Chinese tycoon Tony Fung has proposed to build a A$4.2 billion ($3.75 billion) casino and resort project in Australia's Cairns city, close to the world-heritage Great Barrier Reef.  The Queensland state government said on Friday that Fung's casino proposal was declared a "coordinated project" on Aug. 1, the first step in the government's approval process.


Fung, a billionaire son of one of the founders of Hong Kong conglomerate Sun Hung Kai & Co. Ltd, is planning to build an integrated resort 13 kilometres north of Cairns that will include an "international class" casino with 750 tables and 1,500 machines, one of the world's largest aquariums and a 25,000-seat sports stadium.  Fung's planned Aquis resort "gives Queensland an opportunity to fend off its southern and regional competitors for the increasingly important Chinese tourism market," Fung said in an open letter published on the project website.


The Aquis Resort at the Great Barrier Reef project has a targeted opening of 2018 and could create 26,700 jobs when fully operational, according to information on Aquis' website.  The resort is also set to include 13,500 square metres of high-end retail and two 2,500-seat theatres.




August 2, 2013

August 2, 2013 - dtr



August 2, 2013 - 10yr

August 2, 2013 - spx

August 2, 2013 - nik

August 2, 2013 - dax

August 2, 2013 - dxy

August 2, 2013 - euro

August 2, 2013 - oil


August 2, 2013 - VIX

August 2, 2013 - yen

August 2, 2013 - natgas
August 2, 2013 - gold

August 2, 2013 - copper



TODAY’S S&P 500 SET-UP – August 2, 2013

As we look at today's setup for the S&P 500, the range is 22 points or 0.99% downside to 1690 and 0.30% upside to 1712.                                 










  • YIELD CURVE: 2.40 from 2.38
  • VIX closed at 13.45 1 day percent change of 0.45%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Change in Nonfarm Payrolls, July, est 185k (pr 195k)
  • 8:30am: Personal Income, June, est. 0.4% (prior 0.5%)
  • 9:45am: ISM New York, July (prior 47)
  • 10am: Factory Orders, June, est. 2.3% (prior 2.1%)
  • 12:15pm: Fed’s Bullard speaks on economy in Boston
  • 1pm: Baker Hughes rig count


  • Obama nominates Hersman for another term as NTSB chairman; GFI Group’s Giancarlo as CFTC commissioner; O’Rielly named to FCC Republican seat
  • Natl Governors Assn holds annual mtg in Milwaukee


    • Dell holders to vote on Silver Lake, Michael Dell LBO
    • Icahn in suit accuses Dell board of trying to force buyout
    • Swaps probe finds banks manipulated rate, hurting retirees
    • Apple seeks Obama reprieve on iPhone import ban from ITC
    • Apple decision in case vs Samsung delayed until Aug. 9
    • Dodd-Frank stands; suit by states, Texas bank thrown out
    • Payrolls probably grew in July, helping trim jobless rate
    • Hewlett-Packard ends LCD pricing suit vs Chunghwa, Tatung
    • BofA faces claims from regulators on jumbo mortgages, CDOs
    • Tourre’s “junior employee” defense seen leading to loss
    • Halliburton, SLB sued on fracking price-fixing claims
    • ICU Medical said to be in exclusive talks on sale to GTCR
    • Canceling Lockheed F-35 said to be option in Pentagon review
    • RBS appoints Ross McEwan as CEO as lender swings to profit
    • Potash split has India’s biggest buyer seeking lower price
    • Japan exchange in talks with Tocom on trading system
    • U.S. Services, BOJ, Carney, HSBC, Rohani: Wk Ahead Aug. 3-10


  • Alliant Energy (LNT) 6am, $0.56
  • Alpha Natural Resources (ANR) 7am, $(0.58)
  • American Axle & Manufacturing (AXL) 8am, $0.30
  • Bell Aliant (BA CN) 6am, C$0.41
  • Berkshire Hathaway (BRK/A) 5pm, $2,166.00
  • Brinker International (EAT) 7:45am, $0.74
  • Buckeye Partners (BPL) 7am, $0.79
  • Cablevision Systems (CVC) 8:30am, $0.05
  • CBOE Holdings (CBOE) 7:30am, $0.51
  • Chevron (CVX) 8:30am, $2.96 - Preview
  • Church & Dwight (CHD) 7am, $0.59
  • Eaton (ETN) 6:28am, $1.11
  • Eldorado Gold (ELD CN) 7am, $0.08
  • Exelis (XLS) 7am, $0.37
  • Gartner (IT) 7am, $0.52
  • Host Hotels & Resorts (HST) 6am, $0.42
  • ImmunoGen (IMGN) 6:30am, $(0.30)
  • Manitoba Telecom Services (MBT CN) 4:03pm, C$0.48
  • Och-Ziff Capital (OZM) 7:30am, $0.13
  • Pinnacle West Capital (PNW) 8am, $1.15
  • PNM Resources (PNM) 8:30am, $0.33
  • Power of Canada (POW CN) 12:05pm, C$0.60
  • Sealed Air (SEE) 6am, $0.25
  • Sirona Dental Systems (SIRO) 6:30am, $0.91
  • SNC-Lavalin Group (SNC CN) 8:27am, C$0.53
  • Telephone & Data Systems (TDS) 7:32am, $0.09
  • Ultra Petroleum (UPL) 8am, $0.43
  • United States Cellular (USM) 7:32am, $0.17
  • Viacom (VIAB) 6:55am, $1.30 - Preview
  • Washington Post (WPO) 8:30am, No est.


