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TODAY’S S&P 500 SET-UP - June 23, 2011


As our CEO, Keith McCullough, said today about Ben Bernanke's performance, the poor guy is confused.   “If my forecasts were wrong by a half-bagger this year, I'd be too.”  Ultimately, Mr. Bernanke Keynesian Experiment is failing - and markets are figuring that out.  As we are seeing in the Eurozone today growth continues to be lower than hopeful expectations, and the Fed's estimates for growth remain too high.  We shorted the S&P500 ahead of Bernanke walking down his forecasts. 


As we look at today’s set up for the S&P 500, the range is 40 points or -2.34% downside to 1257 and 0.77% upside to 1297.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -521 (-2688)  
  • VOLUME: NYSE 856.36 (+0.61%)
  • VIX:  18.52 -1.80% YTD PERFORMANCE: +4.34%
  • SPX PUT/CALL RATIO: 2.01 from 1.57 (+27.44%)



  • TED SPREAD: 23.54
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 3.01 from 2.99
  • YIELD CURVE: 2.62 from 2.59 



  • Initial Jobless and Continuing Claims at 08:30 ET
  • Bloomberg Consumer Comfort Index for w/e 19-Jun at 09:45 ET
  • May New Home Sales at 10:00 ET
  • EIA Natural Gas Inventories for w/e 17-Jun at 10:30 ET


  • ECB President Trichet said risk signals for euro-area financial stability are flashing “red” as the debt crisis threatens to infect banks
  • IMF chief candidate Lagarde expected to speak to reporters
  • Supreme Court rulings expected
  • BJ's Wholesale wants $55/share from Leonard Green/CVC - NY Post
  • Regulators look at freight-rail industry - WSJ
  • 'Shadow housing inventory' declines in the US - FT



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Commodities Tumble After Federal Reserve Cuts Growth, Employment Forecasts
  • Zinc Production Dropping in Japan to Double Imports to Highest in 11 Years
  • France’s Sarkozy Urges Action Against the ‘Plague’ of Food Price Surges
  • Mitsubishi Materials Agrees Annual Processing Fees for Copper Ore With BHP
  • Crude Declines on Demand Concerns After Fed Lowers U.S. Economic Forecast
  • Corn Futures Drop to Three-Month Low as Better U.S. Weather Reduces Risks
  • Lending Crackdown Sidestepped as Soybeans Become Collateral: China Credit
  • Gold May Decline From Seven-Week High as Fed Damps Stimulus Speculation
  • Rubber in Tokyo Drops to Six-Week Low on Demand Concerns, Expanding Supply
  • Copper May Drop for a Second Day as Europe’s Debt Crisis Threatens Banks
  • Silver’s 74% Surge Creates ‘Headwind’ for Solar Rivalry With Fossil Fuels
  • Tea Exports From India to Climb as Output Rebounds, African Supplies Drop
  • Cargill, Royal DSM Are Said to Make Bids in $2.6 Billion Sale of Provimi
  • K + N Pushes Maersk to One-Click Shipping in Ryanair Mold: Freight Markets




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: flat out ugly; Spain and Italy -1.5% each (were short Spain) on the realization that the sovereign debt default cycle is in early innings
  • Eurozone Jun preliminary Manufacturing PMI 52.0 vs consensus 53.8 and prior 54.6
  • Eurozone Jun preliminary Services PMI 54.2 vs consensus 55.5 and prior 56.0
  • Eurozone Jun preliminary Composite PMI 53.6 vs consensus 55.1 and prior 55.8


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: dazed/confused but Chinese stocks up for the 3rd consecutive day, closing +1.5%, and we like that because we are now long China.


THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director


The Macau Metro Monitor, June 23, 2011



GALAXY MAY RECOUP INVESTMENT WITHIN 6 YEARS Macau Daily Times, Macau Business, Intelligence Macau

Galaxy CFO Robert Drake said it expects annual returns of 14-19% at Galaxy Macau and may recoup its HK$ 15.5BN (US$ 2BN) investment in Galaxy Macau within 6 years.  Yesterday, Galaxy Chairman Lui Che-woo estimated Galaxy's market share at 17%.


IM believes that Phase 2 of Galaxy Macau could be completed before Macau Studio City and Lots 5 & 6 come online in 2013.


Taiwan has lifted a decades-old ban on travel to the island by individual Chinese tourists.  Initially, Taiwan will allow 500 individual arrivals from the mainland per day.  Chinese visitors would act as “peace ambassadors" to Taiwan.


Travel between the island and mainland stopped at the end of the civil war in 1949, and mainland tourists have so far only been allowed to visit Taiwan in groups due to official concerns they might otherwise overstay their visas and work illegally.



