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Buy the Dip? Nope

Client Talking Points

YEN

Pay close attention tho this relationship. Versus the Burning Buck, a breakout in the Yen from here would matter to global correlation risk. Big time. Our intermediate-term TREND line for the YEN vs US Dollar is 97.88. The market is trading right at it here. As I have said many time before, the Nikkei "no likey" the #StrongYen. The Nikkei was down -2.1% overnight. It broke my immediate-term TRADE support line of 14,616. Blame Bernanke and Congress for my not buying this dip.

ITALY

From Rome to Washington D.C., the political class is raging, globally, this morning. Don’t you just love it? A "no confidence" vote is now scheduled in Italy for Wednesday and the Italian MIB Index leads European losers. It's down -1.6% to start the week after breaking TRADE support of 17,493. Congress clearly has major problems, but we're keeping a close eye on this one too.

OIL

Phew. A bright spot. One of the few positives in global macro markets this morning is of course the price of Brent Oil. It snapped our long-term TAIL risk line of $108.57. It's down -0.8% last to $107.72. Guess what? A strong US employment report later this week could wreak total havoc on Oil bulls (and the bond market).

Asset Allocation

CASH 51% US EQUITIES 16%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

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.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Yield Spread (and US growth expectations embedded therein) continues to compress thanks to Bernanke + Congress

@KeithMcCullough

QUOTE OF THE DAY

We are continually faced by great opportunities brilliantly disguised as insoluble problems. -Lee Iacocca

STAT OF THE DAY

800,000: The number of federal workers who would be sent home tomorrow if Congress fails to pass a stopgap spending bill before funding expires tonight. 


THE M3: S'PORE PUBLIC SERVANT DECLARATION; MPEL/JAPAN

THE MACAU METRO MONITOR, SEPTEMBER 30, 2013

 

 

PUBLIC SERVANTS WHO FREQUENT S'PORE CASINOS MUST DECLARE VISITS WITHIN SEVEN DAYS Strait Times

From Tuesday, all public servants will have to declare their visits to local casinos if they go more than four times a month or if they purchase an annual pass.  The declaration must be made within seven days, said Singapore's Public Service Division (PSD) on Monday.


For officers "whose misconduct will have significant reputational risk to the Public Service," every visit to a casino must be declared to their superiors, it added, but did not specify who would be subject to this more stringent rule.  The new regulations come in the wake of several high-profile cases of misconduct by top public servants.

 

HO SEEKS JAPAN CASINO AS DEVELOPMENT LIMITS LOOM IN MACAU Bloomberg

Lawrence Ho plans to invest more than $5 billion in Japan if MPEL receives permission to build a casino there as he sees constraints on development at home.  “We still have the most eggs in the Macau basket.  Given the Macau government and the Chinese government want to control the growth rate, the company is seeking other opportunities outside the city. Macau is a small place. As much as I want to build a theme park, we just don’t have the land to do it....The potential is huge.  If Japan opens up and allows integrated resorts in Tokyo, Osaka, the market could easily be in excess of $10 billion to $15 billion or more,” said Ho.  Ho adds that he has been lobbying multiple cabinet members in Japan for the legalization of casinos.  He sees “significant” non-gaming revenue for the country because “there’s so much to do, so much to see. Japan has a rich culture,” the executive said.  


Ho plans to build Japan casino resorts, preferably in Tokyo and Osaka, through Melco Crown.  WYNN, MGM, LVS, and CZR are also seeking expansion opportunities in Japan as Tokyo’s selection to host the 2020 Olympics boosts confidence the government will legalize casinos.

 

Ho expects casino revenues in Macau will grow at least 10% in 2014 as the global economy improves.



Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Government's Sword

“The sword is victorious over money.”

-Oswald Spengler

 

If you want to get yourself right depressed this morning, just pick up a copy of Oswald Spengler’s The Decline of the West.

