• run with the bulls

    get your first month

    of hedgeye free



The Macau Metro Monitor.  January 14th, 2009.



Sands China announced today that its Cotai Strip CotaiJet ferry operation has been issues a license to operate between Macau and Hong Kong for another ten years.  The license also increases the number of routes the CotaiJet service can use, including the addition of several daily roundtrip sailings between the Hong Kong International Airport and the Taipa Ferry Terminal – which is located minutes from the company’s properties on the Cotai Strip.


It is expected by LVS executives that the new routes and increase in capacity from Hong Kong to Macau will facilitate growth of the meetings, incentive, convention, and exhibition business.  Steve Jacobs, CEO of Sands China LTD., said that the company would work as fast as possible to have the new routes up and running.




Casino operator Galaxy Entertainment Group LTD. will finalize a plan to complete the financing for its HK$14.1 billion flagship resort in Macau within 30 days, according to CFO Robert Drake.  The funding plan will cover the remainder of Galaxy’ financing needs for the Cotai project.  Details of the funding are yet to emerge.  Drake said that the company is on track to open the resort in the first quarter of next year. 



The 2010 Macau-Zhejiang Week began on Wednesday with an aim of deepening the economic ties between China’s Zhejian province and Macau.  During the event, a series of economic and trade cooperation agreements will be signed.  With its experience and infrastructure, Macau will be an important platform through which Zhejiang products can enter the world market, said Gong Zheng, vice governor of Zhejiang province.


Statistics from the Zhejiang provincial government showed that the trade volume between Macau and Zhejiang reached 11.18 million U.S. dollars during the first eight months of last year, down by 49% year-over-year, with Zhejiang’s export to Macau standing at 136,400 dollars.


In physics, defining a "downward" direction, buoyancy is the upward force, caused by fluid pressure which keeps things afloat; this force enables the object to float or at least seem lighter.  While the S&P 500 is not floating on liquid it’s floating on the free money policy of the Federal Reserve. 


One day after all the major indexes all posted their biggest one-day losses for 2010, the market came back strong with every sector in positive territory yesterday.  It should be noted that the quality of the rally yesterday was low as the volume on the NYSE declined 11.6% sequentially. 


From a MACRO standpoint there did not seem to be any specific catalyst behind yesterday’s move, though one of positive dynamics was acceleration in mortgage applications which increased 14.3% from 0.5% last week.  


The best performing sector yesterday was Healthcare (XLV), rising 1.3%.  The pharma group was one of the bright spots with the positive tone set by upgrades at Credit Suisse.  The facilities and Biotech names also outperformed; the Amex Biotech index has only declined twice so far in 2010. 


After turning in the worst sector performance on Tuesday, the Financials (XLF) outperformed the S&P 500 by 30bps on Wednesday.  On the back of acceleration in mortgage applications, the mortgage insurance group outperformed the overall index.  Within the banking group, the regional’s put in the best performance.  


In a surprising move the Technology (XLK) sector outperformed the S&P 500 by 20bps.  A bulk of the outperformance came from a rebound the semi names, as the SOX increased 1.6% after falling the previous two days.  Also bucking the downward trend were Software stocks with the S&P Software Index up 1.1%.


The worst performing sector yesterday was Energy (XLE).  The XLE underperformed as crude oil declined for the fifth straight day.  Oil stockpiles rose by 3.7M barrels last week vs. expectations for a 1.5M barrel build.  In addition, distillate inventories increased 1.35M barrels vs. expectations for a 1.3M barrel draw. 


Slowing growth in China is also a concern for the RECOVERY trade, although the Materials (XLB) was the second best performing sector yesterday. 


The range for the S&P 500 is 18 points or 0.8% (1,155) upside and 0.7% (1,137) downside.  At the time of writing the major market futures are trading flat on the day.    


Yesterday the CRB finished higher by 0.28% on the back of the Industrials and Precious metals. Once again the soft commodities and Grains were the worst performing.   


In early trading today Copper is trading higher, after increasing 1.5% yesterday.  The Hedgeye Quant models have the following levels for COPPER – buy Trade (3.32) and Sell Trade (3.49).


Gold is trading in a narrow range.  It traded up modestly yesterday and is down in early trading today at $1,134.  The Hedgeye Quant models have the following levels for GOLD – buy Trade (1,120) and Sell Trade (1,158).


Yesterday, crude oil traded down for the third day in a row and is trading flat in early trading.   As we mentioned, the supply picture is putting pressure on the commodity.  The Hedgeye Quant models have the following levels for OIL – buy Trade (79.22) and Sell Trade (84.11).


