November 14, 2013

November 14, 2013 - Slide1



November 14, 2013 - Slide2

November 14, 2013 - Slide3

November 14, 2013 - Slide4

November 14, 2013 - Slide5

November 14, 2013 - Slide6



November 14, 2013 - Slide7

November 14, 2013 - Slide8

November 14, 2013 - Slide9

November 14, 2013 - Slide10

November 14, 2013 - Slide11







The Casino Regulatory Authority of Singapore (CRA) has fined MBS S$337,500 and RWS S$190,000.  The authority said the fines are for breaches of social safeguard measures that it detected for the period of May 1, 2012 to December 31, 2012.


By law, the two companies need to keep certain groups of Singapore citizens and permanent residents from entering its casinos, including those without valid entry levies, those banned from entering the casinos by an exclusion order, and those under 21 years of age.



Paradise Entertainment, the supplier of gambling equipment in Macau, said it expects sales to grow at least 35% in 2014 as casino operators plan to buy more electronic table games to boost their profitability.  Casino companies are ordering more electronic equipment and replacing lower-yielding betting tables with new games that allow more players to bet simultaneously, Chairman and Managing Director Jay Chun said.  The new games would aid revenue next year when no new casino is scheduled to open, added Chun, who expects “strong replacement and new orders.”  Paradise expects sales for its slot machines to rise above 40% next year.


Paradise Entertainment's biggest clients include Sands China, SJM Holdings and MPEL.  Paradise Entertainment also manages the Kam Pek Paradise casino under the license of SJM.  Located next to Casino Lisboa, Kam Pek Paradise casino has 37 gaming tables, more than 900 live multi-game machines and over 300 slot machines.  It aims to operate two more casinos in the Chinese city, Chun said, without disclosing details.


The company currently accounts for 20% of the slot machine market in Macau and 60% of the electronic live table games market.



Macau government expects revenue of MOP115.5 billion (US$14.4 billion) from the special gaming tax in 2014.  The sum is 25% more than budgeted for 2013.  The government tends to make conservative predictions about the growth of the gaming industry.  Its revenue from the special gaming tax this year will probably be greater than the amount it expects to get next year.  The proposed budget for next year envisages total revenue of MOP153.6 billion, 14% more than budgeted for this year, and spending of MOP77.6 billion, 6% less.



Visitor arrivals in package tour surged by 26.0% YoY to 944,188 in September 2013.  Visitors in package tour mostly came from Mainland China (759,272), with 272,532 from Guangdong Province, followed by Taiwan (56,789); Hong Kong (35,650); and the Republic of Korea (35,610).


There were 98 hotels and guesthouses operating at the end of September 2013, providing 27,807 guest rooms, up by 6.7% YoY.  The average length of stay of guests held stable as September 2012, at 1.3 nights.


TODAY’S S&P 500 SET-UP – November 14, 2013

As we look at today's setup for the S&P 500, the range is 20 points or 0.90% downside to 1766 and 0.22% upside to 1786.                                                   










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.43 from 2.40
  • VIX closed at 12.52 1 day percent change of -2.34%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init. Jobless Claims, Nov. 9, est. 330k (prior 336k)
  • 8:30am: Nonfarm Productivity, 3Q, est. 2.2% (prior 2.3%)
  • 8:30am: Trade Balance, Sept., est. -$39.0b (prior -$38.8b)
  • 9am: Fed’s Plosser speaks on monetary policy in Washington
  • 9:45am: Bloomberg Consumer Comfort (prior -37.9)
  • 10am: Senate Banking Committee meets on Yellen nomination
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage
  • 11am: DOE inventories
  • 11am: Fed buys $2.75b-$3.5b in 2020-2023 sector
  • 12:45pm: Bundesbank’s Nagel speaks in Wart, Germany
  • 1pm: U.S. sells $16b 30Y bonds
  • 1:45pm: BoE’s Miles speaks in Dallas


