Not Good: SP500 Levels, Refreshed

POSITION: Long Healthcare (XLV)


Long anything here is not good. The SP500 is in a Bearish Formation (bearish across all 3 risk management durations): 

  1. TAIL resistance remains up at 1270
  2. TREND resistance (was support) now at 1203
  3. TRADE support is loosely held at 1158 

I think the bulls are trapped for now and have to sell all bounces provided we remain < 1203.


King Dollar is breaking out. The Correlation Crash remains a very relevant risk.



Keith R. McCullough
Chief Executive Officer


Not Good: SP500 Levels, Refreshed - SPX


Who knew what when? Our price divergence model shows that KONA is outperforming peers over the 6 and 12 month time horizons but underperforming on 1 week, 2 week, and 1 month durations.    


All of our previous work on KONA suggested that the company was headed in the right direction.  In June 2011, the board fired the CEO Marc Buehler and now we have learned that CFO Mark Robinow is no longer with the firm.


The company made the announcement of Mark leaving the firm in a press release announcing a share repurchase program of $5 million.  As I see it, the important news is the fact that Mark is no longer the CFO, not that the company thinks their stocks represents a good value.


However, even putting Mark’s departure aside, the announcement of a share repurchase program represents a big red flag!  The first use of any cash the company has should be to build stores not buy back stock.  In my view, the stock repurchase plan is an admission by the current executive team that the departure of the CFO is a real problem.


Until further notice, any positive bias we may have had on KONA is no more. 


As one client said to me this morning, it's “amateur hour” in The Grand Canyon State!


KONA – BIZZARE EVENTS - subsector fbr



Howard Penney

Managing Director


Rory Green









Initial jobless claims came in at 393k versus 390k consensus and a revised 391k for the week prior.


THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - initial claims 1123



Notes below from CEO Keith McCullough


Santa needs turkey and beverage.

  1. ASIA – Equities are crashing again after the NOV Chinese PMI print came in at 48 vs 51 and stocks moved back into the -20% peak-to-trough zone for the YTD (HK -2.1% and down -26.7% from YTD high; India down another -2.2% and down -23.3% from YTD high); both Hong Kong (which we’re short) and Singapore reported very elevated inflation readings (+5.8% and +5.4.% y/y)
  2. EUROPEAN STAGFLATION  - this is still my call and it’s not consensus; European consensus is for a recession – Stagflation gets a much lower equity market multiple; on the Stag side of the ledger, Germany and France reported awful Manufacturing PMI #s of 47.9 and 47.6, respectively this morn; Germany has plenty of debt to issue in NOV/DEC and their auction today was not good.
  3. TREASURIES – the Long-Bond and US Dollar is where this November Santa is at! 10yr plummeting to 1.90% this morning and finally immediate-term oversold as the Yield Spread continues to collapse (down another 9bps wk/wk to 164bps wide).

Deutsche Bank and Dexia are the lead dominos in a long list of European banks getting in line for bailout funds.





THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - subsector fbr





YUM:  Yum! Brands said Tuesday that it will separate its India business from Yum! Restaurants International and create a separate divison, a standalone, called Yum! Restaurants India.   Niren Chaudhary has been promoted to president of the new division.  CEO David Novak said that he is confident that India will turn into “a major growth engine for Yum”.


MCD: McDonald’s is testing out a new style, conceived by Paris designer Patrick Norguet, at a store in Villefranche-de-Auragais, according to the LA Times.  The redesign is part of an effort to change the chain’s image in France from teen hangout to family restaurant.


THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - MCD villefranche reimage



DNKN:  Dunkin’ Donuts is launching a twitter promotion that gives fans the chance to win a Keurig brewer and a box of Dunkin’ Donuts K-Cups.  One winner per hour will be randomly selected from anyone that tweets the hashtag #DDKCUPPACKS and shares how Dunkin’ Donuts K-Cup packs keep them running throughout the holiday season.  The promotion begins at 6AM Friday and ends at 11AM; there will be five winners, total.





