CHART OF THE DAY: The Pig's Ugly Head

Chart of the day.


CHART OF THE DAY: The Pig's Ugly Head -  Chart of the day

The Ber-nank's Pig

“For many people the “long run” quickly becomes the short run.”

-Ludwig von Mises


It’s both amazing and frightening that some US-centric investors can call rising European bond yields “pigs” and, at the same time, call the current breakout in US sovereign bond yields bullish because it’s all about US “growth.” If you are being forced to chase your “long run” stock ideas here into the short run of year-end, be forewarned – feeding The Ber-nank’s Pig comes with globally interconnected risk.


In hedge fund speak, we call a position that goes straight down a pig. Although I have never managed risk on a long only desk, I’m hearing that they call charts that look like Spanish Equities (EWP) and short-term Treasury Bonds (SHY) iggy little piggies too.


Obviously there is a confirmation bias embedded in US markets to lean bullish. As a result, not being wrong 82.6% of the time on the short side (Hedgeye’s batting average on shorts since 2008) isn’t easy to do. Sometimes however, the perma-bulls start to trip all over themselves painting every bearish and bullish data point as, well, bullish. This little piggy has a funny way of making its way to the market AFTER stocks have moved.


This morning’s Institutional Investor Bullish to Bearish Survey marked a new cycle-high in terms of the spread between de Bulls and da Bears:

  1. Bullish sentiment ramped to 56.8%
  2. Bearish sentiment dropped to 20.5%
  3. The spread (bulls minus bears) = +36.3%

In the short-run, we have finally bumped up against the widest bullish bias the US stock market has seen since April 2010. This may or may not matter to the “buy stocks for the long run” bulls, but we think the April peak to July trough drop of -15% left a mark.


In the long-run, the Bullish/Bearish Spread has never sustained a level north of 40. Historically speaking, never is a long time. The last time we saw the +40 handle raid the bears to the upside was at the beginning of 2008. Not exactly the best buy-and-hope signal that was…


Last night on Kudlow, I attempted to remind one of the 2008 bulls (Don Luskin) what the confluence of a pending slowdown in global growth and rising global inflation means for stocks in the intermediate term. He didn’t like that reminder.


This morning, in hopes of not being labeled one of the “world is awash with liquidity” 2008 dudes, I’m going to make sure that I am crystal clear on this – the rise in sovereign bond yields from Portugal (who printed 3 MONTH bills this morning at 3.4% versus 1.81% in the last auction!) to California is NOT a bullish leading indicator for 2011 “growth.”


No, that doesn’t mean I’m suggesting that last month’s US Retail Sales number wasn’t good. Neither am I saying that last month’s breakdown in domestic and emerging bond markets was either. We, as risk managers, aren’t tasked with trumpeting the +83.6% US stock market move that’s already behind us. We need to play the risk management game that’s in front of us.


So let’s strap on the multi-factor, multi-duration, global macro pants and take a walk down the path of what’s new out there this morning other than Portuguese pigs getting plugged:

  1. China and Hong Kong equities closed down another -0.54% and -1.95% overnight, respectively. Both remain broken on our immediate term TRADE duration. Growth in Asia will slow, sequentially, until Q2 of 2011.
  2. Indian equities closed down another -0.76% and remain bearish on both our immediate and intermediate-term TRADE and TREND durations.  The trajectory of India’s 2011 growth could slow materially against very tough 2010 compares.
  3. Spanish and Italian stocks markets are getting crushed again after rallying to lower intermediate-term highs as European bond yields continue to rise in the face of sovereign debt and inflation risks.
  4. Sweden’s Riksbank raised interest rates on its 7-day repo rate to 1.25% in order to proactively protect against inflation.
  5. Turkish equities (a hot spot in the buy everything emerging markets land of nod) continue to underperform and are down another -1.3% this morning as local inflation pushes towards the double digit zone (yes, inflation is bad for emerging markets – it starves their people).
  6. Brazil was down another -0.55% yesterday and traded back below its intermediate-term TREND line of support for the Bovespa = 69,005. Brazil’s GDP growth slowed to 6.7% in Q3 vs. +9.2% in Q2 and inflation just ticked up again, sequentially, to +5.6% in November.