  • Baguette Hopes Fade for Some French Farmers on Low-Protein Wheat
  • p Commodities Market, Industry News »             
  • Gold Bears Dominant Again as U.S. Growth Quickens: Commodities
  • WTI Heads for Weekly Advance Before Jobs Data; Brent Tops $110
  • Gold Extends Biggest Weekly Drop Since June on Better U.S. Data
  • Copper Rises on Buying of Metal to Close Out Bets on a Decline
  • Wheat Advances Amid Crop-Quality Concerns From France to U.S.
  • Potash Split Prompts India’s Biggest Buyer to Seek Price Cut
  • Coffee Climbs After Brazil Plans Aid for Farmers; Cocoa Falls
  • Record High-Quality Wheat Prices in China May Spur Imports
  • Iron Ore Rally May Firm on Chinese Demand; More Supply Ahead
  • Olam Defies Russian Grain-Export Slump as Traders Retreat
  • Crude Premium Rises to 2013 High in Asia on Iraq: Energy Markets
  • Obama Nominates GFI Group’s Giancarlo as CFTC Commissioner
  • COMMODITIES DAYBOOK: Gold Bears Regain Dominance on U.S. Growth
  • Wheat Costs in Japan Climbing for Third Time as Abenomics Bites


























The Hedgeye Macro Team












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Dinero Caliente

This note was originally published at 8am on July 19, 2013 for Hedgeye subscribers.

“Never memorize something that you can look up.”

 -Albert Einstein


I used to have something of a photographic memory.  Lately, however, a plot of my capacity for short-term recall and a YTD chart of Gold would probably be hard to distinguish. 


I’d proffer that my bout with Cognitive Deflation is only transient and simply the byproduct of late nights with infants, serial overconsumption of caffeine, and serial under-consumption of exercise.  At least that’s what I tell myself. 


Either way, I’ve come to more closely relate to the aphoristic wisdom embedded in Einstein’s quote above.


With some beach time on the August calendar, I’m holding out hope the downtime catalyzes some needed cerebral exfoliation. 


Back to the Global Macro Grind….

We have been negative on emerging market debt and equities for most of 2013 with #EmergingOutflows & #AsianContagion headlining our 2Q13 and 3Q13 Macro Investments themes calls, respectively. 


The story of emerging market pain is one birthed from emergent strength in the U.S. dollar, acceleration in U.S. growth and the associated reversal in unprecedented Fed policy driving an expedited reversal in Hot Money & Yield Chase Flows out of developing economies.   


We’ve presented the principal conclusions of our research and suggested positioning in recent presentations, but it’s probably worthwhile to take an illustrative, didactic tour of capital flows to understand how the cycling of capital into and out of emerging economies can work to propagate negative economic and market impacts in an archetypical scenario.


Capital Flows to Emerging Economies for 3 Principle Reasons:


1.   External:  “Push” flows occur for reasons external to the capital-importing economy and generally relate to relative investment attractiveness.  Perhaps the simplest way to understand it is in the context of U.S. interest rates.  If growth slows, policy turns easy and interest rates in the U.S. decline, investment yields available in emerging economies become relatively more attractive and capital flows accordingly. Historically, this has been the largest driver of rich-to-poor capital flows.  It’s also generally the most volatile.   

2.   Internal:  “Pull” flows are catalyzed by improving economic fundamentals, sound policy and/or trade & capital market liberalization initiatives.  Pull flows provide firmer bedrock for sustained inflows. 


3.   Financial Globalization:  Here we’d highlight the ongoing, global trend towards Financial & Capital market integration and the proliferation of conduit investment vehicles allowing broad institutional and retail access to developing economies.   A secular shift in portfolio allocations towards international diversification holds positive longer term opportunity for developing economies.  However, in compressed periods in which flows chase performance, it can work to amplify volatility in market prices.     


It’s the potential transience of “push” and portfolio (i.e. equity & debt) flows that are of most concern to capital-importing countries, particularly given the reality of hyper-fast capital mobility.


