues at the current pace of $85 billion per month through EOY ’14 (an unlikely scenario in our opinion).  So despite yesterday’s correction in the Yen, we think the structural bear case remains.

 

One important highlight in the recent action in U.S. equities is that our risk range on the SP500 has widened to 1,607 – 1,669.  This isn’t terribly surprising given that volatility, as measured by the VIX, is up about 30% in the last month.  For those that actively hedge or trade their portfolio, all this really means is that you need a bigger umbrella in the short term!  Or as the popular band Blind Melon sings, “No Rain.”

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1361-1424, $100.58-104.73, $81.34-82.46, 95.66-103.34, 2.02-2.22%, 13.37-17.91, and 1607-1669, respectively.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Economic Weatherman

 

The Paradox of Weather - Chart of the Day

 

The Paradox of Weather - Virtual Portfolio


THE M3: SK LICENCES REJECTED; MPEL PHILIPPINE; MACAU LEGEND DELAY; CPI

THE MACAU METRO MONITOR, JUNE 21 2013

 

 

SOUTH KOREA REJECTS PRELIMINARY CASINO LICENCE FOR CAESARS, UNIVERSAL Reuters

South Korea has rejected preliminary casino licences for two international bidders, a Caesars Entertainment and Lippo Limited consortium, and Kazuo Okada's Universal Entertainment.  The surprise move could stall plans for casino development as a means to attract tourists.

 

MELCO CROWN SAYS ON TRACK TO OPEN $1 BLN PHILIPPINE CASINO BY MID-2014 Reuters

MPEL Philippines is on track to open its $1 billion gaming complex in Manila by mid-2014, targeting not just Chinese gamblers but Southeast Asian high-rollers as well its president, Clarence Chung said.

 

"We will open everything in one go in mid-2014. The project is already fully funded," said Chung.  Chung added that Melco will take advantage of its Macau "connections and VIP database" in promoting its Manila operations.  "The Chinese would definitely be one of the major targets and, obviously, we're targeting the Southeast Asians," he said.

 

MACAU LEGEND TO SLASH, DELAY IPO WSJ

Macau Legend development is considering cutting its fundraising size by more than half to up to US$358 million and delaying its listing, as deteriorating market conditions hurt demand for the casino operator's HK IPO.

 

Macau Legend had been due to price an IPO that was seeking to raise up to US$788 million Friday. It is now planning to announce a change in its listing plans next week, people with direct knowledge of the deal said.  It now aims to relaunch the deal next week before an IPO listing in July, a person said, adding that Macau Legend is awaiting regulatory approval.

 

One of the people familiar with Macau Legend's deal said the company plans to offer just 934.8 million shares, down sharply from the originally planned 2.05 billion shares.  Based on an indicative price range of 2.30 Hong Kong dollars to 2.98 Hong Kong dollars (29 U.S. cents to 38 U.S. cents) per share, Macau Legend could raise up to US$358 million.

 

CONSUMER PRICE INDEX FOR MAY 2013 DSEC

Macau CPI for May 2013 increased by 4.84% YoY and 0.28% MoM.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next