Notwithstanding that everything that I just wrote equates to a real-time read through on Global Growth Slowing in the in the next 3-6 months, what’s most interesting here is that every US centric stock market news service hasn’t mentioned any of them!


US tax cuts are good for short-run spending and political popularity (unless you are long Best Buy), but what have they done to the world’s long run expectations of American fiscal resolve? Have we learned nothing about the short-termism associated with begging for “shock and awe” easing in early 2008? Or are we, sadly, just feeding the pig until we get to year-end and collect our high/low society bonuses?


My immediate term lines of support and resistance for the SP500 are now 1230 and 1246, respectively. I’m early in being short the US stock market here – I get that. I was in late 2007, too. But don’t forget that I was also early buying the US Dollar (UUP) in November and shorting US Treasuries (SHY) and Munis (MUB). This globally interconnected game of risk is no longer all about buying US stocks for the “long run.”


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Ber-nank's Pig - 1


The Macau Metro Monitor, December 15th, 2010


According to the Land, Public Works and Transport Bureau (DSSOPT) director Jaime Carion, there will be no more land plots granted for casino projects without a public tender once the new Land Law comes into effect.  The second public consultation for the law revision begins today and will continue until the end of January.


The new Land Law will focus on "economic diversification". Carion said,  “We are looking for integrated family-friendly resorts, where the whole family can come and have fun together.  It is believed that the plots of land already granted to SJM, WYNN, and MGM, were awarded without a public tender and will not be affected by this decision.  But IM believes unless a Cotai project has a clear non-gaming focus, it would be difficult to approve that project anytime soon.


José Pereira Coutinho, a lawmaker, believes the new Land Law will be enforced in 2012, at the earliest. 


The number of passengers arriving into Singapore's Changhi airport rose 7.7% to 3,623,080 in November. It is a sequential slowdown from October's 7.9% YoY growth in number of passengers.



On December 7, the Macau government held a discussion with the Russian Federation Delegation led by director of the Consular Department of the Ministry of Foreign Affairs, Andrey Karlov, in regard to the text of the mutual visa exemption agreement.  During a 2011 Policy Address session, Secretary for Security, Cheong Kuoc Vá, announced for the first time that the SAR was planning to relax the visa rules to Russia, as well as to loosen rules for Russian passport holders to enter Macau.  The agreement is expected to be reached in 2011.

NO.4 GENS 4BN Intelligence Macau

Stanley Ho gave all of his direct shares in SJM to his fourth wife, Angela Leong On-kei.  The shares are valued around HK$4BN, which would raise her stake in SJM to 8%.

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TODAY’S S&P 500 SET-UP - December 15, 2010

As we look at today’s set up for the S&P 500, the range is 16 points or -0.93% downside to 1230 and 0.36% upside to 1246.  Equity futures are trading below fair value in the wake of yesterday's late session pull back which saw early gains on some strong data erased after Treasury yields rose again following comments from the Fed it would maintain its $600B asset purchase program.  News that Moody's put Spain's Aa1 rating on review for possible downgrade has knocked European and Asian markets. Japan's Tankan Large Manufacturer sentiment index reported its first decline since March 2009. Today's macro highlights include Nov CPI, Dec NY Empire Manufacturing Survey and Industrial production numbers

  • Boston Beer (SAM) raised 2010 EPS forecast to $3.30-$3.60 from $2.85-$3.15, vs adj. EPS est. $3.20
  • Broadcom (BRCM) sees 4Q net rev. ~$1.9b vs previous guidance $1.8b-$1.9b, est. $1.85b
  • Cubist Pharmaceuticals (CBST) cut 2010 rev. forecast to $634m-$640m from $645m-$650m, vs est. $625.3m
  • First Solar (FSLR) sees 2011 EPS $8.75-$9.50 vs est. $8.51
  • WD-40 Co. (WDFC) said it may buy back as much as $25m shares in the next year


