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December 20, 2013

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BULLISH TRENDS

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BEARISH TRENDS

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THE M3: SJM SMOKING ROOMS

THE MACAU METRO MONITOR, DECEMBER 20, 2013

 

 

SJM CASINO STARTS TRIALING SMOKING ROOMS Macau Daily Times

SJM Director, Angela Leong said that SJM has already set up a smoking room in the Casino Crystal Palace. “We are constantly looking to the future and have thus started trialing [a smoking room]. We will have to continue with the test over a longer period of time to see if it will help improve results of air quality tests in the main area.”  She promised that they will continue to install smoking rooms in their other casinos. 


Meanwhile, the Director has revealed that there will be a wide range of facilities in the future Jai Alai casino. “We will not focus on merely offering a casino. We will have a shopping mall, some art-related elements, as well as spaces to engage Macau’s food culture. We hope that some of Macau’s distinct culinary culture can be added to the venture and that some small and medium level businesses can move into Jai Alai to bring in some more characteristics of Macau…We will also include some traditional gambling elements”, said Leong.  She hinted that since this project is not gaming oriented, it will not be that closely associated with the Casino Oceanus that is located next-door."


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 20, 2013


As we look at today's setup for the S&P 500, the range is 29 points or 0.97% downside to 1792 and 0.63% upside to 1821.                                    

                                                                                           

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: 2.56 from 2.57
  • VIX  closed at 14.15 1 day percent change of 2.54%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: GDP Annualized q/q, 3Q rev, est. 3.6% (pr. 3.6%)
  • Pers. Consumption, 3Q revision, est. 1.4% (prior 1.4%)
  • 11am: Kansas City Fed Manuf Activity, Dec., est. 6 (pr 7)
  • 1pm: Baker Hughes rig count

GOVERNMENT

    • 9:30am: U.S. Chief Negotiator Dan Mullaney, EU Chief Negotiator Ignacio Garcia-Bercero hold press conference
    • 10am: U.S. Treasurer Rosie Rios signs currency
    • Senate adjournment will follow confirmation of nominations including John Koskinen to lead IRS
    • President Barack Obama, family scheduled to depart for Hawaii for Christmas
    • China’s Vice Premier Wang Yang, U.S. Commerce Secretary Penny Pritzker, U.S. Trade Representative Michael Froman chair mtg of U.S. and China Joint Commission on Commerce and Trade; Beijing,

WHAT TO WATCH:

  • Senate pushes Yellen confirmatione to Jan. in nominee deal
  • Passes defense authorization totaling $625.1b
  • Obama kills health insurance mandate for canceled policies
  • Bankers say agencies’ answer on Volcker CDO rule inadequate
  • SEC internal clashes said to flare over CMBS cases, NYT says
  • Banks said to snitch on FX competitors to avoid EU fines
  • Sycamore to buy Jones Group fashion co. for $1.2b
  • Jazz Pharma. buys rare disease drugmaker Gentium for $1b
  • Banks said preparing for Sprint bid for T-Mobile: WSJ
  • Axiall to tap cheap gas with $3b Louisiana ethylene plant
  • Apple’s Oracle dispute split from patent-infringement suit
  • Apple says demand for Mac Pro outstripping supply: Forbes
  • AmEx merchant settlement allows different debit surcharges
  • Cathay Pacific orders 21 Boeing planes valued at $7.5b
  • Fisker won’t make cars at Delaware GM plant, Carper says
  • TD Bank not focusing on large U.S. retail expansion: CEO
  • Chinese accused of plotting to steal DuPont’s GMO corn

EARNINGS:

    • BlackBerry (BB CN) 7am $(0.46) - Preview
    • CarMax (KMX) 7:35am $0.48
    • Finish Line (FINL) 7:05am $0.02
    • Navistar International (NAV) 7am  $(1.56)  - Preview
    • Walgreen (WAG) 7:30am $0.72 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Wheat Reaches 19-Month Low as Argentine Crop Adds to Supplie
  • Gold Climbs From Lowest Close Since 2010 as Goldman Sees Los
  • Barrick Omen for Gold Miners With $44 Billion Debt: Commoditie
  • Brent Heads for Weekly Gain on Growth Prospects After Fed Mov
  • Copper Rises as Growth Outlook Fuels Closing of Bets on Declin
  • Raw Sugar Rallies for 2nd Day as Robusta to Arabica Coffee Dro
  • WTI-Brent Spread Narrowing as U.S. Exports Record Fuels: Energ
  • Indonesia Must Consider Economic Impact From Ore Ban: Wacik
  • Shanghai Gold Exchange Contract Volume Surges on Price Slump
  • Commodity Funds Post First Outflow Since 2000: Chart of the Da
  • Aluminum Surplus May Widen Through 2015 on Output, Marubeni
  • Refiners Turn to Exports, With 4% Growth Expected: 2014 Outloo
  • Wheat Traders Turn Bullish After Two Weeks of Betting on Decli
  • Rebar Posts Worst Week in a Month on China Cash Crunch Concerns

