TODAY’S S&P 500 SET-UP – January 4, 2012


Raging European bears are begging for bad news and they just aren’t getting it 4 days into the year, yet… KM


As we look at today’s set up for the S&P 500, the range is 18 points or -0.79% downside to 1267 and 0.62% upside to 1285. 






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE:  +1659 (+1813) 
  • VOLUME: NYSE 855.12 (+45.42%)
  • VIX:  22.97 -1.84% YTD PERFORMANCE: -1.84%
  • SPX PUT/CALL RATIO: 1.88 from 1.49 (+26%)




10YR – really bullish for German Bunds to see 4.06B of 10yr paper printed 4bps below 10yr UST’s (1.93% on Bunds vs 1.97% on USTs). Keith is watching 10yr UST’s like a hawk for a confirmation that Growth’s Bottom (2011 Slowdown) is in. He'd need to see a sustained breakout > 2.03% to sell TLT and keep ramping up Global and US Equity exposure (moved to 12% Global Equities yest).

  • TED SPREAD: 57.23
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.97 from 1.89   
  • YIELD CURVE: 1.64 from 1.70


GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • 7am, MBA Mortgage Applications, Dec. 30
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 10am: Factory Orders, Nov., est. 2.0% (prior -0.4%)
  • 11:30am: U.S. to sell $30b 4-week bills
  • 4:30pm: API inventories
  • Eurozone Dec preliminary CPI +2.8% y/y vs consensus +2.8% and prior +3.0%
  • Eurozone Dec Final services PMI 48.8 vs consensus 48.3 and prior 48.3


  • President Obama to discuss economy at high school in Shaker Heights, Ohio, 1:15pm
  • Yahoo may name CEO this morning; PayPal president Scott Thompson a leading candidate: AllThingsD
  • Mitt Romney beat Rick Santorum by 8 votes in Iowa caucuses, each capturing less than 25%; Ron Paul third, Rick Perry considering whether to continue campaign
  • Bullish sentiment decreases to 49.5% from 50.5% in the latest US Investor's Intelligence poll




  • Citigroup Sues Hedge Fund Manager in Singapore Over Gold Losses
  • China’s Wen Jiabao Sees ‘Relatively Difficult’ First Quarter
  • Raw-Materials Rebound Seen as Economy Skirts Slump: Commodities
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Exxon in Talks to Restructure Stake in Japan Refining Unit
  • Gold May Advance for a Fourth Day on Outlook for Asian Demand
  • Dalian to ‘Seriously Consider’ Vale-Ship Protests, Owners Say
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Vedanta Plans India Caustic Soda Unit, Cost-Cuts as Prices Dip
  • Copper Drops as Europe Crisis Boosts Demand Concern; Tin Slumps
  • Chesapeake Comes Up Short of Investment-Grade: Corporate Finance
  • Hong Kong Keeps Ban on Some Poultry Imports Due to Avian Flu Tie
  • Copper Falls as Societe Generale Says Prices May Drop Almost 10%
  • Gold Demand in India Is ‘Moderate,’ Rajesh Exports Says
  • Dow Climbs to Highest Since July, Oil Surges on Manufacturing
  • Saudi Arabia May Cut Oil Premiums for February From Record Highs
  • Silver Will Lead Gains in 2012 Among Raw Materials: Table

THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





GERMANY – shaping up on the long side after really impressive employment data this wk (6.8% unemployment rate for DEC amidst the mayhem) and a better than bad Services PMI this morn (52.4 DEC vs 52,7 NOV). German 10yr bond auction was solid too - KM


THE HEDGEYE DAILY OUTLOOK - euro performance





ASIA – after 2 solid up days to start 2012, the 3rd was not a charm – China down -1.4%, HK -0.8%, and India -0.5% reminds us that Equity market bottoms are processes, not points. December data implies growth slowing at a slower rate in Asia (but it’s still slowing).