  • One day: Dow +0.42%, S&P +0.09%, Nasdaq +0.11%, Russell 2000 (0.06%)
  • Last Week:  Dow +0.25%, S&P +01.28%, Nasdaq +1.78%, Russell +2.70%
  • Month-to-date: Dow +4.28%, S&P +5.17%, Nasdaq +5.18%, Russell +6.14%;
  • Quarter-to-date: Dow +6.38%, S&P +8.80%, Nasdaq +10.94%, Russell +14.13%;
  • Year-to-date: Dow +10.05%, S&P +11.34%, Nasdaq +15.80%, Russell +23.39%
  • Sector Performance: Telecom +1.6%, Healthcare +1.1%, Industrials +0.5%, Consumer Spls +0.4%, Utilities +0.3%, Tech +0.1%, Materials +0.04%, Consumer Disc (0.01%), Energy (0.3%), Financials (0.9%)                


  • ADVANCE/DECLINE LINE: -368 (-131)  
  • VOLUME: NYSE 953.01 (-1.05%)
  • VIX:  17.61 +0.34% YTD PERFORMANCE: -18.77%
  • SPX PUT/CALL RATIO: 1.10 from 1.26 -12.40%  


  • TED SPREAD: 16.70 -0.304 (-1.790%)
  • 3-MONTH T-BILL YIELD: 0.15% +0.02%  
  • YIELD CURVE: 2.83 from 2.68


  • CRB: 319.51 -0.11%
  • Oil: 88.28 -0.37%
  • COPPER: 420.90 +0.05%
  • GOLD: 1,403.45 +0.64%


  • EURO: 1.3412 +0.22%
  • DOLLAR: 79.367 +0.10%




  • European markets trade lower led by the periphery as European debt contagion fears returned after Moody's put Spain's Aa1 ratings on review for possible downgrade.
  • Portugal is due to hold a T-bill auction today.
  • Economic data also weighed following a cautious assessment of the US economy by the Fed yesterday, as Japan's manufacturers sentiment worsened, though less than expected, for the first time in two years and UK unemployment data disappointed.
  • The Swedish Central Bank raised its benchmark interest rate by 25bps to 1.25%.
  • Declining sectors lead advancers 14-4 with banks the worst performers down (2.2%).
  • UK Nov claimant count (1.2K) vs con (3K)
  • UK Oct ILO unemployment +7.9% vs con +7.7%
  • EuroZone Q3 employment due at 5ET
  • The pound and the euro are trading at $1.5695 and $1.3305 respectively
  • Pound was pressured as the number of people out of work rose for the first time in six months  


  • Asian markets were mixed today, though losing markets fell more than rising markets gained.
  • Australia gave up early gains to finish flat.
  • Exporters rose to help Japan finish flat despite a downbeat tankan.
  • China fell on profit-taking and lower commodity stocks.
  • Cathay Pacific dropped 7% to lead Hong Kong down on IATA’s saying airline profits may be hurt next year by slower economic growth and higher fuel costs.
  • Japan Q4 large manufacturer tankan +5 vs consensus +4 and prior +8. October tertiary industrial activity +0.5% m/m.

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends













Keith McCullough on CNBC Tonight

Good afternoon friends:
As a valued Hedgeye client or prospective client, I thought you might like to be aware of upcoming events and media appearances. Tonight, our CEO Keith McCullough, will join Larry Kudlow on CNBC's Kudlow and Company to discuss QE2 and the global economy. Tune in tonight, December 14th, at 7:00pm EST.
As always, we are very grateful for your support and we hope you'll enjoy tonight's segment.

Click here for a video of Keith's introductory CNBC segment from yesterday morning where he briefly discussed our global macro outlook for 1H11.
Yours in risk management,
The Hedgeye Macro Team


Fed Fighting

This note was originally published at 8am on December 14, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Pick a fight.”

-Jason Fried & David Heinemeier Hansson


Seth Godin said “ignore this book at your own peril.” Tom Peters said “the clarity, even genius, of this book actually brought me to near tears on several occasions. Just bloody brilliant, that’s what.”


I gave this book to everyone on our team for a recent strategy session. It’s called “REWORK” and I think you can not only apply it to how you think about your company and portfolios, but how you think about your life. Learn, Unlearn, and Rework. It’s healthy.


Some people don’t like to fight. I do. Especially when I find someone on the other side of something that I am passionate about. If you’re going to pick a fight though, and take this from a 5 foot 9 inch hockey player, you better pick the ones you can win.


Conventional wisdom says don’t “fight the Fed.”


We live in unconventional times.


Not only do I think it’s a great time to pick a fight with the Chairman of the Federal Reserve, I think we can win.


“We” isn’t a group of passionate people in New Haven, Connecticut. “We” isn’t all of the Americans who are, pardon the pun, fed up with Big Government Intervention in our markets. “We” are the world’s risk managers.


The Chinese are fighting the Fed. So are the Australians, Brazilians, and Germans.  So let’s line up what’s in our corner this morning and go through who and/or what can help us engage in Fed Fighting:

  1. Global Inflation
  2. Global Bond Yields
  3. The US Dollar

Let’s go in reverse order and start with the US Dollar first. Last week the US Dollar was up another +0.86% for the week.  It closed higher for the 5th week out of the last 6 and +5.3% higher than its YTD low established on November the 4th (post QG2 and the midterm elections).


We’ve been long the US Dollar (UUP) since November the 4th in anticipation of both global inflation accelerating and globally interconnected risk compounding. We’ve also had a keen eye on the macro calendar catalyst pending in the new year of both Ron Paul being able to subpoena the Fed and Republicans having a mandate for American Austerity measures.


Global bond yields are chasing higher and breaking out on both our TRADE and TREND durations. Despite US Treasury yields selling off in the last 24 hours ahead of The Ber-nank’s FOMC decision today, they remain in a very bullish pattern – and, as a result, the entire bond market is in a very bearish immediate-term position.


The TRADE and TREND lines for 2s, 10s, and 30s across the US Treasury Yields curve are as follows:

  1. 2-year yields have TRADE and TREND lines of support of 0.49% and 0.46%, respectively.
  2. 10-year yields have TRADE and TREND lines of support of 2.87% and 2.68%, respectively.
  3. 30-year yields have TRADE and TREND lines of support of 4.26% and 3.94%, respectively.

All of these moves in US yields are being perpetuated by:


A) Asian yields rising on government interest rate hikes, and

B) European yields rising on both inflation and sovereign debt risk.


This morning’s Spanish 12-month bond auction yielded 3.44% versus 2.36% in the prior auction and inflation in the UK remained above the Bank of England’s token target, pushing to +3.3% in November versus +3.2% in October.


Global inflation has been driving bonds lower for the last 6 weeks. No matter what Ben Bernanke says about inflation in his statement today, the market is already running way ahead of him on this. Remember, markets don’t lie; politicians do.


Sure, you can make a case that in the face of tax cut extensions US growth expectations are rising as well. But don’t mistake short-term levered-growth (cutting taxes and ramping the deficit/GDP ratio) for sustainable organic GDP growth.


Whether it’s the price of the CRB Commodities Index (up +20.5% since the day in August that The Ber-nank decided to inflate), or the price of copper hitting an all-time-high of $4.22/lb this morning (+31% since August), I don’t think I’m alone in picking a fight with the Fed on this fine December day of 2010.


Global markets have my back. If you are politicking to debauch the dollar again today Mr. Bernanke, keep your head up.


My immediate term TRADE support and resistance lines for the SP500 are now 1226 and 1246, respectively. We remain short both the SP500 (SPY) and the short end of the US Treasury markets (SHY) in the Hedgeye Portfolio.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fed Fighting - 1