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TODAY’S S&P 500 SET-UP – December 19, 2011


In a consensus world that was begging for the next Big Government Intervention (and didn’t get it), dead cats can still bounce.  The only problem between now and whenever the Correlation Crash ends is real-time prices.  As we look at today’s set up for the S&P 500, the range is 19 points or -1.04% downside to 1207 and 0.52% upside to 1226. 






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE:  721 (-26volu) 
  • VOLUME: NYSE 1788.63 (+105.63%)
  • VIX:  24.29 -3.27% YTD PERFORMANCE: +36.85%
  • SPX PUT/CALL RATIO: 1.36 from 1.80 (-24.72%)



  • TED SPREAD: 56.82
  • 3-MONTH T-BILL YIELD: 0.00%
  • 10-Year: 1.86 from 1.92   
  • YIELD CURVE: 1.62 from 1.66


GLOBAL MACRO DATA POINTS (Bloomberg Estimates): 

  • 10am: NAHB Housing Market, Dec., est. 20 (prior 20)
  • 11am: Export inspections: Dec. 15, corn, soybeans, what
  • 11:30am: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 12:30pm: Fed’s Lacker to speak in Charlotte
  • 1pm: U.S. to sell $35b 2-yr notes



  • Bank of Ireland sells Burdale to Wells Fargo Bank (WFC) for c €690M in cash
  • Chipotle Mexican Grill co-CEO would like politicians to fix US's immigration system – WSJ
  • Rep John Boehner says no to two-month payroll-tax-cut extension – WSJ
  • JC Penney employees uncomfortable as they await details of CEO Ron Johnson's plan for company - NY Post
  • South Korean shares fall sharply after news of Kim Jong-Il's death
  • Prince Alwaleed bin Talal, his investment co. agreed to buy $300m stake in Twitter
  • France’s credit outlook lowered by Fitch late Friday; S&P has also threatened to cut rating
  • Euro-area finance ministers to hold call to discuss $261b in additional funding through IMF, mechanics of so-called fiscal compact negotiated at Dec. 9 EU summit
  • U.S. online holiday sales up 15%: ComScore




COMMODITIES – amidst all of the final countdown to year-end markup fun (or are they markdowns?), Dr Copper is down another -0.7% this morning – that’s pretty sad considering Copper dropped -6.2% last wk; Brent Oil is now in a Bearish Formation w/ immediate-term downside to $101.98/barrel; Gold’s refreshed range = $1

  • Investors in ‘Fetal Position’ as Goldman Sees Rally: Commodities
  • Sino-Forest Defaults on Two Bond Issues, Seeks Waivers
  • Eldorado Agrees to Acquire European Goldfields for C$2.5 Billion
  • Oil Falls a Fourth Day on Europe Debt Concern, Kim Jong Il Death
  • India Inflation Hurting as Bad Roads Compound Power Deficit
  • Gandhi Bill Strains India Finances to Give Food to Nation’s Poor
  • Philippine Floods, Landslides Kill 652 in 2011’s Worst Storm
  • Copper Drops for First Day in Three on Fitch, China Home Prices
  • Iron Ore May Remain Below $140 as Chinese Mills Limit Purchases
  • Oil Rebounds From Near Six-Week Low as European Equities Advance
  • Soybeans Rise to Three-Week High on South America Crop Concerns
  • Tin Export Ban From Indonesia ‘Broken,’ Industry Group Says
  • China to Buy Corn, Soybeans for Stockpiling, Grain Center Says
  • Palm Oil Climbs for Second Day as Dry Weather May Cut Soy Crop
  • Copper Drops for First Day in Three on Chinese Demand Concerns

THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





EUROPE – contextualizing a dead cat’s bounce matters; don’t forget last week alone the CAC, MIB, and FTSE were all

down between -5.9-6.3%, so a +30-90bps bounce is what it is – another round of lower highs. Fitch downgrading France actually still matters to insolvent French banks who are going to have the negative P&L impact of ratings uplifts going away (higher funding costs).


 THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance




  • Prince Alwaleed, Kingdom Buy $300 Million Stake in Twitter
  • Gulf Keystone Jumps on Report Exxon Considering Making Offer
  • Etihad Raises Air Berlin Stake to 29.2% to Boost Cooperation
  • RAK Outpaces Global Sukuk on Abu Dhabi Backing: Islamic Finance
  • HSBC Says Bigger Is Better for Persian Gulf Bonds: Arab Credit
  • Hungary’s Mol Jumps Most in Month on Exxon Iraqi Deal Report
  • Exxon Weighs Deal With GKP for Kurdish Oil, Independent Says
  • Emaar Raises 3.6 Billion-Dirham Financing Backed By Dubai Mall
  • Gulf Has $25 Billion of Bonds Falling Due in 2012, Al Bayan Says
  • Libyan, Iraqi Output Lead OPEC to Raise Target: Persian Gulf Oil
  • Iran and Russia’s Tatneft Sign $1 Billion Oilfield Accord
  • Saudis Domestic Crude Oil Use Nears 10-Year High in October
  • Alwaleed Tops Arabian Business Rich List With $21.3 Billion
  • CIA Spy 'Confesses' on Iranian TV
  • OPEC Ceiling Adds ‘Strong Upside Risks’ to Oil, Goldman Says
  • Saudi Arabia’s Oil Output Fell in October as Demand Fluctuated
  • Taqa Says Statoil, Vattenfall Energy Are Bergermeer Customers
  • Abu Dhabi Shares Drop to Lowest Since 2009 on Europe Debt, Asia




The Hedgeye Macro Team

Howard Penney

Managing Director

What's True?