THE HEDGEYE DAILY OUTLOOK - asia performance




  • U.S. Spurns Iran’s Demand to Keep Aircraft Carrier Out of Gulf
  • U.A.E. Deposit Fall May Squeeze Banks as Debt Looms: Arab Credit
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Afghan Taliban Takes Step Toward Peace Talks to End War With U.S
  • Huawei’s Work in Iran May Violate U.S. Sanctions, Lawmakers Say
  • U.S. Defense Strategy Plan Focuses on Thwarting China, Iran
  • Oil Trades Near 8-Month High on Iran Tension, Shrinking Supply
  • Aldar’s May 2014 Bond Yield Drops to Record on Asset Sale
  • Arabtec Wins 561 Million Dirhams Contract at Dubai Airport
  • Saudi Arabia May Cut Oil Premiums for February From Record Highs
  • Iran’s Nuclear Fuel Rod Isn’t Military Threat, U.S. Analysts Say
  • Dana Gas Bond Yield Jumps Most in Two Weeks Ahead of Meeting
  • OPEC Crude Production Rises to Three-Year High, Survey Shows
  • Kuwait Oil Tanker Will Award Contracts to Daewoo, Al-Anba Says
  • Gold Rallies Most in 10 Weeks on Iran, Dollar; Wien Sees $1,800
  • Biggest Hedge Fund in Ships Sees Frozen Gas Beating Oil: Freight
  • Jarir Fourth-Quarter Profit Jumps 21% on Phone, Laptop Sales




The Hedgeye Macro Team

Howard Penney

Managing Director


“New Year's Day is every man's birthday.”

-Charles Lamb


For Wall Street, and many people around the world, the New Year is a big deal.  The New Year offers a chance to leave behind the past and focus on our goals going forward.  While every new day, technically, offers us the same opportunity, no other time of year inspires the same level of introspection and resolution as early January. 


After the excesses of the Holiday season, such a mood can seem particularly apropos.  Along those lines, in Christian tradition, the Tuesday before Ash Wednesday and the beginning of the Lenten season is typically an indulgent time.  Whether this day is referred to as Mardi Gras in New Orleans or Pancake Tuesday in London, the idea is generally the same: enjoy this day before Lent begins – a time of soul searching and repentance.


While some may ridicule others for using New Year’s or Lent as catalysts for self-improvement, the fact is that every year occasions such as this offer valuable reminders for people not to live an unexamined life, a life that Socrates would say is not worth living.  Are you convinced that Wall Street follows a similar process of self-examination and reflection?  Have the Old Wall Street follies of times past been faced up to following hours of soul-searching?  Or is Old Wall Street simply unwilling or unable to learn new tricks?


One trick that these Old Dogs love to perform is year-end S&P 500 targets and targets for U.S. GDP growth.  We wake up every morning trying to embody our vision of what Wall Street 2.0 is all about.  Taking pot shots at numbers (made up in the case of GDP) a year out is not what we do because it is not helpful for our clients, which is our number one priority.  We focus on shorter durations based on scenarios, probabilities and ranges.  In doing this, we offer our clients more than just a “target”; over time they develop an understanding of our process and incorporate it into their own.  So, before anyone else asks: we don’t do full year targets – let the Old Dogs perform Old Tricks. 


One of the classic Old Dogs doing the same Old Trick is Byron Wien of the Blackstone group with his 10 surprises.  The inception of 10 surprises for the New Year came nearly three decades ago.  Right on time, Bloomberg reported the 2012 predictions despite a less-than-stellar showing from Wien in his 2011 predictions (S&P 1500, Real GDP growth of 5%).  While we did not make similar predictions, we were early in stating our view that U.S. growth would slow in 2011 – at a time when consensus was calling for accelerating growth.


One of his 10 surprises of 2012 might not have made it to January 4th; “Spain/Ireland will strengthen finances in 2012.” Well unfortunately today the new Spanish government has warned the 2011 deficit could top 8% of gross domestic product, versus a target of 6%. In addition, Spanish Prime Minister Mariano Rajoy’s is considering applying for loans from the European Union’s rescue fund and the International Monetary Fund to finance the restructuring of the ailing banks. There are 361 more days to go, but that particular “surprise” is one that I think seems unlikely to win Wien any plaudits in a year’s time. 


What are the implications for GDP growth if Byron’s prediction that the “yield on the 10-year Treasury will go to 4%?”  Unfortunately, the Old Dogs of Washington continue performing their same old tricks coming into the New Year!  According to the U.S. Treasury, America ended 2011 with debt at an all time record $15.2T, with the implications being now the U.S. debt-to-GDP ratio is over 100%.  The USA cannot afford to pay a 4% yield; the implications to the debt and deficits are staggering not to mention it will stifle US GDP growth.  Furthermore, Wien’s prediction is based on China shifting investment from bonds into hard assets and raw materials.   Given that the country holds roughly $1.5 Trillion in American government debt, an investment so great that there is little else China can do but continue to support the value of Treasury bonds.


We like to say that Hedgeye is redefining how the investment community operates and we are defining Wall Street 2.0.  Thus, it is not surprising that we continue to get questions from clients asking us to conform to the old mentality of year end predictions.  Clearly, our goals are going to take time to achieve but we are heartened by the feedback we have received from our hard-won clients at this early stage.  In our view, any parties claiming to be able to accurately forecast, rather than guess, Real GDP growth a year out is not being entirely honest.  


