TODAY’S S&P 500 SET-UP - June 21, 2011


The USD down = Commodity and Stocks up, but lower-highs on low volume across the board.  Is the USD is back down for the week-to-date because:


A) Bernanke has his US Dollar Devaluation Presser in the next 48hrs?

B) Eurocrats are finding a way to hold $1.42 EURO/USD support?


We will get more bullish on Global Equities (China in particular) if the USD strengthens and we Deflate The Inflation - not the other way around.  As we look at today’s set up for the S&P 500, the range is 32 points or -1.51% downside to 1259 and 0.99% upside to 1291.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: +1069 (+296)  
  • VOLUME: NYSE 786.44 (-50.99%)
  • VIX:  19.99 -8.51% YTD PERFORMANCE: +12.62%
  • SPX PUT/CALL RATIO: 1.65 from 2.03 (-18.51%)



  • TED SPREAD: 22.12
  • 3-MONTH T-BILL YIELD: 0.03%
  • 10-Year: 2.97 from 2.94
  • YIELD CURVE: 2.59 from 2.56 



  • 7:45 a.m./8:55 a.m.: ICSC Retail/Redbook Retail
  • 10 a.m.: Existing home sales, est. 4.8m (-5.5% M/m)
  • 11:30 a.m.: U.S. to sell $58b in 4-wk bills
  • 4:30 p.m.: API inventories


  • Germany June ZEW economic sentiment (9.0) vs consensus (2.0) and prior +3.1;Germany June ZEW current conditions 87.6 vs consensus 89.5 and prior 91.5
  • Greek Prime Minister George Papandreou faces a confidence vote in his government
  • Jon Huntsman to announce he’s running for president
  • Spain Sells 2.4b Euros of 6-Month Bills - Avg 6-mo. yield 1.776% vs 1.766% at May auction.




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Copper Imports by China Slump 47% as Consumers Prefer to Drain Stockpiles
  • Oil Gains a Second Day as Euro Crisis Eases, U.S. Crude Supplies Seen Down
  • Copper Rises From One-Week Low on Reduced Concern About Greek Debt Default
  • Pork Prices in China Seen Staying at Highs as Domestic Shortage Persists
  • Raw Sugar Falls on Forecast for Increased Thai Production; Cocoa Advances
  • Corn Gains After Slump as Flooding Threatens China Crop Amid Rising Demand
  • Gold May Advance as Weaker Dollar, Greek Debt-Default Concern Spur Demand
  • Qaddafi Tanks Deprived of Diesel as Ships Shunning Libya: Freight Markets
  • Australia Keeps Sugar Forecast as Cyclone Damage Offsets Increased Acreage
  • Russia Fails to Win Back Egypt, World’s Biggest Wheat Buyer, After Halt
  • Rubber in Tokyo Declines to One-Month Low on Concern Demand Remains Slow
  • Rubber Production in India Jumping 22% as Car Sales Fuel Demand for Tires
  • Crude Supplies Fall in Survey as Gasoline Output Increases: Energy Markets
  • China’s Rare Earth Quotas May Limit Supply to Japan, Europe, Lifton Says




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: green across the board, but on low-volume to lower-highs; DAX back above my 7139 TREND line; Spain and Greece below TREND lines
  • S&P reaffirms view it would likely treat voluntary debt restructuring for Greece as a default, Moritz Kraemer, head of European sovereign ratings tells Die Welt

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: green across the board, with China (which we just bought) up +1% and India finally stopped making lower-lows, +0.33%.

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

Boston Harbor Smiles

This note was originally published at 8am on June 16, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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 $1520-1554, $94.70-99.58, and 1261-1281, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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People Minimize Debt

“Unlike neoclassical macro theory, which assumes that private-sector corporations are always maximizing profits, it assumes that some companies may respond to daunting balance sheet damage by minimizing debt.”

-Richard Koo


I’m in the middle of reading Richard Koo’s revised edition of “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession.” The aforementioned quote summarizes Koo’s thoughts on what he coined in another book as a “Balance Sheet Recession.”


This morning, ahead of this Greek confidence vote, I want to do a little extending and pretending of my own with Koo’s conclusions – you know, just to get the intellectual juices going.


Let’s pretend for a moment that the American Consumer is Koo’s “private-sector corporation.” Then, let’s extend ourselves into the fictional land of nod and go as far as to assume that people, instead of companies, minimize debt when you scare the hell out of them.


I know, I know. This Mucker guy is coming up with some radical economic theory over here on the east side of Yale’s campus. But, seriously, I didn’t need to get into this academic institution to be told how to think.


Lessons from The Greek Gong Show: America needs to re-think, re-learn, and re-consider what makes this economy tick. It’s not that complicated. First, we need to stop what we are doing and get back to the basics of human behavior.


