“The mechanization of ginning, spinning, and weaving the cotton launched the industrial revolution.”
The cotton gin was 1793. Twitter was 2006. Eli Whitney and Jack Dorsey had more than a few things in common. One was their age (Whitney was a 28 yr old teacher and Dorsey was a 29 yr old web developer/failed shoe salesman). That’s where revolutions come from, baby. As my man Brandon Flowers wrote in “Only The Young” (great tune):
“Look back in silence; the cradle of your whole life. There in the distance, losing its greatest prize. Nothing is easy, nothing is sacred. Why? Where did the bough break? It happened before your time. Only the young can break away, break away…“
And so it continues to begin – the unearthing of every single Western academic dogma about economics and markets ever spun. The unraveling of a weave of storytellers that only my God can be smiling down upon as stronger currencies lead new peoples to the promise land of purchasing power. Behold, the Information Revolution in financial markets is here!
Back to the Global Macro Grind…
Tomorrow at 11AM EST, Hedgeye veteran blue-liner, Daryl Jones, and Hesham Shaaban will host a Black Book conference call on the Twitter IPO (if you’d like information on how to access the call, ping ). It’s a fascinating story within the history we are building here @Hedgeye. I see it as our Trojan Horse in taking down the #OldWall of aforementioned dogmas.
Mr. Market, take down that #OldWall!
How is that going to work? Let’s just look at what we did using Twitter yesterday in order to front-run a ridiculous #OldWall financial media meme that the Fed being on taper-hold is a “good” thing for growth:
- All research starts with asking the right question – our clients often ask, “Isn’t #RatesRising Bad for Growth?”
- So we created a video answering that simple question with a simple answer @HedgeyeTV: http://www.youtube.com/watch?v=BthNo_F6yvQ
- And we went on to answer two more big client questions we have been getting, then tweeted it (and re-tweeted it)
In the stone age of perceived financial market and economic wisdoms, you didn’t have Twitter, Videostreaming, YouTube, etc. So you actually had to take the government’s (and the banks they bail out) word for it on these economic history matters.
Ginning, spinning, and weaving, these academic dudes (and dudettes) who have never risk managed markets can get really creative. So was Karl Marx in introducing the adored Obama concept of #ClassWarfare in the first sentence of the Communist Manifesto.
And who the heck am I to call these people out? Sometimes I feel like a modern day version of some Iroquois or Creek Indian who is sitting here creating things (like cotton and rubber - you know, the stuff all the white dudes actually started to use). But what do I know?
What do you know?
The more I read, the less I know. So, admittedly, I do get a little frustrated to see central planning bureaucrats like Jim Bullard @FederalReserve on Big Government Intervention TV spewing economic forecasts that are rarely right, but never in doubt.
At one point yesterday @CNBC, Bullard actually said that it’s time Americans see QE (money printing, Dollar Devaluation, and 0% rates of return on your hard earned savings accounts) as a “normal policy position.”
Go back to that Iroquois style @HedgeyeTV video Darius Dale and I did and see the next popular client question: “How Concerned Are You About A Major Dislocation in the Credit Markets?”
Bullard, dude, there is nothing normal about credit markets that go no-bid when a bond ticks down half a point. Wake up man. You and your boy Bernanke have a “new normal” alright. It’s called a MBS bond bubble that people can’t get out of!
In other counter-Keynesian-consensus-dogma-economic-news this morning:
BREAKING: UK Services PMI for OCT hits a 16yr high at 62.5
Huh? With austerity and a #StrongerCurrency (we’re long the British Pound) the United Kingdom is seeing #GrowthAccelerating? You bet your Danny Blanchflower (Dartmouth Dogma professor of Currency Devaluation and Big Government Spending) it’s accelerating.
This morning, to be sure on my historical account, I went back to the time period I reviewed with my kids this weekend in the movie “Free-Birds” (where turkeys try to turn back the clocks on being slaughtered for Thanksgiving), and the replay still shows that there has never been a country that has devalued its way to long-term economic prosperity. Danny, you can’t turn back the clock. Gobble, gobble.
#StrongCurrency = Deflates The Inflation and real (inflation adjusted) consumption #GrowthAccelerating.
On the margin, that’s Europe now (not the USA –it was the USA 10 months ago):
- Swiss Consumer Prices (CPI) drop to -0.3% y/y in OCT = consumption tax cut for consumers
- Eurozone PPI (producer prices) drop -0.9% y/y in SEP = cost of goods tax cut for producers (good for margins)
And on what planet are Old World pundits allowed to fear-monger you that Deflating The Inflation is a bad thing? I guess maybe Pluto, Dartmouth (sorry guys, I’m picking on Blanchflower), or one that doesn’t have Twitter. Good luck keeping that one alive. As another revered American revolutionary, Martin Luther King Jr. reminded us, “a lie cannot live” forever.
Our immediate-term Risk Ranges are now:
Swiss Market Index 8159-8232
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Chart & Bullets: While MGM has successfully set the Street’s focus on Q1 RevPAR, our favorite metric is taking a turn for the worse.
- We liked MGM for most of this year – one of the reasons was the upturn in Strip slot volume
- The MGM story has centered around RevPAR gains, particularly in Q1 2014 as a few big conventions cycle through. However, we still view slot volume as the most important metric and volume is likely moving lower through the end of the year.
- The Q1 focus sets up the MGM story for disappointment as investors lose sight of the slot (and earnings?) issue going forward.
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.
In preparation for PNK's F3Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
PNK INTRODUCES BELTERRA PARK GAMING & ENTERTAINMENT CENTER Oct 23
- $300MM Entertainment Destination to open in May 2014
RIVER CITY CASINO UNVEILS 200-ROOM HOTEL; COMPLETES $82MM EXPANSION Sept 16
- We still believe that we are going to be able to not only meet the goal of $40 million in synergies, but we believe that, from what we've had exposure to up to this point, we're going to be able to exceed that.
- There is a large portion of that that is entirely driven by combination of public company costs, i.e., one board, one set of financials, as well as integrating the teams in effectively, mostly down in Las Vegas. We have done an enormous amount of work on this, and while there is some effect on the margin by virtue of Lumiere, the reality is that the scale of the company and our ability to realize savings through better procurements, a better marketing program that will look to do best practices, really remains largely unchanged.
- In terms of guest behavior, in the second quarter, we saw trips decline at a greater rate than spend per trip. Meaning that people came less often, but their spend per trip was pretty much in line with historical levels.
- Midwest it is a little bit more pronounced than down South, but nonetheless it's softness that we're seeing pretty much across the portfolio.
- The impact has been more pronounced at the lower tiers
L'AUBERGE BATON ROUGE
- We continue to see strong guest acquisition and growing loyalty among our guests. Repeat visitation is very strong, with over 55% of our guests returning for multiple trips. The hotel continues to be a good story, with occupancy now in the mid-90s consistently. And our regional high end business continues to grow every month, although at a lower pace than we had originally anticipated.
L'AUBERGE LAKE CHARLES RENOVATION
- The second phase of the renovation will begin this fall after the busy summer season.
HORSESHOE CINCINNATI IMPACT
- The impact of Horseshoe Cincinnati has been less than anticipated so far.
BOOMTOWN NEW ORLEANS
- Finally, in New Orleans, we continue to see an improvement in the operating performance of this property
- The facility is well underway and we're excited about bringing the property into our portfolio in the second quarter of 2014.
CORPORATE EXPENSE RUN RATE
- We've been running right around $5 million or so, call it mid-$5 millions on the current set of portfolio, and that's the set we have that clearly we're working through that as it relates to the combined company.
- So while I don't expect if we were to, without the acquisition, that that number will change in any material way in that $5 million to $5.5 million per quarter, certainly we'll recalibrate that and give you some parameters once we complete the acquisition.
TODAY’S S&P 500 SET-UP – November 5, 2013
As we look at today's setup for the S&P 500, the range is 29 points or 1.30% downside to 1745 and 0.34% upside to 1774.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.30 from 2.31
- VIX closed at 12.93 1 day percent change of -2.64%
MACRO DATA POINTS (Bloomberg Estimates):
- 7:45am: ICSC/Goldman weekly sales
- 8:30am: ECB’s Draghi speaks in Frankfurt
- 8:55am: Redbook/Johnson weekly sales
- 10am: ISM Non-Manuf. Composite, Oct., est. 54 (prior 54.4)
- 10am: IBD/TIPP Eco. Optimism, Nov., est. 42 (prior 38.4)
- 11am: Fed to buy $1.25b-$1.75b in 2036-2043 sector
- 11:30am: U.S. to sell $45b 4W bills
- 1:15pm: Fed’s Lacker speaks on labor market in N.C.