Howard Penney

Managing Director














Wealth And Power

“A true friendship develops on the basis of genuine human affection, not money or power. Of course, due to your power or wealth, more people may approach you with big smiles or gifts. But deep down these are not real friends of yours; these are friends of your wealth or power.”
- Dalai Lama
The Summit meeting between Obama and the Dalai Lama is all about WEALTH and POWER.  Taiwan needs weapons that will give them more POWER.  Will the Obama swagger with the Dalai Lama give us more POWER over the Chinese or just some needed income?  At best, the administration can hope that the damage will be limited.  
The Chinese already don’t like us and that was made clear at the climate talks in Copenhagen.  There is nothing simple about the US - China relationship, but it appears that we are headed for a rough patch.  The Chinese have made a series of moves to slow its market-oriented, economic reforms over the last year (CHINESE OX IN A BOX), which should raise some concerns for many businesses in the West and increases our conviction that the Chinese market will underperform in 1Q10.  

It now becomes a delicate balance on the part of the Obama administration to play hardball with the Chinese so the US is not perceived to be POWERLESS, while not making them angrier.   Obama needs to demonstrate that he is not “in a box” but instead, has WEALTH and POWER to navigate the issues with the Chinese.      
While hope is not an investment process, let’s hope that the administration does not make some irrational decisions in dealing with the Chinese given that Obama is losing POWER at home.         
Yesterday’s ABC consumer confidence number confirms what the polling numbers are saying about the Obama administration.  Poll after poll suggests that President Obama’s efforts to reassure Americans about the economy haven’t paid off.  According to the latest American Pulse™ Survey of over 5,400 people, 64.2% say the economy will worsen or stay the same in 2010 (29.7% think it will improve) and 43.7% plan to spend less this year than last.
Americans also remain uneasy about terrorism - 92.8% believe the U.S. is still fighting the war on terror, 40.8% feel less safe since President Obama took office (47.3% feel the same, 11.9% feel safer) and 68.9% are somewhat/very concerned that terrorists may infiltrate high-level elected positions or the military.
Overnight, Asian stocks rallied after Australian employment increased three times more than consensus expectations.  Even after the central bank in Australia raised interest rates in the middle of 2009, the December employment figure was up 35,200 vs. the consensus at 10,000.  The Central Bank in Australia has the POWER to make decisions that are right for the country.     
Ben Bernanke has the WEALTH (albeit leveraged) but appears to be “in a box” and can’t demonstrate that he has the POWER to lead.  At the time Bernanke last printed his “extended and exceptional” view of monetary policy the U.S. economy improved in 10 of the Federal Reserve’s 12 districts.  
Despite unemployment staying at 10%, the economic conditions in the USA continue to improve, putting our “RATE RUN UP” theme into play.  The evidence continues to mount that the FED will need to change its policy statement at the next meeting.  
Here is a thought that most people don’t believe could happen.  The Federal Reserve hints at a rate increase, maybe even raises rates slightly and the employment picture begins to improve in the US. Higher interest rates in the USA will instill confidence that the Administration and the Federal Reserve have the POWER to do what is right for the country, while helping put WEALTH back into the pockets of the average consumer.  At this point corporate America just might believe we have turned the corner and start hiring again.   
What does all this mean?  That’s right, the “BUCK BREAKS OUT.” America has vast amounts of WEALTH; we just need leadership that has the POWER to make the difficult decisions.     
Hedgeye Risk Management will be hosting its Q1 2010 quarterly themes strategy conference call this Friday January 15th at 11 AM EST.  Contact to request access to the conference call.
Function in disaster; finish in style.
Howard Penney
Managing Director
XLK – SPDR Technology
Buying back Tech after a healthy 2-day pullback. Next to Healthcare, this remains our favorite sector in the SP500.

UUP – PowerShares US Dollar Index Fund
We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).

XLV – SPDR HealthcareBuying back the bullish position Tom Tobin and his team maintain on the intermediate TREND term for the Healthcare sector.

VXX - iPath S&P500 VolatilityThe VIX broke down to our immediate term oversold line on 1/6/10, prompting us to add to our position on VXX.

EWG - iShares Germany Buying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.

EWZ - iShares BrazilAs Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8/09 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

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 TIPSThe iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.


IEF – iShares 7-10 Year Treasury One of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.

FXE – CurrencyShares EuroWe shorted the Euro ETF on strength on 1/11/10. From an intermediate term TREND perspective we remains bullish on the US Dollar Index.

RSX – Market Vectors Russia
We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.

EWJ - iShares JapanWhile a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. 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.

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.

Keith McCullough Discusses his Book and China...

Hedge Fund Update, Correction Call, Mind...

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.