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Got Growth?

Client Talking Points

VIX

Volatility (VIX) was down -12.5% last week. It's back into crash mode for 2013 (down -23.5% year-to-date) alongside Gold. Both of them hate the whole #RatesRising on growth surprising to the upside thing. More importantly, the VIX is under our 14.91 Hedgeye TREND line again. That of course is bearish for the VIX.

DAX

Germany ripped right back up to its year-to-date highs last week (EuroStoxx600 was +3.7% on the week). It's holding those gains this morning and is up +0.4%. We will stay with our Q413 #EuroBull macro theme provided that EUR/USD $1.35 TREND holds.

GOLD

Gold is down another -0.4% this morning after dropping -2.5% last week. Gold is down -29.1% year-to-date as the 10-year Treasury yield holds 2.90% (with next resistance 2.95%). The immediate-term risk range for Gold is now 1184-1229.

Asset Allocation

CASH 45% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Morning... Heading to Lake Okeechobee to slay Florida largemouth bass @HedgeyeEnergy (Kevin Kaiser)

QUOTE OF THE DAY

"There is only one thing that makes a dream impossible to achieve: the fear of failure." - Paulo Coelho

STAT OF THE DAY

US stocks were up last week with the S&P 500 up +2.6% (+27.5% YTD). The Russell 2000 was up +3.6% (+35% YTD). Got Growth in your 2013 portfolio? Industrials +3% last week (+35.3% YTD) versus slow-growth Utilities +0.9% (+8.3% YTD).


December 23, 2013

December 23, 2013 - Slide1

 

BULLISH TRENDS

December 23, 2013 - Slide2

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December 23, 2013 - Slide8

 

BEARISH TRENDS

December 23, 2013 - Slide9

December 23, 2013 - Slide10

December 23, 2013 - Slide11

 



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Speaking of Growth

“The mass of the American people are most emphatically not in the deplorable condition of which you speak.”

-Theodore Roosevelt

 

That’s what a 28-yr old Teddy Roosevelt said to a fear-mongering-class-warfare-guy when he ran for mayor of New York City in 1886. In one of the first debates of his career, he went on to pummel the parasitic politician with positivity and resolve:

 

“… the states-men and patriots of today are no more responsible for some people being poorer than they are for some people being shorter… if you had any conception of the true American spirit you would know we do not have “classes” at all on this side of the water…” (The Bully Pulpit, pg 126-127)

 

While a lot of people spent a lot of time whining about the #EOW (end of the world), government spending cuts, and #RatesRising in 2013, many of us went on doing what American Doers do – grow. Relative to where consensus was, this country hasn’t seen a growth surprise to the upside like this in a long-time. I’d like to thank all of you who grew your businesses for contributing to that.

 

Back to the Global Macro Grind

 

As 2013 comes to an end, the year’s growth score-card will be reported on a lag. Mr. Macro Market obviously didn’t miss making this call in real-time however. What a run US GDP growth went on into the highs of Q313. #Boom!

 

At +4.12% GDP growth in Q3, the 1st takeaway shouldn’t be someone who missed it whining about “inventories” (newsflash: businesses build inventories as growth in demand accelerates – it’s called a cycle); it should be that GDP of +4.12% was actually understated!

 

The US GDP Deflator (subtracts from nominal growth to get you real-inflation-adjusted GDP growth) for Q313 was overstated at +2% (that compares with the MIT billion prices project of +1.7% and the CRB Commodities Index which was tracking -6-7% year-over-year). Which means nominal US GDP growth was over +6%  in Q3 and the real print could have been 4.5-5%!

 

Hooowah!

 

The US stock market didn’t miss this. Neither did the Bond market (#RatesRising), nor Gold (crashing -29% YTD). The people who really missed this were actually the politicians. Who, like in 1886, were busy trying to tell stories about the economy they need you to believe rather than the one you had.

 

When we write about “growth” we’re talking about investment “style factors.” Here’s how the market prices those YTD:

  1. LOW YIELD STOCKS (i.e. growth stocks) = +44.2% YTD (vs slow-growth High Dividend Yield stocks +16.8%)
  2. TOP 25% EPS GROWTH STOCKS (by S&P quartile) = +40.4% YTD
  3. HIGH BETA STOCKS = +37.6% YTD

In other words, being long these GROWTH styles even beat the high flying US stock market indices:

  1. SP500 = +27.5% YTD
  2. Russell2000 = +35.0% YTD
  3. Nasdaq = +35.9% YTD

And obviously the major US Equities indices smoked being long things like:

  1. Fear (VIX) = -23.5% YTD
  2. Gold and Silver = -29.1% and -36.5% YTD
  3. Utilities (XLU) = +8.3% YTD

Utilities, MLPs, REITs got crushed relative to any domestic growth and/or cyclical sector of the US Stock market too:

  1. Consumer Discretionary (XLY) = +38.4% YTD
  2. Healthcare (XLV) = +37.7% YTD
  3. Industrials (XLI) = +35.3% YTD

And sure, some might quibble with Healthcare being called a US domestic “growth” sector, but that’s what we’ve called it since making it one of our favorite sectors in our Q113 Global Macro Themes, so they can quibble away.

 

Quibbling and whining might win people on your respective teams a few arguments, but these kinds of players (and class warfare dudes) don’t help you win championships. Those with open, objective, and flexible minds do.

