TODAY’S S&P 500 SET-UP - November 29, 2010

As we look at today’s set up for the S&P 500, the range is 24 points or -1.38% downside to 1173 and 0.64% upside to 1197.  Equity futures are trading above fair value as positive reaction to what was deemed to be a strong start to the pre-Christmas shopping season.  Retailers promote online sales as the U.S. heads back to work; overall, the average shopper spent 6.4% more during the Thanksgiving holiday weekend compared with last year, the National Retail Federation said, though it cautioned that this isn’t always indicative of the season.

  • Ameriprise Financial (AMP) may be poised to rise as it continues to move into money management from the insurance business, Barron’s reported.
  • Berkshire Hathaway (BRK/A) Vice Chairman Charles Munger disposed of $750m in company stock from trust.
  • Hewlett-Packard (HPQ) was sued by shareholders in Delaware Chancery Court seeking information about company’s ouster of former CEO Mark Hurd.
  • Lions Gate Entertainment (LGF)’s Icahn files proxy nominating 5 to Lions Gate Board: Jay Firestone, Michael Dornemann, Christopher J. McGurk, Daniel A. Ninivaggi, Harold T. Shapiro.
  • Siemens AG (SI): American depositary receipts may rise as high as $140-shr as company benefits from restructuring and global economic growth, Barron’s said.
  • Steinway Musical Instruments (LVB) may be overvalued even as U.S. demand for luxury items rebounds, Barron’s said.
  • Steven Madden Ltd. (SHOO) may rise as the company pares manufacturing costs as much as 15%, beats rivals to the market with new products, Barron’s said.


  • One day: Dow (0.85%), S&P (0.75%), Nasdaq (0.34%), Russell (0.52%)
  • Month-to-date: Dow (0.24%), S&P +0.52%, Nasdaq +1.08%, Russell +4.18%
  • Quarter-to-date: Dow +2.82%, S&P +4.22%, Nasdaq +7.01%, Russell +8.37%
  • Year-to-date: Dow +6.37%, S&P +6.66%, Nasdaq +11.7%, Russell +17.16%
  • Sector Performance: Telecom (0.35%), Tech (0.44%), Consumer Discretionary (0.46%), Utilities (0.56%), Consumer Staples (0.6%), Industrials (0.73%), Healthcare (0.77%), Financials (1.13%), Energy (1.15%), and Materials (1.23%)


  • ADVANCE/DECLINE LINE: -1079 (-3065)  
  • VOLUME: NYSE - 428.50 (-48.00%)
  • VIX: - 22.22 +13.60% - YTD PERFORMANCE - +2.49%)
  • SPX PUT/CALL RATIO: - 2.07 from 2.00 +3.66%  


  • TED SPREAD - 14.18 -0.047 (-0.330%)
  • 3-MONTH T-BILL YIELD 0.16%  
  • YIELD CURVE - 2.36 from 2.40


  • CRB: 301.13 -0.40% (up 0.75% last week)
  • Oil: 83.76 -0.12% - NEUTRAL (up 2.17% last week)
  • COPPER: 376.25 -0.11% - BEARISH (down 2.08% last week)
  • GOLD: 1,360.10 -1.08% - BEARISH (up 0.46% last week)


  • EURO: 1.3242 -0.99% - NEUTRAL  (down 3.15% last week)
  • DOLLAR: 80.357 +0.79%  - BULLISH (up 2.36% last week)




  • FTSE 100: +0.26%; DAX: (0.22%); CAC 40: (0.06%)
    European markets initially found some stability after the EU/IMF concluded a bailout deal with Ireland over the weekend.
  • Additionally the Irish Central Bank set a new minimum capital requirement for Irish banks. After early modest moves higher, major indices turned mixed to negative on market talk of a disappointing Italian bond auction and Portugal's increasing likely need for an international bailout and the worst UK M4 y/y money supply growth since records began.
  • Advancing and declining sectors are even 9-9, with insurance, basic resources and food the leading gainers, auto's, travel & leisure and healthcare the leading decliners.
  • UK Oct mortgage approvals 47,185 vs consensus 47,000 and prior 47,369
  • European Commission's autumn forecast foresees a continuation of the economic recovery currently underway in the EU.
  • GDP is projected to grow by around +1.75% in 2010-11 and by around +2% in 2012. Says a softening global environment and the onset of fiscal consolidation, activity is expected to moderate towards the end of the year and in 2011, but to pick up again in 2012 on the back of strengthening private demand
  • Labor-market conditions are expected to slowly improve over the forecast horizon, with unemployment rate projected to fall to around 9% in 2012
  • Says around half of EU Member States are set to post a lower general government deficit in 2010 than in 2009 deficit is projected to fall in 24 Member States next year.  EU as a whole, a deficit of slightly above 5% of GDP is expected in 2011, with a further decline of about 1 percentage point in 2012 as the recovery gains ground.
  • Debt ratio is set to remain on an upward path over the forecast horizon 


