Client Talking Points
I sent out the US Dollar short signal on its bounce to lower-highs (within bearish TREND) yesterday as I don’t think Ben Bernanke has the spine to taper in December. This is one of the few times I would be more than happy to be proven wrong. The Fed should have tapered 3 months ago.
UST 10YR YIELD
At 2.89%, it's game time again for the taper/no-taper position as the top end of my immediate-term risk range is 2.91%. Incidentally, that would be a lower-high versus the September highs in yields. There is no support to 2.77%.
Shhh. Don’t tell anyone, but Japanese Government Bond Yields just rose 15% in a month. Yes, a whole 9 basis points from 0.59% to 0.68%. That is something to watch. Why? Simply because that rarely happens and it can flow through to driving global macro volatility.
|FIXED INCOME||8%||INTL CURRENCIES||24%|
Top Long Ideas
Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged. If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
QUOTE OF THE DAY
"Follow effective action with quiet reflection. From the quiet reflection will come even more effective action." - Peter Drucker
STAT OF THE DAY
An investor bought over $5 million in call options yesterday that will be profitable if the VIX jumps at least 50% in the next four months. The trader purchased 40,000 April calls on the VIX with a strike price of 22 for $1.28 each. The bullish volatility bet was the biggest single block of options to change hands on U.S. exchanges. The VIX rose 0.8% to 15.54 today. (Bloomberg)
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.
“Everything was of interest to him.”
-Doris Kearns Goodwin
That’s what the French Ambassador to the US said about a young man by the name of Theodore Roosevelt as he entered the public arena of American life. Everything was interesting to Teddy, “people of today, people of yesterday, animals, minerals, stones, stars, the past, the future” (The Bully Pulpit, pg 67).
The man was constantly learning.
When I read that passage, I thought of my kids. At home, I am in constant awe of the evolution and growth of free minds. At work, I am increasingly frustrated to see how stagnant and mediocre the collective political mind of said American leadership has become. #OldMedia, especially in markets and economics, perpetuates that. They don’t want to think. They just want government access.
Dad, old people are cool. I just don’t want to be old. I want to get younger so that I can go back and not repeat all of the mistakes I have made in my life. That’s not a me versus them thing. It’s a me versus me thing. Two of the best Presidents in US history were the two youngest – Teddy Roosevelt and John F. Kennedy. Both believed that a #StrongDollar = Strong America.
Back to the Global Macro Grind…
The global central planning debate about devaluing the hard earned currency of The People in exchange for political policies that don’t work rages on. Sort of. Our Keynesian overlords sort of read what we write, but never try what we want them to do.
A central banker who I used to respect (Glenn Stevens at the Reserve Bank of Australia) is trying the “weak currency is good for exports” thing. The only thing Australia is exporting now are new lows in both its currency and stock market. Nice job, Glenn.
So what will it be here in the USA? A weaker or stronger Dollar? Taper or no taper?
Not to be confused with the fantastic 9 month move we had during #StrongDollar, #RatesRising period of JAN-SEP 2013 (which delivered a business cycle (with inventories!) high of +3.6% GDP), the last 6 weeks have developed the following Correlation Risk:
- TAPER-ON = US Dollar UP … Stocks, Gold, and Bonds DOWN
- TAPER-OFF = US Dollar DOWN … Stocks, Gold, and Bonds UP
This is a very short-term addiction thing. People who have been begging for the Fed not to taper (perma Gold, Bond, and MLP bulls) do not want the chickens to come home to roost alongside economic gravity (#RatesRising), ever.
Maybe that’s why some Americans were so enamored with the whole Breaking Bad thing. Short-term meth pops, whether into your blood-stream or bank account, feel so goooood. Right?
Irrespective of Teddy, JFK, and a man named Mucker disagreeing with the Dollar Devaluation thing, we need to proactively prepare for what will happen; not what we want to happen.
