prev

THE MACAU METRO MONITOR

BILLIONAIRE STANLEY HO’S CONDITION UNSTABLE, APPLE DAILY SAYS scmp.com

Macau casino billionaire Stanley Ho’s condition became unstable two days ago, according to the Apple Daily.   The Chinese-language newspaper did not cite anyone but stated that Ho, 87, is in a semi comatose condition following brain surgery to remove a blood clot. On August 7, Chan Un Chan, Ho’s third wife, told reporters that her husband was recovering.   

 

 

CAP ON COMMISSIONS TO JUNKETS BACKED BY FINES scmp.com

Commission caps were officially approved by the Macau government yesterday.  Casinos will, from September 9th, be limited in the amount of commission they can pay VIP junket operators.  Amendments to Macau’s 2002 administrative regulations on junket licensing outline fines of up to MOP500,000 and other penalties for casinos or junkets found to be disregarding the rule. The regulator will have the power to suspend or revoke junket licenses.

 

The secretary for economy and finance will announce the official cap through a separate announcement.  Observers expect the announcement to be in line with casino operators’ recommendation that the cap be set to 1.25% of VIP revenue. 


The Maintenance Man

“People in Hollywood are not showmen, they’re maintenance men, pandering to what they think their audiences want.”
-Terry Gilliam
 
The mania of this US market’s every trading moment has revealed a generational level of groupthink. The movie-star status that the US Financial system has assigned to US central bankers and economic policy makers isn’t something to get upset about anymore. This is showbiz. It’s one giant gong show – capitalize on it.
 
The key question for the US stock market yesterday, today, and tomorrow is simple – will Ben Bernanke pander to the politicians?
 
That’s it. While it’s incredible and saddening all at the same time, we have created a world financial “reserve” system that largely depends on the output of one man - one man with a job security plan. One man acting as the Global Maintenance Man of conflicted political intentions.
 
In the immediate term, my task is to manage risk. In the intermediate term, it is too – in the long term, I need to be aware that this will render the current US Financial System of perceived wisdom dead.
 
This game of trying to debunk different investment durations isn’t for everyone, but I’m all in. So let’s stop the whining, strap it on, and get at it. There is a lot going on this morning as global market operators position their bets ahead of a yes or no on the aforementioned Bernanke question. I posted an intraday to our Macro subscribers yesterdays titled “Buying Red” – my chips are on the buy reflation line.
 
Tomorrow’s latest edition of the gong show will feature two potential scenarios:
 
1.      Bernanke Panders to his role as The Maintenance Man. Then the Buck will start to Burn again, and everything priced in Dollars will continue to reflate.

2.      Bernanke stops acting out the lines of the “Depression” narrative fallacy, and signals a proactive series of rate hikes. Then, I have no idea what happens.

 
A “proactive” fiscal stance is what Chinese Premier, Wen Jiabao, signaled to the world’s economy this weekend. As opposed to the reactive “emergency rates” of zero percent that The Maintenance Man is currently holding the bag with, the Chinese policy of remaining “moderately loose” with “appropriate tightening” continues to seem sober.
 
Remember, all governments are actors in this gong show called Greenspan Goes Global – so it’s important to “seem” sober, objective, and under control – if you want to be the fiduciary of the world’s financial system that is…
 
After the US stock market has rallied +49% off of her lows, I have had a lot of people question how I could stand here buying/covering anything right now. While that’s a fair question, it seems to be the equivalent of asking me why I would dare step on the ice given prior performances? Exactly – that makes no sense for someone who wakes up every morning expecting to win. Learn from yesterday, and focus on playing the game that’s in front of you today. Stop whining.
 
Today’s setup in global macro is as follows:
 
1.      China posted another sequential improvement in monthly industrial production to +10.8% y/y growth (imagine what the Nasdaq would be doing on those #’s!)