  • Nikkei +0.9%; Hang Seng +1.3%; Shanghai Composite (0.2%)
  • Asian markets were mixed in light trading today. Miners fell on weaker commodity prices.
  • Hong Kong bounced higher in the afternoon, but turnover remained low on worries about pending moves to fight inflation in China. Li & Fung added 5% on US consumer spending over the weekend. But Chinese carmakers dropped 5-8% since their tax exemptions expire tomorrow.
  • Exporters lifted Japan slightly on a weaker yen; momentum was lost on caution regarding conflict between the Koreas and European debt.
  • Taiwan rose after local elections left the ruling party and its pro-China policies in power. Tourism and real-estate shares rose on hopes more Chinese tourists would visit the island.
  • Banks accounted for Australia’s gain, as miners fell.
  • China slipped as commodity stocks fell and profit-taking knocked carmakers down. Small-cap pharmaceuticals continued to rise on an assumption that government support was a reason to buy.
  • Japan October retail sales (0.2%) y/y vs survey +0.7%.

Howard Penney
Manging Director

THE DAILY OUTLOOK - levels and trends













Strength At Home

“The strength of a nation derives from the integrity of the home.”



Slowly, but surely, the US Dollar is re-capturing some credibility. Yes, we get that credibility amongst the Fiat Fools is a relative measurement. But for now, with the Europeans doing their best to become Japanese, we’re long the US Dollar and we’ll take what we can get.


The strength of a nation is not derived from Piling Debt-Upon-Debt. The strength of a nation is not derived from professional politicians funding long term liabilities with short term fiat paper. The strength of a nation derives from the integrity of a country’s fiscal position.


I am well aware of the deficit and debt risks in America. I am certainly not saying they have gone away. That said, everything that matters in global macro happens A) on the margin and B) relative to everything else. What global currency prices are telling me now is that a strong currency at home could be more than just an immediate term TRADE.


Last week the US Dollar Index closed up +2.37% and +5.84% higher than its November 4th YTD low. That was the 4th consecutive week of gains and all of a sudden the Buck is Breaking Out above both its immediate and intermediate-term TRADE and TREND lines. Critically, what was resistance for US style fiscal conservatism is now support:

  1. TRADE support = $77.89
  2. TREND support = $79.71

As always, trending currency strength needs multiple factors of support - not the least of which are other foreign currencies weakening. When managing foreign currency risk, never underestimate the power of what’s going on in the rest of the currency basket.


In the last 3 weeks, the Euro has dominated headline news. This morning, “news” of an Irish bailout comes with the associated political nonsense. France’s central banking Fiat Chef went as far as to suggest that ze package “is very well tailored and will restore competitiveness in Ireland.” He’s got to be kidding me. Ask someone in Ireland how competitive they are feeling this morning.


Euros bulls are obviously having trouble swallowing that weekend old French toast. After losing -3.6% of its value last week, the Euro is trading down another -0.61% this morning at $1.32 versus the USD. It’s broken on both our TRADE and TREND durations:

  1. TRADE = $1.38
  2. TREND = $1.33

All the while, there is this large island of compromised Bureaucrats called Japan that is seeing its currency weaken as the #1 driver to economic-hope slows to a screeching halt. For the month of October, Japanese exports were effectively HALVED in term of their sequential (monthly) growth rate (+7.8% OCT versus +14.4% in SEP). As Asia slows, Japan slows… and these are the globally interconnected days of our lives.


Euro DOWN + Yen DOWN = US Dollar UP. Cool. Now Americans need to have the political backbone to maintain the integrity of the home currency. Can we do it? Yes, We Can.


