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Looney Tune Tape

“Mister Wabbit, before you die, you can have one wast wish.”

-Elmer Fudd

 

Was the wast wish to buy in May and pray? They dressed ole Elmer up in a Canadian Mountie uniform for that episode. When the US stock market won’t die, blame a Canadian. Must abandon risk management process and chase the performance wabbit, right?

 

Uh, no. Stay with what’s been working all year – #InflationAccelerating and slow-growth #YieldChasing assets (like commodities, bonds, and any stock that looks like a bond with low-beta and high-dividend-yield).

 

And on the short side, take your time and “be vewwy, vewwy quiet…” I’m hunting high-muwtipoh-momentum-bubbo wabbits that have popped back up out of their bombed out holes.

 

Looney Tune Tape - PeLooney8002

 

Back to the Global Macro Grind

 

“Wisten to the wippling wythm of the woodwinds…” and you’ll hear volume cwickets.

 

Yesterday’s total US Equity Volume reading was:

 

  1. -10% versus the 1 month average
  2. -31% versus the 3 month average

 

In other words, other than emotional hedge funds that shorted last week’s lows in almost every oversold momentum short (we sent out cover signals in IWM, ITB, YELP, last week #timestamped) there was no legitimate volume (read: conviction) behind yesterday’s rip.

 

In fact, going into the open yesterday:

 

  1. The net short position in SPX (Index + E-mini) was at a 6 month high of -54,587 contracts
  2. Three months ago (when you could have bought #MoBro top), the net short position was -30,429 contracts

 

“So”, many hedge funds were getting squeezed yesterday and those that still believe US GDP growth is going to be +3-4% in 2014 just kept averaging down into growth stocks, I guess.

 

While CNBC was nailing it with the Dow “at all-time-highs” yesterday, we sent out a short DIA (Dow ETF) signal in #RealTimeAlerts. But that’s not the best short idea we have – it’s waiting on the stocks that have been smoked to pop back up to our signal lines (YELP, TWTR, etc).

 

Don’t forget that the Nasdaq and Russell 2000 are still -4.9% and -6.2%, respectively, from where your broker could have plugged you buying the all-time-bubble-stock-high in early March. Most of these momentum, social, and housing stocks are still broken.

 

“Dwat that wabbit”

 

Yep, both the bond and currency market agree this morning:

 

  1. US Dollar Index is nowhere near overcoming its long-term TAIL risk line of $81.17 resistance
  2. US 10 year Treasury Yield of 2.65% couldn’t care less about people chasing performance wabbits in equities

 

“So”, if you have to buy something this morning, what do you buy?

 

  1. Utilities (XLU +10.3% YTD) have pulled back and are registering another buy signal
  2. Gold (GLD +7.3% YTD) has pulled back small and is a buy closer to TREND line support of $1271

 

And, what do you sell?

 

  1. Consumer Discretionary (XLY -3.3% YTD) has rallied on no volume to lower highs, so keep selling that
  2. US Dollar (UUP -0.2% YTD) has rallied sharply off its YTD lows, and remains bearish TREND

 

Yep, it’s really a macro call. Get the US Dollar and Rates right, and you’ll keep getting your Sector & Style Factors right. If you disagree with our view, you should be buying Dollars and growth stocks and shorting Bonds (like we did at this time last year) in size.

 

If you ask most consensus economists if they had the process to have you in the opposite this year as you were in last year (from an asset allocation perspective), they might go all-American-excuse-making Elmer on you too… “Yes! I mean NO, that is… I…. er… um…”

 

Looney Tune Tape, this has become. Chasing performance is not a repeatable risk management process. No worries though, I am sure the cartoon that this has all become will end willy willy well.

