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We've been harping on claims for a while now, pointing to the fact that they have been essentially flat for the last five months. This morning they're actually up quite a bit. The initial claims figure rose 25k to 471k from 446k in the prior week (upwardly revised 2k). This takes the 4-week rolling average higher by 3k to 453.5k.


The reality is that without significant improvement in claims, a leading indicator, there will be little improvement in unemployment, and, by extension, net charge-offs for lenders. Remember that most financials, even with the recent sell off, are still pricing in a substantial return to what are considered "normalized" credit costs (i.e. 2005/2006 levels). Based on this morning's number (a continuation of the last 5 months trend), at a minimum, a return to those normalized levels will be delayed. Remember, for unemployment to fall meaningfully, initial claims need to fall to a sustained level of 375-400k. We are 75-100k above that level.


As a reminder around the census, May is the expected peak employment month. Beginning in two weeks the census will become a headwind for job creation.  







The following chart shows the census hiring timeline.  If the past two cycles are an appropriate model for this year's census, we should start to see Census employment draw down as we move into June, creating a headwind for employment. 





Joshua Steiner, CFA


Allison Kaptur


The Macau Metro Monitor, May 20th, 2010


Sands China launched yesterday a 88-day campaign for its high rollers that for the first time puts together Macau and Singapore casinos.  The grand prize of the “Win a Billionaire’s Lifestyle” promotion will include private jet transfers to the Lion City and luxury accommodation at the newly opened Marina Bay Sands.  According to Kevin Clayton, Venetian’s executive vice-president for marketing operations, "It’s a very simple way to create the most powerful program possible with which to reward our costumers.Other brands would also like to do that and we have the size to accomplish it."


Clayton played down the threat of Singapore’s gaming sector to Macau. “Sheldon [Adelson, chairman of Las Vegas Sands] said there is room for many more gaming resorts in Asia”, he recalled.  But the cooperation must not be restricted to Sands’ properties in Asia. “We, the gaming operators, have to work together to build Cotai as a destination”, said Clayton. “We have to get more people into Macau, working with the tourism agencies and the local Government”, the executive stated.


For Clayton, the sector has two short-term priorities: “increase the number of overall visitors to Macau and get more people to stay longer”. And that is the purpose, he added, of the attractions to be built at the parcels 5 and 6 in Cotai. Clayton also assured the new areas “are still slated to open in early 2011”.



The unemployment rate for January – March 2010 in Macau was unchanged at 2.9% in comparison with the previous quarter period. Total labour force was 323,300 in the first quarter of 2010, a YoY increase of 1,000.


Analyzed by industry, the majority of the employed were engaging in Recreational, Cultural, Gaming & Other Services (23.4%) and Hotels, Restaurants & Similar Activities (14.3%).  In terms of occupation, most of the employed were Clerks (including casino dealers, floorpersons, betting service operators, etc.) and Service & Sales Workers, accounting for 26.1% and 22.7% respectively.


Median monthly employment earnings of both the employed (MOP9,000) and the local residents (MOP10,000) held stable as the fourth quarter of 2009.



The Government will start to require visas for people arriving from six South Asia countries before arriving at the Macau border in the second half of the year, the head of the Office of the Secretary for Security, Vong Chun Fat, said yesterday.

The measure aims solve the problems of an increasing number of overstayers and illegal workers.


The visa entry requirement was announced at the end of last year and include: Vietnam, Nepal, Sri Lanka, Pakistan, Nigeria and Bangladesh.  “Since it is a completely new measure, it is necessary to plan and study it in detail. Currently, the immigration department of the Public Security Forces Affairs Bureau had already done the preparatory works together with the Commissioner of the Ministry of Foreign Affairs in Macau and it has obtained a satisfactory result.  We hope this measure can come into effect in the second half of this year,” he stated.



Las Vegas Sands Corp.’s Singapore casino resort sued the organizers of the first conference it hosted after payment was withheld for an event where the power failed during a speech by the Chief Justice of New South Wales and delegates complained of unfinished rooms.  Marina Bay Sands Pte is seeking S$300,000 ($214,000) from IPBA 2010 Pte.  Delegates to the legal conference including New York-based Raymond Burke Jr., who received hotel confirmations promising “intimate little touches and impeccable service,” found unfinished rooms and malfunctioning fixtures.


