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Morning Reads on Our Radar Screen

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

Keith McCullough – CEO

When the Ben and Beijing party comes to an end (via Reuters)

Rocket Fire From Gaza Shakes Cease-Fire With Israel (via New York Times)

Saudi Arabia Changes Weekend to Friday, Saturday (via Bloomberg)

 

Morning Reads on Our Radar Screen - asia

 

Josh Steiner -  Financials

Bankrate Mortgage 30 Year Fixed National Avg Hits 4.36%. Long bonds show no sign of letting up. Next stop: 4.5% (via Bloomberg)

 

Daryl Jones – Macro

Brent Trades Near Three-Week Low on China Growth Concern (via Bloomberg)

Jakarta Calm After Subsidized Fuel Prices Are Increased (via Bloomberg)

 

Howard Penney – Restaurants

Starbucks Pays $15.4 Million U.K. Corporation Tax Amid Backlash (via Bloomberg)

 

Matt Hedrick – Macro

Harvard Grad Swaps Morgan Stanley for Sheikhdom as Deals Dry (via Bloomberg)

Campari Blitzes Europe with Aperol Spritz to Boost Stock (via Bloomberg)


Witness the "Waterfall"

Client Talking Points

CHINA

Boom! An outright awful session for Asian equities overnight. The Shanghai Composite plunges -5.3% moving toward waterfall crash mode (down -19.3% since Feb 5, 2013)A massive PR effort is officially on by the People's Bank of China now that everything you can monitor from a market perspective is going absolutely haywire. (Yes - we were well ahead of consensus on this call.) If you’d like our bearish #EmergingOutflows and China slide decks, please ping us.

COPPER

The Doctor is in the emergency this morning as #BernankeBubbles continue to get crushed. Copper snaps $3.00/lb for the 1st time in 2013. It's down -3.4% this morning and down -18.1% YTD. Meanwhile, Gold and Silver continue to crash down -1-2% after being down hard last week. #CommodityDeflation anyone?

UST 10YR

It’s all about the VELOCITY – the water’s VOLUME (global leverage to sovereign debt) was never in doubt. Pardon our metaphor, but this is the best one we can find to explain the thermodynamic nature of markets as they approach their point of entropy, then crash. That bifurcation point in our model was 2.41% on the 10yr; 2.60% last.

Asset Allocation

CASH 61% US EQUITIES 13%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

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

Whoever said buy Gold and Treasuries for the last 6 months = dead wrong #Macro

@KeithMcCullough

QUOTE OF THE DAY

"The best way to destroy the capitalist system is to debauch the currency."

- Vladimir Lenin
 

STAT OF THE DAY

The Shanghai Composite suffered its worst one-day percentage loss in nearly four years, plunging 5.3% to end at 1,963.24 — its first close below the psychologically-important 2,000-point level since December.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 24, 2013


As we look at today's setup for the S&P 500, the range is 56 points or 1.66% downside to 1566 and 1.86% upside to 1622.                  

                                                                                                             

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: 2.22 from 2.16
  • VIX closed at 18.9 1 day percent change of -7.76%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Natl Activity Index, May (prior -0.53)
  • 10:30am: Dallas Fed Manuf Activ, June, est. -1.8 (pr -10.5)
  • 11am: Fed to buy $3b-$3.75b debt in 2019-2020 sector
  • 11:30am: U.S. to sell $30b 3-mo. bills, $25b 6-mo. bills
  • 1pm: Fed’s Fisher speaks in London
  • U.S. Weekly Rates Agenda

GOVERNMENT:

    • Supreme Court begins what is scheduled to be the final week of its term and may rule on cases including:
    • Affirmative-action dispute over whether the University of Texas may consider race in admissions
    • Calif. initiative banning same-sex marriage, law denying federal benefits to legally married gay couples
    • Whether Voting Rights Act can require some states to get “preclearance” from federal government before changing voting rules
    • Obama meets with business leaders on immigration overhaul
    • Senate cloture vote on border-security amendment to immigration bill, 5:30pm
    • Senate Homeland Security and Governmental Affairs Cmte vote on the nominations of Howard Shelanski to be OMB administrator, Daniel Tangherlini to be administrator of the GSA, 5:30pm
    • Senate Homeland Security and Governmental Affairs Cmte hearing on “Curbing Prescription Drug Abuse in Medicare,” 3pm
    • Washington Weekly Agenda
    • U.S. demands Russia expel Snowden as he seeks Ecuador asylum

