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TODAY’S S&P 500 SET-UP - November 17, 2011


As we look at today’s set up for the S&P 500, the range is 28 points or -1.04% downside to 1224 and 1.22% upside to 1252. 






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1594 (+795) 
  • VOLUME: NYSE 918.72 (+17.7%)
  • VIX:  +33.51 +7.3% YTD PERFORMANCE: +88.79%
  • SPX PUT/CALL RATIO: 2.54 from 1.51 (+68%)





TREASURIES – KM is long both the Long-bond (TLT) and Growth Slowing (Treasury Flattener, FLAT) and have been using an immediate-term TRADE target on 10yr yields of 1.98% - we’re there this morning, so the gross exposure call now is to sell some Treasuries and start allocating assets to US Equities. Take your time.

  • TED SPREAD: 46.60
  • 3-MONTH T-BILL YIELD: 0.00%
  • 10-Year: 2.00 from 2.00    
  • YIELD CURVE: 1.75 from 1.76


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Jobless claims, est. 395k (prior 390k)
  • 9:45am: Bloomberg Consumer Comfort, est. -50.4 (prior -51.6)
  • 10am: Philadelphia Fed, est. 9.0 (prior 8.7)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 12:30pm: Fed’s Pianalto speaks on economy in Kentucky
  • 12:50pm: Fed’s Dudley speaks on economy at West Point
  • 1pm: U.S. to sell $11b 10-yr TIP reopening
  • TBA: Mortgage Delinquencies (prior 8.44%)




  • Spain sold 3.56b euros of 10-yr bonds with avg yield of almost 7%, the most since the euro’s creation
  • Builders probably began work on fewer homes in Oct; median est. starts fell 7.3% to 610k annual rate
  • Energy Secretary Steven Chu said final decisions on Solyndra were mine”; Chu to testify before House panel this morning
  • American Airlines pilot talks may recess for 2 wks with sides “far apart”
  • Northern Rock agreed to be sold to Virgin Money Holdings for $1.2b
  • AT&T’s Glenn Lurie says co. in talks to start selling Nokia’s WP smartphones next year
  • Guggenheim Partners said to seek buyers for Claymore Investments
  • MF Global subpoenas said to be issued by Chicago U.S. Attorney
  • Gartner sees inventory correction in semiconductor industry to damp sales at least thru 2011
  • House Democratic group urging Congress to overhaul the tax code by lowering corporate rates, removing breaks and easing the burden on U.S. companies’ overseas operations
  • Obama said cutting the U.S. budget won’t reduce the nation’s military and economic commitments to the Asia-Pacific region
  • Olympus pledges $3.3b debt cut, will report earnings by Dec. 14



  • Candy-to-Fuel Demand Cuts Oil Inventory to ‘75 Low: Commodities
  • Gold Demand Rose 6% in Third Quarter on European Debt Crisis
  • Oil Falls From Five-Month High on Signs Europe Crisis Spreading
  • Gold Imports by India Drop 20% as Record Prices Deter Buyers
  • Buffett’s Burlington Exploits Boxed Asia Grain Up 29%: Freight
  • Copper Declines Most in a Week as European Crisis May Spread
  • Gold Falls in New York, London as Equities Drop May Spur Sales
  • Wheat Falls for Second Day as Syria Rejects Tender on Prices
  • Sugar Falls to Seven-Week Low on Indian Exports; Cocoa Slides
  • Gold Top Pick at Morgan Stanley as Europe Debt Spurs Demand
  • Soybean Imports by Japan May Drop 11%, Ministry Says
  • Severstal CEO Mordashov Says Company Deserved U.S. Vehicle Loan
  • Orange Juice May Climb on ‘Cup and Handle’: Technical Analysis
  • U.S. Crude Discount Versus Brent May End Soon: Chart of the Day
  • COMMODITIES DAYBOOK: Candy-to-Fuel Demand Cuts Oil Inventories
  • China’s Gold Jewelry Demand Gains 13% to Make It World’s Largest
  • Japan Restricts Some Rice Shipments After Radiation Found

THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





SPAIN – their bond auction was a mess (3.6B of 10yr fiat at 6.97%) and now both Spanish and French Equities are moving to immediate-term TRADE oversold alongside the Euro. That Goldman call to buy the Euro last week is now officially the worst FX call on Old Wall St of the year; 1.34 last.