 

The hardest thing to do in this business is having the humility to embrace that Mr. Macro Market might know something you don’t know. And clearly, whether by +4.12% GDP growth (old news now) and/or growth style factor performance in the marketplace, as the great behavioral philosopher Notorious B.I.G wrote, “if you don’t know, now you know.”

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

VIX 13.01-14.91

Gold 1184-1229

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Speaking of Growth - Chart of the Day

 

Speaking of Growth - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 23, 2013


As we look at today's setup for the S&P 500, the range is 33 points or 1.39% downside to 1793 and 0.42% upside to 1826.           

                                                                                                                    

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: 2.52 from 2.51
  • VIX  closed at 13.79 1 day percent change of -2.54%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Natl Activity Index, Nov. (prior -0.18)
  • 8:30am: Personal Income, Nov., est. 0.4% (prior -0.1%)
  • 9:55am: UofMich. Conf., Dec. final, est. 82.7 (pr. 82.5)

GOVERNMENT:

    • Deadline for Americans who want coverage effective Jan. 1 under ACA; hundreds of thousands whose health plans are being canceled as their coverage doesn’t meet rules are exempt next yr

WHAT TO WATCH:

  • Apple strikes deal to sell iPhone through China Mobile
  • U.S. eco growth to quicken next yr, IMF’s Lagarde says
  • OPEC ministers see no ’14 glut amid signs of demand growth
  • Tiffany ordered to pay Swatch $449m over venture dispute
  • Shoppers get big discounts on last-minute holiday purchases
  • Apple CEO Tim Cook sees “big plans” for 2014: 9to5Mac
  • YRC said close to getting $250m in equity: WSJ
  • Darden shrholder Starboard to push company reorganization: WSJ
  • Elliott “irrevocably” rejects McKesson’s offer for Celesio
  • “Hobbit” sequel leads N.A. weekend box office w/ $31.5m
  • Goldman real-estate investment fund escapes Volcker rule: WSJ
  • Paulson sells Washington Mutual debt amid FDIC lawsuit: WSJ

EARNINGS:

    • No earnings expected from S&P 500

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gas in New York Surges to Highest Intraday Price in Two Years
  • Hedge Funds Cut Gold Bull Bets Amid Record Outflows: Commodities
  • WTI Trades Near Two-Month High on U.S. Growth, Sudan Violence
  • Nickel Reaches Seven-Week High as Indonesian Export Ban Nears
  • Soybeans Advance as Dry Conditions in Argentina May Stress Crops
  • Gold Resumes Decline in London on Less Haven Demand Speculation
  • Rebar in Shanghai Falls to One-Month Low as Ore Price Declines
  • Cocoa Climbs as Much as 0.5% to Highest Price Since Sept. 2011
  • Gold Assets Post Biggest Weekly Drop Since July as Prices Slump
  • Last U.S. Lead Smelter Closes Toxic History in Ore-Rich Missouri
  • Speculators ‘Throwing Money’ at Natural Gas on Icy Blast: Energy
  • Refiner EPS, Ebitda May Rebound on WTI-Brent: 2014 Outlook
  • Qatar to Boost Europe LNG Sales as Gas Trades at 7-Year High
  • Raw Sugar Falls as Traders Have First Net Short Since September

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 M3: TAIWAN; ADELSON; BEST WESTERN BOUGHT; TOURIST ARRIVALS

THE MACAU METRO MONITOR, DECEMBER 23, 2013

 

 

SLEEPY ISLAND WANTS TO CASH IN ON CHINA'S GAMBLING ADDICTION CNBC

According to Kuang S. Yeh, Taiwan's deputy minister of transportation and communication, A bill to legalize gambling is now being reviewed by Taiwan's Legislature.  Yeh said it has an 80-90% chance of approval.  "If we can pass it by the end of this year or early next year, then I would say we start operating around 2019," Yeh said. "There are currently only 100,000 tourists visiting Matsu this year, but we don't know how much new tourism would come—at least 10 times more."

 

BILLIONAIRE ADELSON MULLS EUROPE'S BIG CITIES FOR CASINOS Bloomberg

LVS is considering building individual integrated resorts in major European cities, 10 days after abandoning a plan to construct a $30 billion mega-resort in Spain.  “I’m looking at a different model of doing Singapore-like or Japan-like or Korea-like individual IRs in individual cities,” LVS CEO, Sheldon Adelson said. “We will just take the major cities in Europe and see whether or not there is a possibility to pursue that.”  In Asia, it “looks like” Japan, Korea, possibly Vietnam, Taiwan, and Thailand will allow the establishment of integrated resorts, said Adelson.

 

EMPEROR INTERNATIONAL BUYS BEST WESTERN HOTEL Macau Business

Emperor International Holdings Ltd has bought the three-star Best Western Hotel on Taipa for HK$900 million, a 17-storey hotel in Taipa with 262 rooms.  The Best Western has no gaming facilities, after Mocha Clubs shut its slot machine parlour there last month.

 

GOVT EXPECTS TOURIST ARRIVALS WILL SLOW NEXT YEAR Macau Business

According to Macau Government Tourist Office director Maria Helena de Senna Fernandes, tourist arrivals will grow by less than 5% in 2014.  Senna Fernandes said the tourist office would focus on attracting big spenders.


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.

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