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TODAY’S S&P 500 SET-UP - May 31, 2011

When the top news story after a long weekend (and on the day of month end markups) is Greece being set free from the shackles of a free market pricing in default, you know this gargantuan Fiat Fool experiment is running long in the tooth.  Obviously, USD down, Euro up, on a sloppy news item like this puts The Correlation Risk right back on the table for June. That’s the TREND.  As we look at today’s set up for the S&P 500, the range is 17 points or -0.61% downside to 1323 and 0.67% upside to 1340.






THE HEDGEYE DAILY OUTLOOK - daily sector view








  • ADVANCE/DECLINE LINE: 1379 (+118)  
  • VOLUME: NYSE 692.69 (-18.13%)
  • VIX:  15.98 -0.68% YTD PERFORMANCE: -9.97%
  • SPX PUT/CALL RATIO: 1.20 from 1.76 (-31.72%)



  • TED SPREAD: 20.72 -0.607 (-2.846%)
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 3.07 from 3.07
  • YIELD CURVE: 2.59 from 2.59 



  • 9 a.m.: S&P/Case Shiller Home Price, est. down 3.4% Y/y, down 0.24% M/m
  • 9:45 a.m.: Chicago Purchasing Manager:, est. 62.0, prior 67.6
  • 10 a.m.: Consumer confidence, est. 66.5, prior 65.4
  • 10 a.m.: NAPM-Milwaukee, est. 60.5, prior 68.0
  • 10:30 a.m.: Dallas Fed Manuf. Activity, est. 8.0, prior 10.5
  • 11 a.m.: Export inspections: corn, soybeans, wheat
  • 11:30 a.m.: U.S. to sell $27b 3-mo. bills, $24b 6-mo. bills
  • 4 p.m.: Crop progress corn, cotton, winter wheat, soybean


  • Airlines gaining more revenue from add-ons to ticket sales - WSJ
  • American carmakers move focus to small cars - NYT
  • 3D films not jumping off the screen in North America anymore - NYT
  • WSJ says that higher capital doesn't solve all of banks' problems



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Commodities Snap Best Winning Streak Since 1980 on European Debt, China
  • Aluminum Processors in China Told to Prepare for Power Shortages, CRU Says
  • Pork Imports by Korea Surging on Foot & Mouth Help Smithfield Foods Sales
  • Palladium Rising as BMW Becomes Catalyst for Biggest Shortage in 32 Years
  • Record Rice Crop May Let India End Export Ban, Capping Global Food Costs
  • Copper Advances on Japanese Manufacturing Growth, Greece Aid Speculation
  • Oil Gains for Second Day on Keystone Pipeline, U.S. Consumer Confidence
  • Juan Valdez Eyes China as Colombia Coffee Farmers Steer Asians From Tea
  • Wheat Declines Most in a Week as Russia Says it Will End Grain-Export Ban
  • Copper in London Declines, Set for Third Monthly Loss, on Growth Concerns
  • Rubber Has First Monthly Advance Since January on Outlook for Tire Demand
  • Australia GDP Likely Shrank for First Time Since 2008 on Flood Disruptions
  • Voestalpine Profit Rises Almost Five-Fold; Sees Additional Growth in 2012
  • European Commodity Day Ahead: Palladium Set to Rebound on Global Shortage





THE HEDGEYE DAILY OUTLOOK - daily currency view




  • Europe is up because Greece didn't evaporate today? Greece +3.8% this morn, but still down -25% since February and BROKEN
  • Eurozone April Unemployment rate +9.9% vs consensus +9.9% and prior +9.9%
  • Eurozone May inflation estimate +2.7% y/y vs consensus +2.8% and prior +2.8%
  • France April consumer spending (1.8%) m/m vs consensus (0.3%) and prior revised to (1.0%) from (0.7%)
  • Germany April Retail sales +3.6% y/y vs consensus (0.1%) and prior revised to (3.6%) from (3.5%); Germany April Retail sales +0.6% m/m vs consensus +1.8% and prior revised to (2.7%) from (2.1%)







  • ASIA is seeing a strong mean reversion bounce to lower-highs across the region; China stopped going down +1.4%; Japan +2%, Korea +2.3%
  • Moody's places Japan's ratings on review for possible downgrade











Howard Penney

Managing Director

Gopher Shrugged

This note was originally published at 8am on May 26, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It’s been proven that every business depends on every other business… so everybody ought to share the burdens of everyone else.”

