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INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014

Takeaway: Last week's labor market soft patch proved short-lived as this week's data has resumed its pace of steady improvement.

2013 in Review

With all but one week of 2013 now in the books the labor data is showing a non-seasonally adjusted year-over-year improvement of 8.2% on a full-year basis. For comparison, 2012 was better by 8.1% versus 2011. This morning's data point showed a 9.0% improvement y/y while the rolling 4-wk average is better by 10.2%. By most accounts the labor data remains strong and shows ongoing improvement. Last week we had flagged a speed bump in the data, but this morning's numbers suggest that a speed bump may have been all that it was.

 

We continue to expect that the strengthening labor market data will exert ongoing upward pressure on long-term rates. This morning the 10-year treasury yield is at 2.99%, just one basis point away from its September 5 high. We've demonstrated how bank stocks are very positively correlated to 10-year yields while homebuilders are very negatively correlated. For more on that, see our publication from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials.

 

The Data

Prior to revision, initial jobless claims fell 41k to 338k from 379k WoW, as the prior week's number was revised up by 1k to 380k.

 

The headline (unrevised) number shows claims were lower by 42k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.25k WoW to 346.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.7%

 

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Yield Spreads

The 2-10 spread rose 6 basis points WoW to 258 bps. 4Q13TD, the 2-10 spread is averaging 240 bps, which is higher by 6 bps relative to 3Q13.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


THE M3: MGM COTAI AND MACAU DIVERSIFICATION; NEW CENTURY HOTEL SEIZED

THE MACAU METRO MONITOR, DECEMBER 26, 2013

 

 

'HALF' MGM COTAI FLOOR FOR ENTERTAINMENT: CEO Macau Business Daily

“Our Cotai project is more like a series of theatres or a series of galleries, where we can actually bring things.  It’s probably in excess – just for the entertainment pieces – of 50% of the floor space. But the way we’re going to do that is it’s going to be interspersed with other activities,” said MGM China CEO Grant Bowie.

 

Macau watchers know that after years locally of ‘motherhood and apple pie’ speeches on the benefits of diversifying Macau’s economy away from hardcore casino gambling, this time the central government in Beijing appears to be really serious about achieving it.  President Xi Jinping mentioned it again last week when he met Macau’s CEO Fernando Chui Sai On.  So did Bai Zhijian, director of the Liaison Office of the Central People’s Government, at the anniversary celebrations on Friday marking Macau’s 1999 handover from Portuguese administration.

 

Simply putting an art gallery in a casino won’t in itself achieve Beijing’s goal. But the Macau government is likely to reward those casino operators that show greatest willingness to assist it in the diversification drive.

 

NEW CENTURY SEIZED OVER DEBTS TO TRAVEL AGENCY BOSS Macau Business Daily

The New Century Hotel, Taipa, has been seized for unpaid debts that were due the owner of a Macau-based travel agency, according to a judgement of the Court of First Instance.  Hoi Cheng Nga, head of Macau-based Energy Travel Agency Ltd, had sued Empresa Hoteleira de Macau Lda – the Macau-registered operator of New Century.  Within the grounds of the hotel is Greek Mythology Casino, which operates under the gaming concession of Stanley Ho Hung Sun’s Sociedade de Jogos de Macau SA.

 

 

 




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Boxing Day

“If money is your hope for independence you will never have it.  The only real security that a man will have in this is a reserve of knowledge, experience, and ability.”

-Henry Ford

 

In Canada, today is more commonly known as Boxing Day.  The origin of Boxing Day is believed to be in medieval England when servants, and those of lesser means, were given Christmas Boxes, which were filled with money and other small gifts.  The boxes were given in appreciation for service throughout the year.

 

In much of the Commonwealth, Boxing Day is still a bank holiday even though the Commonwealth is largely independent of Great Britain.  Across the current and former Commonwealth, the day has morphed from a day to recognize servants into becoming one of the most prominent shopping days of the year.

 

In addition, Boxing Day is another day to spend with one’s family and community.  Personally, I am back in my small hometown of Bassano, Alberta, and have been enjoying every minute of it.  In the Chart of the Day today, I’ve shown a picture of me with a few friends from our annual town hockey game with the growth in Canadian oil production over the last two decades graphed in the background.

 

Speaking of independence, as you can see from the chart, Canada has seen massive growth in its oil production over the last couple of decades.  This growth has been primarily driven by accelerating production in non-conventional oil from Alberta’s oil sands.  When combined with the fact that the United States is, as of last month, producing more oil than it imports, one can envision a future in which oil from the Middle East plays a much less significant role in Western economies.

 

Will there be a future of complete energy independence in the Western world?  Certainly, the growing production in the U.S. and Canada is a hopeful sign.  The other hopeful sign of course is the increasing efficiency of fuel consumption in motor vehicles (no irony that Henry Ford is in the opening quote).   According to the Energy Information Administration in their most recent long term outlook:

 

“The decline in energy imports reflects increased domestic production of petroleum and natural gas, along with demand reductions resulting from rising energy prices and gradual improvement in vehicle efficiency. The net import share of total U.S. energy consumption is 4% in 2040, compared with 16% in 2012 and about 30% in 2005.”


Clearly, the path forward is one of increased energy independence in the United States and not less.

 

Back to the Global Macro Grind...

 

For those that measure annual performance, this year is all but in the bag with basically less than four trading days left in the U.S. stock markets.  Either you made your bogey this year and beat your respective benchmark, or you didn’t.  Regardless, the only move left this year is likely some tax loss selling.

