“The greatest obstacle to pleasure is not pain; it is delusion.”
When I read that in The Swerve (pg 196) I couldn’t stop drawing the analogy between the 14-16th century Vatican and the US Federal Reserve. That might sound a little out there for you this morning, but Bernanke’s fear-mongering dogma is way out there too. Hopefully you can find some balance in between our opposing definitions of economic freedom. I am, if you care, Catholic.
If you stop studying the history of your beliefs, you’ll have issues. At the end of the 4th century, “historian Ammianus Marcellinus complained that Romans had virtually abandoned serious reading.” (pg 93) Getting people to just take the church’s word for it without thinking was a process (no books). “It had taken a thousand years to win the struggle and secure the triumph of pain seeking.” (pg 107)
Mixing politics, religion, and perceived wisdoms – that’s bringing it on thick. But it’s the only way I can remind you that the pattern of changing human beliefs are not new this morning. It’s called education. The delusion that a country needs to be perpetually punished by a weak currency and a 0% return on her hard earned savings is one of the greatest obstacles to free-market pleasures.
Back to the Global Macro Grind…
Many are paid to think Bernanke is right. They believe that the US Dollar needs to be beat and whipped whenever it rises from the deadness of it all. Many think bond yields should stay at the 0% bound in perpetuity too. Just don’t forget why – they run Bond funds.
This morning we’re seeing a sharp contrast between American and Chinese economic policies:
- In the USA, people who are long Gold, Bonds, and Crude Oil futures continue to beg for Bernanke to talk down tapering
- In China, they’re reminding you that the entire world doesn’t sign off on short-term (reactive) Keynesian policy making
In a strikingly simple statement overnight, China’s Finance Minister said that they “won’t use large scale stimulus.” Markets took their word for it. The Shanghai Composite backed off in a hurry and closed down another 1%.
So who wouldn’t like a statement like that? Who will be in pain if, god forbid, Bernanke isn’t dovish in today’s testimony?
1. Copper – hopefully you aren’t long that bubble. It took the Chinese “news” (in line with Darius Dale’s view that China wasn’t going to stimulate you) seriously and Copper futures fell over -1% immediately. Don’t forget that when China was spending its brains out on “infrastructure” over 3 years ago, it represented almost 2/3 of incremental global copper demand.
2. Caterpillar – for the last year (as the Mining Capex Bubble began to pop) its CEO, Doug Oberhelman, has sounded like he should be running for political office in the south of France. He wants bailouts and government stimuli in his Chinese order book, baby! Do you blame him? I do. Hope is not an investment process.
Copper and CAT perma-bulls are just two of the many constituencies who lobby The Ben Bernank to whisper sweet-nothings of dovishness in the ears of the WSJ Hilsy (yes, the Jon Hilsenrath) as the Rest of Us just try our best to front-run it all.
If you don’t think that’s what’s really behind the pain-seeking messaging of the Fed, you are delusional. I have never seen the US government spend so much time talking down the one thing all these central plans were supposed to produce – growth.
And I mean real (inflation adjusted) economic growth. In the USA at least, sustained growth has always been married to 2 major (and coincident) leading pro-growth indicators:
So, if you don’t want to step on anyone at the Fed Vatican’s toes – and if you never want to question any of these money-printing pontiffs publicly, you would have probably been cool with taking The Borgias word for it in the 15th and 16th centuries too.
In other news, the US stock market finally had a down day yesterday. That was its 1st down day in the last 9 as the SP500 and Russell2000 backed off their all-time highs of +18% and +23% YTD, respectively.
Immediate-term TRADE overbought is as overbought does, so we’ll see if we can re-load the long book on a correction to a reasonable line of immediate-term TRADE support (for SPY that’s now 1656).
The #1 thing that will stop me from getting really long again is Bernanke Burning The Buck (toning down tapering expectations). Every one of the aforementioned constituencies disagrees with me on that – but I’m betting 99% of The People in this country would call my #StrongDollar America the pleasure they seek.
Now, if only the US government explained it to them like we do, without all the conflicts of interest…
Our immediate-term Risk Ranges are now:
Shanghai Comp 1
USD 82.12-83.61 (bullish)
Brent Oil 107.61-110.13
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – July 17, 2013
As we look at today's setup for the S&P 500, the range is 45 points or 1.21% downside to 1656 and 1.48% upside to 1701.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.23 from 2.21
- VIX closed at 14.42 1 day percent change of 4.57%
MACRO DATA POINTS (Bloomberg Estimates):
- 7am: MBA Mortgage Applications, July 12 (prior -4%)
- 8:30am: Housing Starts, June, est. 960k (prior 914k)
- 8:30am: Building Permits, June, est. 1m (pr. revised 985k)
- 8:30am: Fed’s Bernanke written testimony for semi-annual report to U.S. House to be released
- 10am: Bernanke begins testifying
- 10:30am: DOE Energy Inventories
- 12pm: Fed’s Stein delivers remarks at Fed conf. in D.C.