Delegates at the IPBA annual general meeting closing the conference proposed challenging Sands on the fees.  The IPBA organizing committee said in an e-mailed statement that it wrote to Sands on May 6 to propose compensation and a meeting on May 11 was followed by the writ.  “Now that we have been dragged to court we will defend the claim and issue a counterclaim as well,” according to the statement.


SINGAPORE'S GDP GREW 15.5% ON-YEAR, 38.6% ON-QUARTER IN Q1 Channel News Asia

Singapore's GDP expanded by 15.5% YoY and 38.6% QoQ, ahead of preliminary estimates.  Despite the strong growth, the Ministry of Trade and Industry has chosen not to revise its growth forecast for the economy, keeping it at 7% to 9% for the year.  MTI warned of heightened market anxiety over the possibility of a sovereign debt default in Europe and concerns over excessive asset price inflation in emerging Asia.


Faith is taking the first step even when you don't see the whole staircase.

- Martin Luther King, Jr.


In general terms, faith is the persuasion of the mind that certain statements are true, belief in and assent to the truth of what is declared by another, based on his or her supposed authority and truthfulness. Faith in politicians around the world is certainly waning. Europeans, Americans, and Asians can’t see the whole staircase, but they don’t believe their representatives can either.


Yesterday the S&P 500 finished lower by 0.5%, with the financials as the only sector positive on the day. The Financials (XLF) sector was somewhat of a surprise outperformer despite headlines out of Washington that continued to feed into worries surrounding the bottom-line impact of financial reform. Specifically, yesterday the Senate failed to cut off debate on the financial regulatory bill as two key Democrats said it still did not sufficiently tighten rules.


The market was also unable to take advantage of a short-covering bounce in the euro. The euro has gone straight up from our oversold line of 1.21 and is currently trading at 1.23. The Hedgeye Risk Management models have the following levels for the euro – Buy Trade (1.21) and Sell Trade (1.25). Despite a brief reprieve for euro, the issues in Europe continued to be a drag on sentiment.


On the MACRO front, the Mortgage Bankers Association data showed that the mortgage delinquency rate rose in the first quarter to 9.38% of all loans outstanding, from 8.22% last year. Yesterday the Dollar Index gave back some of it recent gains, declining 0.88% on the day. The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.48) and Sell Trade (86.97).


Currently, equity futures are trading below fair value as markets attempt to reconcile yesterday's decline and the more bullish FOMC minutes. The news in Europe is mixed and there is clear lack of direction coming out of Europe regarding the appropriate strategy for dealing with its debt crisis. As we look at today’s set up the range for the S&P 500 is 41 points or 1.4% (1,099) downside and 2.2% (1,140) upside.


The Hedgeye Risk management models have moved to 0/9 sectors on TRADE and 2/9 sectors positive on TREND - Industrials (XLI) and Consumer Discretionary (XLY).


Yesterday, the Industrials (XLI) was the worst performing sector, declining 1.3%. Year-to-date, the XLI has been the biggest beneficiary of the MACRO headlines that have been driving the bulk of the direction for global equities. In addition, although the sector has been a big beneficiary of a rebound in the manufacturing sector, May represents that first data point that was a disappointment as the Empire Manufacturing Index fell to 19.1 from 31.9 in April.


Consumer Discretionary (XLY) underperformed as stocks leveraged to the housing sector were mostly weaker today with the XHB down 1.5%. The building products names remained under pressure with USG (4.5%), AWI (3.7%) and OC (2.8%) all finishing down for a fifth straight session. The home builders were mixed on the day. As expected, the recent housing data points have come in ahead of expectations, doused by the reality that the stimulus measures have pulled demand forward. Today's MBA release offers some support for that thesis, as the purchase index fell 27.1% week-over-week.


Oil halted a six-day losing streak yesterday after stockpiles in the U.S., increased less than analysts forecast last week and supplies of distillate fuel unexpectedly declined. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (69.99) and Sell Trade (74.63).


Gold declined 1.9% yesterday as did many other commodities on speculation that the recent rally is ahead of itself. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,180) and Sell Trade (1,251).


Copper rose as declining stockpiles in warehouses monitored by the London Metal Exchange boosted speculation that demand for the metal may be increasing. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.90) and Sell Trade (3.11).