CBRL: During Cracker Barrel’s earnings call yesterday morning, management expressed confidence in sales trends which are, according to the company, improving in November from October.  Advertising guidance for the year was unchanged.  The company aims to raise price 2-3% in FY12 and notes that beef, dairy and coffee costs are up sharply.


KONA: Kona Grill says that Mark Robinow is no longer Executive Vice President, CFO, and Secretary of the company, effective as of 11/21. In the same press release, Kona Grill announced the authorization of the repurchase of up to $5 million of the company’s outstanding common stock.  We are changing our stance from positive to negative.  Buying back stock is the wrong decision in our view, given the cash position of the company and the need for store growth.


CAKE: Cheesecake Factory was maintained “Equalweight” at Barlcays.




Howard Penney

Managing Director


Rory Green



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


The Macau Metro Monitor, November 23, 2011




Total visitor arrivals increased by 13.6% YoY to 2,376,643 in October 2011.  Visitors from Mainland China surged by 30.5% YoY to 1,466,545 in October 2011, with the majority coming from Guangdong Province, Fujian Province and Hunan Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 577,691, up by 20.5%.





Singapore Changi Airport passenger traffic was up 8.3% YoY to 3,878,788 in October.  September passenger traffic grew 12.5% YoY.



S'pore CPI increased 5.4% YoY, surpassing economists' forecast of 5.2%.  Core inflation in October was +0.3% MoM and +2.3% YoY.  



Casino worker average salary has reached MOP 13,500 in Q3.

Santa Mario

This note was originally published at 8am on November 18, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We should not be waiting any longer.”

-Mario Draghi


In one of the more suspicious central planning moves to-date, it appears that the new Italian Chief of Central Planning, Mario Draghi, is working on changing the date of Christmas.


Santa, as you can see, is really red. This whole thing about the Nasdaq and US Small Caps being down for 3 consecutive weeks in November (SP500 down -3%) has Bernanke’s central plan for reaching “escape velocity” from the chimney under fire too.


If Americans and Europeans change all of the rules and all of the dates, there’s really a lot we can do. You see, this is what these people fundamentally believe – they can save us from, well, just about any problem they perpetuate.


The aforementioned quote came from Santa Mario this morning where he started calling out the Germans in Frankfurt. “Where is the implementation of these long standing decisions?” Draghi asked.


Q: Qu’est ce qui ce passe avec Le Bazooka pour les banks? demanded Monsieur Sarkozy.


A: “If politicians believe the ECB can solve the problem of the Euro’s weakness, then they’re trying to convince themselves of something that won’t happen.” –Angela Merkel


Bad German Santa. Bad.


Back to the Global Macro Grind


Yesterday I covered shorts and bought some of our Hedgeye Best Ideas on the long side (ask for the replay of our analyst team’s Best Ideas Call from last Friday), taking my net long position in the Hedgeye Portfolio to one of its most bullish leans in November (12 LONGS, 8 SHORTS).


That doesn’t mean I believe in Le Pere Noel or that a few Keynesians by the name of Mario are going to save me on the long side either. It simply means that I am doing what my risk management process allows me to do – Fade Beta.


Fading Beta means buying on red and selling on green. It’s not as complicated as figuring out the European catalyst calendar. It’s just math. I base these decisions on a model that I’ve built. I don’t have to ask my boss for permission to act on its signals.


The risk management signals aren’t perfect, but they’ve been better than being Bad Beta in November. We’ve booked 13 consecutive gains on the long side of the Hedgeye Portfolio and have gone 17 for 19 in November. Beats believing in Santa too.


Like all of you, I’m proud of my team and process when they are working together. I’m not a whiner. I celebrate winning. And hopefully that message is resonating with your process. At the end of the day, this business is all about the score. Winning matters.


Where do we go from here?


On the bounce, sell on green, again.




All low-volume rallies to lower-highs in Asian, European, and US Equities are to be sold until consensus fundamentally starts to come to grips with what the Germans are saying. 