 

UST 10yr yield 2.57-2.67%

SPX 1

RUT 1094-1144

VIX 12.14-14.52

USD 79.11-80.01

EUR/USD 1.37-1.39


Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Looney Tune Tape - Chart of the Day


May 13, 2014

May 13, 2014 - Slide1

 

BULLISH TRENDS

May 13, 2014 - Slide2

May 13, 2014 - Slide3

May 13, 2014 - Slide4

May 13, 2014 - Slide5

May 13, 2014 - Slide6

 

BEARISH TRENDS

May 13, 2014 - Slide7

May 13, 2014 - Slide8

May 13, 2014 - Slide9

May 13, 2014 - Slide10

May 13, 2014 - Slide11


THE HEDGEYE DAILY OUTLOOK

 TODAY’S S&P 500 SET-UP – May 13, 2014


As we look at today's setup for the S&P 500, the range is 28 points or 1.35% downside to 1871 and 0.12% upside to 1899.                                              

                                                                                 

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10A

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.25 from 2.27
  • VIX closed at 12.23 1 day percent change of -5.34%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 12:30am: Fed’s Lockhart speaks in Riyadh, Saudi Arabia
  • 7:30am: NFIB Small Business, April, est. 94.5 (prior 93.4)
  • 7:45am: ICSC weekly sales
  • 8:30am: Retail Sales, April, est. 0.4% (prior 1.1%, rev. 1.2%)
  • 8:30am: Import Price Index, April, est. 0.3% (prior 0.6%)
  • 8:55am: Redbook weekly sales
  • 10am: Business Inventories, March, est. 0.4% (prior 0.4%)
  • 10:30am: Fed’s Lacker speaks in Charlotte, North Carolina
  • 4:30pm: API weekly oil inventories

GOVERNMENT:

    • House out of session, Senate in
    • 9:30am: Brookings holds discussion on “The Future of Fannie Mae and Freddie Mac” with FHFA Director Mel Watt
    • 10am: Senate Agriculture Cmte hearing on high-frequency;  witnesses incl. CFTC head of mkt oversight Vince McGonagle, CME’s Terrence Duffy
    • 10am: United States Energy Assn holds discussion on North American LNG exports
    • 10am: Commerce Sec. Penny Pritzker on Natl Export Initiative at Atlantic Media HQ
    • 12pm  Alliance for American Manufacturing on steel import report w/Sens. Sherrod Brown, D-Ohio, Jeff Sessions, R-Ala.
    • 12:45pm: Resources for the Future holds discussion with Exelon CEO Chris Crane
    • U.S. ELECTION WRAP: Cong. Dist. Income Inequality; Crisco Dies

WHAT TO WATCH:

  • Pfizer said to plan raising AstraZeneca bid for second time
  • Pfizer CEO to make AstraZeneca case to U.K. parliament
  • FHFA Director Mel Watt speaks on GSEs at Brookings
  • AT&T is said in advanced talks to buy DirecTV for ~$50b
  • China industrial production, investment show slowdown deepening
  • Ukraine rebels ask to join Russia as Gazprom threatens a cutoff
  • KKR eyes Spanish banks, may seek role managing bad bank assets
  • Lockhart says Fed weighs role of funds rate amid stimulus exit
  • Facebook said to take steps to open a sales office in China
  • 2 former Qualcomm sales directors charged with insider trading
  • German investor confidence drops for 5th month on growth risks
  • Airbus earnings beat estimates as costs on A380 come down
  • RBS’s U.S. unit Citizens files for $100m IPO in New York
  • Bloomberg Canada Economic Summit
  • Neb., W.Va. hold primaries

AM EARNS:

    • Convergys (CVG) 8:30am, $0.29
    • CST Brands (CST) 7am, $0.19
    • Encana (ECA CN) 6am, $0.53 - Preview
    • First Majestic Silver (FR CN) 7am, $0.10
    • Insys Therapeutics (INSY) 7am, $0.27
    • Resolute Energy (REN) 6am, ($0.01)
    • RioCan Real Estate Investment (REI-U CN) 7am, C$0.42

PM EARNS:

    • Element Financial (EFN CN) 5:06pm, C$0.10
    • Finning International (FTT CN) 4:32pm, C$0.41
    • Fossil Group (FOSL) 4:01pm, $1.17
    • Legacy Oil (LEG CN) Aft-Mkt, C$0.09
    • Renren (RENN) 6pm, $0.05
    • Take-Two Interactive (TTWO) 4:05pm, $0.09
    • URS (URS) 4:05pm, $0.69
    • Wix.com (WIX) Aft-Mkt, ($0.36)

