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The Hong Kong Government Has Already Lost

This note was originally published at 8am on October 01, 2014 for Hedgeye subscribers.

“The triumphant success of Hong Kong demands - and deserves - to be maintained.”

Charles, The Prince of Wales

 

The crowds of tens of thousands in Hong Kong are swelling in number. Today, Chinese National Day, the numbers are likely to increase significantly. While started by students, all facets of the population are represented. One can only be in awe at how so many can demonstrate peacefully, even in the face of harsh and utterly unnecessary police tactics: Not one single shop window has been broken in 5 days of protest.

 

The Hong Kong Government Has Already Lost - zz. EL 2

 

Back to the Global Macro Grind

 

How did this all get started?

 

In the run-up to the 1997 Handover of Hong Kong, Universal Suffrage was promised under Article 45 of the Basic Law. In 2004, the National People’s Congress said this would not occur before 2012. In 2007, the NPC pushed the date to 2017. In 2014, Universal Suffrage is redefined: Everyone can vote, but only for the 2 or 3 candidates pre-selected by Beijing. The serious matter of a peoples’ freedom to elect their leaders has been made a farce by the Central Government and the current Hong Kong leadership.

 

Over the summer, Beijing completely misread the situation thinking that its version of a seemingly democratic process would be sufficient to keep the Hong Kong people at bay. Yet the proposal was so far off the mark and without any room for negotiation that a tipping point was reached.

 

While Beijing is known for digging in and using all means necessary to obtain its will, it appears the people of Hong Kong are willing to do the same this time around. There is no quick solution given Hong Kong Chief Executive CY Leung’s unwillingness to work for the Hong Kong people he supposedly represents. Leung’s administration has fantastically mismanaged this situation.

 

The Central Government needs this win. A loss of face isn’t the primary concern: The very survival of the Communist Regime is at stake in the eyes of China’s leaders. No progress is being made at containing unrest in Xinjiang Province where Uyghur separatist are claiming the region.

 

To add to Beijing’s woes, the Chinese economy is cooling quickly. Fixed assets investment is slowing both sequentially (as of AUG) and on a trending basis – as are retail sales, exports and imports. Manufacturing PMI and consumer confidence are also slowing on a trending basis as of SEP and AUG, respectively. Additionally, the property market is in dire straits, as Darius Dale details in a note yesterday titled, “DEFCON 2.5: The “China Overhang” Is Likely To Continue”.

 

Already, we have seen a few, albeit small, public gatherings in large cities supporting the protesters in Hong Kong. What if demonstrations spread beyond Hong Kong?

 

In the last few days, the world has experienced an unprecedented crack-down on social media and freedom of speech to prevent just that from happening. But we know very little about it in the United States. One would need to live in the PRC to experience it. It’s hard for us to imagine what the internet looks like when one only gets to see a carefully selected portion of it. Overnight, there are reports of a Trojan virus aimed at infiltrating the iPhones of HK protesters. Make no mistake, this is a first rate electronic communications war being played out in front of us.

 

How will the world react to all of this? The United Kingdom, as former colonial masters, surely has a moral responsibility. But the West is and will be reluctant to take a stand against China. Cross-strait relations also play a factor: Beijing continues to strive for a unified China, inclusive of Taiwan. The wrong action in Hong Kong could further alienate the Taiwanese people.

 

Unless the protesters get tired we will all be watching this for some time. There will be economic impact. But the big changes will play out in the long term.

 

Can democracy thrive in Hong Kong? And will this lead to a softening of the regime in Beijing?

 

The people of Hong Kong appear ready to find out.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.46-2.55% (bearish)

SPX 1957-1986 (neutral)

RUT 1090-1026 (bearish)

EUR/USD 1.26-1.38 (bearish)

WTIC Oil 90.16-94.42 (bearish)

 

Michael Blum

President and Resident of Hong Kong

 

The Hong Kong Government Has Already Lost - CHINA High Frequency GIP Data Monitor


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 15, 2014


As we look at today's setup for the S&P 500, the range is 68 points or 0.94% downside to 1860 and 2.68% upside to 1928.                                                                   

                                                            