2.      China posted another sequential low in Consumer Prices at -1.8% y/y (it is getting cheaper for a billion people to consume)

3.      China posted its 1st stock market up day in the last 5 (positive double digit economic growth and negative low single digit deflation = stock market +79% YTD)

4.      Hong Kong’s Hang Seng Index, closed up another +0.69%, making a fresh new YTD high at 21,074 = +46.5% YTD

5.      Australian business sentiment posted a 2-year high, and the Aussi stock market closed up another +0.58% at a fresh new YTD high of 4334 = +18.4% YTD

6.      Germany’s CPI reading for July came in at -0.5% y/y = strong currencies (Euro 1.42) import deflation in consumer prices for the common man

7.      Japan keeps moneys for free, pandering for the umpteenth time in the last decade, keeping rates at ZERO

8.      Russia’s rear-view of disaster Q2 GDP gets posted at -10.9% y/y, and the stock market goes UP. At +69% YTD, Russian stocks are discounting Q4 inflation (oil)

9.      America’s Ackmanism (sub for 2007 mania called “activism”) shows the efficacy of buying high and selling low (he files cutting his levered long position in Target this morning) = US Financial System and currency credibility?

 
I know, I know… that last one was a shot at a levered long investment strategy that I have been shooting at since he started selling his wares on CNBC to plenty a poor fund of fund lemming and American citizen alike. The point is that this CNBC’s interpretation of American finance is the metaphor for the gong show. As the show goes on, the aforementioned thing called global macro will continue to move forward – with or without America’s perception of holding the world’s currency…
 
Until he changes as the facts do, bet on The Maintenance Man doing what they hired him to do. Don’t fight it. Capitalize on it. I have immediate term TRADE upside in the SP500 at 1,018 and downside at 996. Depending on how overtly Bernanke panders to his compromised role of The Maintenance Man tomorrow, I see an intermediate term TREND scenario whereby the US Dollar Index trades down to $76.97 and the SP500 up to 1,041.
 
Best of luck out there today,
KM


LONG ETFS

USO – Oil FundWe bought USO on 8/10. With Bernanke as the catalyst for the USD breaking down we want to be long oil.

QQQQ – PowerShares NASDAQ 100 We bought Qs on 8/10 to be long the US market. The index includes companies with better balance sheets that don’t need as much financial leverage.

COW – iPath Livestock This ETN tracks an index comprised of two thirds Live Cattle futures, one third Lean Hogs futures. We initially began looking at these commodities because of recession inspired capacity reductions combined with seasonal inflections. A series of macro factors including the swine flu scare, a major dairy cattle cull in response to collapsing milk prices and the collapse of the Argentine agricultural complex due to misguided policy provided us with additional supporting fundamental data points for the quantitative set up in price action.  

EWG – iShares Germany Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and budget balance to timely incentives such as the auto rebate program. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; factory orders and production as well as business and consumer confidence have seen a steady rise over the last months, while internal demand appears to be improving with the low CPI/interest rate environment bolstering consumer spending. We expect slow but steady economic improvement for Europe’s largest economy.

XLV– SPDR Healthcare Healthcare has lagged the market as investors chase beta.  With consumer confidence down and the reform dialogue turning negative we like the re-entry point here.

CAF – Morgan Stanley China Fund A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP– iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

GLD – SPDR Gold - Buying back the GLD that we sold higher earlier in June on 6/30. In an equity market that is losing its bullish momentum, we expect the masses to rotate back to Gold.  We also think the glittery metal will benefit in the intermediate term as inflation concerns accelerate into Q4.


SHORT ETFS
 
UUP – U.S. Dollar IndexShorting the USD on a strong 3-day rally to another lower high. Your catalyst is Bernanke pandering to political consensus on Wednesday. We believe that the US Dollar is a leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the US dollar.

DIA  – Diamonds Trust- We shorted the financial geared Dow on 7/10 and 8/3.

EWJ – iShares Japan –We’re short the Japanese equity market via EWJ on 5/20. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

SHY – iShares 1-3 Year Treasury Bonds – If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.