- 5pm: Fed’s Williams speaks with reporters in San Francisco
- Election Day; Voters choose governors in N.J. and Va., and mayors in N.Y., Boston, Detroit, Miami, Seattle, other cities
- Elections pose first test for parties since govt shutdown
- Colorado to vote on 25% tax on marijuana sales
- Washington could be first state to require labels on GMOs
- Senate in session, House not in session
- Senate votes to end debate, advance GLBT workers’ bill
- Congress debating measures to address patent trolls
- Senate Banking Cmte hears from community, mortgage bankers on housing finance, 10am
- CMS Administrator Marilyn Tavenner testifies on health exchanges at Senate Health Cmte hearing, 10am
- Senate Commerce, Science and Transportation Cmte panel holds hearing on aviation manufacturing, 2:30pm
- Senate Environment Cmte hears from EPA, Southwestern Energy lawyer, policy grouns on emissions of methane in oil, gas drilling, 2:30pm
- CFTC meets on rules to limit speculation in commodity derivatives; measures would replace rules enacted in 2011 that were struck down by federal judge last yr, 9:30am
WHAT TO WATCH:
- Morgan Stanley says AIG may sue over mortgage-linked trades
- Investment bank’s 2013 litigation accrual climbs to $549m
- Vornado loses $256m on 3-year J.C. Penney investment
- Boeing in union talks to build 777X in state of Washington
- Co. aware of Air India 787 windshield crack during landing
- Google lobbying expenditures top $18m amid spying debate
- Co. starting video service for providers of paid lessons
- Pandora says it’s weathering Apple’s iTunes Radio challenge
- Venture capital funding for medical devices down 40%: WSJ
- GM Oct. sales up 12% on Buick-Wuling deliveries
- U.S. DoE may rule on Freeport, Cameron LNG in 1-2 months
- Affiliated Managers Group (AMG) 7:55am, $2.15
- AOL (AOL) 7am, $0.51
- Arcos Dorados Holdings (ARCO) 8am, $0.11
- Ares Capital (ARCC) 8am, $0.39
- Ashland (ASH) 6am, $1.50
- Becton Dickinson (BDX) 6am, $1.46
- Charter Communications (CHTR) 8am, $0.03
- Cognizant Technology Solutions (CTSH) 6am, $1.10
- Cole Real Estate Investment (COLE) 8:34am, $0.22
- CVS Caremark (CVS) 7am, $1.02 - Preview
- Delphi Automotive (DLPH) 7am, $0.95
- Denbury Resources (DNR) 7:30am, $0.43
- DirecTV (DTV) 7am, $1.01 - Preview
- Dominion Resources (D) 7:30am, $0.90
- Emerson Electric (EMR) 6:25am, $1.11
- Energizer Holdings (ENR) 7:30am, $1.32
- FirstEnergy (FE) 8:25am, $0.92
- Fossil Group (FOSL) 6:55am, $1.36 - Preview
- HCA Holdings (HCA) 8:17am, $0.79
- Health Care REIT (HCN) 7:30am, $0.96
- Hecla Mining (HL) 8am, ($0.01)
- Henry Schein (HSIC) 6:51am, $1.21
- Host Hotels & Resorts (HST) 6am, $0.27 - Preview
- IntercontinentalExchange (ICE) 7:30am, $1.83
- International Flavors & Fragrances (IFF) 7am, $1.18
- Isis Pharmaceuticals (ISIS) 8:30am, ($0.27)
- Lexington Realty Trust (LXP) 7:30am, $0.26
- Liberty Interactive (LINTA) 7:30am, $0.19
- Louisiana-Pacific (LPX) 8am, $0.12
- Medical Properties Trust (MPW) 8:30am, $0.25
- Melco Crown Entertainment (MPEL) Bef-mkt, $0.31
- Michael Kors Holdings (KORS) 7am, $0.68 - Preview
- Mosaic (MOS) 7am, $0.56 - Preview
- Och-Ziff Capital Management (OZM) 7:30am, $0.20
- Orbitz Worldwide (OWW) 8:01am, $0.13
- Quicksilver (KWK) 7:30am, ($0.05)
- Regeneron Pharmaceuticals (REGN) 6:30am, $1.90 - Preview
- Rowan Cos (RDC) 8am, $0.40
