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“Mister Wabbit, before you die, you can have one wast wish.”
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.
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:
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:
“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:
“So”, if you have to buy something this morning, what do you buy?
And, what do you sell?
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%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
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.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
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.
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.
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.
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.
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.
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: