Boston Harbor Smiles

“I'm just ready to move forward.”

-Tim Thomas


After watching a generational win for the Boston Bruins last night in Game 7 of the playoffs, I am sitting here in my hotel room watching a gorgeous sunrise in the Boston Harbor. It must be Lord Stanley’s way of smiling.


Was I smiling yesterday? Am I smiling this morning? Big time. We love winning here at Hedgeye. And we support anyone who has a transparent, accountable, and winning attitude. Our vision for American Optimism is as old as America itself.


Yesterday’s price action in markets did nothing but solidify our conviction in our Global Macro Themes:

  1. Growth Slowing (bearish on Wall Street/Washington US GDP Growth estimates) 
  2. Deflating The Inflation (bearish on housing, stocks, and commodities)
  3. Indefinitely Dovish (bullish on long-term Treasuries, UST Flattener, and Gold – TLT, FLAT, and GLD)

We’re not celebrating the other team’s losses - someone always has to lose (Goldman is bullish on commodities; JP Morgan is bullish on Equities, etc). We are championing a winning Risk Management Process that’s saving our clients from losing money in 2011.


Winning starts with not losing. It’s pretty difficult to lose if you don’t get scored on. Swedish offensive skills of the Sedin Sisters last night aside, defense won The Stanley Cup. Bruins goalie Tim Thomas was as focused as any professional athlete I have seen in a long time.


Focus, discipline, confidence – you either have it, or you don’t.


I certainly don’t have it all of the time. But the challenge isn’t to overcome my emotional capacity. The goal is to build a team and process that can pick me up when I am down. And Lord Stanley knows I’ve had my fair share of downs in life.


“I’m just ready to move forward.”


Yesterday’s wins are over with. Today we have to deal with today. It’s time to play the game that’s in front of us.


From a risk management process perspective, before we move forward, we always look back. We need to absorb what’s been priced into market expectations so that we can handicap what the probabilities are for prices to change.


From an immediate-term TRADE perspective, oversold lines in Global Equities are now as follows:

  1. SP500 = 1261
  2. Nadaq = 2613
  3. Russell2000 = 771
  4. Japan’s Nikkei = 9367
  5. China’s Shanghai Composite = 2661
  6. India’s Sensex = 18,066
  7. UK’s FTSE = 5662
  8. Germany’s DAX = 7011
  9. Spain’s IBEX = 9811
  10. Brazil’s Bovespa = 61,109

From an immediate-term TRADE perspective, oversold lines in Commodities are:

  1. WTIC Oil = $94.70
  2. Copper = $4.07
  3. Gold = $1520

From an immediate-term TRADE perspective, oversold line in US Treasury Yields are:

  1. 2-year UST Yield = 0.36%
  2. 10-year UST Yield = 2.91%
  3. 30-year UST Yield = 4.15%

The corollary to oversold bond yields, of course, is overbought bond prices – so, while it’s popular for US stock market centric pundits to trash anyone who isn’t Perma-Bullish on “stocks for the long run”, we’re quite happy that they wake up every morning thinking that way. There’s always risk to be managed somewhere. Being bullish on bonds yesterday was a big win.


There are winners and whiners in this profession. We subscribe to the principles of the former. Being Perma-Anything generally doesn’t work. In the last few years I have written a few Early Look notes about Bears and Bruins:

  1. Bullish Bruins” = April 17, 2009  (when we went bullish on US Equities – bought SBUX April 21, 2009)
  2. Ragingly Bullish Bears” = May 5, 2011 (when we pressed the short case for Growth Slowing)

What’s interesting about the timing of the “Ragingly Bullish Bear” note is how quickly sentiment has changed. In that May 5, 2011 missive I highlighted the following sentiment setup in the II Bullish-to-Bearish survey:

  1. Bulls up 100 basis points week-over-week to 55%
  2. Bears down 200 basis week-over-week to 16.5%
  3. The Spread (Bulls minus Bears) widened by 150 basis points week-over-week to +38.2% for the Bulls

Again, relative to itself, there are a few critical risk management callouts in this long-dated survey to consider:

  1. Bulls are not ragingly bullish
  2. Bears are not allowed to be bearish
  3. The Spread between Bulls and Bears is only 200-300 basis points from its all-time wides (all-time is a long time)

“All-time “wides” is risk management locker-room speak at Hedgeye for something you don’t want to mess with – kind of like being a man dressed in orange last night drinking a smoothie with your i-pod on in the bowl of the Boston Garden – it’s just a bad position to be long of.”


Back to today…


The only worse position to be “long of” was probably a Blue/Green Canucks jersey at a bar in Boston last night. This morning, the good news for Perma-Bulls (US stocks) is that this morning the II Bullish-to-Bearish Spread has narrowed to +11% for the Bulls (37% of people now admit to being Bullish and 26% being Bearish).


That’s a huge narrowing of an exceptionally wide spread. But my and the Boston Harbor’s Smiles are still beaming.

My immediate-term support and resistance ranges for the Gold, Oil, and the SP500 are now $1, $94.70-99.58, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Boston Harbor Smiles - Chart of the Day


Boston Harbor Smiles - Virtual Portfolio


TODAY’S S&P 500 SET-UP - June 16, 2011


Our top Global Macro Themes remain:

1.       Growth Slowing

2.       Deflating The Inflation (housing, equities, commodities)

3.       Indefinitely Dovish (bullish on UST Bonds)


While Oil, Copper, SP500 are immediate-term TRADE oversold this morning, it's important to recognize that yesterday only heightened the probability that these will all remain bearish intermediate-term TRENDs. Consensus isn't quite there yet.  As we look at today’s set up for the S&P 500, the range is 20 points or -0.35% downside to 1261 and 1.23% upside to 1281.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -2098 (-4093)  
  • VOLUME: NYSE 1068.78 (+16.76%)
  • VIX:  21.32 +16.76% YTD PERFORMANCE: +20.11%
  • SPX PUT/CALL RATIO: 2.86 from 1.50 (+89.90%)



  • TED SPREAD: 19.92
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 2.98 from 3.11
  • YIELD CURVE: 2.60 from 2.66 



  • 8:30 a.m.: Current account balance, est. ($-130.0b), prior ($113.3b)
  • 8:30 a.m.: Net export sales
  • 8:30 a.m.: Initial jobless claims, est. 420k, prior 427k
  • 8:30 a.m.: Housing starts, est. 545k (up 4.2%), prior 523k
  • 8:30 a.m.: Building permits, est. 557k (down 1.1%)
  • 9:45 a.m.: Bloomberg Consumer Comfort, prior (-45.9)
  • 10 a.m.: Philadelphia Fed, est. 7.0, prior 3.9
  • 10 a.m.: Freddie Mac 30-yr mortgage
  • 10 a.m.: Fed’s Tarullo testifies on regulatory reform
  • 10:30 a.m.: EIA natural gas storage, est. 69
  • 8 p.m.: ECB’s Trichet speaks in NY


  • Paulson Suffers Sizable Losses, One Fund Is Down 19.65% - WIRES
  • Greek PM Papandreou to reshuffle cabinet today and seek a confidence vote, battling to control a shrinking majority and pass austerity measures demanded by international lenders
  • Capital One bidding for HSBC’s U.S. credit card unit: WSJ
  • Borders Group may have deal with lenders and creditors to avoid closing as many as 51 stores; canceled auction set for today
  • U.S. banks must be willing to raise capital to guard against a potential financial crisis, FDIC Chairman Sheila Bair will tell lawmakers at House Financial Services meeting today



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Copper Falls Most in a Week on Concern Greece’s Debt Crisis May Cut Demand
  • Oil Trades Near Four-Month Low on Concern Europe Debt Crisis Is Worsening
  • Lower U.S. Cattle Sales Squeezing Beef Supply Means More Costs for Packers
  • Gold Falls as Stronger Dollar Erodes Demand for an Alternative Investment
  • Wheat Drops for a Fourth Day as European Rainfall Eases Production Concern
  • Cocoa Falls Most in Two Weeks in London on African Supplies; Sugar Drops
  • Food-Safety Fears Grow in Japan as Radiation Testing Engenders Skepticism
  • Lead Output in China to Extend Drop as Battery Makers Shut After Poisoning
  • Tractor Sales in India Surge to Record as Commodity Boom Drives Production
  • Record Brent Crude Premium to Shrink on North Sea Oil Flow: Energy Markets
  • Gold May Extend Drop on Seasonality, Commerzbank Says: Technical Analysis
  • No More Major Weather Threats Seen for Commodities in ‘11, Forecaster Says
  • Lenzing $875 Million Share Sale Priced at Bottom of Range; Stock Plummets



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: gong show; all of my TRADE and TREND durations have gone bearish (including Germany); Greece down -28.5% since Feb.  We are short Spain.
  • UK May Retail Sales +0.2% y/y vs consensus +1.5% and prior revised +2.4% from +2.3%

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: just a mess; China down -1.5% to fresh YTD lows; Japan down another -1.7% (were short) to -8% YTD; Korea -1.9%, Indonesia -1.4% 

THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director

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SP500 Levels Refreshed: Know When to Hold Them, Know When to Fold Them

The Thunder Bay Bear, our CEO Keith McCullough, is in Boston visiting some of Hedgeye’s top subscribers and discussing our macro themes, but primarily focusing on the outlook for equities in a continued Jobless Stagflation scenario.  Simply put, slower economic growth inhibits revenue growth and input price inflation squeezes margins, and the outcome is decelerating earnings growth.  Slowing earnings growth leads to lower multiples for equities.  It’s that simple.


Obviously along with the potential for a European sovereign debt pandemic today, this is what the stock and bonds markets have already been pricing in for the last six weeks.  As of intraday today, the SP500 is up ~+0.50% for the year and has corrected ~-7.2% from its peak on April 29th. Interestingly, though, the SP500 is still up more than 19% over the last 12-months.  The bond markets tell us a similar story as 10-year yields, as a proxy, are just more than 20% off their February 2011 highs of 3.6%. 


While the growth crowd is finding some solace in the Pandora IPO today, personally, watching Pandora trade today reminds me of the old Kenny Rogers song, “The Gambler”.  As the song goes:


“You got to know when to hold 'em, know when to fold 'em,

Know when to walk away, know when to run.”


The Thunder Bay Bear just called in between meetings and his message was clear, this is a short covering opportunity and nothing more.  The equity markets remain broken in our models with the key level of support, as outlined in the chart below, down at 1,223.  If we violate that level, make sure you “know where to run.”  In the meantime, I’ll make sure Keith tones down his growling for the rest of the afternoon.


As always, if you want to chat with Keith, myself, or the team, email us at and we can hop on the phone.  Risk is always on.


Daryl G. Jones
Director of Research


SP500 Levels Refreshed: Know When to Hold Them, Know When to Fold Them - DJ MACRO

R3: VFC, BBY, M, Cotton Import Fee



June 15, 2011






  • According to a recent survey by Acosta Sales & Marketing, there is startling divergence in grocery budgets by demographic. Households earnings less than $75k per year, which account for roughly 75% of the population, are reducing budgets by at least 10% while those earning above that level are increasing spending by up to 34% more. Trip frequency also plays a meaningful role coming into play when gas prices reach $3.70 at which point shoppers begin to cut back. The national average was above that level last week suggesting that we may see strip center outperformance begin to moderate.
  • The two key drivers of better than expected sales at BBY were mobile computing and phones (being the lead retailer for the Verizon iPhone launch didn’t hurt). What’s interesting to note here is the company’s new Tablet Central initiative its rolling out that will offer a one stop-shop highlighted competitive differences between models. Sounds just like what BBY is known for in TVs, which has proved to be a struggle in respect to actually converting traffic into sales.



VF Corp Set to Launch Vans to Target the Premium Indian Sector - Apparel manufacturer VF Corp is launching its Vans brand in India to tap into the ever-growing premium sector in the country. VF Arvind Brands, a joint venture between the US firm VF Corp and Arvind Group, has announced that it will open two Vans stores in the country, one in Bangalore and the other in Delhi. These outlets will market products from Vans signature men's and women's footwear lines, as well as apparel and accessories. "The demand for lifestyle products is growing. It is the right time to bring international brands into the country," said Kanchan Pant, managing director of VF Arvind Brands.  <FashionNetAsia>  

Hedgeye Retail’s Take: Zero downside. 1.2 billion people, 2.4 billion feet. Plus an established JV with Arvind Mills that is in its sixth year leaves little integration risk for VFC as it sends new brands to India.  This makes perfect sense to our Hedgeyes. Add that to this week’s TBL deal, and VFC continues to plow forward…


Macy's Mobile Marketing - Martine Reardon may put on the wrong shoes or forget her purse in the morning, but one thing she always has on her is her BlackBerry. “I can’t let it out of my hands,” said Reardon, Macy’s executive vice president of marketing and advertising, as she underscored the booming popularity of mobile communications and how Macy’s is embracing the technology. “Mobile is clearly a very important part of a consumer’s life, and a marketer’s life.…There are 300 million mobile subscriptions projected by the end of 2011,” said Reardon, adding that two to four years ago, it was less than half that.  Mobile devices and tablets have surpassed the usage of desktops and notebooks and “will become even more important from the point of view of a brand like Macy’s because it enables you to share that social space and shopping space at the same time.”  <WWD>

Hedgeye Retail’s Take: Hardly a visionary statement. The head of marketing and advertising using personal experience to discuss strategy for such a large and complex beast? C’mon… The true visionaries are the ones that are working on – and talking about – things that folks like us can’t even conceive at this point in time.  This is not a negative development by any means, but at a point where ‘Long Macy’s’ is one of the most consensus calls in retail, a story like this reminds us that there’s nothing super-human about this company. It’s simply a department store. That’s all. Nothing else.


ADT Study Estimates Store Theft Rose 12 Percent in 2010 - Retailers lost more than $37 billion to theft last year, according to an annual survey recently conducted by the University of Florida with a funding grant from ADT Commercial, a major security systems integrator. The National Retail Security Survey (NRSS) preliminary results show an increase in theft by nearly $4 billion, from $33.5 billion in 2009 to $37.1 billion in 2010. “It is possible this increase is due to the prevalence of Organized Retail Crime (ORC) where items are stolen in quantity and then resold to consumers on the Internet or at flea markets,” said University of Florida criminologist Richard Hollinger, Ph.D., who directed the survey. “The National Retail Federation just completed its own survey showing an increase in ORC activities with more than 95 percent of retailers saying they had been victims and almost 85 percent indicating that the problem had gotten worse over the last three years.” <SportsOneSource>

Hedgeye Retail’s Take: This synchs the reality that Home Invasions/thefts also tick up meaningfully during recessions due to cutbacks in police overtime hours. Ditto for retailers. With fewer eyeballs watching, there’s more opportunity. This article chalks it up to organized crime. I chalk it up to employees – they’re usually at the top of the ‘shrink’ list.  Here’s a funny anecdote…Ever go to a Six Flags? The game alley where you give a few dollars at a time to the 18-year old kid behind the counter is a double edged sword. It’s the highest margin attraction, but also the highest shrink as those dollars end up in pockets instead of cash registers. As a result, Six Flags installed cameras so the employees know they’re being watched. What they don’t know is that most of the cameras are simply a shell. They don’t work, but serve the intended purpose anyway.


Carol Brodie’s Rarities Breaks HSN Records - Carol Brodie likes to break the rules. The self-proclaimed “passionate and obsessed jewelry lover and collector” launched Rarities: Fine Jewelry With Carol Brodie — a high-end jewelry business — on HSN, a traditionally mass medium and the exact opposite of what everyone else told her she should do. Two years later, Brodie reigns as the top-selling jewelry line on the network and its online counterpart, — a feat, given the above factors and the current economic climate at the collection’s launch. “I did anything that I was told didn’t traditionally work on TV,” said Brodie, who spent almost a decade as Harry Winston’s global director of communications and has worked with De Beers, Ivanka Trump Fine Jewelry and Fabergé. “I was told big earrings weren’t something you sell on TV — and they are now one of my best-selling items.” <WWD>

Hedgeye Retail’s Take:  Ask Liz Claiborne… Home Shopping works – even though no one gives them credit for it.


USDA Proposes to Raise Cotton Import Fee - US Department of Agriculture’s Agricultural Marketing Service (AMS) is seeking comments by 5 July on a proposed rule that would increase the assessments paid by importers of cotton and cotton-containing products under the Cotton Research and Promotion Order.  These assessments would be raised by 16.4 percent from 1.088 cents per kilogramme to 1.2665 cents per kilogramme, which is based on the 12-month average of monthly weighted average prices received by US cotton producers. The revenues generated by these assessments are used to finance research and promotion programmes designed to increase consumer demand for upland cotton in the US and international markets. AMS is also proposing to revise the conversion factors and expand from 706 to 2,371 the number of HTS codes used to calculate the importer assessment. AMS notes that the inclusion of these additional codes would allow the programme to assess almost 100 percent of imported raw cotton and cotton-containing products, as it does with the domestic producer assessment. <FashionNetAsia>

Hedgeye Retail’s Take: Not devastating. But not the right direction – especially if you are overexposed to cotton-heavy, mid-tier brands (i.e. JC Penney).





Just a little tidbit on ASCA. 



I was in Kansas City yesterday and visited ASCA KC.  It looks like the flow through has been very strong at the property so we should see sequential margin improvement.  KC is a major contributor for ASCA as its second largest property.  We think the read on ASCA KC provides further evidence that the company is on track to beat the consensus Q2 estimate of $0.45.  We are at $0.52.

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