Visitor arrivals totaled 2,295,551 in May 2011, up by 9.4% YoY.  In the first five months of 2011, visitor arrivals increased by 7.2% YoY to 11,065,180.  Visitors from Mainland China increased by 16.8% YoY to 1,326,627 in May 2011, and the majority came from Guangdong Province, Fujian Province and Zhejiang Province. Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 531,167, up by 18.0% YoY.





Singapore May CPI increased by 4.5% YoY and 0.6% MoM. The MAS (Monetary Authority of Singapore) core inflation measure, which excludes the costs of accommodation and private road transport, rose 2.1% YoY and 0.1% MoM.

Asking For More

This note was originally published at 8am on June 20, 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 could not have asked for anything more... I played great for four days and couldn't be happier."

-Rory Mcllroy


Feel-good fans couldn’t have asked for more in Rory McIlroy’s victory at the 2011 US Open yesterday. Irish eyes were smiling on the 22 year old European as he bear-hugged his Dad on Father’s Day.


And then, Europe decided not to bailout Greece…


As a result, Global Macro markets are Asking For More this morning. Unfortunately, more debt is not enough. While I am not sure who remains sober enough to realize that this time isn’t any different than most of the sovereign debt crises of the last 600 years (they end in restructuring and/or default), it seems there are at least a few fiscally conservative members of the Fiat Fool Coalition who are willing to concede that point.


On the heels of the Irishman’s victory, German Finance Minister, Wolfgang Schaueble, delivered the tough love concession to world markets this morning: “If the Greeks can’t or don’t want to make the necessary decisions, then we can’t move forward on this track.”


Risk Manager’s translation: first, deliver on the promises you made on spending cuts and selling assets, or stop Asking For More.


Fair enough Germany. Greece, play the ball as it lies.


Confusion is starting to breed contempt across asset classes this morning: 

  1. CURRENCIES: EURO/USD is re-testing it’s critical intermediate-term TREND line of $1.42 support
  2. COMMODITIES: Oil prices are getting hammered down to 4-month lows on US Dollar strength ($91.61/barrel)
  3. COUNTRIES: Spanish and Italian stocks are getting tagged (down over 2%) as peripheral contagion concerns mount 

This, of course, should all make sense to everyone who has been in Hedgeye’s camp that The Correlation Risk associated with La Bernank debauching the US Dollar can start as the US Dollar stops going down.


As a reminder, into and out of La Bernank’s last rock-star presser (April), the US Dollar Index was down -17% since Obama & Geithner started overseeing Nixon/Carter Deficit/Devaluation life in America (2009). In April, the USD was testing its all-time lows.


Today, the US Dollar Index is bidding for its 3rd consecutive UP week, and it’s up a full +3.8% since the beginning of May. Again, if you didn’t know what The Correlation Risk to an up US Dollar looks like, look at the prices of virtually everything priced in US Dollars (housing, stocks, commodities, etc.) since, well, the beginning of May!


Hedgeye calls this Deflating The Inflation (Q2 Macro Theme).


And, yes, like Growth Slowing As Inflation Accelerates (which we called for 6 months ago), we will be extra sure to remind our competition that we called this first too. As Rory Mcllroy reminded us yesterday – it’s ok to be young, confident, and on your risk management game.


What could continue to strengthen the US Dollar from here (and Deflate The Inflation)? 

  1. Quantitative Guessing (QG2) ending 10 days
  2. US Debt Ceiling compromise within 3-6 weeks
  3. European Contagion (ongoing) 

No, this Global Macro Risk Management setup isn’t very difficult to understand. It’s pretty simple to get right – if you get the US Dollar right. And since we have been right on 21 of the 22 calls we have made on the US Dollar since the founding of Hedgeye in 2008, we think we get this.


We also get being in Cash.


Here’s how the Hedgeye Asset Allocation Model flushed out week-over-week: 

  1. Cash = 49% (down 3% week-over-week from 52% last Monday)
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener- TLT and FLAT)
  3. International Currencies = 18% (Chinese Yuan – CYB)
  4. International Equities = 6% (Germany and China – EWG and CAF)
  5. Commodities = 6% (Gold – GLD)
  6. US Equities = 3% (US Healthcare – XLV) 

As US Dollar strength Deflates The Inflation, we’ll be in a very good position to buy things on sale. The key will be to be patient on prices. Ultimately, a strong US Dollar is the only way out of this Keynesian mess. Lower-prices are going to be an important catalyst for Global Consumption. In terms of bullish catalysts for Chinese, German, and US Equities, I couldn’t Ask For More than that.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1532-1549, $91.60-98.29, and 1259-1276, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Asking For More - Chart of the Day


Asking For More - Virtual Portfolio

Keynesian Confusion

“Confusion now hath made his masterpiece!”

-William Shakespeare


So… according to La Bernank in his Fed Presser yesterday, US Growth Slowing As Inflation Accelerates is “part temporary” … but “part longer lasting”… and while “we don’t have a precise read on why”… we are confident that the entire market should trust our forecasts for growth to re-accelerate.