    • 9:30am: House Energy and Commerce Cmte meets on EPA’s greenhouse-gas standards for new power plants
    • 10am: House Science Cmte hears from EPA Administrator Gina McCarthy on transparency, accountability
    • 10am: House Education and Workforce Cmte holds hearing on effects of health-care law on schools
    • 3:30pm: President Obama speaks on economy in Cleveland


  • Yellen says U.S. economy must improve before Fed tapers QE
  • Cisco 2Q adj. EPS, revenue ests. miss analyst estimates
  • Cisco suppliers, peers fall post-mkt after 2Q view misses ests.
  • Boeing’s largest union rejects swapping pensions for 777X
  • Facebook said to offer $3b for Snapchat to attract teens
  • Pershing, Berkshire among those to file as 13F deadline approaches
  • Samsung said to plan Galaxy smartphone with wraparound display
  • Lilly triples investment in growing mkt for diabetes products
  • Berkowitz seeks to acquire two insurers from Fannie, Freddie
  • GM CEO Akerson may step down as soon as next yr, Reuters says
  • Apollo, Lee said to explore Capella Healthcare buyout: Reuters
  • Redfin raises $50m in funding led by Tiger, T. Rowe Price
  • HP, Google suspend Chromebook 11 sales after overheating reports
  • HUD said to fail in bid to sell $450m of FHA mortgages
  • Houghton Mifflin raises $219m pricing IPO below range
  • Europe recovery wanes as Germany slows, French GDP falls
  • British retail sales unexpectedly declined 0.7% in Oct.
  • Japan slowdown flashes warning to Abe as reforms await


    • B2Gold (BTO CN) 6:30am, $0.03
    • CGI Group (GIB/A CN) 6:30am, C$0.61
    • Finning Intl (FTT CN) 8am, C$0.52
    • Helmerich & Payne (HP) 6am, $1.40
    • Kohl’s (KSS) 7am, $0.86 - Preview
    • Manchester United (MANU) 7am, $0.01
    • Paladin Labs (PLB CN) 6:30am, C$0.64
    • Sally Beauty (SBH) 7am, $0.39
    • TransDigm Group (TDG) 7am, $1.71
    • Tyco Intl (TYC) 6am, $0.52 - Preview
    • Viacom (VIAB) 6:45am, $1.44 - Preview
    • Wal-Mart Stores (WMT) 7am, $1.13 - Preview


    • Agilent Technologies (A) 4:05pm, $0.76
    • Algonquin Power & Utilities (AQN CN) Aft-mkt, C$0.02
    • Applied Materials (AMAT) 4pm, $0.18
    • Boardwalk REIT (BEI-U CN) 4:10pm, C$0.82
    • Matthews Intl (MATW) 4:10pm, $0.74
    • Nordstrom (JWN) 4:04pm, $0.67 - Preview
    • Power of Canada (POW CN) 12:05pm, C$0.64
    • Youku Tudou (YOKU) 5pm, $(0.20)


  • Gold Seen Flowing East as Refiners Recast Bars for Asian Buyers
  • Starbucks Costs Retreat in Coffee Bear Market Slump: Commodities
  • Commodities Revenue at Top 10 Banks Seen Dropping 14% This Year
  • IEA Sees Libya, Iraq as Growing Risks to Oil Market Balance
  • China Gold Jewelry Demand Jumps as WGC Restates 1,000-Ton Target
  • WTI Crude’s Discount to Brent Widest Since April as Supply Rises
  • Copper Swings Between Advances, Declines on Europe Data, Yellen
  • Sumitomo Metal’s Taganito Project Ships First Nickel to Japan
  • Mistry Sees Steady Palm Oil Prices After Output Trails Estimates
  • Robusta Coffee Falls as Vietnam Harvest Advances; Sugar Retreats
  • Oil Producers Overtaking Refiners on Flood of U.S. Shale: Energy
  • India’s Gold Imports Slump in Third Quarter to Lowest Since 2009
  • Fortescue Pays Bonds Early in Rising Star Push: Australia Credit
  • Gold Demand Fell 21% Last Quarter as Investors Sold ETP Holdings


























The Hedgeye Macro Team














Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

The Doppelganger Fed

This note was originally published at 8am on October 31, 2013 for Hedgeye subscribers.

