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Understanding Markets

“Anyone who isn’t confused doesn’t really understand the situation.”

-Edward R. Murrow

 

That was the closing quote from David Einhorn’s most recent quarterly letter. I can’t think of one that better summarizes where we are right now in understanding markets. So I’ll leave it at that.

 

Back to the Global Macro Grind

 

While he’s been quite adept at not violating Rule #1 of investing (don’t lose money), that doesn’t mean Einhorn shies away from writing about where he could make more money. One of those areas is high short interest stocks.

 

From a Hedgeye Style Factoring perspective, last week was the 1st week of 2013 where SHORT INTEREST (as a style factor) diverged versus its TREND. We look at these style factors by quartile in the SP500:

  1. HIGH SHORT INTEREST (as a style factor) was -0.5% last week
  2. LOW SHORTS INTEREST (as a style factor) was +0.8% last week

In other words, if you’re short company that hedge fund consensus (high short interest) doesn’t like, the stock actually had a good chance of going down last week. Look at Tesla (TSLA). That’s new.

 

What wasn’t new vs. intermediate-term macro TRENDs last week?

  1. US stocks closing at another all-time high (SP500 = 1804, +26.5% YTD)
  2. #RatesRising on the 10 yr US Treasury Yield (+4 bps w/w to 2.74% = +99 bps YTD)
  3. Rate Sensitive “asset classes” (like Gold and REITS) going down on that

In fact, “rate sensitive” was really sensitive last week:

  1. MSCI REITS (real estate) Index lost another -2.2% going to FLAT 0.0% return for 2013 YTD
  2. Gold was down another -3.4% on the wk to -26.3% for 2013 YTD

And, to be clear, all those pundits who told you that #RatesRising (tapering) was going to spell the #EOW (end of the world) were dead wrong this year. Wrong is as wrong does.

 

Would you be wrong to buy anything “rate sensitive” on sale today? Buying any of Bernanke’s Yield Chasing Bubbles is not for the faint of heart. While he won’t acknowledge the mother of all global commodity inflations (2011-2012), history’s score will.

 

For the YTD here are your Top 5 Deflating of Bernanke’s Inflations moves:

  1. Silver -34.6%
  2. Coffee -33.0%
  3. Corn -29.6%
  4. Gold -26.3%
  5. Coal -20.3%

I know. I know. At the all-time high in world food prices (2012), there was NO INFLATION. More Jelly Donuts, please.

 

At the all-time high in commodity inflation expectations (2011), check out our Chart of The Day: the net length of the CFTC (Commodities Futures Trading Commission) non-commercial net long positioning in Gold spanning Bernanke’s tenure as Fed overlord:

  1. John Paulson launches his Gold fund 2010
  2. EXPECTATIONS PEAK = August 2nd, 2011 = +289,000 net long Gold contracts
  3. SPOT GOLD PRICE PEAK ($1900.20) = September 5th, 2011

Last week’s net long position in Gold fell below < 75,000 net long contracts for only the 2nd time since 2008. Down -15% week-over-week to +71,840 net long contracts, that’s down -75% from the expectations peak (not to be confused with the price inflation peak).

 

Expectations, as Shakespeare wrote, are the root of all heartache. And my guess is that those shorting Gold -1% this morning will have some heartache of their own when we get back from Thanksgiving. So get all wild and crazy today, and buy yourself some. It’s “cheap-(er)”!

 

What is not confusing about Gold is that it trades on expectations. When the market expected interest rates to rise into their YTD peak (January-July 2013), it went down; when the market expected rates to fall (July-September 2013 into no-taper), Gold went up.

