prev

THE M3: REIN IN EXTRAVAGANT SPENDING

THE MACAU METRO MONITOR, AUGUST 30, 2013

 

 

CHINA TO REIN IN EXTRAVAGANT INVESTMENT TEAMS SENT TO HONG KONG, MACAU SCMP

The Ministry of Commerce has pledged to rein in extravagance by local government delegations sent to Hong Kong and Macau to drum up investment, following a highly critical article about such trips in People's Daily.  Yao Jian, a ministry spokesman, said that Beijing was aware of the overblown nature of business delegations visiting Hong Kong and Macau, pointing out that some local governments had overstated the number of participants and the value of deals signed during their promotional activities.

 

"They were desperate to get a big number of foreign businesspeople attending the events and re-signed agreements which had previously been sealed to shore up the total transaction value," Yao said.  "The phenomenon reflects a severe level of artificiality and extravagance."

 

This was the first time that a Communist Party mouthpiece had fired a salvo at such investment-promotion practices.

People'sDaily also said anti-graft officials would investigate and punish those who outrageously wasted money on trips, because their behaviour tainted the government's image.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 30, 2013


As we look at today's setup for the S&P 500, the range is 38 points or 0.80% downside to 1625 and 1.52% upside to 1663. 

                                                                                                                              

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10A


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.38 from 2.37
  • VIX  closed at 16.81 1 day percent change of 1.94%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Personal Income, July, est. 0.2% (prior 0.3%)
  • 9am: Fed’s Bullard speaks in Memphis
  • 9:30am: ISM Milwaukee, Aug., est. 53 (prior 52.43)
  • 9:45am: Chicago Purchasing Mgrs Index, Aug., est. 53
  • 9:55am: UMich. Sentiment, Aug. final, est. 80.5 (prior 80)
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • President Obama meets with presidents of Estonia, Lithuania, Latvia, discussion will include NATO defense matters, cybersecurity, proposed Transatlantic Trade and Investment Partnership

WHAT TO WATCH:

  • Sinopec to acquire $3.1b stake in Apache’s Egypt assets
  • America Movil says it’s ready to drop $9.5b KPN bid
  • Carl Icahn increases stake in Nuance, may seek seat on board
  • Microsoft vying w/American Express for stake in Foursquare
  • ADM’s offer for GrainCorp needs more scrutiny, lawmakers say
  • Verizon-Vodafone seen yielding over $240m in fee bonanza
  • GE set to exit retail lending, prepares unit spin off: WSJ
  • Radian reaches accord w/Freddie Mac to cap claim expenses
  • Ackermann quit Zurich Insurance after mention in suicide note
  • AMR, US Airways clash w/U.S. on rush to trial in merger case
  • Jacobs Engineering close to deal for Sinclair Knight: AFR
  • China will fine Everbright $85m for legal violations: Xinhua
  • Japan’s prices rise most since 2008 in boost for Abe
  • Renault COO Tavares said to have asked CEO for wider role
  • G-20, U.S. Jobs, Australia Election: Wk Ahead Aug. 31-Sept. 7
  • U.S. markets closed Monday for Labor Day holiday

EARNINGS:

    • Alimentation Couche-Tard (ATD/B CN) 8:39am, $0.96
    • Big Lots (BIG) 6am, $0.24
    • Laurentian Bank (LB CN) 8:45am, C$1.33

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Cuts Monthly Advance on Speculation Fed Will Slow Stimulus         
  • Gold Trade Most Bullish Since March on Syria Crisis: Commodities
  • Sumitomo Sees Aluminum Glut Extending to 2014 as China Slows
  • WTI Drops for a Second Day as U.K Lawmakers Reject Syrian Action
  • Soybeans Drop as Rain Forecasts for Midwest Ease Yield Concern
  • Aluminum Reaches Three-Week Low on Prospects for Larger Surplus
  • Indonesia With Malaysia to Support Palm Prices by More Biodiesel
  • Saudi Arabian Crude Output Surges to 24-Year High in OPEC Survey
  • BullionVault Offers Storage at Toronto Vault on Demand From U.S.
  • Cotton Fibonacci Signaling Slump to June Low: Technical Analysis
  • Oil Patch Follows Smartphone Makers in Patent Defenses: Energy
  • Cocoa-Butter Ratio Rises to Highest Since 2008 as Demand Climbs
  • Iron Ore, Met Coal Buying From China May Soften in Short Term
  • Aluminum to Extend Slump on Moving Averages: Technical Analysis

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 - 9A

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 


Time to Taper!

Takeaway: We are at a critical crossroads in America right now.

“The physicists have known sin; and this is a knowledge which they cannot lose.” -Robert Oppenheimer

 

Do you have introspective accountability?

 

Six decades or so ago, shortly after he began to fully grasp the unspeakably fearsome reality of the nuclear weapons he helped unleash, Robert Oppenheimer—“The Father of the Atomic Bomb”—became a rather unpopular man with the U.S. government.

 

Time to Taper! - atomb1

 

After provoking the ire of politicians with his outspoken opinions during the Second Red Scare, Oppenheimer’s security clearance was revoked in a much-publicized hearing in 1954, and he was effectively stripped of his direct political influence.

 

Oppenheimer once remarked that his creation brought to mind words from the Bhagavad Gita: "Now I am become Death, the destroyer of worlds." In essence, Oppenheimer ultimately held both himself and the government to account.

 

Now stop for a moment and ask yourself: Can you imagine a central planner of the Bernanke epoch holding themselves accountable for the highest levels of food, energy, education, etc. inflation in world history?

 

Most likely, the answer is no. That would require an incredibly uncomfortable un-spinning of the truth.

 

And the truth is that American “political scientists” who systematically engaged in devaluing the purchasing power of the American people to four-decade year lows in 2011 know that sin. It is market knowledge that history will not soon forget. Facts don’t lie, politicians do.

 

If you’ve ever sat across the table from me and my macro research team during the monetary mayhem and tumult of these last few years, you’ll know that I refuse to have a debate about mean reversion risks without contextualizing the post-Nixon low in the world’s reserve currency.

 

Time to Taper! - km1

 

  1. Got Causality? Of course, when a country cuts rates to zero then whispers to everyone front-running their next move that zero really isn’t zero (for Bernanke 0 = 0 minus 1, 2, 3, 4? QE5?), its currency goes down, hard.
  2. Post Nixon (i.e. post his devaluing the Dollar by abandoning the Gold Standard in 1971, purely for political gain), the US Dollar Index has never seen a lower-low versus the 2011 low. Surprise, surprise. That’s also when gold hit its all-time high.

Since most global commodities settle in Dollars, why there’s been raging inverse correlation (Dollar Down = Commodities Inflation Up) alongside causality in this relationship is trivial to everyone other than the people who should be held responsible for it.

 

What is less trivial is all of the unintended consequences associated with the ultimate central planning sin (an un-elected overlord confiscating the purchasing power of The People). Here are some of the big ones:

  1. Commodity Bubble
  2. Bond Bubble
  3. Emerging Market Bubble

Yep, that’s going to be a lot for Bernanke’s children (and theirs) to noodle over for the next century. That is, of course, unless the next guy or gal running the un-elected agency does what no modern Federal Reserve Chairman has ever not done – raise rates.

 

For the last year or so, I’ve spent a considerable amount of time ranting about these Global Macro Themes:

 

  1. Commodity Deflation
  2. Rising Interest Rates
  3. Emerging Market Outflows

These are relatively easy long-term risk calls to make because all three of them are basically about unwinding all three of the aforementioned bubbles.

 

Once prices stop making all-time highs (commodities, bonds, or currencies), there’s this big little risk management critter Ben Bernanke has never mentioned under oath called asymmetry.

 

Time to Taper! - ben1

 

So, at this stage of the cycle this is what you get:

 

  1. US Dollar making a series of intermediate-term TREND higher-lows (off her all-time lows in 2011)
  2. US Interest Rates making a series of intermediate-term TREND higher-lows (off their all-time lows in 2012)
  3. Gold and food prices making a series of intermediate-term TREND lower-highs (off their all-time highs of 2011-2012)

All the while, what we still get from the consensus TV circus that is “Government Access Media” is a bunch of uninformed people begging for more of the drugs that the political scientists got rich selling us.

 

If I am not clear on my long-term policy view, let me state it plainly – stop devaluing the Dollar. Stop trying to smooth economic gravity. Stop the monetary madness. Start tapering. Now.

 

If you ever want to see US growth expectations come back (yes, markets and business run on expectations, fyi), you have to let the US Dollar come back and let rates rise right alongside her.

 

Just this morning, we received additional support that the economy doesn’t need any more of the Fed’s monetary amphetamines. In case you missed it, the US jobless claims trend is near a six-year low. Meanwhile, Q2 US economic growth was revised up to a 2.5% annualized rate.

 

What will it take to get the Fed out of the way once and for all?

 

We are at a critical crossroads in America right now. Unwinding the monetary sin embedded in Bernanke’s post 2012 Jackson Hole policy is what markets have been doing for 10 months.