RL: Water Polo

RL: Water Polo

This story is on-track to prove that $6 in EPS power on a disproportionately lower operating asset base is a reality. Mar10 numbers are still low, but for the first time in a year and a half, I can’t model a 40% blow-out in the upcoming Q.

 

Now that RL has printed yet another bullet-proof quarter, let’s step back and reassess the thesis as well as expectations going forward. I still think that the ultimate call here is that within 12 months, people will begin to eye $6 in earnings power on a disproportionately lower operating asset base. Translation = higher earnings without dumping capital into the model in order to get there. I can’t find many of these stories out there in retail.

 

But I need to keep myself intellectually honest about duration on this one. Yes, I am still getting to a number for the year that is well ahead of the Street ($4.17 for the Mar10 year vs. Street at $3.70), but for the first time in a year and a half, I’m not modeling meaningful upside to this quarter. I don’t think that RL will miss, but let’s not ignore that this company beat each of the past seven quarters by over 40% on average. I’ve got them beating this one by less than 2%.

 

Given all the moving parts in this business and the changes in distribution, product, geography (and the overlap therein), it is increasingly important to model the puts and takes. Here’s an overview as to how we’re coming out with our numbers. Our 2Q10 (Sept) assumptions are outlined in Exhibit 2 below.

 

RL: Water Polo - 8 11 2009 6 56 18 AM

 

RL: Water Polo - 8 11 2009 6 54 44 AM

 

RL: Water Polo - 8 11 2009 6 55 25 AM

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

RESTAURANTS – CHART OF THE WEEK

Raw-sugar prices have surged 86% this year to a 28- year high on concern that a global production shortfall will widen amid a drought in India and rain in Brazil, the two biggest sugar cane producers.  In addition, the global sugar trade is also impacted by European protectionism and subsidized ethanol in Brazil.

 

While is only a matter of time before Farmers shift back to sugar cane due to higher prices, the damage is done this year. 

 

RESTAURANTS – CHART OF THE WEEK - sugar


Buying Red: SP500 Levels, Refreshed...

Until this market stops leading us to the same place (buy equities on US Dollar up days), I am going to stay with the plan. Buying red.

 

In the chart below, Andrew Barber and I have outlined where we think the SP500’s pressure points are. In my getting longer today, where could I be wrong? In the immediate term, there is an important TRADE line at 996 that needs to hold (dotted green line). A close below that line puts 976 in play.

 

Otherwise, the intermediate term TREND is your friend here – and it remains bullish. I have immediate term upside TRADE resistance at a higher-high (which would also be a new closing high for the YTD if we register it) up at 1,018. That’s +1.5% upside from where we are trading here at 3PM EST.

 

Keep moving out there,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buying Red: SP500 Levels, Refreshed...  - quantsp


Chart of The Week: Bernanke's Black Gold

For the first day of my first trading internship on Wall Street, I wore all black. I didn’t look like Johnny Cash either. This was the all black Canadian men’s suit, fully loaded with the black silk dress shirt. I am married now, and I know better…

 

Bernanke may as well wear all black on Wednesday. If he panders to the political compromise of Burning The Buck, that is…

 

Without signaling any change in rhetoric on interest rates, the US Dollar is setting up to retreat to new YTD lows. As the Buck Burns, we will continue to see Reflation’s Rotation (year-over-year deflation morphing into Q4 reported inflation).

 

We will be holding our Macro Monthly Strategy call on Wednesday to go through our fundamental thoughts on the black stuff that gets marked-to-market globally ever day. The price of West Texas Crude Oil continues to breakout across all 3 of our investment durations (TRADE, TREND, and TAIL – see charts attached).

 

If Bernanke panders and the Buck breaks down further, watch for him to be wearing the price of a 9 handle on Black Gold come Q4 of 2009.

KM

 

Keith R. McCullough
Chief Executive Officer

 Chart of The Week: Bernanke's Black Gold - a1

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next