- RR Donnelley & Sons (RRD) 6:30am, $0.35
- Sempra Energy (SRE) 9am, $1.23
- T-Mobile US (TMUS) 6am, $0.04
- TransCanada (TRP CN) 8:30am, $0.59 - Preview
- Westjet Airlines (WJA CN) 6:30am, $0.48
- Zoetis (ZTS) 7am, $0.34
- Agrium (AGU CN) 5:30pm, $0.57 - Preview
- Amdocs (DOX) 4:01pm, $0.64
- American Capital (ACAS) 4:01pm, $0.21
- Axiall (AXLL) 5pm, $0.96
- BioMed Realty Trust (BMR) Aft-mkt, $0.34
- Canadian Apartment Properties REIT (CAR-U CN) 5:15pm, $0.43
- CBL & Associates Properties (CBL) 4pm, $0.54
- CH Robinson Worldwide (CHRW) 4:15pm, $0.73
- Ctrip.com International (CTRP) 5pm, $0.41
- DaVita HealthCare Partners (DVA) 4:03pm, $0.96
- Energy Transfer Equity (ETE) 5:05pm, $0.64
- Energy Transfer Partners (ETP) 5:09pm, $0.61 - Preview
- Franco-Nevada (FNV CN) 5:24pm, $0.20
- Frontier Communications (FTR) 4:01pm, $0.06
- Gulfport Energy (GPOR) 4:05pm, $0.13
- Iamgold (IMG CN) 5:05pm, $0.06
- Jazz Pharmaceuticals (JAZZ) 4:05pm, $1.68
- Liberty Global (LBTYA) 5:19pm, $0.41
- Live Nation Entertainment (LYV) 4:04pm, $0.35
- MercadoLibre (MELI) 4pm, $0.72
- Myriad Genetics (MYGN) 4:05pm, $0.46
- ONEOK (OKE) 4:05pm, $0.30
- ONEOK Partners (OKS) 4:05pm, $0.65
- OpenTable (OPEN) 4:30pm, $0.42
- QEP Midstream, Partners (QEPM,) 4:05pm, $0.24
- QEP Resources (QEP) 4:05pm, $0.39
- Regency Energy Partners (RGP) 5pm, $0.09
- SandRidge Energy (SD) 4:05pm, $0.02
- Seattle Genetics (SGEN) 4:05pm, ($0.22)
- Sunoco Logistics Partners (SXL) 4:02pm, $0.83
- Tesla Motors (TSLA) 4:03pm, $0.10 - Preview
- Twenty-First Century Fox (FOXA) 4:04pm, $0.35
- Two Harbors Investment (TWO) 4:05pm, $0.24
- ValueClick (VCLK) 4:04pm, $0.39
- Verisk Analytics (VRSK) 4:10pm, $0.60
- Vivus (VVUS) 4:05pm, ($0.38)
- Zillow (Z) 4:02pm, ($0.08)
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- China May Phase Out Sugar Stockpiling Regime, NDRC Director Says
- Cotton Slumping as Glut Expands Record China Hoard: Commodities
- Coffee Falls to Five-Year Low on Growing Supplies; Cocoa Climbs
- Corn Trades Near Three-Year Low as U.S. May Raise Crop Forecast
- Copper Gains as Strengthening Auto Sales Indicate Steady Demand
- WTI Crude Futures Near Four-Month Low on U.S. Oil Supply Outlook
- Gold Trades Near Two-Week Low on Stronger Dollar, Slowing Demand
- Iron Exports to China Reach Record From Australia’s Port Hedland
- China, U.S. Steel-Price Spread Signals Decline: Chart of the Day
- Panama Canal’s LNG Surprise to Redefine Trade in Fuel: Freight
- Commodities Position Limits Weighed Anew With Revised CFTC Plan
- Libya Hariga Port Likely to Load Oil Exports Next Week
- Nickel LME Stocks 164% Higher Ytd on Record Oversupply: BI Chart
- Starbucks Raises U.K. Latte Coffee Prices First Time in 3 Years
The Hedgeye Macro Team
This note was originally published at 8am on October 22, 2013 for Hedgeye subscribers.
“Look forward all the time.”
That’s what T.E. Lawrence, aka Lawrence of Arabia, wrote home to his Mom at Christmas time in 1915. He’d just lost two of his British born brothers to WWI within the span of 5 months. He was only 27 years old.
On the road, on your own, no one teaches you to look forward in life. You have to learn that lesson yourself. Been there, done that. I left home when I was 16 years old. And for me at least, looking forward has always been born out of adversity, failure, and loss. That’s my only way out.