 

Collectively, we either have the responsibility within all of us to rise up against the tyranny of easy money and currency debauchery, or we do not. At this point, I can only hope the people who voted for this government hold it to account.

 

Robert Oppenheimer eventually got it. He had introspective accountability. The $3,600,000,000,000 question is whether Ben Bernanke ever will.


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.

COMMODITY CHARTBOOK

The charts below illustrate some of the important commodity trends for the restaurant industry.

 

Notable Trends:

  • Coffee prices have been trending down YTD and should continue to be a tailwind for SBUX, DNKN, GMCR, THIKKD and other coffee retailers for the remainder of the year.
  • Gasoline prices are trending up YTD and we would caution that any sustained increase could have a significant impact on discretionary spending.
  • Chicken wings are down -22.6% YTD and we expect this trend to reverse for the remainder of the year as football season approaches and MCD prepares to rollout Mighty Wings nationwide on September 9. 
  • Corn and wheat prices both moved higher this week, but remain down -26.5% and -24.0% YoY, respectively, and barring a major reversal, should continue to provide retailers, restaurants and consumers with lower food costs than a year ago.

 

COMMODITY CHARTBOOK - chart1

 

COMMODITY CHARTBOOK - chart2

 

COMMODITY CHARTBOOK - chart3

 

COMMODITY CHARTBOOK - Chart4

 

COMMODITY CHARTBOOK - chart5

 

COMMODITY CHARTBOOK - chart6

 

COMMODITY CHARTBOOK - chart7

 

COMMODITY CHARTBOOK - chart8

 

COMMODITY CHARTBOOK - chart9

 

COMMODITY CHARTBOOK - chart10

 

COMMODITY CHARTBOOK - chart11

 

COMMODITY CHARTBOOK - chart12

 

COMMODITY CHARTBOOK - chart13

 

COMMODITY CHARTBOOK - chart14

 

 

 

Howard Penney

Managing Director

 


Jobless Claims: Trend Is Your Friend

Takeaway: The number of people filing initial jobless claims continues to drop at an accelerating rate year-over-year.

The Most Important Economic Data Series We Follow? It Remains ... Green


For many weeks now, Hedgeye Risk Management has been highlighting the accelerating strength in the US labor market. This week is no exception. Non seasonally adjusted (NSA) initial jobless claims were better year-over-year (YoY) by 11.2% this week, compared with 10.1% and 10.9% in the prior two weeks. Meanwhile, the 4-week rolling average NSA claims was lower YoY by 10.5%, and improvement from the prior week's 10.2%, and the second strongest rate of YoY improvement we've seen year-to-date. 

 

Jobless Claims: Trend Is Your Friend - steiner1

 

The bottom line takeaway here is that the labor market is, in fact, stronger than most think and financials that are positively levered to ongoing improvement in labor conditions should continue to outperform. Moreover, given the growing shadow of uncertainty painting the recent tape, we'd look to this data series more than any other as a green light for buying weakness. 

 

The Data

Prior to revision, initial jobless claims fell 5k to 331k from 336k week-over-week (WoW), as the prior week's number was revised up by 1k to 337k.

 

The headline (unrevised) number shows claims were lower by 6k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 331.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -10.2%


Morning Reads on Our Radar Screen

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

Keith McCullough  - CEO

Economy in U.S. Grew More Than Forecast in Q2 (via Bloomberg)

Jobless-claims trend stays near six-year low (via MarketWatch)

Obama: 'No decision yet' on Syria strike (via BBC)

San Bernardino Wins Eligibility for Bankruptcy (via NY Times)

Brothels in Nevada Suffer as Web Disrupts Oldest Trade (via Bloomberg)

Indonesia Raises Interest Rate as India Aids Rupee (KM note: finally, a smart policy move to fight #AsianContagion > via Bloomberg) 

 

Morning Reads on Our Radar Screen - yu7

 

Josh Steiner – Financials

Bad news: CNBC hits 20-year ratings nadir (via NY Post)

 

Howard Penney - Restaurants

Fast-food strikes set for cities nationwide (via Yahoo)

Subway franchisees decry deep discounts (via NY Post)

Smashburger hires firms to seek growth capital (via NRN)

 

Jonathan Casteleyn – Financials

Dollar Gains With U.S. Stocks as Treasuries Drop on GDP (via Bloomberg)

How Twitter Dodged Attack That Took Down New York Times (via Bloomberg)

 

Todd Jordan – Gaming

MBS scores landmark victory in casino debt collection case (via Business Times)

 

Kevin Kaiser – Energy

Bubonic plague back? Teen’s death sparks fears of Asia outbreak (via RT)


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next