“One day everything will be well, that is our hope. Everything’s fine today, that is our illusion.”



In German folklore a doppelganger is literally a paranormal double of a living person. More contemporarily, the word doppelganger is used to identify a person that closely resembles someone else either physically or behaviorally. As an example, some people have suggested that my doppelganger is Russell Crowe.


As it relates to the Federal Reserve, the biggest question facing investors currently is whether Janet Yellen will be a doppelganger, in terms of policy and communication, of current Chairman Ben Bernanke (more commonly known as The Bernank).  Practically speaking, copying Bernanke’s behavior is likely to mean a continuation of QE Infinity.


Keith had some colorful comments on Fox Business last night as it relates this idea of QE Infinity. The video is attached in the link below and Keith’s comment begin at around the 3:00 mark. As Keith notes, the biggest issue is that the Fed is confusing the market which has dramatically heightened interest rate volatility this year.


Paul Singer from Elliott Management made a similar statement in his letter to investment partners yesterday where he wrote:


“QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying.”


This is indeed the issue, namely that the economy and investors have become so accustomed to abnormal interest rate policy, that they have an incredibly difficult time determining what normal is anymore.  Sadly, the new normal appears to be to wait for the Fed’s next whisper to the Wall Street Journal’s Jon Hilsenrath.


To be fair, for those that are into reading Federal Reserve tea leaves, there was communication other than whispers to Hilsenrath yesterday. Specifically, in its statement the Federal Reserve made three changes:

  • This clause was removed, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market”;
  • They changed ”that economic activity has been expanding at a moderate pace” to “generally suggests that economic activity has continued to expand at a moderate pace”; and
  • They removed the “some” from this statement - “Some indicators of labor market conditions have shown further improvement”.

Maybe it is just me, but I’ve been reading English for a long time now and I have no idea what the implication is of those changes.


The fact is that the bogey that remains out there is 6.5% unemployment and if we take their word then the Fed will:


“. . . keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent.”


Although, even there, The Bernank has been quite dodgey as he has at times alluded to 7% being the bogey for altering monetary policy and other times suggesting he would lower the bogey to 6%. But if we accept the current 6.5% target, QE Infinity is likely to continue at the rate of $85 billion, give or take, for the for seeable future. 


In the Chart of the Day, we’ve highlighted the growth of the Federal Reserve balance sheet since 2008 as a result of QE Infinity.  In total, the Fed is almost at $4 trillion in assets on its balance sheet.  Not to be the alarmist, but another reason that we may be in the low interest time zone for a lot longer than we realize is because of interest rate risk associated with the Fed’s balance sheet.


Ironically, some pundits (we won’t name names) have commended the Fed under Chairman Bernanke for being transparent and great at communicating.  Sadly, it doesn’t take much more than the last 24 hours to understand that a) the Fed is as bad at communicating as ever and b) this is why investors are so confused. Frankly, we see no reason to believe that Yellen will be anything but Bernanke’s doppelganger on the communication front . . . and so the confusion will go on.


Sadly for stock operators, this confusion has led to an environment in which fundamentals for companies are, at times, ignored.  As an example, let’s look at both earnings and sales results for SP500 companies:

  • Sales: 60% of companies that beat sales estimates subsequently outperformed the market to the tune of 3.7% on average.  The other 40% of companies that beat sales estimates underperformed the market over the subsequent 3-days by an average of -3.8%.   Subsequent performance for companies missing Sales estimates was similarly mixed.  
  • EPS:   56% of companies beating EPS estimates subsequently outperformed the market by ~3% on average while 44% went on to underperform the market by an average of -4.1%.  Subsequent performance for companies missing EPS estimates was similarly mixed.