Which brings me to next week’s Fed decision. To taper or not to taper, remains the question…
- I don’t think Bernanke has the spine to taper in December
- If he doesn’t, the US stock market will probably rip back to all-time highs
- If he does, the long-term outlook for American life will get a lot better, faster
I realize you can count on one-hand how many people who rant and write as often as I do who agree with this long-term view of US purchasing power and economic prosperity. But that’s why it was the view that worked for most of 2013. #StrongDollar + #RatesRising gave you the best US growth investor’s market since the mid-1990s. That ends with Down Dollar.
And who (in popular political life) really wants to see another 1983-89 (Reagan) or 1 (Clinton) #StrongDollar #RatesRising and sustained economic growth period? More importantly, who actually understands it?
I remember emailing back and forth with his son during the campaign about how all Mitt had to do was keep saying #STRONGDOLLAR and tag Obama (and Bush) with the weakest purchasing power (weakest US Dollar) and highest cost of living (highest food and gas prices) in US history.
Nope. Didn’t want to do that. They marched it up the old pole of Keynesian economists who advised Bush (like Glenn Hubbard), and that new idea ended right then and there.
Is that the America you want? While I may want to, I will never get younger again. Neither will your country. But you might get one hell of a buy-the-damn-#DollarDown stock market pop next week if Bernanke Burns The Buck again. Don’t confuse that with economic progress.
Our immediate-term risk ranges are now:
UST 10yr Yield 2.77-2.91%
Brent Oil 108.01-110.63
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
THE MACAU METRO MONITOR, DECEMBER 13, 2013
LVS NO LONGER PURSUING SPAIN DEVELOPMENT, WILL CONTINUE AGGRESSIVE PURSUIT OF OPPORTUNITIES IN ASIA LVS
"We have reiterated time and again that our internal development process would dictate the outcome of a proposed development in Spain. That process has been extremely thorough and while the government and many others have worked diligently on this effort, we do not see a path in which the criteria needed to move forward with this large-scale development can be reached. As a result we will no longer be pursuing this opportunity. As chairman and CEO, my role is not only creating a vision for the company's future, it is also fulfilling it in a way that best represents the interests of our shareholders. Developing integrated resorts in Europe has been a vision of mine for years, but there is a time and place for everything and right now our focus is on encouraging Asian countries, like Japan and Korea, to dramatically enhance their tourism offering through the development of integrated resorts there."
-Sheldon Adelson, LVS CEO
PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR OCTOBER 2013 DSEC
Macau visitor arrivals in package tour totaled 716,867 in October 2013, down by 11.5% YoY. Under the influence of the new Tourism Law in Mainland China, effective in October, visitors coming from the Mainland (526,564) decreased by 10.6% YoY, with 280,110 from Guangdong Province, which was followed by Taiwan (60,414); the Republic of Korea (34,646); and Hong Kong (34,060).
The average length of stay of guests held stable as October 2012, at 1.4 nights.
LOUIS XIII CASINO FOUNDATIONS TO BE LAID BY MAY Macau Business
The developer of the Louis XIII casino in Cotai expects the foundations to be completed in April or May. Louis XIII Holdings Ltd deputy chairman Tom Lau Ko Yuen said that construction should be finished by the second quarter of 2016.
A plan was approved to raise HK$300 million (US$38.69 million) for the project by issuing convertible bonds and another HK$141.33 million by placing out shares. Lau said the developer expected to have enough capital to finish the US$1.06 billion (MOP8.47 billion) project.
CHINA'S NEW HOLIDAY PLAN Xinhua News
The major change is reducing the number of three-day holidays by "moving" weekends; that is if a holiday falls on a Wednesday, weekends will not be moved. Holidays for 2014 will be as follows:
- Spring festival holiday which will start from Jan. 31 to Feb. 6, where holiday will start on the first day of the lunar new year instead of the new year’s eve.
- The National Day holiday will start from October 1st to 7th
- Tomb-Sweeping Day holiday will be from April 5th to 7th
- Labor Day holiday from May 1st to 3rd
- Dragon Boat festival from May 31st to June 2nd
- Mid-Autumn holiday from September 6th to 8th
The new plan believes will resolve the problem associated with the long consecutive work days prior and after holidays.