“Everything was of interest to him.”
-Doris Kearns Goodwin
That’s what the French Ambassador to the US said about a young man by the name of Theodore Roosevelt as he entered the public arena of American life. Everything was interesting to Teddy, “people of today, people of yesterday, animals, minerals, stones, stars, the past, the future” (The Bully Pulpit, pg 67).
The man was constantly learning.
When I read that passage, I thought of my kids. At home, I am in constant awe of the evolution and growth of free minds. At work, I am increasingly frustrated to see how stagnant and mediocre the collective political mind of said American leadership has become. #OldMedia, especially in markets and economics, perpetuates that. They don’t want to think. They just want government access.
Dad, old people are cool. I just don’t want to be old. I want to get younger so that I can go back and not repeat all of the mistakes I have made in my life. That’s not a me versus them thing. It’s a me versus me thing. Two of the best Presidents in US history were the two youngest – Teddy Roosevelt and John F. Kennedy. Both believed that a #StrongDollar = Strong America.
Back to the Global Macro Grind…
The global central planning debate about devaluing the hard earned currency of The People in exchange for political policies that don’t work rages on. Sort of. Our Keynesian overlords sort of read what we write, but never try what we want them to do.
A central banker who I used to respect (Glenn Stevens at the Reserve Bank of Australia) is trying the “weak currency is good for exports” thing. The only thing Australia is exporting now are new lows in both its currency and stock market. Nice job, Glenn.
So what will it be here in the USA? A weaker or stronger Dollar? Taper or no taper?
Not to be confused with the fantastic 9 month move we had during #StrongDollar, #RatesRising period of JAN-SEP 2013 (which delivered a business cycle (with inventories!) high of +3.6% GDP), the last 6 weeks have developed the following Correlation Risk:
- TAPER-ON = US Dollar UP … Stocks, Gold, and Bonds DOWN
- TAPER-OFF = US Dollar DOWN … Stocks, Gold, and Bonds UP
This is a very short-term addiction thing. People who have been begging for the Fed not to taper (perma Gold, Bond, and MLP bulls) do not want the chickens to come home to roost alongside economic gravity (#RatesRising), ever.
Maybe that’s why some Americans were so enamored with the whole Breaking Bad thing. Short-term meth pops, whether into your blood-stream or bank account, feel so goooood. Right?
Irrespective of Teddy, JFK, and a man named Mucker disagreeing with the Dollar Devaluation thing, we need to proactively prepare for what will happen; not what we want to happen.
Which brings me to next week’s Fed decision. To taper or not to taper, remains the question…
- I don’t think Bernanke has the spine to taper in December
- If he doesn’t, the US stock market will probably rip back to all-time highs
- If he does, the long-term outlook for American life will get a lot better, faster
I realize you can count on one-hand how many people who rant and write as often as I do who agree with this long-term view of US purchasing power and economic prosperity. But that’s why it was the view that worked for most of 2013. #StrongDollar + #RatesRising gave you the best US growth investor’s market since the mid-1990s. That ends with Down Dollar.
And who (in popular political life) really wants to see another 1983-89 (Reagan) or 1 (Clinton) #StrongDollar #RatesRising and sustained economic growth period? More importantly, who actually understands it?
I remember emailing back and forth with his son during the campaign about how all Mitt had to do was keep saying #STRONGDOLLAR and tag Obama (and Bush) with the weakest purchasing power (weakest US Dollar) and highest cost of living (highest food and gas prices) in US history.
Nope. Didn’t want to do that. They marched it up the old pole of Keynesian economists who advised Bush (like Glenn Hubbard), and that new idea ended right then and there.
Is that the America you want? While I may want to, I will never get younger again. Neither will your country. But you might get one hell of a buy-the-damn-#DollarDown stock market pop next week if Bernanke Burns The Buck again. Don’t confuse that with economic progress.
Our immediate-term risk ranges are now:
UST 10yr Yield 2.77-2.91%
Brent Oil 108.01-110.63
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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THE MACAU METRO MONITOR, DECEMBER 13, 2013
LVS NO LONGER PURSUING SPAIN DEVELOPMENT, WILL CONTINUE AGGRESSIVE PURSUIT OF OPPORTUNITIES IN ASIA LVS
"We have reiterated time and again that our internal development process would dictate the outcome of a proposed development in Spain. That process has been extremely thorough and while the government and many others have worked diligently on this effort, we do not see a path in which the criteria needed to move forward with this large-scale development can be reached. As a result we will no longer be pursuing this opportunity. As chairman and CEO, my role is not only creating a vision for the company's future, it is also fulfilling it in a way that best represents the interests of our shareholders. Developing integrated resorts in Europe has been a vision of mine for years, but there is a time and place for everything and right now our focus is on encouraging Asian countries, like Japan and Korea, to dramatically enhance their tourism offering through the development of integrated resorts there."