So, what happens when the Hot Money starts to flow?


In a generalized model, the body of empirical evidence points to a number of discrete macroeconomic impacts:


1.   Currency Appreciation:  Absent Central Bank intervention the demand for foreign currency drives the exchange rate higher.


2.   Consumption Growth:   The influx of foreign capital provides for a higher level of domestic investment.  This higher level of investment is generally accompanied by a decline in the domestic savings rate.  Consumption rises as consumerism displaces saving.  


3.   Rise in the Money Supply & Inflationary Pressure: Stemming from a rise in economic activity along with any attempts by the central bank to quell the currency appreciation.


4.   Widening of the Current Account Deficit:  Don’t worry if you don’t remember the details about what the Current Account is.  Here, it’s sufficient to understand that imports rise relative to exports generally due to an appreciating currency and rising consumption. 


It’s not difficult to understand how the confluence of the above dynamics can work to drive recurrent boom and bust cycles for emerging and formerly, capital-rationed, economies.  Consider how the interaction of the above factors, which initiates with a large influx of foreign capital, can work to drive a self-reinforcing cycle in both directions:


U.S. growth slows, Bernanke cuts to 0%, institutes financial repression and forces capital to search out yield. Capital flows into the EM economy causing increased investment, falling domestic savings and rising domestic consumption.  Incomes rise alongside accelerating growth, driving a further increase in consumption in a positive, reflexive cycle.  Further, foreign capital inflows along with diverted domestic savings provide a bid for real (i.e. housing) and speculative financial assets.  Net wealth increases alongside inflating asset values.  Faster growth, higher incomes, and rising net wealth all serve to increase capacity for credit. Credit expansion then serves to amplify the cycle.  Everything is great, until…….

U.S growth starts to inflect to the upside, #StrongDollar starts to sniff out a Fed Policy reversal, and “push” flows begin to reverse.  


When portfolio capital starts to exit, asset prices deflate and credit gets tighter, investment and consumption both decline.  The currency depreciates, driving local inflation higher at the same time that aggregate demand accelerates to the downside. If demand is local and the debt is denominated in foreign currency, the debt burden on business is amplified.  Declining demand in the face of a crashing currency and elevated inflation can leave policy makers handcuffed. 


Thus, capital flows, this time the expedited exportation of foreign capital, catalyze a reversal of the boom cycle described above with some version of a self-reinforcing, contractionary cycle playing itself out.   


Of course, country specific fundamentals, policy decisions, and monetary systems matter and understanding the prevailing risk for a particular country is more nuanced, but the generalized model described above captures the broader dynamics that tend to drive the cycle. 


Further, given the large-scale proliferation of EM related investment vehicles whereby investors indiscriminately bought ‘international diversification’ without a real understanding of the underlying exposures, it’s unlikely they will be overly discriminate in their selling.  Historical precedent suggests #StrongDollar driven outflows from emerging markets are protracted. 


In short, we don’t think #EmergingOutflows have bottomed yet. 


Hopefully the decline in my recollective ability has.


Our immediate-term Risk Ranges are now:


UST 10yr yield 2.49-2.74%
SPX 1670-1701
VIX 13.23-14.78

USD 82.61-83.48

Brent 106.99-109.27

Gold 1216-1306 


Enjoy the weekend.  


Christian B. Drake

Senior Analyst


Dinero Caliente - vv. EL


Dinero Caliente - vp 7 19

Picture Day

“Think of me like Yoda, but instead of being little and green, I wear suits and I’m awesome. I’m your bro — I’m Broda!”

-Keith McCullough


I’m not going to try to weave that recent #Tweetshow gem from Keith above into some sort of missive theme.  It just makes me laugh.


Let’s start somewhere else.


Back in school the bullies used to wait until Picture Day to punch a kid in the face.  Risk Management in Central CT starts early. 


Yesterday could probably be considered an investor picture day and the market delivered a bevy of black eyes to the perma #EOW contingent.


In related End of World and Recency Bias news, it’s now August and for the better part of the last 5 months, the ‘Sell in May’ mantra has been iteratively thesis drifting towards an un-convicted call to ‘Sell in September’ alongside another crescendo in congressional budgetary and debt ceiling discord. 


September, incidentally, also happens to be when the seasonal distortion present in the reported econ data flips from a headwind to a tailwind - serving to (optically) amplify any positive underlying economic trend. 


Hearing implied volatility in ‘sell in December & go away’ calls is ripping!


Back to the Global Macro Grind……

For much of 1H13, our pro-domestic growth call was buttressed by some positive redundancy.   That is, with our model signaling for the slope of U.S. growth to accelerate out of 4Q12, we had a bullish absolute call for domestic, consumer-centric equities. 