I’ve got no problem cheering this Buck Breakout on. Yes, it will equate to immediate term US stock volatility, but I’m already proactively prepared for that. I cut my position in US Equities to The Ber-nank’s favorite exposure (ZERO percent) before the current 3% correction in US Equities started to take hold and this morning I have a 64% asset allocation to Cash waiting, as les bulls like to say, on ze sideline, eh.


The Volatility Index (VIX) was up a monster +23.2% last week to 22.22, so at least we’ve dropped some of the levered-long kids off at the pool. Volatility is a concurrent measurement of emotion and can quite often be a contrarian indicator of future performance. Naked swimmers may want to bear that in mind as the price momentum tide rolls out.


Strong Dollar nips The Ber-nank’s global inflation race in the bud. Strong Dollar also helps drive up short-term interest rates on my hard earned personal and corporate savings accounts. No, no, Mr. Hard Core Leverage Man, that doesn’t help you too. Strong Dollar helps men and women who are debt-free run strong like bull all over you when you are least expecting it. And this is where the true strength of this Nation lives.


My immediate term support and resistance levels for the SP500 are now 1173 and 1197, respectively. I remain short the SP500 (SPY) in the Hedgeye Portfolio.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Strength At Home - buck


Lower airline capacity and higher airfare could slow recovery 



As we mentioned in our note last week, “A SOLID OCTOBER ON THE STRIP,” McCarran visitation increased 2% YoY in October, the first increase since November 2009.  We wonder if this growth can be sustained, given what’s happening with air capacity and airfare.


The number of average daily seats at McCarran has fallen every month on a year-over-year comparison since Feb 2008.  Based on the released schedules, November is no exception, falling 4.5% YoY and 4.2% MoM, as Southwest Airlines, the busiest carrier at McCarran, had announced it was cutting 12 McCarran round-trip flights starting Nov 7.  This capacity shrinkage is not universal as North American air carriers, on a nationwide basis, increased capacity by 3% in November, according to aviation intelligence OAG.  Year-to-date, McCarran capacity is down 5.4%.  Furthermore, airlines are focusing more on business travel routes which yield higher than leisure markets such as Las Vegas.




What about for 2011?  Hard to say.  MGM’s CEO Jim Murren is confident McCarran capacity will be higher in 2011.  The Air Transport Association and Randall Walker, Director of Clark County Aviation Department, believe capacity will have a small gain next year but nowhere close to 2007 levels.  Some of the smaller international carriers are also predicting greater number of seats.  But the domestic carriers, which account for 95% of the capacity, are cautious.  Southwest will only add one Vegas daily round-trip flight a day when winter seasonal changes are completed in February 2011.  Jet Blue’s CEO, David Barger, said he is reluctant to add Vegas flights and Andrew Levy, president of Allegiant Travel Co., the parent of Allegiant Air, said he doesn’t see higher number of planes at McCarran because of the focus on profit margins.  In addition, US Airways is unlikely to return to McCarran after its massive withdrawal in late 2009 and the proposed Continental and United merger may further cut capacity.


Meanwhile, lower capacity is contributing to higher airfare.  The average lowest LV airfare has remained stubbornly higher in 2010, compared with a year ago - higher lows if you will, which could mean lower highs for Vegas stocks.  The Bureau of Transportation Statistics data show that, as of June 30, 2010, Las Vegas airfares had risen quicker than the national average.  Using Expedia’s TrendTracker and FareCompare’s Airfare Tracker, we believe higher Vegas airfares continued in Q3 and will continue into year-end. 




Unless the airlines reverse their tactic of higher prices/lower capacity, Vegas could see limitied visitation growh and less discretionary spending - potential impediments to any Vegas recovery.

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Some interesting search trends pertaining to the restaurant space over the last seven days


  • Domino’s is the most searched-for restaurant chain over the last seven days leading up to Black Friday.  For restaurants, the “Black Friday” is the day before Thanksgiving, Wednesday, rather than the day after.
  • Cracker Barrel also showing up as a “rising search” on Google Insights as people hit the road for the Holiday
  • Jared continues to drive the subway brand – an example of what good advertising can achieve
  • Bobby Flay has become synonymous with gourmet burgers.  This is a category that is becoming more and more populated and RRGB have referenced the impact of this competition on their ability to drive sales

RESTAURANTS – GOOGLE INSIGHTS - google insights restaurants


Howard Penney

Managing Director

The Stream and The Rock

This note was originally published at 8am this morning, November 26, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“In the confrontation between the stream and the rock, the stream always wins.”