 

In terms of global equity market performance, 2013 was certainly an interesting one.  The top five performing global equity markets for the year were as follows:

  • Venezuela +478%
  • Dubai +102%
  • Argentina +88%
  • Abu Dhabi +58%
  • Japan +56%

Now admittedly, playing some of the stock markets above are akin to going to our Gaming, Lodging and Leisure Sector Head Todd Jordan’s favorite American city, Las Vegas, and putting down your year-end bonus on the roulette table, but those are some juicy returns nonetheless.

 

On the flip side, of course, are the global equity market losers.  Based on the markets we actively monitor, the top five worst performing equity markets in 2013 were the following:

  • Peru -25%
  • Ukraine -18%
  • Brazil -16%
  • Chile -15%
  • Turkey -12%

The other story of haves versus have nots is the performance differential seen between hedge funds and traditional long only money managers.  According to Absolute Return Magazine, the top performing hedge fund strategies from January through November of 2013 were distressed (up +13%), U.S. equity (up +13%), and event driven (up +12%).  While positive, this performance certainly pales in comparison to the return of the SP500 500, which is already up 29% for the YTD and the MSCI world index up 23% for the YTD.

 

Domestically, sector allocation was likely one of the more significant drivers of outperformance. Of the nine major U.S. equity stock market sectors, the outperformance between the top performing sector of Consumer Staples and the worst performing Sector of Utilities was more than 2,000 basis points. Simply getting the allocation to those two sectors correctly weighted, would have made an equity manager’s year.

 

Speaking of style factors and hedge fund returns, one key reason for the relative underperformance of the hedge fund industry is the relative out performance of high short interest stocks.  According to our U.S. Style Factor Performance Monitor, a report published by my colleague Darius Dale, high short interest stocks (so the 10% of U.S. stock with the highest short interest) are up almost +42% in 2013.  Obviously, the short book going up more than long book is a tricky recipe for any long / short hedge fund.

 

We are going to continue to hammer on the importance of getting style factors and sector allocations correct in 2014.  As noted, simply avoiding the most underperforming sectors or style factors would have been a boon for anyone’s personal or professional portfolios in 2013. 

 

As rates continue their upward climb, fixed income and bond portfolios should be the focus for any asset allocators.  Historically, gentleman, and retirees have preferred bonds, but as the proverbial Queen Mary of global macro factors turns (interest rates), a factor to consider is underperformance in bond markets.  Specifically, as The Wall Street Journal today notes, the Barclay’s muni-bond index is down -2.6% on the year.  One thing I know for sure, bonds rarely trade independent of interest rates.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.90-2.99%

SPX 1

VIX 11.91-14.05

USD 80.48-80.91

Gold 1179-1218

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Boxing Day - Chart of the Day

 

Boxing Day - Virtual Portfolio

 


December 26, 2013

December 26, 2013 - 1A

 

BULLISH TRENDS

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December 26, 2013 - Slide8

December 26, 2013 - Slide9

December 26, 2013 - Slide10

 

BEARISH TRENDS

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December 26, 2013 - Slide12

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 26, 2013

 

As we look at today's setup for the S&P 500, the range is 43 points or 1.71% downside to 1802 and 0.64% upside to 1845.                                                                                                              

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

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EQUITY SENTIMENT:

 

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CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.58 from 2.58
  • VIX closed at 12.48 1 day percent change of -4.29%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Jobless Claims, Dec. 21 (prior 379k), est. 345k
  • 9:45am: Bloomberg Consumer Comfort, Dec. 22 (prior -29.4)
  • 10am: Freddie Mac mortgage rate survey

GOVERNMENT:

    • Senate out of session until Jan. 6; House returns Jan. 7
    • President Obama, First Family on vacation in Hawaii

WHAT TO WATCH:

  • UPS misses some Christmas deliveries; AMZN offers refunds
  • Turkey’s Erdogan overhauls cabinet amid graft probe
  • Target seen losing customer loyalty after credit-card breach
  • BlackBerry founder Lazaridis walks away from possible deal
  • Volcker Rule challenged in U.S. court by bank industry group
  • U.S. Postal Service wins temporary 6% rate increase request
  • Apollo said to win approval to lift fund limit to $17.5b
  • Alibaba unit wins license to compete in China wireless mkt
  • Japan banking regulator seeks authority over Tibor rate
  • Softbank to raise funds for T-Mobile deal in U.S.: Nikkei
  • Abe draws China ire w/ visit to Japan’s Yasukuni war shrine
  • Batista cedes control of OGX oil co. in $5.8b debt deal
  • NOTE: Most European, Canada equities mkts closed today

EARNINGS:

    • No earnings expected

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Platinum Climbs to One-Week High as Gold Holds Above $1,200
  • Copper Gains as Economic Growth May Lift Industrial Metal Demand
  • Bug Bites Cut Florida Orange Crop to Two-Decade Low: Commodities
  • China’s Soybean Demand May Rise Amid Scrutiny of DDGS Imports
  • WTI Crude Little Changed Amid Low Volumes on U.K. Boxing Day
  • Palm Oil Climbs to Two-Week High as Output May Drop in Malaysia
  • Rebar in Shanghai Closes Near Five-Week Low as Inventory Climbs
  • WTI-Brent Squeezed in December, Though Above 2013 Lows: BI Chart
  • Red Kite Metals Fund Gains More Than 40%, Telegraph Reports
  • Iraq Seeks to Buy 30,000 Metric Tons of Rice: Ministry
  • BTG Grows in Commodities as Big Banks Retreat: Corporate Brazil
  • Russia Seeks Belarusian Gasoline to Cover Peak Demand in 2014
  • Batista Cedes Control of Oil Explorer in $5.8 Billion Debt Deal
  • China Said to Increase Scrutiny of U.S. Imports for GMO Corn

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CURRENCIES

 

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GLOBAL PERFORMANCE

 

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EUROPEAN MARKETS

 

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ASIAN MARKETS

 

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MIDDLE EAST

 

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The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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