- 1pm: Fed’s Raskin speaks to Exchequer Club in Washington
- 1pm: U.S. to sell $15b 10Y TIPS
- 2pm: Fed releases Beige Book
- 10am: Senate Appropriations panel hearing on FY2014 budget estimates for Missile Defense Agency
- 10am: House Armed Svcs Cmte hearing on security in Syria, implications for U.S. natl security, policy options
- 10am: Senate Banking, Housing and Urban Affairs Cmte panel hearing on the consumer debt industry
- 10am: Senate Commerce, Science and Transportation Cmte panel hearing on expansion of Internet gambling
- 2:30pm: Senate Agriculture panel hearing on “Reauthorization of Commodity Futures Trading Commission”
- 3pm: Republican Study Committee’s Energy Task Force meeting on repealing the renewable fuel standard
WHAT TO WATCH
- Bernanke seeks to divorce QE tapering from Fed rate outlook
- Ally said to weigh raising $1b to pass Fed stress tests
- Yahoo forecast trails ests. as Mayer builds products first
- BOE votes 9-0 to hold bond program at GBP375b
- Google said to discuss own Web TV service with media executives
- Barclays, traders fined $488m amid U.S. energy probe
- S&P loses final ruling on bid to dismiss U.S. fraud lawsuit
- Apple said developing ad-skipping as part of TV strategy
- Ford offers software fix as hybrids comes up short of promise
- Prudential said to win support from DeMarco to avoid risk label
- China won’t have large stimulus this yr, finance minister says
- U.K. jobless claims fall most in 3 yrs
- Novartis raises full-yr forecasts on lack of Diovan rival
- Chevron signs $1.24b shale accord With Argentina’s YPF
- First Cash Financial Services (FCFS) 6am, $0.56
- Mattel (MAT) 6am, $0.32 - Preview
- PNC Financial Services (PNC) 6:24am, $1.63
- Bank of New York Mellon (BK) 6:30am, $0.57
- US Bancorp (USB) 6:45am, $0.76
- Bank of America (BAC) 7am, $0.26 - Preview
- First Republic Bank (FRC) 7am, $0.72
- iGATE (IGTE) 7am, $0.34
- Northern Trust (NTRS) 7:30am, $0.83
- St Jude Medical (STJ) 7:30am, $0.94 - Preview
- Textron (TXT) 7:30am, $0.38
- Abbott Laboratories (ABT) 7:44am, $0.44 - Preview
- WW Grainger (GWW) 8am, $2.96
- M&T Bank (MTB) 8:01am, $2.11
- Platinum Underwriters Holdings (PTP) 4pm, $0.69
- RLI (RLI) 4pm, $1.09
- Plexus (PLXS) 4pm, $0.58
- Covanta Holding (CVA) 4:01pm, $0.01
- Greenhill (GHL) 4:01pm, $0.53
- Intel (INTC) 4:01pm, $0.39 - Preview
- Select Comfort (SCSS) 4:01pm, $0.24
- Albemarle (ALB) 4:03pm, $0.98
- American Express (AXP) 4:04pm, $1.22
- LaSalle Hotel Properties (LHO) 4:04pm, $0.72
- CYS Investments (CYS) 4:05pm, $0.29
- El Paso Pipeline (EPB) 4:05pm, $0.47
- International Business Machines (IBM) 4:05pm, $3.78 -Preview
- Kinder Morgan (KMI) 4:05pm, $0.32
- SanDisk (SNDK) 4:05pm, $0.93
- Umpqua Holdings (UMPQ) 4:05pm, $0.22
- Kinder Morgan Energy (KMP) 4:06pm, $0.60
- Core Laboratories (CLB) 4:06pm, $1.32
- eBay (EBAY) 4:15pm, $0.63 - Preview
- SLM (SLM) 4:15pm, $1.00
- Xilinx (XLNX) 4:20pm, $0.47
- Astoria Financial (AF) 4:30pm, $0.12
- Cathay General Bancorp (CATY) 4:30pm, $0.35
- Cohen & Steers (CNS) 4:30pm, $0.43
- CVB Financial (CVBF) 4:30pm, $0.21
- East West Bancorp (EWBC) 4:45pm, $0.51
- Noble (NE) 5pm, $0.56
- Crown Holdings (CCK) 5:01pm, $0.93
- West Fraser Timber (WFT CN) 5:01pm, C$1.79
- HNI (HNI) 5:12pm, $0.25
- Valmont Industries (VMI) 5:30pm, $2.92
- Steel Dynamics (STLD) 6pm, $0.14
- Kinder Morgan Management LLC (KMR) Aft-mkt, $0.67
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Tin Shipments From Indonesia Seen Advancing 33% as Rules Eased
- Gold Slump Revives Hedges Scrapped During Bull Run: Commodities
- Copper Slides as Higher Production Fuels Concern About Surplus
- Gold Declines for Third Day in Four as Investors Await Bernanke
- WTI Crude Declines for a Second Day Before Bernanke Testimony
- Wheat Rises on Speculation That Chinese Demand Will Increase
- Rebar Climbs for Sixth Day on Iron Ore Rally, China Optimism
- Robusta Coffee Gains as Indonesian Deliveries Drop; Cocoa Gains
- China’s Iron-Ore Shift Helps Cargill at Ports: Chart of the Day
- Barclays With Ex-Traders Fined $488 Million in U.S. Energy Probe
- U.S. Gulf Oil Profits Lure $16 Billion More Rigs by 2015: Energy
- LNG Price-Swing Risk Seen as Threat to Futures: Energy Markets
- European Gasoline Prices Climb to Highest in 20 Weeks: BI Chart
- Commodities Daybook: Gold Price Tumble Revives Hedging Prospects
- Gold Imports by India Seen Shrinking as Curbs Increase Costs
The Hedgeye Macro Team
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THE MACAU METRO MONITOR, JULY 17, 2013
MACAU GAMING TABLES/SLOTS DICJ
At the end of Q2, Macau had 5,746 gaming tables and 15,310 slots, down 3 tables and 1,096 slots QoQ, respectively.