Global equity markets are a riskier place than they were 48 hours ago. The North Koreans are calling this an “escalated confrontation.” The Europeans are calling this post Thanksgiving trading day a mess.


Since the Fiat Fools in Europe introduced their 750 BILLION Euro rescue plan in May, the confrontation between the Fiats and those of us who loathe leverage has been crystal clear. Some people call this debate political. Some people think it’s ideological. I think it’s a marked-to-marked battle between The Stream and The Rock.


If Piling Sovereign Debt-Upon-Debt is the stream and Big Keynesian Government Intervention is the rock, we think those levered to the liability side of this trade are going to eventually get wiped out.


Spain’s Prime Minister of a leverage-fest gone global, Jose Luis Zapatero, begs to differ with the Thunder Bay Bear on this matter. This morning, as Spanish 10-year sovereign yields (5.24%) hit a record wide spread versus German bund yields (+258 basis points), this is what Mr. Zapatero has to say:


“I should warn those investors who are short-selling Spain that they are going to be wrong and will go against their own interests”


Gee, thanks for the warning.


Markets, as we like to say at Hedgeye, don’t lie; politicians do. So let’s look at our expert network called Mr. Macro Market for the score:

  1. Spain – stocks on the Spanish IBEX Index are down another -2.1% this morning, taking their cumulative losses since October 22nd to down -13.0%. For the YTD, Spain is down -20.4%.
  2. Italy – stocks on the Italian MIB Index are down another -1.9% this morning, taking their cumulative losses since October 21st to down -9.4%. For the YTD, Italy is down -15.8%.
  3. Greece – stocks on the Greek Athex Index are down another -1.3% this morning, taking their cumulative losses since October 25th to down -13.1%. For the YTD, Greece is down -35.2%.

Pundits may be quick to point out that I didn’t use Ireland’s unequivocal disaster to make my point. I don’t need it. The big boy talk that’s going on with the Euro in the market today (the Euro is breaking my intermediate term TREND line of support of 1.33) has a lot more to do with the big nuts of European sovereign debt (Spain and Italy) coming down the stream than the rock that is another compromised Irish politician.


I say this every other morning on the Hedgeye Morning Macro Call to our clients, but I think it’s worth repeating in print today – I think Italy and Spain will be the biggest sovereign debt concerns in the world for the next 3-6 months.


In terms of 2011 share of Eurozone gross investment debt for 2011, Italy, Spain, and Greece represent the Top 3:

  1. Italy = 23%
  2. Spain = 9%
  3. Greece = 4%

Nope, that Italian number isn’t a typo. Neither is the fact that Italy has the highest labor costs in the Eurozone by a country mile (second place on that score goes to Mr. Zapatero’s Spain).


Next to Japan, Italy is also the oldest country in the world today. These people are old, levered, and expensive. If you were looking for a company to invest in, I don’t think this place would be your rock.


Sure, there are plenty of issues sacking markets from Portugal to Hungary this morning as well (Hungary’s stock market is down -3.5% this morning and its Fiat Currency, the Forint, is down a full -1.2%, after the government issued an ultimatum to it’s citizenry to move their pension savings to the state’s accounts!), but The Stream of sovereign debt that’s piling up in Italy, Spain, and Greece override all of that.


Interestingly, ECB hawk Axel Weber said in Berlin this morning that, while he considers it “inconceivable”, if they needed to re-finance the entire wad (Greece, Ireland, Portugal, and Spain), they’d need 1.07 TRILLION of EU bailout moneys.


Nope, Weber leaving Italy’s mother-load of liabilities out of this calculation isn’t a typo either. And, from Capua to California, no matter where conflicted and compromised charlatans of government leverage go this morning, there it is – The Stream.


My immediate term TRADE lines of support and resistance for the SP500 are now 1173 and 1209, respectively. I re-shorted the SP500 (SPY) into Wednesday’s extremely low-volume rally.


Best of luck out there today and enjoy the rest of Thanksgiving with your loved ones,



Keith R. McCullough
Chief Executive Officer


The Stream and The Rock - capua

The Week Ahead

The Economic Data calendar for the week of the 29th of November through the 3rd of December is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - cal1

The Week Ahead - cal2

The Week Ahead - cal3

the macro show

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