WHAT TO WATCH

  • Vodafone reaches $10.1b deal to acquire Kabel Deutschland
  • Rio Tinto to keep diamond unit after scrapping sale plans
  • Google confirms FTC has contacted co. over Waze acquisition
  • China may fine-tune policy as cash squeeze threatens growth
  • Facebook working on newspaper for mobile devices, WSJ says
  • DZ Bank drops MBS suits against JPMorgan over ~$645m
  • BP acted w/gross negligence in 2010 spill, plaintiffs say
  • Apple CEO Cook adjusts bonus in shift to performance rewards
  • Fiat said able to triple Chrysler payout after refinancing
  • Hostess’s Twinkies back on store shelves nationwide in July
  • AIG revives plane unit IPO after extending China sale deadline
  • N.Y. lawmakers set aside bill threatening to cut Tesla sales
  • Gartner says PC, tablet, mobile shipments to rise 5.9% in 2013
  • ENRC founders, Kazakhstan make bid valuing miner at $4.7b
  • U.K. regulator said to study banks’ share-sale lockup waivers
  • Oracle to reveal plans for cloud-computing expansion, FT says
  • German business confidence rises for 2nd month on recovery
  • Obama to announce emission curbs on power plants tomorrow
  • Disney’s “Monsters,” with $82m, tops Pitt’s zombies
  • Autos probably led consumer spending up: 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
  • U.S. Supreme Court, EU Summit, Wimbledon: Wk Ahead June 24-29

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Leads Industrial Metals Lower as China Adds to Oversupply
  • Gold Wagers Slump as $55 Billion Erased From Funds: Commodities
  • LME Looking at Feasibility of Clearing Products in Yuan, Li Says
  • Brent Trades Near Three-Week Low on Concern China Growth to Slow
  • Gold Drops With Silver on Fed Outlook as Goldman Cuts Forecasts
  • Rubber Trades Near Lowest in Nine Months on China Demand Concern
  • Shanghai Rebar Falls on Liquidity Crunch and Stock Market Slump
  • Freeport Indonesia Set to Increase Open-Pit Mining After Restart
  • Indian Jewelers to Halt Gold Bar, Coin Sales to Retail Buyers
  • China Moves Production Overseas to Avoid EU Solar Duties: Energy
  • White Sugar Near 3-Month High on Limited Supplies; Coffee Gains
  • Copper Stockpiles at Decade High as Warehouses Lure Excess Metal
  • Gold’s 2 1/2-Year Low Extending Below $1,200: Technical Analysis
  • LME Woos China’s Metal Traders as Shanghai Vies for Global Stake

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

 

 

 

 

 

 

 

 

 

 


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THE M3: S'PORE HAZE; VISITOR ARRIVALS; ECHO EXTENSION

THE MACAU METRO MONITOR, JUNE 24 2013

 

 

HAZARDOUS FIRE HAZE CLOUDS OUTLOOK FOR SINGAPORE TOURISM Bloomberg, WSJ

The record haze may prompt more visitors to reconsider trips to Singapore.  Resorts World Sentosa has closed several outdoor attractions, while Wildlife Reserves Singapore, which runs the famed Singapore Zoo, said it had observed a small decline in visitor numbers.  Some inhabitants of Singapore, which number 5.3 million with foreigners accounting for about a third, are trying to escape the island state.  Skyscanner, a global travel search website saw a 22% increase in outbound flight searches last week compared with the same period in the previous week

 

VISITOR ARRIVALS FOR MAY 2013 DSEC

Macau visitor arrivals increased by 9.1% YoY to 2,342,523 in May 2013.  In May 2013, visitors from Mainland China increased by 17.3% YoY to 1,491,231, mainly coming from Guangdong Province (643,267) and Fujian Province (67,609); Mainland visitors traveling under the Individual Visit Scheme (IVS) totalled 598,790.  Visitors from the Republic of Korea (33,113) increased by 5.8% YoY, while those from Hong Kong (540,056), Taiwan (61,988) and the Philippines (29,231) decreased by 0.1%, 21.4% and 0.7%.  The average length of stay of visitors held stable from a year earlier, at 1.0 day in May 2013.

 

THE M3: S'PORE HAZE; VISITOR ARRIVALS; ECHO EXTENSION - MACAU

 

GAMING ECHO UNVEILS USD 1 BILLION SYDNEY CASINO EXTENSION Macau Daily Times

Echo Entertainment Group Ltd, licensed to run Sydney’s only casino until 2019, plans to spend more than A$1.1 billion (USD1 billion) expanding the property to fend off a challenge from billionaire James Packer’s Crown Ltd.  The proposed extensions to Echo’s harborside Star casino include two new hotels and more than 50 bars and restaurants.  Echo also proposes making a A$250 million payment to the New South Wales government to extend its exclusive casino licence, it said. This comes after Packer last month unveiled rival plans for a A$1 billion hotel-casino project at Barangaroo, a development site southwest of the Sydney Harbour Bridge. 


Bullish Places

This note was originally published at 8am on June 10, 2013 for Hedgeye subscribers.

“Books can lie, but places never do.”

-Jack Weatherford

 

I love that quote. Jack Weatherford uses it in the Introduction to this epic book I am still reading – Genghis Kahn and The Making of The Modern World.  Politicians and market pundits can lie too, but markets are always scoring the truth.

 

Some will disagree and say that markets are often wrong. Agreed – if the market goes your way on the timeline that you outlined prior to taking your position, that is. Being positioned for what the market currently accepts as truth is the name of the game.