 

Oh, and if you are confused as to whether or not our central planning overlords will allow #RatesRising (and Gold falling) from today’s time/price, join the club. Because, eventually, the Fed may very well lose control of that expectation too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.69-2.83%

SPX 1

VIX 11.85-13.62

USD 80.54-81.29

Brent 106.25-111.24

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Understanding Markets - Chart of the Day

 

Understanding Markets - Virtual Portfolio


THE M3: SJM COTAI; CASINO JAI ALAI

THE MACAU METRO MONITOR, NOVEMBER 25, 2013

 

 

SJM AWAITS VERDICT ON A SECOND COTAI BLOCK Macau Business

SJM expects the government to update the company soon on its request for a second block of land in Cotai.  “We are still waiting for that lot and we hope to hear from the Macau government soon. We have submitted our plans there, but we are waiting for a reply,” CEO Ambrose So said.  The extra land the company wants is thought to be near the Studio City casino.  In May, the government granted SJM the right to develop more than 70,000 square metres of land near the Macau Dome.

 

SJM COTAI PROJECT MODEL TO BE PRESENTED EARLY NEXT YEAR Macau Daily Times

SJM CEO Ambrose So said that they are going to publicize the ideas behind the conceptualization of their Cotai project.  He disclosed that they are currently improving the condition of the soil, and will have to fully analyze it.  He also revealed that the project is almost finished and is awaiting the government’s approval to begin construction.  So hopes that the project can start in 1Q 2014.

 

SJM CONFIRMS LEASEBACK DEAL FOR CASINO JAI ALAI Macau Business

Casino Jai Alai, until last year thought to be wholly owned by SJM Holdings Ltd, will be leased back to the company for the next three years.  SJM Holdings told the Hong Kong Stock Exchange that the deal means a company controlled by businesswoman Angela Leong On Kei would receive up to HK$180 million (US$23.2 million) a year for three years from January 1.


November 25, 2013

November 25, 2013 - Slide1

 

BULLISH TRENDS

November 25, 2013 - Slide2

November 25, 2013 - Slide3

November 25, 2013 - Slide4

November 25, 2013 - Slide5

November 25, 2013 - Slide6

November 25, 2013 - Slide7

 

BEARISH TRENDS

November 25, 2013 - Slide8

November 25, 2013 - Slide9

November 25, 2013 - Slide10

November 25, 2013 - Slide11
November 25, 2013 - Slide12

 


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MACAU STEADY IN NOVEMBER

November GGR growth continues to trend up 20% YoY.  ADTR for the past week was up 7% WoW and up 29% YoY to HK$996MM.  The last week in November last year (Nov 26-30) rolled HK$741MM in ADTR.   

 

SJM and LVS were the big winners this week at the expense of MPEL.  Month-to-date, MGM is the only operator trending above its 3-month trailing average share.

 

MACAU STEADY IN NOVEMBER  - mm1

 

MACAU STEADY IN NOVEMBER  - mm2


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 25, 2013


As we look at today's setup for the S&P 500, the range is 22 points or 0.93% downside to 1788 and 0.29% upside to 1810.                                                                                                                              

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: 2.47 from 2.46
  • VIX closed at 12.26 1 day percent change of -3.16%

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Pending Home Sales m/m, Oct., est. 2% (prior -5.6%)
  • 10:30am: Dallas Fed Manufacturing Activity, Nov. (prior 3.6)
  • 4pm: USDA crop-progress reports

GOVERNMENT:

    • House, Senate not in session this week
    • 9am: Bread for the World Institute releases annual report on hunger in America; National Press Club
    • Mexico will ask WTO to determine whether U.S. has complied w/ ruling on “dolphin-friendly” labeling for tuna products
    • U.S., Russian diplomats plan to meet in Geneva with special UN envoy Lakhdar Brahimi to Syria peace talks preparations
    • Lawmakers ready U.S. budget options amid taxes impasse

WHAT TO WATCH:

  • Boeing warns of engine-ice risk for GE-powered 787s
  • JAL replaces 787 on some routes on Boeing icing order
  • Dish shareholders ask to exclude Ergen from LightSquared bid
  • Apple agrees to $350m acquisition of PrimeSense
  • J.C. Penney to be ousted from S&P 500, replaced by Allegion
  • Iran to curb nuclear activities amid up-to-$7b relief deal
  • Druckenmiller shorts IBM old technology, bets on Amazon
  • ECB’s Hansson says rate-cut options aren’t fully exhausted
  • J&J-Medivir win U.S. approval for new hepatitis C pill
  • Fisker files for bankruptcy, to sell assets to Hybrid Tech
  • N.Y. Fed counsel says make bankers example to change culture
  • For-profit colleges face consumer bureau probe
  • RBS drove cos. into trouble to lift profit, study finds
  • Obama aims to ease consumers’ effort to buy health plans
  • Microsoft says Xbox One sales top 1m in less than a day
  • Apache may sell Argentina assets to YPF: Reuters
  • Yahoo courts Couric as Mayer accelerates turnaround effort
  • China air-zone move expands field-of-islands spat w/Japan
  • Pfizer, Wyeth agree on merger of India operations
  • Lampert said to seek sale of Sears Canada: NY Post
  • Houston Astros owner sues McLane, Comcast over network value
  • TrueCar said to consider IPO next yr for online auto retailer

EARNINGS:

    • Copart (CPRT) 5:15pm, $0.34
    • Fifth Street Finance (FSC) 4:37pm, $0.26
    • Hillenbrand (HI) 4:15pm, $0.52
    • New Jersey Resources (NJR) 7am, $(0.02)
    • Nuance Communications (NUAN) 4pm, $0.29
    • Palo Alto Networks (PANW) 4:03pm, $0.07
    • Workday (WDAY) 4:02pm, $(0.17)

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Drops to Four-Month Low as Iran Accord Damps Haven Appeal
  • Hedge Fund Gold Bets Less Bullish as Paulson Holds: Commodities
  • Brent Slide Leads Energy Prices Lower After Iran Nuclear Accord
  • Soybeans Retreat From Eight-Week High on South America Outlook
  • Copper Drops From Two-Week High on Outlook for Fed Stimulus Cut
  • Sugar Output in India’s Biggest Producer Declines 57%
  • Rebar Advances as China’s Hebei Demolishes Old Steel Furnaces
  • Certified Coffee Brings Vietnam Farmers Promise: Southeast Asia
  • Gas Wagers Least Bullish in 10 Months Miss Rally: Energy Markets
  • Pollution Pact From China to India Shows Rift: Carbon & Climate
  • Sinopec Qingdao Refinery Disrupted as Blast Death Toll Rises
  • Europe Sugar-User Concerns Build on Prices, Infrastructure Fears
  • Iran Gold Sanctions Easing Seen Having Little Price Impact
  • Oil Slump Seen as ‘Knee-Jerk’ Reaction to Iran Nuclear Deal

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

 

 

 

 

 

 

 

 

 

 

 

 

 


The Policy Urge

This note was originally published at 8am on November 11, 2013 for Hedgeye subscribers.

“They had no heads. The frenzy was all they had… the urge, and the urge was all they felt.”

-Tom Wolfe (Back To Blood)

 

In between my son Jack’s hockey practice and his 6th birthday bender, I’d like to say that it surprised me this weekend when I glanced at the cover of The Economist’s headline: “The Perils of Falling Inflation.” But, sadly, it did not. PhD Keynesian Economists are officially the world economy’s greatest threat.

 

The urge for policy makers to do something has reached a tipping point. Un-elected and un-checked, Janet Yellen’s Federal Reserve is likely to embrace this unprecedented Policy To Inflate that the Europeans (ex-UK) have just reiterated via an ECB rate cut. Incrementally easing monetary policy into an economic acceleration of +2.84% US GDP, that is.

 

The Economist’s sub-title makes the media as complicit as Nero (The Emperor “who fiddled while Rome Burned” -Wikipedia): “In both America and Europe central bankers should be pushing prices upwards.” I couldn’t make this up if I tried. After Deflating The Inflation (from the 2011-2012 all-time global inflation highs), these people want the all-time highs in food and Oil prices again!