 

Otherwise, you can just think about what both Ben Bernanke and the US Congress have done to US growth expectations in the last few weeks, and go back to bed. Isn’t having Big Government Intervention in every aspect of our said “free-market” lives fantastic?

 

Karl Marx had one thing ½ right. There’s a class warfare amongst us in America this morning. It’s the well compensated (and non-Obamacare medicated) Political Class vs. The Rest of Us.

 

Back to the Global Macro Grind

 

While it may be convenient for the US Federal Reserve to attempt to blame all of this on Congress (again), the non-willfully-blind who are marked-to-market every day understand there’s a lot more to this story.

 

The US stock market will be down for the 7th out of the last 8 days since Bernanke arbitrarily decided to take both #StrongDollar and #RatesRising out of immediate-term market expectations.

 

This is the first “dip” (in US Equities) that I haven’t bought in 2013, and I probably won’t be buying this morning’s either. After seeing US GDP #GrowthAccelerate from +0.14% in Q412 to +2.48% in Q213, the government’s sword remains the greatest threat to growth’s slope.

 

To recap last week’s US #GrowthSlowing signals, they are precisely the same ones you will see this morning:

  1. Down Dollar
  2. Down Interest Rates
  3. Down US Stocks

Nope. Not that complicated folks. Why would I be bullish if Bernanke and Congress are reversing everything I liked?

 

The Fed doesn’t do the real-time market leading indicator thing, but here they are: 

  1. US 10yr Treasury Yield = -11 basis points to 2.62% last week = -13% off its early September 2013 high
  2. US Treasury Yield Spread (10yr minus 2yr yield) = -11bps last wk to 228 bps wide = -9% off its September 2013 high
  3. US Financial Stocks (XLF) = -1.9% last wk = -2.8% from its September 2013 high

Now if you ask Obama or Boehner what they think of the Yield Curve, you might get some interesting answers (or blank stares). But the reality of modern market life is that we don’t get paid to be partisan when it comes to explicit growth signals.

 

If you’re more of an equity and/or commodity signals person, last week’s #GrowthSlowing signals were the same: 

  1. Utilities (XLU), or the slowest growth but highest “yield chasing” sub-sector of the SP500, was last week’s top performer
  2. Natural Gas, which is one of the few domestically driven commodities (demand), was down -4.6% on the week
  3. US Equity Volatility (VIX) was +17.8% on the week to 15.46

That last point fits my bottom line on government intervention like a glove. Big government Intervention in our economies, markets, and lives do a few obvious things:

 

A)     They amplify market volatility

B)      They shorten economic cycles

 

Nothing slows the pace of confidence and decision making in markets faster than government sponsored volatility.

 

Friday’s US Consumer Confidence (University of Michigan survey) was a stiff reminder of that. As the US stocks market (and interest rates) stopped going up a few weeks ago, the September confidence reading dropped to 77.5 versus 82.1 in August.

 

As a small business owner in this country, throughout 2013 my confidence in the macro environment was as progressive as anyone who writes to you every morning. That’s changing now - and to have to call that like it is this morning is just plain sad.

 

Even though I’m opening our new office in Stamford, CT as the government is about to shut down theirs, I have to admit that their conflicted and compromised sword has once again left its mark on my mind.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.57-2.71%

SPX 1

VIX 14.48-16.74

USD 80.02-80.59

Euro 1.34-1.36

Natural Gas 3.45-3.63

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Government's Sword - ch

Government's Sword - 2


September 30, 2013

September 30, 2013 - DTR

 

BULLISH TRENDS

September 30, 2013 - 10yr

September 30, 2013 - spx

September 30, 2013 - dax

September 30, 2013 - NIK

September 30, 2013 - euro

 

BEARISH TRENDS

September 30, 2013 - VIX

September 30, 2013 - DXY

September 30, 2013 - oil

September 30, 2013 - natgas

September 30, 2013 - gold
September 30, 2013 - copper

 


THE HEDGEYE DAILY OUTLOOK

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

 

As we look at today's setup for the S&P 500, the range is 34 points or 1.23% downside to 1671 and 0.78% upside to 1705.            