Three month LIBOR ticked up to 0.48 from 0.46 yesterday. The TED Spread widened to 0.32, indicating that risk perception is heightening. Europe remains a factor for investors gauging global risk; the inverse correlation between the TED Spread and the euro is now -0.95.


On the MACRO calendar we have: 

  • Initial Jobless Claims
  • May Philadelphia Fed
  • April Leading Indicators
  • Fed Governor Tarullo testifies at a House Financial Services joint subcommittee hearing on The Role of the IMF and Federal Reserve in Stabilizing Europe 

Howard Penney

Managing Director













Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%

Friedrich vs. The Fiats

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

-F.A. Hayek


Friedrich von Hayek isn’t who the Fiat Fools want to read about this morning. So let’s unite as a community of capitalists and pass this message around to the legions of Keynesians out there who need a wakeup call. We are running out of time. The Western world’s fiat currency system is failing.


I’d wager that 2 out of every 3 anchors on CNBC don’t even know who Hayek is, which is actually quite sad when you think about it. The group-thinkers of American finance cannot begin to respect the history of economics if they’ve never studied it.


Friedrich von Hayek is the father of the Austrian School of Economics. Unlike John Maynard Keynes, who was actually a currency trader before he realized how easy it was to grandstand against the British politicians of his time, Hayek had a multi-factor risk management model that hinged on marked-to-market prices.


Hayek won the 1974 Nobel Prize in Economics for his "pioneering work in the theory of money and economic fluctuations and [his] penetrating analysis of the interdependence of economic, social and institutional phenomena.” (Wikipedia; http://en.wikipedia.org/wiki/Friedrich_von_Hayek)


What’s most important about Hayek’s work is that it was built on the principle that market prices should clear freely and that we should stay as far away as possible from the tyranny of political power, socialist influence, and collectivist thought. In his day, his views provided the foundations for some of Paul Volcker’s actions, and the death bed for the Keynesian political pandering of then head of the US Federal Reserve, Arthur Burns.


Burns and Bernanke have a lot in common – both have pandered to the political winds of debauching their citizenry’s currency in order to artificially inflate prices. Some might even call marking the cost of bank capital to model like this, price fixing. I’m not sure I am willing to go that far yet, but I am willing to go on the record stating plainly that the Japanese, American, and European economic experiments of Fiat Fools has failed.


Getting right back to what’s happening out there in the market that’s in front of us this morning, we continue to witness an unbelievably blind belief that the US Federal Reserve and the European Central Banks know exactly what they are doing.


Ben Bernanke may indeed be a wonderful historian of the Great Depression, but when it comes to financial forecasting he is borderline incompetent. His inflation forecasting track record since he took over at the Fed in 2006 speaks for itself – it’s just plain ugly. On the growth side, his forecasts continue to be a, if not THE, lagging indicator.


In the Fed’s minutes yesterday, Bernanke’s boys upped their growth forecast for US GDP from a range of +2.8%-3.5% to +3.2-3.7%. The man has to be kidding me. AFTER calling this the greatest of “emergency” like depressions, cutting rates to ZERO, then acknowledging that Mr. Macro Market had it right and that US GDP wouldn’t be depressionary, NOW he is upping his forecasts right before US GDP is setting up to slow again sequentially!


Sorry Keynesian fans, this nonsense of piling policy mistake upon policy mistake as we pile debt upon debt has to stop. And soon, or this country is heading to at least as dark a place that some Western Europeans are heading to real-time.


Unlike during my 2008 criticisms of Bernanke and Paulson’s decisions to destruct America’s balance sheet for the sake of Groupthink Inc’s compensation structures, this time around we have an army of you who have the ability to forward this note to whoever has the spine to be accountable.  It’s time to stand up to the Fiat Fools. It’s time for a modern day enlightenment. It’s time to show them that there is a better way.


Saying that “no one saw it coming” this time around won’t cut it. The lack of leadership and accountability in our country has every opportunity to be righted. It always has. From New Haven to Omaha, please stand with us and continue to form the line. As George Washington said, it’s time to “guard against the impostures of pretended patriotism.” America’s legacy stands on the shoulders of competent giants. We know you are out there. Stand tall.


We remain short the SP500 (SPY) in order to protect our friends, our firm, and our handshake. We will not go down with the men who don’t  know what they don’t know “about what they imagine they can design.” Our immediate term TRADE lines of support and resistance for the SP500 are now 1099 and 1040, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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