  1. If any European banks are going to be bailed out, German banks get to go first (Deutsche Bank, Commerzbank, etc).
  2. If any French or Italian banker thinks Lagarde or Draghi are getting them a priority pass ahead of German banks, they should think that through again…
  3. If and when all of these Greek, French, Italian, etc banks prove that they can’t raise money (read: secondaries in the public market), they have to tap their sovereign leaders first, then start begging for the EFSF funding. 

Like intermediate-term tops in markets, the deleveraging of balance sheets is a process, not a point. There have been plenty of points in the last 3 to 24 months where pundits have made the call that “this is it – this is the bottom for the banks”, but the process of marking bank stocks and their equity values to market continues to trump all hopes.


Hope (and begging for Santa Mario), is not a risk management process. And “printing money”, according to Merkel’s spokesman on the economy this morning, “… at the end of the day means inflation…” and “every German is very much scared about inflation.”


As Ben Bernanke anchors on the 1930s (instead of the 1970s Stagflation), the German Zeitgeist is anchoring on the 1920s. Interconnected risk is not managed on one duration to suit the needs of one country’s central banking narrative over another’s. Interconnected risk is multi-duration, multi-factor, and global.


If you don’t get that yet, you probably still believe in Santa coming this November too.


My immediate-term support and resistance ranges for Gold (bought more yesterday), Oil (Bullish Formation and inflationary), French CAC (Bearish Formation), and the SP500 (Bearish TAIL; Bullish TREND) are now $1722-1778, $98.12-101.96, 3002-3146, and 1212-1239.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Santa Mario - Chart of the Day


Santa Mario - Virtual Portfolio


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


As we look at today’s set up for the S&P 500, the range is 21 points or -0.93% downside to 1177 and 0.84% upside to 1198. 




With the SP500 down for 5 consecutive days and down -5.2% for November (down -7.9% from OCT28 intraday peak of 1290), it should be no surprise to see the deterioration in our S&P Sector Studies. All 9 Sectors are Bearish TRADE; 3 of 9 Bearish TREND; 8 of 9 Bearish TAIL.


With this week’s TREND breakdown (1203), the SP500 itself is back into what we call a Bearish Formation (all 3 risk management durations are bearish). The only sector that’s bullish TREND and TAIL is Utilities (XLU), which is up +7.8% YTD.


Financials (-24.3% YTD), Basic Materials (-15.6% YTD), and Industrials (-8.4% YTD) tell you all you need to know about the double edged sword of Growth Slowing and Correlation Risk. We’ve been calling for both.


We remain bullish on the US Dollar and ultimately think that will provide a tailwind for US domestic Consumption stocks in both Consumer and Healthcare sectors. These stocks/sectors finding higher-lows will take time. Bottoms are processes, not points.



THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE: -708 (+1449) 
  • VOLUME: NYSE 878.19 (-5.80%)
  • VIX:  +31.97 -2.86% YTD PERFORMANCE: +80.11%
  • SPX PUT/CALL RATIO: 1.66 from 1.81 (-8.70%)




TREASURIES: Growth Slowing? 10yr bonds ripping a move to 1.90%; 30yr 2.87% and Yield Spread collapsing to +164bps wide

  • TED SPREAD: 49.01
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.94 from 1.97   
  • YIELD CURVE: 1.71 from 1.67


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, (prior -10.0%)
  • 8:30am: Durable Goods, est. -1.2% (prior -0.8%)
  • 8:30am: Personal income, est. 0.3% (prior 0.1%)
  • 8:30am: Personal spending, est. 0.3% (prior 0.6%)
  • 8:30am: Initial jobless claims, est. 390k, prior 388k
  • 9:45am: Bloomberg Consumer Comfort (prior -50.0)
  • 9:55am: UMich Confidence final, est. 64.5 (prior 64.2)
  • 10:30am: DoE inventories
  • 11am: Kansas City Fed, est. 9, prior 8
  • Noon: EIA natural gas storage
  • 1pm: Baker Hughes rig count