-Sheldon Adelson, LVS CEO
PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR OCTOBER 2013 DSEC
Macau visitor arrivals in package tour totaled 716,867 in October 2013, down by 11.5% YoY. Under the influence of the new Tourism Law in Mainland China, effective in October, visitors coming from the Mainland (526,564) decreased by 10.6% YoY, with 280,110 from Guangdong Province, which was followed by Taiwan (60,414); the Republic of Korea (34,646); and Hong Kong (34,060).
The average length of stay of guests held stable as October 2012, at 1.4 nights.
LOUIS XIII CASINO FOUNDATIONS TO BE LAID BY MAY Macau Business
The developer of the Louis XIII casino in Cotai expects the foundations to be completed in April or May. Louis XIII Holdings Ltd deputy chairman Tom Lau Ko Yuen said that construction should be finished by the second quarter of 2016.
A plan was approved to raise HK$300 million (US$38.69 million) for the project by issuing convertible bonds and another HK$141.33 million by placing out shares. Lau said the developer expected to have enough capital to finish the US$1.06 billion (MOP8.47 billion) project.
CHINA'S NEW HOLIDAY PLAN Xinhua News
The major change is reducing the number of three-day holidays by "moving" weekends; that is if a holiday falls on a Wednesday, weekends will not be moved. Holidays for 2014 will be as follows:
- Spring festival holiday which will start from Jan. 31 to Feb. 6, where holiday will start on the first day of the lunar new year instead of the new year’s eve.
- The National Day holiday will start from October 1st to 7th
- Tomb-Sweeping Day holiday will be from April 5th to 7th
- Labor Day holiday from May 1st to 3rd
- Dragon Boat festival from May 31st to June 2nd
- Mid-Autumn holiday from September 6th to 8th
The new plan believes will resolve the problem associated with the long consecutive work days prior and after holidays.
TODAY’S S&P 500 SET-UP – December 13, 2013
As we look at today's setup for the S&P 500, the range is 23 points or 0.25% downside to 1771 and 1.04% upside to 1794.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.55 from 2.56
- VIX closed at 15.54 1 day percent change of 0.78%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: PPI m/m, Nov., est. 0.0% (prior -0.2%)
- 8:30am: PPI Ex-Food/Energy m/m, Nov., est. 0.1% (pr 0.2%)
- 1pm: Baker Hughes rig count
- 8am: Medicare Payment Advisory Commission holds mtg, with sessions on Medicare Advantage, hospice svcs, rehabilitation
- 10am: CFTC holds closed mtg
- 11am: Senate Finance Cmte votes on nominations: Sarah Bloom Raskin Deputy Treasury Sec.; John Andrew Koskinen IRS commissioner; Rhonda Schnare Schmidtlein ITC member
- 1pm: Panel of President’s Export Council meets on encouraging trade, incl Export control reform update
WHAT TO WATCH:
- Ford to hire 11,000 in U.S., Asia next year with new plants
- SAC reconsidering relationship with Deutsche Bank: WSJ
- Steinberg told by judge to decide whether he’ll testify
- U.S. House passes $625.1m defense authorization bill
- Microsoft said to consider Qualcomm’s Mollenkopf for CEO
- Anadarko may be liable for up to $14b from Tronox spinoff
- Boeing says it has evaluated 54 sites for newest 777 work
- KKR, Goldman said to exit stakes in Dollar General: WSJ
- Texas Indus. said to explore sale as construction rebounds
- DirecTV said to be near deal to extend NFL Sunday Ticket
- RRJ Capital buys Everbright Intl. stake for $350m
- Hilton exploring new lifestyle hotel brand, WSJ says
- Calpers criticizes Carl Icahn’s push for Apple cash return
- Coke makes management changes to improve North America ops.
- Wetjen said to face vote to become acting CFTC head
- Mexico’s 2 legislative chambers pass energy reform bill
- China to take deposits on some U.S., Japan, EU steel imports
- No earnings scheduled for S&P 500 companies
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Gold Swings as Investors Weigh Demand Signs Against Fed Outlook
- Crude Declines in Survey as Fuel Supply Grows on Weaker Demand
- Copper Bulls Extend Run as Tight Supply Lifts Price: Commodities
- Freeport Working With Indonesia to Clarify Planned Export Ban
- Palm Oil Imports by China Climbing to Eight-Month High on Demand
- Copper Drops on Record China Output, Fed Stimulus: LME Preview
- Palm Oil Tumbles Most in Three Months as Demand Seen Weakening
- Rebar Caps First Weekly Loss in Four as Production Costs Fall
- Abe Breaks Micro-Farms to End Japan Agriculture Slide: Economy
- Amplats Agrees to Wage Deal With National Union of Mineworkers
- Eric Shi Said to Join Newedge in Commodities After Bank of China
- Shale Boom Shakes U.K.’s $32 Billion Chemicals Industry: Energy
- Rubber Set for Third Weekly Advance on Weak Yen, China Optimism
- Brent Set for Weekly Loss Before Reopening of Libyan Oil Ports
The Hedgeye Macro Team
This note was originally published at 8am on November 29, 2013 for Hedgeye subscribers.
