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Morning Reads on Our Radar Screen

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

Keith McCullough – CEO

China's economic growth at 7.5% in April to June period (via BBC)

U.K. House Prices Climb as Rightmove Doubles Forecast (via Bloomberg)

India Inflation Reaches Three-Month High as Rupee Fans Costs (via Bloomberg)

 

Morning Reads on Our Radar Screen - earth2

 

Kevin Kaiser – Energy

The Erstwhile Hedge Fund King of Akron, Ohio’s Very Difficult Summer (via SIRF)

Charting the effect of China's cooldown (via BBC)

 

Tom Tobin – Healthcare

Will Obamacare take bite out of dental coverage? (via MarketWatch)

UnitedHealth opts out of Illinois insurance exchange (via Crain’s Chicago Business)

Sebelius announces ACA funding aid in Phoenix (via trivalleycentral.com)

The hospital as hotel -- Affordable Care Act drives new medical-center amenities (via The Journal Times)

 

Josh Steiner – Financials

Citigroup Profit Beats Estimates as Stock Trading Gains (via Bloomberg)

30 Year Fixed National Avg now 4.48% (via Bloomberg)


Jonathan Casteleyn - Financials

Goldman Sachs’s Fabulous Fab Faces SEC Fraud Trial Today (via Bloomberg)

 

 


Dial-In and Materials: 3Q 2013 Macro Themes Call

Dial-In and Materials: 3Q 2013 Macro Themes Call - 3Q13themesdialb

 

REMINDER: Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl Jones, is hosting its highly anticipated Quarterly Macro Themes conference call with a presentation and a live Q&A session for participants. The presentation highlights the THREE MOST IMPORTANT MACRO TRENDS that our team has identified for the quarter, analyzing potential impacts across multiple scenarios and identifying investment opportunities. The Q3 2013 Macro Themes Call will be held TODAY, July 15th at 11:00am EDT.              

 

CALL DETAILS 

  • Toll Free Number: 
  • Direct Dial Number: 
  • Conference Code: 317583#
  • Materials: CLICK HERE 

Q3 THEMES INCLUDES:

  1. #RatesRising: The 30Y bull cycle in bonds is over.  We'll discuss the cross-asset class implications of the reversal and how to be positioned for the ongoing deflation of Bernanke's last (and largest) bubble.  
  2. #DebtDeflation:With total outstanding debt equal to three times equity, we give caution to the impact of debt deflating and offer investment vehicles to play this theme.
  3. #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.  

CONTACT

Please email if you have any questions. 

 


MACAU REMAINS ON TRACK FOR 18-22% GROWTH

Average daily table revenues (ADTR) fell 7% week over week, in-line with our expectations, and leaving Macau on track for another strong month.  This past week’s ADTR was +20% YoY, which is in-line with our full month YoY projection of +18-22% growth.

 

In terms of market share, Galaxy, LVS, and SJM are above trend so far this month, at the expense of MPEL, MGM, and WYNN.  For the most part, market share variances appear to be hold-related.  We continue to like the Macau stocks in general, and MPEL and MGM specifically.

 

MACAU REMAINS ON TRACK FOR 18-22% GROWTH - ma

 

MACAU REMAINS ON TRACK FOR 18-22% GROWTH - maa


Early Look

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MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL

Takeaway: Portugal is posting a massive negative divergence vs the rest of the world. Sovereign CDS are going parabolic. Greece/Cypress II?

Key Takeaways:

Portuguese sovereign swaps rose 83 bps last week to 556 bps, and are up 185 bps in the last month (+50%). Since 5/22, Portguese swaps have doubled off their lows of 274 bps. By comparison, the rest of Europe is up 7-12% MoM. It's worth asking whether Portugal is going to soon become a new hotbed of focus. 

 

Meanwhile, the situation in the U.S. continues to improve following Bernanke's talk-down on tapering mid-last week. High yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week. Currently long-term rates are heading toward what we consider higher lows after recently putting in a higher high.

 

Financial Risk Monitor Summary

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

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

 • Long-term(WoW): Positive / 4 of 13 improved / 0 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 15

 

1. American Financial CDS -  Swaps tightened for 27 out of 27 domestic financial institutions. Mortgage insurers posted sharp improvements WoW, with MTG and RDN dropping 43 and 49 bps, respectively. We've been using MI swaps as a proxy of sorts around sentiment of the rate of recovery in the housing market. After stalling out for a month or so, it's a worthwhile takeaway to see swaps again moving (aggressively) in the right direction.