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Nickel Nears Resistance That May Spur Drop Before Further Rally
  • WTI Crude Reaches Two-Week High on Supply Forecast; Brent Climbs
  • Tire Rubber Plunging as Vietnam Tappers Expand Glut: Commodities
  • Copper Trades Below Two-Month High as China Factories Slow Down
  • Wheat Heads for Longest Decline This Year on Ample Global Supply
  • Gold Declines as Improving U.S. Economy to Dollar Cuts Demand
  • Sugar Advances as Rainfall Forecast for Brazil; Cocoa Also Rises
  • Rebar in Shanghai Falls to Record Low on Steel Output Increase
  • Soybean Imports by China Seen Recovering as Fish Farms Buy Feed
  • Libya Oil Output May Double as Protests in Western Region End
  • Ukraine Boosts Russian Gas Imports as Gazprom Deadline Looms
  • Russian Pork Imports Fell 34% This Year Through May 5 After Ban
  • LNG May be Europe’s Future Fuel If Shale Fails: Outlook
  • Mexico Oil Opening May Be Foreigners’ Gusher as Pemex Struggles

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

 

 

 

 

 

 

 

 

 

 

 

 

 


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%

MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU

So far so good on our 20% growth forecast for May in Macau. Here is some of the math behind it.

 

 

CALL TO ACTION

Macau stocks may rebound as May GGR continues to display acceleration from recent months.  The 20% YoY growth forecast is based on our quantitative model with a little special sauce context thrown in, but it’s mostly the math.  We believe that level of growth exceeds most sell side projections and investor sentiment.  WYNN remains our favorite.

 

THE SETUP

We’ve been consistent with our belief that May growth will accelerate from March/April and allay the doom and gloom VIP fears.  Not to say there aren’t some liquidity issues in the junket system.  We’re probably seeing that with MPEL – rolling chip volume fell 20%+ in April and market share is down again here in May.  However, the flow through of some side betting into the legitimate system has probably and certainly could provide the VIP cushion to stem some of the pressure.  Mass growth, on the other hand, needs no push – volumes are terrific.

 

So how do we handicap May?  If we assume year to date volumes continue and seasonally adjust May along with an extra Saturday, growth should approximate 20% assuming a normal hold percentage.  Looking at it another way, May faces one of the easiest comps of the year as can be seen below.  Moreover, May’s 2 year and average comp (average of 1 and 2 yr) are the easiest of the year.  Given the inherent volatility of this business, looking at last year’s comp is not enough analysis.

 

MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU - a

 

We expect the tenor and investor sentiment around the Macau gaming operators to improve as senior management teams, sell-side analysts and investors converge on Macau for G2E Asia at Venetian Macao on May 20-22.

 

Month to date, average daily table revenues are 16% above the comparable period of last year.  Going forward, the comps appear to ease as can be seen below.  While this week’s comp looks tough at 22%, that number comped off of a -6% base.  Week 4 is easy on a 1 year basis and moderate on a 2 yr basis.  Based on these numbers, it appears that growth should accelerate in the back half of May.

 

MAY ON TRACK FOR CLOSE TO 20% GROWTH IN MACAU - Chart 2 5 12 2014 6 09 04 PM

 

CONCLUSION

The Macau gaming stocks have bounced off the recent lows achieved on 4/29 (see our note “WE’VE BEEN PLACEHOLDERED”) but they remain well off their highs.  If we’re right on May, all the Macau stocks should do well.  We’re partial to WYNN because we think they have a unique ability to garner more share, particularly on the VIP side if they are willing to improve their junket offering – specifically in the credit area where Wynn Macau advances commissions only on a 15-30 day basis versus the competition at 2-4 months.


REMINDER: JCP/KSS Real Estate and Survey Call Today at 1pm ET

Takeaway: REMINDER: We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on today, Tuesday May 13 at 1pm ET.

We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on Tuesday, May 13th at 1:00pm ET to discuss our current short thesis on KSS. We will detail some of the underappreciated dynamics that currently exist between Kohl's and JCP.   