In a nutshell, stock performance has had very little relation to fundamental performance in 2013.  More simply, it has been a structurally tough year to isolate Alpha.  But even there no one should be surprised, because it is a macro driven market.  And if you don’t do macro, macro will do you.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.47-2.60%

SPX 1755-1771

VIX 12.85-14.92

USD 79.21-81.16

Brent 108.86-111.27

Gold 1327-1363


Keep your head up and stick on the ice,

Daryl G. Jones


The Doppelganger Fed - Chart of the Day


The Doppelganger Fed - Virtual Portfolio

ICI Fund Flow Survey: Equities Strong, Bonds Weak

Takeaway: Equity funds followed through on their prior weekly record with another strong inflow in the most recent 5 day period; Bonds were weak again

This note was originally published November 07, 2013 at 09:20 in Financials

ICI Fund Flow Survey: Equities Strong, Bonds Weak - bull4

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Total equity mutual fund flow followed through after the record week last week with another strong inflow of $7.9 billion for the 5 day period ending October 30th, well above the 2013 weekly average inflow of $2.9 billion. Domestic equity mutual fund flow was $4.2 billion in the most recent period with world equity funds collecting $3.6 billion in new investor capital.  Total equity mutual fund trends in 2013 now tally the aforementioned $2.9 billion weekly average inflow, a total reversal from 2012's $3.0 billion weekly outflow 


Fixed income mutual funds continued persistent outflows during the most recent 5 day period with another $4.1 billion withdrawn from bond funds. This week's draw down worsened sequentially from the $2.3 billion outflow the week prior which has now forced the 2013 weekly average for all fixed income funds to a $798 million outflow which compares to the strong weekly inflow of $5.8 billion throughout 2012


ETFs experienced declining weekly subscriptions in the most recent 5 day period, with both equity and fixed income ETFs seeing smaller inflows week-to-week. Passive equity products took in $8.7 billion for the 5 day period ending October 30th, a sequential weekly decline, with bond ETFs experiencing a $551 million inflow, also a smaller inflow than the week prior. ETF products also reflect the 2013 asset allocation shift, with the weekly averages for equity products up year-over-year versus bond ETFs which are seeing weaker year-over-year results


ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 9

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 10


For the week ending October 30th, the Investment Company Institute reported another strong weekly subscription within equity funds with another $7.9 billion inflow into total equity mutual funds. The breakout between domestic and world stock funds separated to a $4.2 billion inflow into domestic stock funds and a $3.6 billion inflow into international or world stock funds. Both results for the most recent 5 day period within stock funds were above the 2013 weekly averages, with the domestic stock fund 2013 weekly mean at just a $442 million inflow and world stock funds having averaged a $2.5 billion inflow during 2013. The aggregate inflow for all stock funds now sits at a $2.9 billion inflow, a complete reversal from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds continued their weak trends for the 5 day period ended October 30th with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $4.1 billion outflow, a sequential deterioration from the $2.3 billion lost in the 5 day period prior. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $3.3 billion, which joined the $789 million outflow in tax-free or municipal bonds. Taxable bonds have now had outflows in 17 of the past 22 weeks and municipal bonds having had 22 consecutive weeks of outflow. While the sharp outflows that marked most of the summer and the start of the third quarter have moderated, the appetite for bonds has hardly rebounded. The 2013 weekly average for fixed income fund flows is now a $798 million weekly outflow, a sharp reversal from the $5.8 billion weekly inflow averaged last year.


Hybrid mutual funds, products which combine both equity and fixed income allocations, continue to be the most stable category within the ICI survey with another $2.0 billion inflow in the most recent 5 day period. Hybrid funds have had inflow in 18 of the past 20 weeks with the 2013 weekly average inflow now at $1.6 billion, a strong advance versus the 2012 weekly average inflow of $911 million.



ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 2

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 3

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 4

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 5

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 6



Passive Products:


Exchange traded funds booked inflows on both sides of the ledger with equity ETFs posting a $8.7 billion inflow, a sequential decline from the very strong $13.0 billion subscription the week prior. The 2013 weekly average for stock ETFs is now a $3.4 billion weekly inflow, a 50% improvement from last year's $2.2 billion weekly average inflow.


Bond ETFs managed an inflow for the 5 day period ending October 30th with a $551 million subscription, also a sequential decline from the week prior which netted a $1.3 billion inflow for passive bond products. Taking in consideration this most recent data, 2013 averages for bond ETFs are flagging with just a $308 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.



ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 7

ICI Fund Flow Survey: Equities Strong, Bonds Weak - ICI chart 8



Jonathan Casteleyn, CFA, CMT





Joshua Steiner, CFA



Takeaway: Chinese policymakers appear committed to ignoring the risks embedded throughout the country’s financial system.



  • We don’t like that Chinese policymakers appear committed to ignoring the risks embedded throughout the country’s financial system and its 3,800 banks.
  • Forging ahead with interest rate reform – as recently affirmed by the PBoC – in the absence of meaningful and accelerated banking system reform that is accompanied by broader economic reform (see: publically-perpetuated fixed asset investment bubble) is a HUGE risk, in our analytical opinion.
  • If it seems as if we’re no longer comfortable with NOT being bearish on China, then we’d say that is an accurate depiction of our fundamental bias at the current juncture.


How trite of me to send you a note in the late afternoon thrashing the 3rd Plenary Session of the 18th CPC Central Committee. Surely by now you’ve been pelted with sell-side notes and media headlines berating it for its lack of specificity on the reform front.


As such, we’ll spare you the details and a long-winded summary of our likes and dislikes; we really couldn’t put one out if we tried – the actual policies are to be designed by a hand-picked reform task force in the weeks and/or months ahead. For now, all we have are more questions than answers.


A short-winded summary of our likes and dislikes:


  • We like that Chinese policymakers appear committed to reforming municipal government financing. Per World Bank estimates, municipal level governments spend ~80% of total public expenditures in China, but take home only ~40% of total public revenues. This cash flow mismatch is financed largely by off-balance sheet debt issuance of questionable credit quality (~28% of outstanding bank loans per the latest CASS estimates), so anything to remedy the aforementioned disparity would be positive, at the margins, for reducing the risk of an NPL crisis predicated by LGFV liquidity issues.
  • We like that Chinese policymakers appear committed to restructuring property rights. While harvesting the low-hanging fruit will likely fall short of broad-based Hukou reform, we do think any progress on this front will help to alleviate the political pressure boiling up across rural China which has decidedly undermined CPC legitimacy in recent years.
  • We don’t like that Chinese policymakers appear committed to ignoring the risks embedded throughout the country’s financial system and its 3,800 banks. Forging ahead with interest rate reform – as recently affirmed by the PBoC – in the absence of meaningful and accelerated banking system reform that is accompanied by broader economic reform (see: publically-perpetuated fixed asset investment bubble) is a HUGE risk, in our analytical opinion.


If you’re not yet familiar with our seminal concerns surrounding the structural headwinds to Chinese (and global) economic growth embedded throughout the Chinese banking sector, we think it is important that you review the summary piece we published last Friday, “PREVIEWING CHINA’S THIRD PLENARY SESSION: CREDITHOLICS ANONYMOUS?” (11/8), as well as our 61-page slide deck titled, “ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET?” (6/12).




If it seems as if we’re no longer comfortable with NOT being bearish on China, then we’d say that is an accurate depiction of our fundamental bias at the current juncture.


Please feel free to email us if you have follow-up questions that you’d like us to address.


Have a great evening,




Darius Dale

Associate: Macro Team

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.