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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Rear-View Progress

This note was originally published at 8am on December 06, 2013 for Hedgeye subscribers.

“All progress comes from the creative minority.”

-George Gilder

 

So, US GDP Growth goes from 0.14% (at this time last year) to 3.6% in Q3 of this year, and all I hear consensus whine about are “inventories.” I wonder if that slope of US #GrowthAccelerating’s line had anything to do with the long-end of the yield curve being up +127 basis points (or Gold crashing) year-over-year…

 

Newsflash: businesses build inventories when confidence is rising. These are called coincident indicators. Both the US Dollar and US interest rates peaked in Q3 – so did US consumer and business confidence. So the I (Investment) in C+ I + G = GDP, went up.

 

Would the 2013 growth bears have preferred Investment to go down (and G (government) spending to go up instead)? Who knows. And who actually cares what they think anyway? For them, it’s all rear-view. Mr. Macro Market looks forward.

 

Back to the Global Macro Grind

 

Now that Bond Yields ripped to a lower-high (vs the SEP 2013 high) on a lagging economic indicator (that was a Q3 GDP report; it’s the end of Q4), and the stock market had another little meth withdrawal on that (“taper-talk” drives them batty), what’s next?

  1. TREASURY YIELDS = immediate-term TRADE overbought at 2.88% on the UST 10yr
  2. US EQUITIES = immediate-term TRADE oversold at 1779 on the SP500
  3. US EQUITY VOLATILITY (VIX) = immediate-term TRADE overbought at 15.58

So, would a bad jobs report be good for stocks (and bad for bonds)? Would another good jobs report be bad for stocks (and good for bonds)? Inquiring “lower-class folks” who don’t get to play at the insider Fed Whale tables want to know…

 

We mince no words calling this a centrally-planned-casino at this point. And since some of us are pretty darn good at buying bubbles, we feel lucky when stocks and bonds hit the high and low-ends of our risk ranges. It’s all about playing the probabilities, baby!

 

That’s why, after 5 consecutive no-volume down days for the US stock market (a correction in the SP500 of -1.2%), we bought-the-damn-bubble #BTDB (again) yesterday, taking our Cash position (asset allocation model) down to 38% (started the wk at 58%).

 

Where do we think US Growth goes from here?

  1. Down

That might be the easiest question to answer since we said US growth would go UP (from 0.14%) 1-year ago.

 

What could happen if we’re right about that?

  1. 2014 #OldWall GDP and SP500 consensus will be wrong (again) because it’s taking “forecasts” UP (it’s called anchoring)
  2. Most rear-view macro investors will probably perpetuate one more series of US stock market tops
  3. #GrowthSlowing, sequentially (from 3.6%) starts to give the US stock market multiple compression by Q2 of 2014

As most of you know, I’m not a forensic-US-stock-market-multiple-analyst. In fact, I think picking an “earnings number” for the SP500, then licking your finger on what multiple to slap on that is one of the more laughable things I hear people say with a straight face.

 

I’m more of a market history, math, and behavioral mutt myself. And history tells you that the US stock market:

  1. Sees multiple expansion when A) GROWTH accelerates and B) INFLATION slows
  2. Sees multiple compression when A) GROWTH slows and B) INFLATION accelerates

In other words, US economic STAGFLATION periods (1970s, 2010-2012, etc.) saw the SP500 trade at 7-12x earnings and #StrongDollar (deflating the inflation) periods of US real-consumption GROWTH accelerating saw multiples trade anywhere from 17-35x earnings.

 

Therefore, in my own little mind, provided that I think I know where the slopes of the 2 lines (GROWTH and INFLATION) are going in the next 3-6 months, I can start to prepare the sails of change in my positioning. In Macro, mental flexibility is forward progress.