Ben Bernanke’s growth forecasts haven’t been sort of wrong in 2011 - they have been wrong by almost a half! So how can a country that was founded on such fiercely independent principles put up with this level of analytical incompetence from its economic Central Planner in Chief?


I don’t know. But after doing a full day of meetings with major money managers in NYC yesterday, I can tell you that Keynesian Confusion is starting to breed contempt. Dollar Debauchery was all good and fine, until people stopped getting paid.


What we do know is that economics, never mind Keynesian economics, is a social science (Mr. Krugman, that’s different than a hard science, fyi). We also know that market-based practitioners who apply math to markets make a living off of the academic dogma of Keynesian economists.


This is great for my Research and Risk Management business – but really bad for the US economy. My team and I get paid to be right. These guys at the Fed get paid what they’d be worth to an asset management firm managing Globally Interconnected Risk - not much.


Back to this morning’s Global Macro Grind



  1. CURRENCY – we’ve had a bullish bias towards the US Dollar since the beginning of June; now the USD Index is breaking out above its $74.41 immediate-term TRADE line of support. This is bad for asset prices that are highly correlated (inversely) to the US Dollar.
  2. TREASURIES – we’ve been bullishly positioned on the long-term Treasury (TLT) side of the bond market since May. Yes, we understand that bond yields are low – but we think they are going lower – primarily because people aren’t yet Bearish Enough on US Growth.
  3. STOCKS – we re-shorted the SP500 (SPY) at 3:14PM EST on Tuesday, June 21st ahead of the Greek confidence vote in socialism and La Bernank walking down this forecasts for US Growth. Timing matters.


  1. CURRENCY – having a bullish bias towards the US Dollar (with near-term catalysts that are USD bullish – QG2 ending, a mid-July Debt Ceiling compromise) is reason enough to be bearish on Euros. But the bigger bear brewing in the FX market is Europeans behaving European on go- forward monetary policy. There’s an increasing probability that the ECB considers going for a hybrid version of Quantitative Guessing II.
  2. EUROCRAT BONDS – plenty of European Sovereign bonds look like the Sovereign Debt Default Cycle is just getting started. If you think this is isolated to Greece, market prices are pricing in the other side of that thought. Major risks – and they are not going away anytime soon.
  3. STOCKS – we are long Germany (EWG) and short Spain (EWP). Germany’s PMI (Producer Manufacturing) print slowed significantly in June (54.9 versus 57.7 in April) and we’d be unaccountable to not call that data point out for what it is – Growth Slowing, globally. Across European Equities, the only major market that has not broken its intermediate-term TREND line yet is the German DAX (7103 support), but it’s close!


  1. CURRENCY – since one of our Q2 Macro Theme remains “Deflating The Inflation”, we finally sold our 2-year (buy and hold!) long position in the Chinese Yuan (CYB) this week. We think Asian currencies will weaken as commodity inflation does. Don’t forget that most of these countries (China, Australia, India, etc.) have been vigilant in raising interest rates – now they can stop with that.
  2. CHINESE STOCKS – after being bearish on China for the last 15 months, we’ve been on the road articulating the research scenario analysis around A) Chinese Growth Slowing At A Slower Rate and B) Chinese Inflation Deflating. The research and the risk management calls are two very different things (one is research, the other timing), but we did finally buy exposure to the A-shares on June 16th and we are in the money. Despite the Keynesian Confusion, Chinese stocks were up +1.5% last night and have been up for 3 consecutive days, outperforming most of the majors in Global Equities.
  3. JAPANESE STOCKS – we remain long-term bears of the gigantic Keynesian Experiment in Japan and we remain short of Japanese Equities (EWJ) here. Yes Japanese stocks are down -6% YTD and, yes, they had a natural disaster. But the real long-term disaster in Japan is that the average annual GDP Growth rate since 1992 has been 0.85%. Bernanke would be less confused if he embraced Richard Koo’s economic ideas about “Balance Sheet Recessions” and what perpetuates them (cutting rates to the ZERO bound and scaring the hell out of your people).


  1. OIL – we remain on the other side of Goldman’s call to buy oil and see immediate-term downside in WTIC Oil to $91.22 this morning.
  2. GOLD – we remain long Gold (GLD) and think it will continue to perform as long as real-interest rates in America remain negative.
  3. COPPER – we remain respectful of Dr. Copper’s Ph.D in the antithesis of Professor Bernanke’s confusion. Bearish TREND is as bearish does. 

Otherwise, in the land of nod, it’s a pretty quiet morning. We don’t see any probability of Keynesian Confusion leading to any level of American style accountability and/or change in whatever it is that they do to come up with these embarrassingly bad forecasts.


My immediate-term support and resistance ranges for Gold, Oil and the SP500 are now $1, $91.22-95.98, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Keynesian Confusion - Chart of the Day


Keynesian Confusion - Virtual Portfolio

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