 

Tightened the most WoW: ACE, XL, GNW

Tightened the least WoW: COF, AGO, WFC

Tightened the most WoW: MET, XL, AIG

Widened the most MoM: GS, MBI, AGO

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 1

 

2. European Financial CDS - Most of Europe's banking system was uneventful last week. Spanish, Portguese and some Italian banks posted noteworthy increases, however.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 2

 

3. Asian Financial CDS - After seeing risk profiles steadily deteriorate for weeks, Chinese and Indian financials saw their high water mark swap quotes recede further last week. Chinese banks were down an average of 16 bps WoW, while Indian swaps came in 31 bps, on average  

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 17

 

4. Sovereign CDS – Sovereign swaps were almost universally tighter last week, with one major exception. Portuguese swaps widened 83 bps WoW to 556. In the past month, Portuguese swaps have widened out 185 bps. This is a significant negative divergence from the rest of Europe. Is it too soon to begin asking whether Portugal is beginning to fulfill its destiny as Greece II? The data is starting to suggest that.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 18

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 3

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 11.0 points last week, ending at 1795.83.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 6

 

7. TED Spread Monitor – The TED spread rose 0.3 basis points last week, ending the week at 23.46 bps this week versus last week’s print of 23.19 bps.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 2.2 points, ending the week at -0.95 versus -3.1 the prior week.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread tightened 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: PORTUGAL, PORTUGAL, PORTUGAL - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 17 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: PORTUGAL, PORTUGAL, PORTUGAL - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened 1 bp, ending the week at 95.02 bps versus 96.04 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: PORTUGAL, PORTUGAL, PORTUGAL - 11

 

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 3 yuan/ton, to 3409 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: PORTUGAL, PORTUGAL, PORTUGAL - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 227 bps, 15 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.3% upside to TRADE resistance and 2.3% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


Underneath the Macro Hood

Client Talking Points

CHINA

Newsflash: Chinese growth is slowing. Since virtually everyone already knows that, the reaction to the news is pretty much mute this morning (Hang Seng up +0.12%). China is doing her very best to massage the numbers while we all wait on the next leg down in industrial demand. Industrial Production in China down to +8.9% in June. There is no reason to believe that improves in July or August.

GREECE

Since there’s really nothing else going on out there this morning, let’s go ahead and pick on Greece crashing again. It's yet another negative divergence for the Greek stock market this morning down -1.2%. But the more important point here is that it's down -31% since May 17. Just really ugly. Illiquid markets are becoming more enticing on the short side (weekly) at this point.

EURO

The Euro is backing off at our long-term TAIL risk line of $1.31 vs USD again this morning. This takes some of the bloom off Bernanke’s hopes to devalue the US Dollar. Look, if the EUR/USD fails here, and Ben Bernanke is less dovish during his testimony on Wednesday and Thursday, there is no downside support to $1.27. We're watching this one closely.

Asset Allocation

CASH 58% US EQUITIES 14%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
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.

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. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

Both the US Dollar and 10yr Treasury Yields have stabilized at higher-lows again; Bernanke is back at it on Wednesday

@KeithMcCullough

QUOTE OF THE DAY

The real truth of the matter is,as you and I know, that a financial
element in the large centers has owned the government ever since
the days of Andrew Jackson…

-Franklin D. Roosevelt (in a letter to Colonel House, dated November 21, 1933)

STAT OF THE DAY

5.37%: The average yield on 10-year Treasuries over the past 25 years. (Bloomberg)


July 15, 2013

July 15, 2013 - dtr

 

BULLISH TRENDS

July 15, 2013 - 10yr

July 15, 2013 - spx

July 15, 2013 - dax

July 15, 2013 - dxy

July 15, 2013 - oil

 

BEARISH TRENDS

July 15, 2013 - HSI2

July 15, 2013 - VIX

July 15, 2013 - euro

July 15, 2013 - yen

July 15, 2013 - natgas

July 15, 2013 - gold
July 15, 2013 - copper

 


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