-Orren Boyle (Atlas Shrugged)


While it’s hard to pinpoint exactly who each character in today’s emerging socialist state would be in Ayn Rand’s “Atlas Shrugged”, I’m very confident that Tim Geithner could audition for more roles than one. He’s trained for this for 47% of his life.


In Chapter 3 of “Atlas Shrugged”, titled “The Top And The Bottom”, Rand introduces the largesse of Big Government Intervention via a political panderer by the name of Orren Boyle who “had appeared out of nowhere, five years ago, and had since made the cover of every national magazine…”


Ah, to be on 60 Minutes… my life would finally have purpose…


“Disunity,” drawled James Taggart, “seems to be the basic cause of all social problems.”


“You said it, Jim. Disunity that’s the trouble.”


That conversation (pages 44-45) between a modern day bailout socialist (James Taggart) and Geithner (Orren Boyle) pretty much sums up how this country’s central planning board of directors thinks about things – in real-time.


Real-time? Yes We Can. Check out these comments yesterday by The Gopher (Geithner) about this country’s fiscal affairs:

  1. “Dark forces are waging a war of attrition against efforts to strengthen regulation of the financial system…”
  2. “They’re trying to starve the agencies of funding so they can’t enforce protections…”
  3. “Right now this is all theater… I think there are some people pretending not to understand…”

No – I could not have made up these quotes if I tried. Nor do I find them funny. Political “theater” like this is a national embarrassment. Our moving more and more to the left everyday has every capitalist in America subliminally losing confidence in how this is all going to end.


“Who Is John Gault?”


This is the world’s 2nd most influential book of all-time (according to a 1991 survey by the Library of Congress) next to the Holy Bible for good reason. There are socialists and there are capitalists. And there are politicians in your life - at work, school, and play – angling … and scheming… somewhere in between the socialist-capitalist spectrum.


Never mind “Who Is John Gault?” – maybe a better question is who are you in today’s edition of Gopher Shrugged? It’s an important question to ask yourself as we extend and pretend on the definition of a true free-market society.


Back to the Global Macro Grind


US stocks and commodities we’re up yesterday because the US Dollar was down. If you want to fix this “disunity” thing – for short-term political resolve - that’s pretty much the only way to do it (if you think getting stocks up is the answer that is). All these fat cats have to do is blow up the hard earned credibility embedded in America’s currency.


The problem with this solution to the problem – the problem that they created - is that when you abuse it (and I mean burn it), the “reflation” trade turns into The Inflation (and some loony guys making Reardon Macro in New Haven said INFLATION SLOWS GROWTH).


That’s the problem.


Dollar DOWN a smidgen yesterday = commodity inflation UP big time (up +1.5% on the CRB Commodities Index – a basket of 19 commodities). So take that “theater” at the pump this Memorial Day weekend folks, and like it.


There’s seemingly no juice left in The Gopher’s “agencies.” Market volumes are drying up. And the “dark forces” of market gravity associated with those God blessed things called supply, demand, and price have US stocks down for 4 consecutive weeks.


What are we pee-ons who are starting our own companies, on our own sweat capital, to do? Easy answer. Raise Cash in our portfolios so that we can be there … once again - like we were in 2008… to hire and creatively destruct all that is wrong with central planning.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1510-1533, $96-89-101.57, and 1310-1329, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Gopher Shrugged - EL geithner


Gopher Shrugged - VP

CHART OF THE DAY: Government Interference


CHART OF THE DAY: Government Interference - Chart of the Day

Government Interference

“Is it just or reasonable, that most voices against the main end of government should enslave the less number that would be free?”

-John Milton


John Milton was an influential 17th century poet who “wrote at a time of religious flux and political upheaval in England” (Wikipedia). His most famous writing was “Paradise Lost.” His most enduring life lesson was to challenge the Perceived Wisdoms of the State.