“Do you like learning? Do you like finding out what’s true?”

-Ray Dalio


Unless you’re long Venezuela or Pakistan (the only 2 markets in the world up double digits YTD), this was not a good year to be long stocks. Most of you know that by now. The final few weeks of 2011 might change the storytelling. Then again, they may not.


What’s True?


During what I thought was the best Global Macro Risk Management interview of the year, that’s what Bridgewater’s Ray Dalio leaned across the table and asked of Charlie Rose.


Can we, as a profession, look into the mirror and answer that question? Or are we failing to learn? Are we accepting mediocrity?


Re-think, Re-work, Re-build.


Rather than give you some completely random wire-to-wire December 31st“Outlook for 2012”, my risk management goals for the coming months, quarters, and years are:

  1. Don’t lose money
  2. Embrace Uncertainty
  3. Be Right

In order to achieve these goals, I have a lot of learning to do. We have an opportunity to learn something from markets every day.


Back to the Global Macro Grind


What’s True about Global Equity markets in November and December of 2011 is that they are down. This morning, after seeing Asia make fresh new lows (China and India down -21.0% and -25.2% YTD, respectively), we’re seeing another dead cat bounce from oversold levels in European Equities. Don’t forget that France, Italy, and the UK were down -5.9%-6.3% last week.


Last week’s macro moves were largely explained by our Top 3 Global Macro Themes for Q411:

  1. King Dollar – up another +2.1% week-over-week
  2. Correlation Crash – USD up = most things highly correlated (inversely) to the USD down
  3. Eurocrat Bazooka – no dice

What’s True about the Correlation Crash as it pertains to Commodities is that they went straight down last week:

  1. CRB Commodities Index = -3.6%
  2. Oil prices (Brent) = -4.9%
  3. Gold = -6.9%
  4. Copper = -6.2%
  5. Palladium = -8.9%

What’s True about Palladium is that if you dropped it on your head, it would hurt.


But, aside from consensus being paid to call precious metals “currencies” over the course of the last 4 years, What’s True about the causality embedded in that consensus assumption?


In order to attempt to answer to that question, we need to taking a step back, and Embrace The Uncertainty associated with the Ben Bernanke policy to inflate:


“Let us experiment with boldness… even though some of the schemes may turn out to be failures, which is very likely.”

-John Maynard Keynes in the 1920s (Keynes Hayek, page 33)


What’s True about the Keynes model away from what he called it himself? Well, the man did blow up his entire net worth by being long The Inflation Trade (Commodities) in 1928…


P&L doesn’t lie; Keynesian politicians talking about “price stability” do.


Ray Dalio’s thoughts on this generational debate that’s occurring on Old Wall Streets, in our offices, and on the Twitter-sphere is quite simple: “there is not a quality conversation about what is true.”


So either President Obama or the next President of the United States figures this out or there is going to continue to be a social tension amongst The People. Americans may not know the specific how or why, but they do know they are being lied to.


My first solution to this mess is simply to stop what we are doing (stop lying). Dalio’s is to have a conversation about What’s True. Somewhere in between those ideas is a beautiful American bridge that can Re-build what we broke – America’s trust.


Otherwise, as Dalio solemnly reminded Rose in October of 2011, “… the cost of being wrong is a terrible thing.”


My immediate-term support and resistance ranges for Gold, Oil (Brent), and the SP500 are now $1, $101.98-107.18, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What's True? - Chart of the Day


What's True? - Virtual Portfolio

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Keith just shorted Buffalo Wild Wings in the Hedgeye Virtual Portfolio.  From a fundamental perspective, this is one of our favorite names on the short side.


Buffalo Wild Wings’ share price has popped nicely today on a sell-side upgrade.  We have not seen the report but were told that EPS numbers for the next two quarters and the year were being reduced but the price target was being raised from $63 to $78.  Again, we have not seen the report so cannot refute it directly but our thesis remains intact; chicken wing prices are heading higher (already north of $1.40/lbs) and that means the promotional strategy the company has implemented to drive sales will not be viable in 1Q12 when wing prices are likely to be up roughly 50-60% year-over-year.  The Street is modeling a moderate price increase that we believe is far too low.  Margins are almost certain to come down under the wing price scenario we are anticipating.


BWLD: TRADE UPDATE - bwld margin vs wing prices



From a quantitative perspective, BWLD is nearing its TREND line of resistance at $62.69. See the chart below.


BWLD: TRADE UPDATE - bwld levels



Howard Penney

Managing Director


Rory Green


The Week Ahead

The Economic Data calendar for the week of the 19th of December through the 23rd is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - 2. call a

The Week Ahead - 2 call b

Selling GLD: Immediate-term Overbought


Keith sold our long position in the gold etf GLD this afternoon at $155.10 for 1.9% gain.  


He remarked on the trade, "Buying a distressed situation on Wednesday in Gold was backed by the only thing we know - our process. Selling it here is the same."


GLD is immediate-term TRADE OVERBOUGHT with resistance at $155.66 (0.2% upside); long-term TAIL line support is at $152.16 (2.0% downside).  Risk outweighs reward by 10-to-1 at the current price on the immediate-term TRADE duration. 


Selling GLD: Immediate-term Overbought - gold


To see the note we published on Wednesday upon opening the GLD position, click the link below:




Kevin Kaiser


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