TWO MORE ROUTES TO CONNECT WITH HK-ZHUHAI-MACAU BRIDGE Macau Daily News
Zhuhai plans to add two more routes to connect Zhuhai with the Zhuhai-Macau Port Artificial Island aiming to boost Zhuhai’s economy by leveraging on the economic advantage of the Hong Kong-Zhuhai-Macau Bridge. According to the new plan, a commercial city will be established in the north of the Zhuhai-Macau Artificial Island, and Gongbei Bay will be transformed into an inland lake, so that the Hong Kong-Zhuhai-Macau bridge can act to drive economic benefits to Zhuhai.
US REGULATORS PROBE MACAU TIES BETWEEN PANSY HO, MGM Macau Business
Regulators and law enforcement officers from Maryland in the United States spent last week in Macau, probing the suitability of MGM Resorts International to operate a casino there. Investigators visited the MGM Macau. They also spoke to junket operators as part of a mandatory inquiry into the financial capabilities and integrity of potential casino owners.
MGM is one of three candidates in the running to build and operate a US$800-million (MOP6.4 billion) casino-resort in National Harbour. MGM said last year it expected inquiries into the relationship with Pansy Ho Chiu King, a part owner of MGM China and a daughter of gaming magnate Stanley Ho Hung Sun.
Hedgeye Risk Management CEO Keith McCullough talks US stocks and economy, explains why investors need to stay far away from Gold and Treasuries, and why Bernanke remains an enormous risk.
KO is trading down today as volume results for Q2 2013 came in below expectations (globally +1% vs +4% last quarter) with the company citing a challenged macro environment (U.S., Europe, Asia, and Latin America), social unrest, and poor weather conditions (wet and cold across multiple regions) that impacted consumer spending and demand. North America, which is ~ 44% of sales, saw volume down a disappointing -1% in the quarter.
Performance was hit by tough Q2 comps given the especially good weather in 1H last year: Pacific volumes were +2% vs +10% last year; Brazil’s volume was even cycling +6% a year ago; and India’s volume grew +1% versus a +20% comp.
The company cited optimism around a turnaround in 2H for its key international markets (China, Brazil, Russia, Mexico, and India) on improvement in the macro environment, continued marketing support of its brands, weather improvements (India performs historically stronger in the back half), and its systems execution.
While we expect many of the forces dragging on confidence and demand to remain in the back half of the year, including high unemployment (especially in southern Europe), social unrest, and inflation, we like that the back half quarters of 2013 are lapping much easier comparisons year-over-year. On the top line, the Q3 2012 comp is +0.8% versus this quarter’s +2.8%. Gross margin was pretty consistent throughout last year, however the operating margin gets easier in the final two quarters of last year (+23.6% and +21.7%, respectively) versus +26.1% this quarter.
The stock is currently trading above its intraday lows at around $40.45. Our quantitative levels suggest that KO has an intermediate term price TREND line of support at $40.14.
What we liked:
- EPS inline with consensus at $0.63
- Outperformance of still beverages, volume +6% vs sparkling 0%
- Packaged water volume up +6% and energy drinks +5%
- Russia volume +11% with a strong marketing calendar tied to the 2014 Sochi Winter Olympics
- COGS decreased -5%
- Eurasia and Africa volume up 9% (benefitting from Aujan partnership)
- New guidance on the effective tax rate of 23.0% for 2013 vs last quarter’s estimate of 23.5%
What we didn’t like:
- Net Revenues were down -2.6% in the quarter and missed estimates ($12.75B vs $12.96B)
- Operating income fell -1.5% in the quarter
- Europe volume -4% (vs -4% in Q1 2013) on colder weather and flooding in Germany and central Europe
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