F.A. Hayek cites Milton’s aforementioned quote in “The Road To Serfdom” (page 210) in order to introduce Chapter 14, “Material Conditions And Ideal Ends.” Hayek goes on to remind us that: “Though it is natural that, as the world around us becomes more complex, our resistance grows against the forces which, without our understanding them, constantly interfere with individual hopes and plans…” (page 211).


In the face of Global Macro Markets waking up to further Government Interference in the free-market pricing of Greek risks this morning, considering Milton and Hayek’s thoughts on the matter seems just and reasonable to me.


BREAKING (#1 Headline on Bloomberg this morning): ”Greek Aid Package To Be Decided By June”


Ok. So what does that mean? Does it mean that the first 110 BILLION Euros ($158B US Dollars) allocated to the Greeks was a success? Does it mean that socialist bailout policies have gone global? Why don’t they throw another 30-60 BILLION at this sick puppy and see?


Obviously, this gargantuan global experiment in Fiat Fool policy has crossed its proverbial Rubicon – or I wouldn’t be in a position to ask such ridiculous questions. I do not think doing more of what isn’t working is a good idea. I do not think Greece’s structural economic implosion will end by June either.


So don’t get upset about it – capitalize on it.


Here are the 3 things that matter most in digesting this morning’s Global Macro Grind:

  1.  Greece’s ATG Stock Market Index: up +3.8% on “news”, but is still DOWN -25% since FEB and broken on both TRADE and TREND durations
  2. Euro: making its last charge to overcome its newly minted TRADE line of resistance at $1.44 (versus USD)
  3. USD: throwing a little fear into the US Currency Crash scenario again, but should hold Hedgeye’s critical $74.41 line of TRADE support

In other words, while it’s nice and tidy to tell ourselves stories that our long positions are all off to the races again, we’ll stop, take a breath, and remind ourselves that all this Government Interference in Europe means is that we’re going to have heightened market volatility in June.


Market volatility? Big time. As a reminder, our base long-term TAIL case is that that’s what Big Government Intervention does:

  1. It shortens economic cycles
  2. It amplifies market volatility

In order to capitalize on that thought, all you really have to do (for now) is stay ahead of the next big moves in the US Dollar Index. This morning, with the Euro up at $1.44, the USD Index is down at $74.59, if this US Dollar Index level holds, I’ll make LONG US Dollar (UUP) at least a 9% position in the Hedgeye Asset Allocation Model.


As you know, being long the US Dollar isn’t exactly what my Canadian craw should be considering – given my “long-term” view. And that’s exactly why I think the position makes so much more sense from this price. If the Europeans are actually serious about “ruling out restructurings”, what is going to be bearish for Euros in the intermediate-term is going to be bullish for Dollars.


Taking a step back, looking at last week’s US Market Macro Moves, the US Dollar has already set itself up to recover:

  1. US Dollar Index = DOWN -1% last week to $74.89 (down for the 2nd consecutive week)
  2. US Equities (SP500) = DOWN -0.2% last week (down for the 4th consecutive week)
  3. US Treasury Yields (30-year) = DOWN -1.4% last week to 4.24% (testing fresh YTD lows)

The summary risk management point embedded in currency, equity, and bond markets here in the United States of America is that Growth Is Slowing. This isn’t a new Hedgeye view. But it is becoming a consensus one.


Lower prices in US Equities had me cover our short position in the SP500 last Monday (time stamped @Hedgeye at $131.95 SPY on 5/23/11) and take up my US Equity exposure from ZERO percent last Monday to 3% this morning (I know – call me a horned up bull!).