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: 1.82 from 1.83
  • VIX closed at 22.79 1 day percent change of -7.51%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Oct. 10 (prior 3.8%)
  • 8:30am: Empire Manufacturing, Oct., est. 20.25 (prior 27.54)
  • 8:30am: Retail Sales Advance m/m, Sept., est. -0.1% (pr 0.6%)
  • 8:30am: PPI Final Demand m/m, Sept., est. 0.1% (prior 0.0%)
  • 10am: Business Inventories, Aug., est. 0.4% (prior 0.4%)
  • 10:30am: DOE Energy Inventories
  • 11am: Treasury Budget Statement, Sept., est. +$90b (pr +$75.1b)
  • 11:30am: U.S. to sell $33b 4W bills, $25b 1Y bills
  • 2pm: Federal Reserve releases Beige Book
  • 2pm: ECB’s Draghi speaks in Frankfurt

 

GOVERNMENT:

    • Senate, House out of session
    • Sec. of State Kerry travels to Vienna for meeting with EU High Rep. Catherine Ashton, Iranian Foreign Minister Javad Zarif on nuclear negotiations
    • 8:30am: PepsiCo CEO Indra Nooyi announces nutrition project hosted by Inter-American Development Bank
    • 10am: Supreme Court hears arguments in patent case over generic competition to Teva’s multiple-sclerosis drug Copaxone
    • U.S. ELECTION WRAP: Colo. Races; HRC on Trail; Money Reports Due

 

WHAT TO WATCH:

  • AbbVie Weighing Shire Breakup Sends Inversion Target Shares Down
  • Toyota Recalls 1.75m Autos to Fix Brakes, Fuel Leaks
  • Qualcomm Agrees to Buy U.K. Chipmaker CSR for $2.5b
  • Carnival to Help Build China’s First Cruise Ship as Demand Rises
  • Second Health-Care Worker Tests Positive for Ebola in Texas
  • Lenovo ‘Confident’ of Closing Motorola Mobility Deal This Year
  • Obama Pushes Allies as Doubts Grow on Islamic State Strategy
  • U.K. Unemployment Falls More Than Forecast as Wages Improve
  • ASML Forecasts Quarterly Sales Beating Estimates on Memory Chips
  • BofA Said Hired by Buyout Firms to Sell Turkey Memorial Stake
  • Broker Lobby Group Sees Conflicts in Nasdaq SIP Upgrade Process
  • Trump Casino’s Fate, Union Fight to Be Decided by End of Week

 

AM EARNS:

    • Bank of America (BAC) 7am, $0.32 - Preview
    • BlackRock (BLK) 6:30am, $4.66
    • Charles Schwab (SCHW) 8:45am, $0.24
    • Commerce Bancshares (CBSH) 7am, $0.71
    • IGate (IGTE) 6:09am, $0.52
    • KeyCorp (KEY) 6:30am, $0.26
    • MGIC Investment (MTG) 7am, $0.11 - Preview
    • PNC Financial (PNC) 6:30am, $1.70
    • St Jude Medical (STJ) 7:30am, $0.96 - Preview

 

PM EARNS:

    • American Express (AXP) 4:05pm, $1.37
    • Boston Private Finl (BPFH) 4:05pm, $0.21
    • eBay (EBAY) 4:15pm, $0.67 - Preview
    • El Paso Pipeline (EPB) 4:07pm, $0.39
    • Kinder Morgan (KMI) 4:05pm, $0.32
    • Kinder Morgan Mgmt (KMR) Aft-Mkt, $0.56
    • Las Vegas Sands (LVS) 4:01pm, $0.82
    • Netflix (NFLX) 4:05pm, $0.91 - Preview
    • Platinum Underwriters (PTP) 4pm, $1.32
    • RLI (RLI) 4pm, $0.59
    • Umpqua (UMPQ) 4:05pm, $0.29
    • United Rentals (URI) 4:15pm, $2.08