Behaviorally, if you want to scare the hell out of people, just fear-monger about “Great Depressions.” That’s Bernanke’s bailiwick. That’s why Washington loves him. That’s why he was appointed by a modern day Republican and cheered on by a modern day Democrat.


Modern day Western economics are partisan. Both Republicans and Democrats pin their hopes on Keynesian economists. Hope, alas, is not a long-term risk management process. Both Bush and Obama had to learn this lesson the hard way. Bernanke’s “confusion” and “frustration” with the economy is finally breeding contempt.


As Koo appropriately notes in the Preface of his 2009 Edition of “The Holy Grail of Macroeconomics”, “I realized that no constructive discussion could occur until I proved that some of the “lessons” from the Great Depression that underpin their views are themselves wrong.”


Koo’s realization is an extension of Nasim Taleb’s idea of a “Narrative Fallacy ( “The Black Swan”, 2007), where Taleb alludes to humans having a propensity to build stories around facts.


The fact of the matter is, and I’ll say this for a 3rd time this morning, when you scare the hell out of them, People Minimize Debt.


Again, people are different than countries – particularly socialist ones. Only a moron would look to solving his or her solvency problems by Piling More Debt Upon Debt, like Greece, Japan, and America have.


Back to this morning’s reality show of extend and pretend, here’s what the Fiat Fool in Chief of Greece had to say this morning ahead of the Greek confidence vote:


“We are determined as a country, as a government, to be on track with the program, to move forward, to do what is necessary, in order to put our country into a fiscally much more viable position.”


Seriously. This guy is serious about maximizing debt until he blows his country’s balance sheet, bond, and stock markets to smithereens.


Global Markets are obviously very nervous about lying Greek politicians. Never mind what the Greek stock and bond markets do today. Don’t forget that the Greek stock market was down -35.6% in 2010 and has crashed, again, down another -27% since rallying to lower-high in February 2011. Markets discount future events.


What got us here is something I have been writing about since 2007. What is going to get us out of it isn’t doing more of what’s imploding the Greek, Portuguese, and Irish markets – Politicians Maximizing Debt.


In the meantime, the entire world is watching and Global Growth Is Slowing. This is largely a function of people being afraid. In the real world, confidence matters.


That’s why US demand for mortgages, stocks, and commodity exposure is falling. That’s why US stock market volumes have been bone dry on this 3-day rally to lower-highs. It’s the Debt Maximization Experiment of the Keynesians, stupid.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1 (we remain long GLD), $91.29-97.63 (we remain on the other side of the Goldman Oil Bulls), and 1 (we have no position, but a bearish bias at the top end of the 1291 range).


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


People Minimize Debt - Chart of the Day


People Minimize Debt - Virtual Portfolio


The Macau Metro Monitor, June 20, 2011




In response to the report on ownership change in Macao Studio City (MSC), the Office of the Secretary for Transport and Public Works reiterated that the MSC project should be strictly consistent with the government's revised development plan in 2008 and that should include film production projects.  It added that the transfer of shares needs to be handled according to the local laws and that Macau needs to modify some laws to meet social development.



Passenger traffic at Singapore's Changi Airport grew 11.3% YoY and 1.1% sequentially to 3.77MM in May.


Composite CPI for May 2011 increased by 5.19% YoY and 0.66% MoM.  The price index of Recreation & Culture decreased by 1.26% on account of lower charges for outbound package tours.



Malcolm Knapp released estimated casual dining comparable restaurant sales for May yesterday.  This data point will likely ease investor fears of a slowdown in Q2 after preliminary April data released by Knapp in May indicated a slowdown in casual dining trends. 


Estimated comparable restaurant sales growth in May was 2.2%.  Final April comparable restaurant sales growth was +1.5% (versus the prior estimate of +1.6%).  The sequential acceleration from April to May, in terms of the two-year average trend, was +50 basis points.


Comparable guest counts for the casual dining industry, according to Knapp Track, grew +0.4% in May on a year-over-year basis.  The final April guest counts growth number was -0.1% (versus the prior estimate of +0.2%).  The sequential acceleration from April to May, in terms of the two-year trend, was +15 basis points.


While our last Knapp Track data update took somewhat of a bearish stance, supported by gasoline prices, retail sales data, and increasing uncertainty, this month’s data is slightly more positive on the margin.  Gasoline prices have come down for the time being and it seems that casual dining comps were better in May based on the preliminary data.  Gas prices are still elevated, however, and with the possibility that operators may have to take price to protect margins absent a meaningful and near-term decline in commodity prices, the outlook for the summer is less than certain.  I still favor CAKE on the short-side; management’s guidance on commodity costs is too low for the back half of the year and the Street’s expectations need to come down.  The company should meet expectations, however, in 2Q.  CBRL is the obvious candidate on the short-side if one believes gas prices are set to bounce higher from here.  However, gas prices are just one aspect of my own bearish stance on CBRL, a concept that I think is clearly suffering from mismanagement and is in secular decline.



Howard Penney

Managing Director