The complexion of the Hedgeye Asset Allocation Model to kick off this week is now:

  1. Cash = 49% (down from a 61% last week – my peak Cash position for Q2)
  2. International Currencies = 24% (Chinese Yuan and US Dollar – CYB and UUP)
  3. Fixed Income = 18% (Long-Term Treasuries and US Treasury Flattener – TLT and FLAT)
  4. International Equities = 3% (Germany – EWG)
  5. US Equities = 3% (US Healthcare - XLV)
  6. Commodities = 3% (Gold – GLD)

Is it “just or reasonable” to have not lost money in the month of May? Is Government Interference the best path to long-term economic prosperity? These are simple questions for a complex macro market – and it’s our job, as your Risk Manager, to answer them in real-time.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $99.65-101.89, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Government Interference - Chart of the Day


Government Interference - Virtual Portfolio


The Macau Metro Monitor, May 31, 2011



An institutional shareholder is selling 120MM shares in Sands China to raise HK$2.34bn (US$301m). The shares are being offered at a fixed price of HK$19.50, a 3.2% discount to last night's close. Credit Suisse is the sole bookrunner.


Because of the strong IPO response, the greenshoe may get exercised leading Pansy Ho to sell an additional 3% of her shares to investors, reducing her stake to 26% and raising nearly $1.8BN.


RWS FEELS THE HEAT AS AIR-CON FAILS Strait Times, AsiaOne News, Channel News Asia

Due to an central air-conditioner malfunction, RWS closed two shows and its casino, four hotels, and at least 10 restaurants were affected yesterday.  Universal Studios Singapore also had to close much earlier than its extended opening hours during the June holiday period.  Currently, portable AC units are being used.  However, a RWS spokesman said the impact on resort operations is minimal.  RWS said it expects its air conditioning system to be fully restored by Friday.



Singapore bank lending grew by 21.9% YoY to S$351BN in April. Housing loans continued its ascent, expanding 22.2% YoY in April (vs. 18.4% YoY growth in March).

Athletic Apparel Remains Strong – FW Choppy


Athletic apparel sales remain healthy posting a sequential acceleration in the athletic specialty channel while footwear slowed. Volatility remains high in footwear consistent with recent weeks. However, in taking a closer look at footwear ASPs it’s important to keep in mind just how disruptive toning has been and how significantly it can mask underlying core trends. Take a look at the first two charts below. The recent weakness in footwear ASPs is almost as noteworthy as the strength we’re seeing in apparel. Yet, when we strip out the dilutive impact of toning ASPs, core athletic footwear trends reflect not only solid low-to-mid single digit growth, but on a more consistent basis than apparel. Additionally, it’s worth highlighting that toning has represented a 4%-5% drag on core athletic footwear sales growth on average YTD. Back to callouts from the week:

  • In footwear, running continues to be a pocket of strength lead by Brooks up +37% followed by Adidas up +20% due to the new Climacool introduction and Reebok up +19% reflecting the introductions of Zig Pulse and RealFlex. Nike and Adi remain the top share gainers at the expense of Skechers, Puma, and New Balance. This is consistent with monthly trends that reflect running is not only the largest, but also fastest growing category within the athletic specialty channel for the fourth month in a row.
  • In apparel, VF (The North Face) (+30%) edged out Adidas (+28%) as the top performing brand last week reflecting an uncharacteristically strong week in outdoor outerwear perhaps due to more inclement weather. In addition, Under Armour (+20%) continues to post consistently solid sales driven by the success of its charged cotton program. Adidas and Under Armour remain top share gainers while Columbia was the only brand to lose share maintaining a streak of twenty consecutive weeks.
  • The broad-based strength across all channels is also worth noting with both unit volume and ASPs up and sequential sales improvement across the board.
  • Lastly, on a regional basis New England was the clear negative standout as the only region to report a sales decline for the second consecutive week with the Mid-Atlantic and South Central outperforming again up +23% and +28% respectively – not good for DKS (which we’re short in the Hedgeye Virtual Portfolio) and better on the margin for HIBB.

Casey Flavin



Athletic Apparel Remains Strong – FW Choppy - FW APP ASPs 5 11


Athletic Apparel Remains Strong – FW Choppy - FW ASPs ExT 5 27 11


Athletic Apparel Remains Strong – FW Choppy - FW App Agg Table 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW App FW Table 1 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW App App Table 1 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW App App 1Yr 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW App App 2Yr 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW App Reg 5 25 11


Athletic Apparel Remains Strong – FW Choppy - FW Mo AthSpec Sales 5 11


Athletic Apparel Remains Strong – FW Choppy - FW Mo Running 5 11



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