Context at life’s crossroads is critical. Lawrence needed to become the change he wanted to see in his world. “In the 11 months since he had arrived in Cairo, he had largely been confined to a suite of offices in the Savoy Hotel, a world away from the Western Front…” (Lawrence in Arabia, pg 149). Few in Middle Eastern history decided to look forward like he did in 1916. That’s why he’s remembered.
Back to the Global Macro Grind…
When you don’t believe in the central-planning command of an economy, it’s really hard to look forward. In fact, I’ve had to fight off my personal confirmation bias that Bernanke is going to wreck whatever is left of our said “free-market” for the better part of a year now – not buying Gold or Bonds on any of these “pullbacks” has been a personal victory. I was tempted.
That’s why I’m using the T.E. Lawrence analogy. He didn’t believe in “mother” (British Military Command) any more than I believe in the US Federal Reserve. I certainly don’t think I’m going to save the world taking on these received wisdoms, but I don’t think my son or daughter will read about me standing down to un-elected and unaccountable tyranny either.
Scott Anderson starts off Chapter 7 of Lawrence in Arabia with a now infamous British Military quote from the Director of Military Intelligence in 1916:
“It seems to me that we are rather in the position of the hunters who divided up the skin of the bear before they had killed it. I personally cannot foresee the situation in which we may find ourselves at the end of the war, and I therefore think that any discussion at the present time of how we are going to cut up the Turkish Empire is chiefly of academic interest.”
-General George McDonough
In other words, the tyranny of government is in the certainty it assigns to the outcomes of its policies. Allowing government to A) trash your savings accounts and B) burn your currency pays the wealthy and punishes the poor.
Ben Bernanke has no business promising the “folks” in America’s heartland that 0% rates of return on their hard earned savings accounts will result in economic prosperity. He should be held in contempt for fear-mongering Americans out of tapering too.
So what will today’s employment report bring?
With Bernanke bought and paid for by the bond bull lobby, does it matter? I have no idea what this guy is going to unilaterally decided in spite of the data. That’s because he’s politicized; not data dependent.
With that accepted, all I can do today is look forward. I can only react to Mr. Market’s read-through on what today’s employment data means. In order to do that, I’ll be focused mostly on the following 3 things:
- US DOLLAR – will it hold its long-term TAIL line of $79.21 support on the US Dollar Index (DXY)
- US BONDS – will the 10yr US Treasury Yield’s intermediate-term TREND line of 2.57% hold?
- GOLD/OIL – will the Bernanke Burning Buck trades of the century continue to come unglued?
Other than in Bernanke’s ideological world, the first 2 things are trivial pro-growth signals. As economic growth stabilizes then accelerates (provided that an un-elected central planner doesn’t try to arrest them) the currency and sovereign yields of a country rise. When gravity isn’t banned, this is called an economic cycle.
The 3rd thing is less obvious. That’s because a lot of people in high places get paid by Gold and Oil inflation via a US Policy to Devalue its currency. So how are those Bernanke Gold and Oil bubbles doing this morning?
- GOLD – down again to $1312 and still crashing for both the YTD and from the all-time USD low (-22% and -30%, respectively)
- OIL – after snapping our long-term TAIL risk line of $101.37 this past wk, WTIC is still crashing (-30% since 2008)
I know, I know. Bernanke said his whispering to #OldWall in the summer of 2008 that he was going to “cut to zero” had nothing to do with that all-time high in oil that’s priced in the Dollars.
I know, I know. After multiple whisperings of multiple QEs in 2011 where the US Dollar was pulverized to an all-time low, Gold hitting it’s all time high must have been pure irony.
Then came the all-time high in food prices (2012), and the rest is history. According to Bernanke self-serving fictional account, there was “no inflation” at the all-time high in global inflation (in Dollars) in 2011-2012, so now we’ll have Dollar based deflation in commodities and debt, and he’ll have nailed it, right?
Not so fast. Even though deflation in commodity prices pays the consumer via a real-inflation-adjusted tax cut at the grocery store and at the pump. And even though #RatesRising gives frugal bastards like me who have a starved savings account some risk-free fixed income too – Bernanke says no.
No, no, no “folks” – not now. But Ben, if you won’t taper and give us our currency back now, will you ever? Or, from here, is this no longer within your control? Interestingly, but maybe not surprisingly, Mr. Market is already tapering that answer for the perma bulls in Gold, Oil, and Bonds in real-time. Markets look forward; central planners don’t.
Our immediate-term Risk Ranges (all 12 are in our Daily Trading Range product) are now as follows:
UST 10yr Yield 2.57-2.69%
WTIC Oil 98.12-101.37
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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