THE HEDGEYE DAILY OUTLOOK - euro performance





ASIA – we’ve been the 2011 Bear on Growth Slowing and now the high-frequency data is slowing even faster than we thought; I haven’t seen the legacy media lead w/ this yet and I don’t expect them to, but Singapore just printed a DOWN -16.2% y/y export # for OCT vs what was already startling at -4.6% in SEP. Indian stocks joined HK in crash mode overnight.


THE HEDGEYE DAILY OUTLOOK - asia performance









The Hedgeye Macro Team

Howard Penney

Managing Director





The Macau Metro Monitor, November 17, 2011



GOVT SAYS NO TO IMPORTED CROUPIERS Macau Business, Macau Daily Times

Macau CEO Chui promised that Macau won't have any imported croupiers as long as he is in charge.  Currently, only locals can work as croupiers in the casinos.  Chui also called on employers to raise employees' wages in 2012.  "Whether in private or public sectors, all workers expect their wages to be adjusted this year [2012]," Chui said.



According to Cristino Naguiat, the chairman and CEO of PAGCOR, Las Vegas’ Global Gaming Asset Management LLC has just signed a management contract with Filipino port magnate Enrique Razon’s Bloombury Investments Holding Inc. to run gaming and hotel operations at one of the integrated resorts under development at the Entertainment City project at Manila Bay.


Several former LVS executives compose Global Gaming Asset Management LLC management.  The CEO of Global Gaming Asset Management is William Weidner, who was previously president and COO of LVS.  Also involved are Bradley Stone, who used to be connected with LVS; Garry Saunders, a former executive of LVS and MPEL; and Dennis Andreaci, until recently senior vice-president for gaming operations of Galaxy Macau, and also a former vice president of table games for the Sands Macau and Venetian Macau.


China Star Entertainment is under preliminary negotiations relating to the possible acquisitions of the remaining 50% equity interest in Hotel Lan Kwai Fong (Macau) Limited (“Lan Kwai Fong (Macau)”), a 50% owned subsidiary of the Company.  The possible acquisitions involve (a) acquisition of 1% equity interest in Lan Kwai Fong from SJM - INVESTIMENTOS LIMITADA; and (b) acquisition of 49% equity interest in Lan Kwai Fong (Macau) from a connected person.


Lazy Conformism

This note was originally published at 8am on November 14, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“This lazy conformism is one of the big dangers of this country today…”

-Siegmund Warburg


In Niall Ferguson’s “High Financier”, that’s what Warburg had to say about British political leadership in 1957. “There is a frightening amount of mediocrity … and there should be a crusade against complacency…” (page 136).


In 2011, anytime we call Old Wall Street out on these types of structural issues, they either block us or get really upset. That means we’re being the change we all want to see in this business. Groupthink is dying on opacity’s vine.


If the American financial empire wants any chance at seizing this global debt crisis as an opportunity to change, we better start now. Post WWII Britain had to learn this lesson the hard way - time is not an entitlement.


Back to the Global Macro Grind


Pressure packed with volatility and hope, last week was exciting. While hope is not a risk management process, fading the market’s beta is – and we’ll look for direction from King Dollar on that front once again this week (we have a 12% asset allocation to the US Dollar Index in the Hedgeye Asset Allocation Model).


Week-over-week Macro moves:

  1. US Dollar Index $76.94 = flat
  2. Volatility 30.04 = flat
  3. Commodities 320 (CRB Index) = flat

That’s a lot of flat.


In US Equities, the message wasn’t as flat:

  1. SP500 = up +0.8%
  2. Nasdaq = down -0.3%
  3. Russell2000 = down -0.3%

But, this weekend, there was a Lazy Conformism in analyzing what, precisely, all of this interconnectedness might mean to Global Macro investors. I saw a lot of pundits go as far as to say things like ‘when you really think about it, US stocks are flat this year.’


If you really don’t think about anything at all, that probably sounds right. Who needs to analyze anything or charge a fee for proactive anything if we could have all just closed our eyes during a +101% rip in Volatility (VIX) since May, and gone back to bed?