                                                                                                                   

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: 2.28 from 2.29
  • VIX closed at 15.46 1 day percent change of 9.96%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9am: ISM Milwaukee, Sept. (prior 48.21)
  • 9:45am: Chicago Purchasing Mgrs, Sept., est. 54.3 (prior 53)
  • 10:30am: Dallas Fed Manufacturing Activity, Sept. (prior 5)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11am: Fed to announce plans for Oct. debt purchases
  • 11:30am: U.S. to sell $25b in 3M bills, $25b 6M bills
  • 12pm: USDA 3Q agricultural-stock data
  • 4pm: USDA crop-condition reports

GOVERNMENT:

    • Federal government may run out of operating funds at midnight unless Congress agrees on stopgap funding bill
    • House Judiciary Committee hears testimony from Office of Information and Regulatory Affairs on regulatory reform, 4pm
    • Pentagon’s IG has flagged hundreds of deficiencies, corrective actions needed for Lockheed Martin’s F-35 fighter, the military’s costliest program; report might be issued as soon as today
    • USTR Michael Froman speaks on “Enhancing Transatlantic Trade and Investment” at event sponsored by the German Marshall Fund of the U.S., Brussels, 3pm
    • Toyota Chairman Takeshi Uchiyamada speaks on U.S., Japanese economies, global auto industry at event hosted by Economic Club of Washington, 8:10am

WHAT TO WATCH:

  • Govt shutdown a day away as deal evades U.S. lawmakers
  • Buffett poised to get $2b Goldman stake with warrants
  • Pacific Rubiales to buy Petrominerales for C$935
  • Twitter said to plan public IPO filing this week: WSJ
  • BP seeks to cut Gulf spill fines in trial set to begin today
  • Bard among vaginal mesh makers said in settlement talks
  • Mark Cuban goes to trial in SEC’s Mamma.com insider case
  • China Sept. manuf. gauge rises less than analysts forecast
  • Sirius holders can’t proceed with Liberty suit, judge rules
  • Euro-area Sept. inflation slows more than forecast on energy
  • Siemens CEO Kaeser cuts 15,000 jobs to catch up with GE, ABB
  • Letta defies Berlusconi as Italian government nears collapse

EARNINGS:

    • Cal-Maine Foods (CALM) 6:30am, $0.36
    • Diamond Foods (DMND) 4:01pm, $(0.03)
    • Omnova (OMN) 7am, $0.21
    • Park Electrchem (PKE) 6:30am, $0.28 (2 ests.)
    • Paychex (PAYX) 4:01pm, $0.43

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Climbs as Prospect of U.S. Government Shutdown Spurs Demand
  • Gold Bulls Raise Wagers Most in Month on Stimulus: Commodities
  • WTI Drops to Three-Month Low as U.S. Government Faces Shutdown
  • Copper Set for Best Quarter in More Than Year on China Optimism
  • Hedge Funds Cut Bullish Oil Bets to 12-Week Low: Energy Markets
  • Soybeans Drop as U.S. Shutdown Risk May Threaten Checks on Crops
  • Palm Oil in Malaysia Drops as Higher Output to Expand Stockpiles
  • China May Expand List of Qualified Gold Importers, PBOC Says
  • Golf Balls Fall Short Coping With 21st Century Disasters: Energy
  • Wheat Moving Average Signaling Further Rally: Technical Analysis
  • Mercuria Gas Bet Shows Traders See Gains in Romanian Market
  • Gas Price Prospects Finely Balanced in BI Winter 2013-14 Outlook
  • China’s Wheat Imports Seen Rising ‘Sharply’ by Grains Council
  • Rebar Advances First Time in a Week as Manufacturing Expands

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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