“Whenever you feel like criticizing any one . . . just remember that all people in this world haven’t had the advantages you’ve had.”
-F. Scott Fitzgerald
Yesterday, I read a great column in the New York Times by Nicholas Kristof about compassion and empathy. The point of the article was to look at the distinction between asking someone to be personally accountable versus recognizing in a civil society that it is our responsibility to help others.
The origin of the article was based on some comments Kristof had received from a number of recent columns he’d written on the federal food stamps program. The gist of the feedback was that we shouldn’t be subsidizing families that are “too lazy” to take care of themselves. As Kristof writes:
“Let’s acknowledge one point made by these modern social Darwinists: It’s true that some people in poverty do suffer in part because of irresponsible behavior, from abuse of narcotics to criminality to laziness at school or jobs. But remember also that many of today’s poor are small children who have done nothing wrong.
Some 45 percent of food stamp recipients are children, for example. Do we really think that kids should go hungry if they have criminal parents?”
The current public debate over healthcare personifies this dilemma we face when trying to emphasize with those that were given less in life. (Unfortunately, the inability of the government to execute on the implementation of Obamacare has somewhat tainted this debate.)
In “A Theory of Justice” the philosopher John Rawls proposed the veil of ignorance to help us in determining our role in helping others and as a way to find morality in many situations. According to Rawls, under the veil of ignorance:
“No one knows his place in society, his class position, or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like.”
As a result, since a person may occupy any position in society after the veil is lifted, the person must then evaluate any position from all perspectives of society.
Certainly, the idea that I could wake up one day and not be preparing for a festive thanksgiving with friends and family, but rather be a homeless person wandering the icy streets of New York provides a different perspective as to how to treat those that are less fortunate.
Back to the global macro grind...
As it relates to the U.S. equity markets, today is a day that is a bit of a market veil of ignorance as it is historically is the lowest volume trading day of the year. As a result, there probably won’t be a lot of read through from the market action today. Internationally, there has actually been a slew of data out over the last 24 hours and some key points to highlight include:
- Euro-area unemployment dropping to 12.1% from 12.2% in October and Eurozone flash CPI coming in at a anemic 0.9% (but higher versus last month’s 0.7%);
- German retail sales came in at -0.8% month-over-month versus and estimate of +0.5%; and
- Japanese unemployment came in at 4.0%, CPI inline at 1.1%, and industrial production disappointed versus growing 0.5% month-over-month versus an estimate of 2.0%.
In aggregate the big macro data points this morning do not point to any reason for the policy makers in Japan or Europe to change their views. If anything, there is only increased support for the current extremely dovish policies that are in place.
As it relates to Japan, though, late last week we actually encouraged investors to consider taking off the Abenomics trade, as my colleague Darius Dale wrote there are a number of reasons to consider booking gains, namely:
- The Fed will likely dominate headlines with surprising levels of dovish monetary policy amid a 3-6M monetary and fiscal policy vacuum in Japan;
- Sentiment towards Japanese equities amongst foreign speculators has reached euphoric levels; and
- Speculators have recently adopted an overwhelmingly bearish position on the yen. Historically, the USD/JPY cross has faded hard from such asymmetric setups in the futures and options market. Moreover, what’s bullish for the yen has been almost perfectly bearish for Japanese stocks.
In my purview the point on sentiment may be the most compelling reason to take a break on the long Japan equity trade. Specifically, in the YTD, foreigners have purchased a net ¥13-plus trillion of Japanese shares – the highest total on record. This contrasts with a net ¥6T of net sales amongst Japanese institutional investors.
Moreover, the aforementioned foreign/domestic bifurcation has intensified in recent weeks. The most recent weekly data shows a net purchase of ¥1.3T by foreign investors, which represents a 7M-high. Conversely, net sales of domestic assets by Japanese retail inventors hit ¥174B last week – the largest weekly divestment since 2008.
I think we can all agree, buying when the locals are selling is rarely a good thing!
Switching gears, in the chart of the day today we highlight a key point from our expert call last week with Dr. Tancred Lidderdale from the Energy Information Administration. As the chart shows, for the first time in more than twenty years, U.S. production of crude oil has surpassed imports. Arguably, even the environmentalists when wearing the veil of ignorance would agree that increased U.S. oil independence is a good thing.
I’ll be heading to my first Apple Cup later today, which is the annual match-up between Washington University and Washington State in Seattle. Wherever you spend the rest of the holiday weekend, I hope it is a great one.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.69 - 2.82%
SPX 1795 - 1814
DAX 9206 - 9345
VIX 11.91 - 13.31
USD 80.35 - 81.15
Gold 1226 - 1289
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
the macro show
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