  • Delta, US Airways expected to find out which of their rivals won auctioned landing slots at LaGuardia, Ronald Reagan; watch Southwest, JetBlue
  • Orders for durable goods other than transportation stabilized in Oct. after rising most in 6 months, separate figures may show
  • China passed U.S. to become world’s largest smartphone market by volume in 3Q: Strategy Analytics
  • U.S. markets closed Thursday for Thanksgiving holiday



  • Coffee Supply Crunch Spurs Rally After Folgers Cut: Commodities
  • Australia Faces Wheat Export Challenge as Rain Hurts Crop
  • Gold Advances as Global Debt Risk Drives ETP Holdings to Record
  • Golden Agri Forecasts Higher Palm-Oil Output on Expansion
  • Turkey Farmers Lose Out on Thanksgiving Rally as Corn Costs Rise
  • Palm Oil Declines for Third Day on Concern World Growth Slowing
  • South Korea Buys 3,000 Tons of Malaysian Aluminum in Tender
  • Soybeans Decline to 13-Month Low as Supply Prospects Improve
  • Copper Declines on Sign China’s Manufacturing May Contract
  • Oil Drops on Rising U.S. Fuel Supplies, Slowing Economic Growth
  • Sugar Mills Expect India to Allow More Exports Next Month
  • Sugar in China May Extend Decline on MACD: Technical Analysis
  • Diesel Becomes ‘Global Issue’ as Premium Soars: Energy Markets
  • Australia Lower House Passes Mining Tax as Greens Back Bill
  • ‘Absolute Fear’ Saps Commodity Open Interest: Chart of the Day
  • Copper Rises Most in a Week on Signs China’s Demand to Climb
  • Vale Says Galilee Miners Need to Build Joint Rail to Save Costs
  • Copper in London Falls by 0.3% to $7,305, Reversing Gains
  • Cocoa Arrivals From Brazil’s Bahia Advance 11%, Hartmann Says
  • Oil Gains First Day in Four on Iran Sanctions and Egypt Protests
  • Wheat Drops as U.S. Exports Slow on Ample Global Supplies

THE HEDGEYE DAILY OUTLOOK - daily commodity view




THE HEDGEYE DAILY OUTLOOK - daily currency view





EUROPE: remains no bid - lower-highs on low volume rallies and threats for lower-lows

THE HEDGEYE DAILY OUTLOOK - euro performance





ASIA: do up your chinstraps b/c Asian Equities are crashing, again - HK (were short) down another -2.1% (down -26.8% from YTD high)


THE HEDGEYE DAILY OUTLOOK - asia performance




  • Arab World’s Former ‘Club of Tyrants’ Turns Against Syria
  • Gingrich Immigration Plan Derided as ‘Amnesty’ in Debate
  • Egypt Army Pledges Transition as Protesters Gather in Cairo
  • Australian Banks Ready First Sukuk on Tax Vote: Islamic Finance
  • Egypt Dollar Bonds Tumble as Tantawi Promises a ‘Step Backward’
  • Qatar Said to Hire 6 Banks for Meetings With Bond Investors
  • Saudi May Struggle to Boost Small Business Lending: Arab Credit
  • Oil Gains First Day in Four on Iran Sanctions and Egypt Protests
  • Iraq’s Lafarge-Run Cement Plant Plans to Triple Production
  • Dubai’s Al Wasl May Close as Stocks Retreat to 2004 Low
  • Iraq Has Told Exxon It’s in Breach of Laws, Shahristani Says
  • Oil Abundance in Canada Provokes Anxiety Over Fossil Fuel Lust
  • U.S. Targets Iran Oil, Bank in Bid to Halt Nuclear Program
  • Saipem, Petrofac ‘Well Positioned’ if Saudi E&P Cut: JPMorgan
  • ADIB Prices $500 Million Sukuk at 245 Basis Points Above Midswap
  • Abu Dhabi’s Masdar Cuts Jobs, Keeps Renewable Energy Goals
  • Abu Dhabi Index Heads for Lowest Since 2009 on Global Growth




The Hedgeye Macro Team

Howard Penney

Managing Director

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