Whether it’s the Nasdaq or Russell 2000 having closed down for the last 2 weeks or US Treasury Yields dropping to 6-week lows as the SP500 tries to sustain low-volume 6-week highs, there is plenty to think about. Excellence in your risk management process is required.


Being excellent is ok. So is not losing money. In fact, for my money, that’s Rule #1 in this game – and rather than subscribe to some form of centrally planned mediocrity in this business that dares people to chase yield, we’re going to stick with what’s been working since late 2007.


Since making lower long-term and intermediate-term highs:

  1. The SP500 is down -19.3% since October 2007
  2. And down -7.3% since April 2011

Lower long-term highs in stock prices with higher long-term lows in volatility is what’s crushing both the economic cycle and investment returns. The Old Wall and Washington’s analysis of as much is broken.


Change needs to happen now. And no, hiring a lifer bureaucrat and Keynesian economist to run Italy isn’t the change Americans want to see in this world. Out with the whiners - Americans want to start winning again.


My immediate-term support and resistance ranges for Gold (bullish), Oil (bullish), German DAX (bearish), French CAC (bearish), and the SP500 are now $1766-1818, $95.39-99.89, 5969-6146, 3047-3176, and 1248-1269, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Lazy Conformism - Chart of the Day


Lazy Conformism - Virtual Portfolio

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Winners vs Whiners

“What is even worse is a terrifying uniformity of opinions and reasoning.”

-Siegmund Warburg


Coming out of WWII, that’s how Warburg explained the difference between his thought process and that of the American bankers he competed with (they didn’t like that). According to Niall Ferguson, “…at times Warburg could lapse into an almost blimpish anti-Americanism…” (High Financier, page 167)


I’m definitely not anti-American. In fact, at this point I think I can make the argument that I love this country as much as my own. That said, I am anti-groupthink and anti-Old Wall Street. As Warburg said, at American banks “even those who are outstandingly intelligent change their views according to the movement of the Stock Exchange.”


On that score, just fyi, the US stock market is not the US economy. A lot of people on Old Wall Street disagree with me on that – and if you can’t tell already, I really want to have this debate in the arena of American public opinion!


Strong Dollar = Strong America. Period.


That doesn’t mean that the US Dollar has to go up and the stock market down for me to be right on this. On the contrary, I think this country will only get it really right when both its currency and stock markets are going up together. That’s when the 99% get paid.


Keynesians already have their hands up in the air before the Yale-Harvard Game this weekend reading this – ‘but, but, what about exports – how do we compete with the Chinese if our currency is strong?’


Stop whining and start winning.

  1. The US Economy isn’t an export economy anymore – get over it
  2. US Consumption = 71% of US GDP - this is a service and consumption economy
  3. Strong Dollar = higher purchasing power for Americans where it matters

American winners like Ford, Microsoft, and Apple didn’t become the leaders of innovation and job creation on some cochamamy central plan for a weak currency. They did it by dealing with the globally interconnected game that they were in, and finding a way to win.


Back to the Global Macro Grind


First, let me start with what’s been winning for us here in November – our Global Macro call for King Dollar. Here’s how the Hedgeye Asset Allocation Model is positioned for this morning’s open:

  1. CASH = 52%
  2. FIXED INCOME = 24% (Long-term Treasuries, Treasury Flattener, and Corporate Bonds – TLT, FLAT, and LQD)
  3. INT’L CURRENCY = 12% (US Dollar – UUP)
  4. US EQUITIES = 6% (Utilities and Healthcare – XLU and XLV)
  5. COMMODITIES = 6% (Gold – GLD)
  6. INT’L EQUITIES = 0%

I started the week at 0% asset allocation to US Equities as I came into the week short the SP500 (SPY).


Yesterday, I did what the process told me to do: started buying Healthcare (XLV), and sold some Fixed Income exposure (which was oversized to start the week at 30%, with my max being 33% to one asset class).