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Extends Biggest Plunge Since ’11 on Glut; WTI Nears $80
  • OPEC Finding U.S. Shale Harder to Crack as Rout Deepens: Energy
  • Brent Slump Seen Stalling Near $80 as Bear-Market Oil Oversold
  • Gold Imports by India Seen Rising More Than Fourfold Last Month
  • Bugs Join Robots to Overcome Global Copper Shortage: Commodities
  • Bloomberg Commodities Index Falls to Lowest Since July 2009
  • Palm Imports by India Surge for Third Month on Tax-Free Sales
  • Australia, Brazil Seen Taking 90% of Worldwide Iron Ore Trade
  • Copper Falls From Three-Week High on Chinese Inflation Figures
  • Palm Tumbles to Three-Week Low as Crude Oil Slump Reduces Demand
  • Gold Drops a Second Day on Dollar to Lower Demand After Advance
  • Corn Drops From Five-Week High as Drier Weather May Help Harvest
  • Palm Declines to Two-Week Low as Crude Oil Slump Reduces Demand
  • Rio Says Don’t Panic on Iron Ore And Won’t Halt Returns
  • Rubber Drops From Two-Week High as China Data Signal Weak Demand

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


October 15, 2014

October 15, 2014 - Slide1

 

BULLISH TRENDS

October 15, 2014 - Slide2

October 15, 2014 - Slide3

 

 

BEARISH TRENDS

October 15, 2014 - Slide4

October 15, 2014 - Slide5

October 15, 2014 - Slide6 

October 15, 2014 - Slide7

October 15, 2014 - Slide8

October 15, 2014 - Slide9

October 15, 2014 - Slide10

 


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.

THE HEDGEYE MACRO PLAYBOOK

Takeaway: The Hedgeye Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and noteworthy quantitative signals.

CLICK HERE to view the document. In today’s edition, we highlight:

 

  1. Making a minor change to some language in/around TACRM to improve ease of user interpretation (no change to the underlying model, however)
  2. Swapping out domestic mega-cap exposure for the Japanese yen on the long side of our top global macro ideas 

 

Best of luck out there,

 

Darius Dale

Associate: Macro Team


RETAIL - DEPARTMENT STORE DEEP DIVE/BLACK BOOK ON THURSDAY

Takeaway: In Thursday's Black Book, we dive into the industry's supply/demand balance, real estate profiles, category exposure and e-commerce margins.

Please join us Thursday, October 16th at 11:00 am ET for our Deep Dive on Department Store Fundamentals and Stocks. Relevant tickers: JCP, M, KSS, DDS, JWN, SHLD, TGT, WMT, TJX, and GPS.

 

Key Topics Will Include:

 

1.  What will the Department Store Landscape look like (physically and financially) when we transition into the next economic cycle? This includes looking at the physical supply/demand balance in the industry.

 

2.  Detailed Revenue analysis for all the Department Stores – by category, consumer, and demographic.  Who has the most risk/upside based on where we are in the economic cycle?

 

3.  Margin Sustainability: Who has the most defendable margins and levers to pull in the event of a sales downturn?

 

4.  The importance of Financial Engineering to earnings algorithms.

 

5.  Current Business Trends: Results from our detailed 1,000 consumer survey. This is the 4th iteration of the survey that we started back in 3Q of 2013

  • Visitation statistics
  • Dot.com and Mobile trends
  • Buy Online/Pick Up in Store – does anyone really use this? Which retailers have the competitive advantage?
  • Detailed category analysis – what retailers are top of mind in each category
  • Who wins on price, sales, selection, and quality

6. Real Estate Deep Dive

  • What does the competitive matrix look like across the space
  • Winners &  losers from a demographic and spending vantage point
  • Are department stores over or under-indexed to their target customer?
  • The JCP and SHLD affect – what do more store closures mean for other names in this space

7.  E-commerce – we’ll be releasing a much more in depth look at e-commerce across the retail space in a Black Book due out in the next couple of weeks – but we will preview that work with a focused look on the department store space. Most importantly which retailers have invested the capital needed to drive growth in this channel.

 

Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 693664#

Materials: CLICK HERE

 


Cartoon of the Day: Crank It Up

Cartoon of the Day: Crank It Up - volume cartoon 10.14.2014

 

As markets are melting down, volume is going up.  Take Monday’s sell-off, for example. Total exchange volume soared 44% compared to its three-month average.

 

SUBSCRIBE TO CARTOON OF THE DAY


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