 

If you could be right every day, you would be. Very few will disagree with me on that.

 

Back to the Global Macro Grind

 

Last week’s employment data continued to drive home a very simple, but trending, score in 2013 – US employment and consumption growth is accelerating. This shouldn’t have been a surprise by the time you saw the sequential improvement in the payroll data on Friday. Our preferred leading indicator (non-seasonally adjusted rolling jobless claims) has been trending bullish for 6 months.

 

Every 3 months, we update our Top 3 Global Macro Themes @Hedgeye. This quarter I was definitely nervous about one of them. Making a call that US growth could go from stabilizing to accelerating was more of a question to us than it was a definitive answer. Throughout Q213 however, US employment, housing, and consumption data has improved, impressively.

 

To review - our Macro Themes for Q2 2013 are:

 

1.       US #GrowthAccelerating

2.       #StrongDollar

3.       #EmergingOutflows

 

Since the fulcrum factor in our trending themes remains the US Dollar, last week’s abrupt selloff in the US Dollar versus the Japanese Yen definitely mattered. An immediate-term TRADE does not an intermediate-term TREND make though, so this morning’s -1.25% reversal in that move to #StrongDollar’s benefit has me smiling again.

 

Alongside a big bounce in #StrongDollar versus Burning Yen, this is what you get pre-open:

  1. Gold and Silver down another -0.5-1.3%, respectively
  2. Copper and Corn down another -1.1-1.3% respectively
  3. US Equity Futures up another 6 handles, following Friday’s +1.3% bullish breakout back above 1624 SPX

If you are betting on growth, you’ve recognized that the market’s version of the truth is currently paying people who have embraced the non-consensus bullish case that #StrongDollar is a pro-growth signal. You can see that in the following trending correlations:

  1. USD vs SP500 (on our intermediate-term TREND duration) has a positive correlation of +0.81
  2. USD vs Gold (on our intermediate-term TREND duration) has a negative correlation of -0.72

Moreover, if you want to dig into the multi-factor, multi-duration update, these correlations have actually strengthened across multiple factors in the last month. In addition to rising US Treasury yields, here are some more pro-growth signals to consider:

  1. US Financial Stocks (XLF) are +4.2% in the last month vs slow growth Utility Stocks (XLU) at -4.5%
  2. Low Dividend Yield stocks (i.e. higher growth stocks) = +20.9% YTD
  3. High Short Interest stocks (i.e. the ones that squeeze hedgies shorting them on “valuation”) = +19.1% YTD

Again, the score in the book may very well feel like a lie to people who are still bearish on growth, but where this market has scored the game for 2013 YTD isn’t. I’m not a fan of investing alongside what people are “feeling” anyway.

 

Another score that is developing quickly here is that a #StrongDollar eventually drives underperformance in Emerging Markets.  We call this Theme #EmergingOutflows and it’s worth scoring this morning as well:

  1. MSCI Emerging Markets Index = down another -2.4% last week and -6.6% for 2013 YTD
  2. China’s Shanghai Composite Index = down another -3.9% last week and -2% for 2013 YTD
  3. Brazil’s Bovespa Index = down another -3.6% last week and -15% YTD

Investors we speak with on #EmergingOutflows fall into 1 of 3 camps:

  1. Bearish on everything (we aren’t) – so they think Copper and China going down is bearish for US stocks
  2. Bullish on Global Growth (we aren’t) – so they think they should buy Emerging Markets because they “look cheap”
  3. Bullish on US #GrowthAccelerating and #StrongDollar – so they are bearish on Emerging Markets tied to commodities

We’re obviously in the 3rd camp. Looking at this week’s contra-indicator camps (weekly futures and options contracts in the CFTC data) we’re still seeing Camp 1 A) buy Gold (weekly net long position +19% wk-over-wk) and B) short SPY (there’s still a net short position in SPY right now of -3,061 non-commercial contracts).

 

I’m not saying we’re going to nail the macro call in perpetuity. All I’m saying is that last week was one of the top 6 times in the last 6 months that you’ve had to re-load on the long side where it’s actually working. Bullish Places are as bullish does.  And, globally, they are getting harder and harder to find.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, and the SP500 are now $1364-1415, $100.27-105.25, $81.31-82.96, 96.05-99.98, 2.07-2.22%, 13.77-15.87, and 1624-1669, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Places - Chart of the Day

 

Bullish Places - Virtual Portfolio


June 24, 2013

June 24, 2013 - DTR

 

BULLISH TRENDS

June 24, 2013 - 10yr

June 24, 2013 - VIX

June 24, 2013 - dxy

June 24, 2013 - euro

 

BEARISH TRENDS

June 24, 2013 - spx

June 24, 2013 - dax

June 24, 2013 - nik

June 24, 2013 - yen

June 24, 2013 - oil

June 24, 2013 - natgas

June 24, 2013 - gold

June 24, 2013 - copper


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.

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