By Global Macro position, here’s what I am thinking as of last price:

  1. TLT – Growth Slowing, globally, is going to continue to have an impact on US Growth Slowing. Immediate-term target for UST 10-year yields is 1.98% so that means it’s time to take my time selling some bonds and buying some stocks (see Chart of The Day).
  2. FLAT – Growth Slowing. Period. We’ve had this position on since February of 2011, so the buy-and-hold crowd can give me a golf clap for having the conviction to stay with our highest conviction idea relative to consensus in January 2011.
  3. LQD – Are Corporate balance sheets “flush with cash” – no doubt, but some of them are flush with debt too – so we want to be careful with this position as the US bankruptcy cycle accelerates (see chart of American Airlines – AMR).
  4. UUP – Domestically, we think the US Presidential cycle puts Bernanke in a box. Internationally, we think the Europeans are going to cut rates alongside most central bankers in Asia and Latin America. Strong Dollar = Strong America.
  5. XLU – next to owning the top performing major currency in November (USD), we want to continue to have exposure to American cash dividend yields. This is the highest dividend yielding S&P Sector ETF and remains in a Bullish Formation in our model.
  6. XLV – buying it right is what matters most here (yesterday was a good re-entry point), but our Healthcare Team is bullish on the intermediate-term TREND outlook for consumption oriented domestic Healthcare stocks (think dental and Strong Dollar).
  7. GLD – again, you want to buy it right and manage your risk around what looks to be a relatively predictable range ($167.21-$175.98). As long as real-interest rates on American savings accounts remain negative, Gold works for absolute return.

I know it terrifies Old Wall Street to think that we can be as bearish as we’ve been on Growth Slowing, but still find a way to make money on it on the long side. Ray Dalio has done it in both 2008 and 2011 and so have we. Winners win.


Being perma bullish or bearish isn’t a risk management process; neither is hope for the next Big Government Intervention. I think we are having a generational moment in this country where the winners can take this country’s leadership reigns back from the whiners.


That’s the long-term America I think we can all believe in.


My immediate-term support and resistance ranges for Gold, Oil, France, Germany, and the SP500 are now $1, $97.69-102.11, 3003-3089, 5, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Winners vs Whiners - Chart of the Day


Winners vs Whiners - Virtual Portfolio


The important commodities, at least for the food and restaurant industries, were mixed in terms of price action over the last week.  Grains moved lower, as did beef and chicken broilers, but wings, dairy and coffee posted strong gains.






The supply and demand profile for beef remains highly bullish.  Despite the retracement in beef prices over the last week, the trend is straight up and to the right.  Some analysts are estimating that cattle feedlot placements in October fell 3.9% year-over-year, according to cattlenetwork.com.   The USDA Cattle on Feed report comes out on Friday and, if there is a decline of the magnitude that some are expecting, it will be signal tighter beef supplies and likely higher beef prices in 2012.  In the fourth quarter of this year, tight feed stocks and the seasonal uptick in the slaughter of cows is expected to support price.


The demand setup remains strong as emerging markets, particularly in Asia, increase beef consumption and US exports continue to grow rapidly.  In September, beef shipments were up double digits.  We believe this is a negative for WEN, TXRH, and CMG. 



Chicken – BWLD


Chicken wing prices continue to march higher as year-over-year as chicken processors cut production and the year-over-year demand dynamics also support price.  We are confident that wing price inflation is going to escalate into 1Q12 and put pressure on Buffalo Wild Wing’s margins and pricing power.  Please see our note (“BWLD: PARTY’S (ALMOST) OVER” 11/16) for further details.  Chicken wing prices are now up year-over-year for the first time since 2Q10 (chart below).





Grains’ decline over the last week is a positive for the restaurant industry.  As a word of caution, prices need to come down considerably for protein producers to feel any relief and the benefit of that to pass through to purchasers and consumers.  For PNRA and the pizza names, the decline in wheat is a positive.  AgResource is predicting that the 2012 global wheat crop will be flat while the corn crop, due to a projected increase in U.S. production, will be up year-over-year. 



Dairy – CAKE, TXRH


Dairy moved sharply higher over the last week despite concerns about soft economic trends in Europe.  The recent spike in prices is a concern for The Cheesecake Factory and Texas Roadhouse and comes as global dairy supplies have been increasing.  For CAKE, in particular, we see this as having an impact on gross margins.  Management, earlier in the year, guided to favorable dairy prices in the fourth quarter on a year-over-year basis. 
































Chicken – Whole Breast


WEEKLY COMMODITY CHARTBOOK - chicken whole breast



Chicken Wings
















Howard Penney

Managing Director


Rory Green


Early Look

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