 

Back to the Global Macro Grind

 

Deflating The Inflation is not DEFLATION. That’s one of the many buzz words regressive economists use to fear-monger you into believing you should allow them to A) devalue your hard earned currency and B) earn 0% on your savings, forever.

 

In the 1980s/1990s, we had < $20 Oil. I might call that “deflation”, but Brent Oil at $105? And if the 2 best post WWII US Growth periods (1983-89 and 1993-1999) were reflexive #StrongDollar “deflation” periods, what’s the problem with deflation again?

 

A study we highlighted in our Q313 Macro Themes deck by Atkeson and Kehoe spanning a period of 180 years (17 countries)  found 0% relationship between deflation and depressions. There were actually more depressions during periods of inflation than deflation. That won’t shock anyone who lives in the real world.

 

In other news, look at what happened in macro markets last week:

  1. Dollar Up (+0.6% US Dollar Index)
  2. Rates Up (+13bps to 2.75% on the UST 10yr)

#cool

 

That’s what I want. That’s not what my Federal Reserve loving Keynesian types (Zervos and Hatzius) want. Neither do guys and gals who are in the business of being levered long Gold, Bonds, or anything Equities that looks like a bond.

 

Again, with a stronger Dollar + #RatesRising, look at what else you got last week:

  1. Gold down another -1.9% to -23.6% YTD #crashing
  2. REITs and MLPs -4.1% and -1.9, respectively, lagging the Financials (XLF) +1.2%, big time
  3. Emerging Markets (MSCI EM) -1.7% and MSCI LATAM Index -2.8% (to -12.9% YTD)

No, this is not what all of #YieldChasing investor styles want. They want what Bernanke and Yellen taught the Japanese and Europeans to want – a “risk-free” rate of 0% that punishes savers and forces Mom & Pop to buy into the slow-growth Gold Bond Bubble thing under the cowardly veil of a “deflation” threat.

 

In markets, eventually tends to happen quickly. Eventually, the mother of all “deflations” will be in the price of overvalued, over-stimulated, and over-owned debt that policy makers are urging investors to buy into. To a large extent, that’s been our call for the better part of 2013 – that a stronger US Dollar + #RatesRising would prick the Bernanke Gold Bond Bubbles.

 

So how is Janet Yellen going to reflate Gold, Bonds, MBS, REITS, etc. if:

 

A)     Economic gravity doesn’t cooperate with her (more GDP of 2.84% and US monthly employment report beats?)

B)      Fund Flows continue to front-run her?

 

Solving for A) is already in motion. She’ll do what every central planners going back to Nero did and change the rules. She’ll make up a new unemployment target of 5.5-6% and she’ll cry wolf about “deflation” when it’s Deflating The Inflation that gave the USA growth surprises on the upside to begin with!

 

As for B), Bernanke and Yellen have been highly ineffective in convincing the buy-side that this ends well. Looking at last week’s ICI Fund Flow data, the flows continue out of Fixed Income and into Equities:

  1. Equities: after a record weekly inflow in the wk prior, US equity fund flows were up another +$7.9B w/w
  2. Fixed Income: another -$4.1B in outflow last wk following -$2.3B in the wk prior

All the while, the US IPO market is partying like 1999 with 192 IPOs ($51.8B) for 2013 YTD!

 

The urge to surge! It’s all about the urge to inflate asset prices, baby! These people have no heads. This is a bubble frenzy. To bubble up, or not bubble up (every prior asset bubble the Fed has perpetuated), remains Mr. Market’s question.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr Yield 2.64-2.77%

SPX 1748-1778

VIX 12.52-14.19

USD 80.35-81.51

Pound 1.59-1.61

Gold 1271-1318

 

My heartfelt thank you goes out to all the service men, women, and veterans around the world who have watched over us while we sleep,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Policy Urge - Chart of the Day

 

The Policy Urge - Virtual Portfolio


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