 

REMINDER: JCP/KSS Real Estate and Survey Call Today at 1pm ET - HE RET KSS JCP alt

 

HIGHLIGHTS WILL INCLUDE:   

 

A) Results of our latest consumer survey on department stores
B) Explore incremental trends in e-commerce
C) A deep dive into each company's real estate profile examining where the greatest risk/opportunity exists for store closure and subsequent share shifts

 

 

SPECIFIC TOPICS WE'LL EXPLORE:  

  • One of the biggest risks to being short KSS is JCP shuttering a third of its stores
    • What is the typical market for a JCP store closure (based on historical precedents)?
    • How many more of those markets exist?
    • What does KSS overlap look like in these markets?
    • What is the revenue opportunity for KSS?
  • Consumer Survey updates on the rate at which sales are coming back to JCP, and which retailers are winning/losing
  • Visitation trends at each department store and how they are changing sequentially
  • Analysis of recent e-commerce traffic on an absolute level for KSS and JCP, but also relative to competitors like M, JWN, DDS, TGT, SHLD and others
  • Why we think that dot.com is a risk for KSS on a longer term basis

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 294741#
  • Materials: CLICK HERE

Please contact  for more information.

 


BOOKING RESEARCH ALPHA IN INDIA

Takeaway: We are content to “book” the gain in India here, as we now see risk/reward favoring short-sellers in the near term (~1-3M).

The cyclical component of our thesis (i.e. improving GIP fundamentals + tightening fiscal and current account balances + speculation around political reform into the 2014 general elections = buy India) has as played out in spades in both the data and the early exit polling results.

 

BOOKING RESEARCH ALPHA IN INDIA - INDIA

 

BOOKING RESEARCH ALPHA IN INDIA - BUDGET BALANCE


BOOKING RESEARCH ALPHA IN INDIA - CURRENT ACCOUNT BALANCE

 

BOOKING RESEARCH ALPHA IN INDIA - 1

 

BOOKING RESEARCH ALPHA IN INDIA - 2

 

Indian capital and currency markets have performed quite remarkably since we outlined our bullish thesis back on OCT 29th of last year. Specifically, the EPI etf has appreciated +21.6% since then, which compares to a sample mean of -1.4% across the 24 country-level EM etfs we track and good for the second-best performance over this duration. Moreover, the INR has appreciated +3.2% vs. the USD since then, which compares to a sample mean of -2.4% across the 21 currencies we track across Asia and Latin America and good for the third-best performance over this duration. Going back to the EPI etf, this fund has ripped +19.2% in the last ~3M alone (note: we reiterated our bullish bias in a detailed note on JAN 22) – implying some degree of investors crowding into this trade.

 

BOOKING RESEARCH ALPHA IN INDIA - EM Divergence Monitor

 

BOOKING RESEARCH ALPHA IN INDIA - FX

 

Given the recent performance, the risk that election results disappoint and lack of near-term positive catalysts, we think astute investors will look to book gains in Indian capital markets over the next ~1-3M. A diminished macroeconomic tailwind is cause for concern in the summer months as our GIP model has Indian real GDP growth slowing in the third quarter.

 

Key question: How much better is Indian economic growth going to get in the near term if consumer price inflation accelerates in 2Q?

 

BOOKING RESEARCH ALPHA IN INDIA - COMPOSITE PMI

 

BOOKING RESEARCH ALPHA IN INDIA - CPI

 

BOOKING RESEARCH ALPHA IN INDIA - FX

 

Additionally, there’s a fair degree of open-the-envelope risk on Friday’s final vote tally, given India’s shaky history with exit polling. Specifically, the SENSEX dropped -11% in a single day in 2004 when the BJP coalition’s share was found to have been overstated by 70 seats in exit polls and the index rallied +17% in a single day in 2009 when the BJP coalition’s share was found to have been overstated by 30 seats in exit polls. Thinking longer-term, that’s an [potential] correction we’d want to buy – assuming Modi and the BJP capture enough of a ruling mandate to implement noteworthy economic reforms.

 

We continue to think what Dr. Rajan is doing on the monetary policy front is equally as critical – if not more critical – to structural improvement in India’s GIP fundamentals. While recent political rhetoric suggests that both his job and the RBI’s long-term policy guidance are safe, we can’t rule out investors speculating on an attack on the central bank’s sovereignty given that Dr. Rajan was appointed by the [likely] incumbent Congress Party and that his hawkish bias conflicts with Modi’s emphasis on promoting growth (albeit via proper economic management). That would be bad for the rupee and, historically, what’s bad for the rupee is bad for India (i.e. Quad #3 on our GIP model) because of the country’s dependence on foreign capital.

 

Feel free to ping us with any follow-up questions. Have a wonderful evening,

 

DD

 

Darius Dale

Associate: Macro Team


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