With most of Europe Bearish TRADE & TREND, an expectation for slowing EM growth, and upside to troughed out expectations for U.S. growth, we also had a relative call supporting a long bias to domestic exposure. 


In essence, even if U.S. growth turned out to be “okay” instead of very good, we were still taking a high probability swing at positive absolute performance.  


As it happened, our conviction in the strength of the relative call was tested more acutely as we transitioned out of 1Q.  A quick review of the last few months will be helpful in understanding how our view has evolved to where it is today. 


As we moved through 2Q, it become apparent that consumption growth, while remaining healthily positive, would not accelerate sequentially.  In part, this was not unexpected. 


Fiscal policy impacts generally hit on some short lag and the 1Q13 comparison was artificially difficult as consumer spending in 1Q benefited from the special dividend deluge and compensation pull-forward that occurred in December 2012 ahead of impending fiscal cliff related tax law changes. 


With the savings rate rising in 2Q and disposable personal income growth largely flat, divining the slope of sequential consumption growth just became simple math. 


Further, with federal employment growth running at approx -2% YoY and furloughs for ~700K+ federal employees beginning in July – which, in tandem, equates to ~7% reduction in income for ~2% of the workforce – upside to disposable income growth would likely be constrained in 3Q13 as well. 


Would a modest deceleration in consumption matter from a market perspective? – becomes the simple, but nontrivial investment question. 


As we highlighted yesterday, when re-evaluating positioning, it’s often helpful to start by detaching yourself from the myopia of trying to contextualize every market tick and, from a broader perspective, remember how this whole reflexive economic thing works.  Archetypically,


Rising spending drives income and employment higher which, in turn, drives consumption and confidence higher in a virtuous, self-reinforcing cycle.  Credit serves to amplify the cycle with credit expansion following pro-cyclically as loan demand and creditworthiness both increase alongside rising incomes and higher household net wealth. 


In short, if the TREND slope of improvement across the balance of key macro drivers (employment, consumption, credit, confidence) remains positive, and if the forward research view and risk management signals are still aligned, the path of least market resistance and the highest probability call is to stick with the TREND  - particularly if you don’t have a discrete catalyst for a reversal. 


So, how are the aforementioned macro metrics #TRENDing?


Labor market trends remain positive with Initial Claims continuing to register accelerating improvement while employment growth as measured by the BLS’s Establishment and Household Survey’s both remain positive. 


Confidence readings across the primary surveys continue to make new 5Y highs and are finally beginning to break out of their post recession channel.


Business and Residential Investment growth has accelerated in each of the last two quarters. 


On the credit side, banks are finally beginning to report positive loan growth, Commercial & Residential Real Estate loan demand continues to improve and credit standards across commercial and consumer loan categories continues to ease.


Consumption has shown a discrete acceleration, but faces some well advertised, nearer-term headwinds.  If labor market trends remain positive, does the market look past middling consumer spending growth over the next few months with an eye towards a diminishing fiscal drag and easy compares as we annualize the sequestration and the tax law changes in early 2014?  That’s an increasingly probable risk for the consensus #EOW bear crowd to manage.


Now, Is Congress a discrete negative catalyst?  As our Healthcare Sector Head, Tom Tobin would say; you can never underestimate congress’s ability to create a crisis so they can subsequently save us from it.  Congressional risk may rise, on the margin, but this iteration is likely to be mostly noise so long as the fundamental trends remain positive.


Is #RatesRising a catalyst?   We have a hundred page slide deck and a 60 min presentation on why we don’t think a return to interest rate normalcy is a threat to growth or market performance.  (ping if you’d like a copy)


Is today’s Employment Report a discrete catalyst?  Yes, but not really.  We don’t have any particular edge on the NFP number, but given the ongoing strength in the jobless claims data it’s more likely than not we print something close to consensus at 185K.


So, now that I’ve peppered you with bullish jabs for the last 800 words, I’ll remind you that we’re not bullish on everything at every price.   In fact, we moved to net neutral into yesterday’s close  (5 longs, 5 shorts) as almost everything pro-growth, domestic consumption (XLY, XLF, $USD) signaled immediate term overbought.  


But we’ll take our long exposure higher again on the signal so long as the TREND slope of improvement in the Macro data remains positive.  At present,….


“Your Friend, the Trend Remains”  - Broda


Our immediate-term Risk Ranges are now as follows:


UST 10yr 2.60-2.78%


Nikkei 14101-15095

VIX 11.96-13.74

USD 81.62-82.87

Gold 1


80o and sunny on tap for the weekend.  Enjoy. 


Christian B. Drake

Senior Analyst 


Picture Day - 10Y vs GDP  PCE  SPX


Picture Day - virtual portfolio 8 2

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.