 

Our immediate-term Risk Ranges (with TREND bullish or bearish) are now:

 

UST 10yr Yield 2.77-2.88%

SPX 1779-1813 

DAX 9068-9288 

VIX 13.31-15.58 

USD 80.22-80.66

Pound 1.62-1.64 

EUR/USD 1.35-1.37 

 

Happy b-day to my brother Ryan and best of luck out there today,

KM

 

Rear-View Progress - Chart of the Day

 

Rear-View Progress - Virtual Portfolio


NKE: Week-Old Sushi

Takeaway: We're going against the grain on this print - we thought it was a let down. Sales miss, inventory high, costs up. Futures the only positive.

Conclusion: We liked this Nike quarter about as much as we like week-old sushi.  Yeah, the quarter definitely had some redeeming qualities, like a solid 13% futures growth rate, a beat on the gross margin line, and really encouraging signs out of Western Europe. But the reality is that the company put up a less than impressive 8% top line growth rate, and managed to translate that into a whopping 4% EPS growth rate. It missed our estimate, and we were hardly aggressive in our assumptions. Maybe we're being a  little hard on Nike, as it has earned its spot as the dominant brand in this space, but the reality is that the company has put together such a fantastic string of results for so long (and has the multiple to match), and putting up a mere 4% growth rate is so….Adidas.  If Nike wants to maintain its standing as one of the preeminent global companies and brands, its going to have to push the envelope a bit more going forward. We wouldn't be buying it here, and might go the other way if it bounces.

 

Here are some key standouts in the quarter:

  1. Underwhelming EPS: Truth be told, we were looking for EPS of $0.65. Gross margin was right in line with our model, but sales were low, and SG&A was high. Not what we want to see. Our numbers were not wildly out of NKE's guidance range.

  2. Futures came in strong -- +13% Globally. That's up about 2-3 points sequentially, though it's worth noting that the 2-year stack is down by about 2 points on both a reported and constant-currency basis. There were a lot of regional callouts. Emerging markets and Western Europe both posted futures rates that doubled sequentially. Unfortunately, Central Europe's trend was as bad as Western Europe was good.  Japan is slightly less of a disaster, with futures down 10% vs -19% in 1Q (they're +1% ex FX -- unfortunately they can't exclude FX from results). China, unfortunately, is treading water in the low single digits. We have yet to see the rebound in China that Nike has been talking about for 12 months. US remains bullet-proof with 11% futures growth.

  3. ASP/Unit Less Balanced Than We Want: Of the 13% futures rate, 3% of it came from higher ASP, while 10% came from unit growth.  The good news is that they're both positive. But we generally like to see a more balanced split between ASP and units. Higher ASP often has positive implications for margin.

  4. Nike has been in a trend where futures have been solid, inventories have been trending lower, and raw material/labor costs have been easing.  Now that whole equation gets flipped to a certain extent. Futures are still solid, but inventories are growing faster than sales, and raw materials costs are going to turn from tailwind to headwind pretty much immediately. Nike is no stranger to finding ways to keep expectations low, but when Don Blair talks about input costs…he usually doesn't mess around.

  5. This Nike SIGMA chart is as bad as we've seen from Nike in years. Literally, it's so rare for NKE's SIGMA to trend down (bad inventory trend) and left (bad margin trend) at the same time.  The only realistic way to get out of that position is to take it on the chin on the margin line to clear inventories, or vice versa. Nike will likely go the 'clear inventory by way of lower margins' route. Statistically speaking, stocks like it when inventory gets cleared as opposed to when margins hold tight in hopes of clearing inventory. Either way, Nike is in a less-than-enviable position.

    NKE: Week-Old Sushi - nkeSIGMA

  6. Let's just think about something for a minute…what happens when US futures revert to a longer-term trend-line rate of 5-6%? That's when we'll need the portfolio to really work -- most notably we'll need to see China pick up in a massive way -- and we mean the current lsd rate going up by a factor of 10x -- not just by a few points here or there. We're not making a call that the US is on its way out…but we are convinced that the current US futures rate is not sustainable. We need a China fix.

  7. Here's a nit pick, but NKE spent $402mm to repo 5.5mm in stock, and yet the share count barely came down. Let's not forget how big options are as a percent of compensation at Nike. They company needs to repo well over $1bn in stock each year just to keep the share count even.

 

I can already see it...a dozen people are going to ping me tomorrow and say "aren't you being a little tough on the company" (and I welcome those conversations by the way)  My answer? "Yes, I am being tough." But a company as great as Nike needs to lead financially as much as it leads with product and in sports. It warrants greater scrutiny, not less -- because it can (and should) handle it. 



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