Rather than waste people’s time with Old Tricks, we prefer to offer up themes quarterly that are relevant to the investing landscape that is in front of you.  Our 1Q12 MACRO Themes call will be held on January 13th, 2012.  We will be sending out details of the themes in due course, but avid readers of the Early Look will know our view on “King Dollar” and the implications for consumption in the USA.  Bernanke staying out of the way and allowing the Greenback to appreciate has boosted the U.S. Consumer and the Macro Team will be sharing its thoughts on this trend in 2012 a week from Friday.  Our immediate-term support and resistance ranges for Gold, Oil (brent), EUR/USD, Shanghai Composite, France’s CAC40, and the SP500 are now $1, $111.26-112.13, $1.29-1.31, 2157-2219, 3149-3276, and 1, respectively.


Function in Disaster; Finish in style



Howard Penney
Managing Director


OLD DOGS - Chart of the Day


OLD DOGS - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.68%

NKE: KM Buying More


Keith added Nike to the virtual portfolio again. Zero change to our fundamental view. All that's changed is the price. 


NKE: KM Buying More - NKE TTT



Romney Drops the Mitts

Conclusion:  The Iowa caucuses begin tonight at 7pm, with results expected by 11pm.  If Romney gets over 25%, it could be the knockout blow he needs to win the nomination.  Both Paul and Santorum have had a consistent presence in Iowa that could lead to an upside surprise for either.


Today marks the beginning of the Republican nominating process with the Iowa caucuses.  They key question to consider heading into today is whether Mitt Romney can land a knock-out blow to his competitors by winning in Iowa with a large enough margin to discourage the other candidates from continuing and their supporters from continuing to fund them.


As background, the Republican caucuses in Iowa are open to any Republican registered in Iowa who will be 18 by the general election on November 6th, 2012.  The caucuses begin at 7pm at designated meeting places in Iowa’s 1,774 districts with a recitation of the Pledge of Allegiance and then an election of officers to run the meeting.  Representatives from each campaign will then give a brief speech for their candidate.  Following the speeches, caucus-goers will write the name of their preferred candidate on a piece of paper and the votes will then be counted.  The caucus will then report the results to the room and then by phone to the Iowa Republican party.  Typically, the candidates that are more conservative, and those with more passionate supporters, do well in the caucus format.


The success of the Iowa caucuses in predicting the eventual Republican nominee is somewhat mixed.  In 1996, Bob Dole defeated Pat Buchanan 26% to 23% and went on to claim the nomination.  In 1988, Dole also won Iowa, but 4thplace Iowa finisher, George Bush, went on to win the nomination.  Bush was on the other side of the equation in 1980 when he bested his eventual running mate, Ronald Reagan, in Iowa by winning 31.6% versus Reagan’s 29.5%.  Most recently, in 2008, Mike Huckabee won Iowa with 34.4% and eventual nominee John McCain finished fourth with 13%.  History suggests a cautionary tale as to reading too much into the Iowa caucuses.


Based on the most recent polls, which we’ve highlighted in the table below, the race continues to look very tight.


Romney Drops the Mitts - 1


The takeaway from looking at the five most recent polls is that Romney appears to hold a lead, albeit a very marginal one, over Ron Paul.  Interestingly, Rick Santorum is now running a close third.  Meanwhile, Newt Gingrich has fallen back to fourth in all of the recent polls, and can likely be expected to fall further by the end of the day as the polling trends are usually a decent leading indicator for actual results.


The ultimate determinant of victory today will be the undecided caucus goers.  According to the recent Des Moines register poll, 49% of likely caucus-goers said their mind was still not made up.  Reasonably, as my colleague Jeremy Pink noted this morning, face time in Iowa over the last year may turn out to be a key factor to get the vote of the undecided caucus-goers.  On that front, of the three front runners Santorum ranks the best with more than 200 events in Iowa over the last year, followed by Paul at more than 100 events, and Romney trailing both with only 19 days of campaign time in Iowa.


On a national level, if there is a story over the past few weeks it is the rapid decline of Newt Gingrich.  In the middle of December, after a couple of positive debate appearances, Gingrich was leading all Republican candidates with 35% in the Real Clear Politics poll aggregate.  At that point, Romney was a distant second at 22.3%.


Romney Drops the Mitts - 2


In the last couple of weeks, since Gingrich peaked, the Romney camp, or at least PACs advocating for Romney, have dropped the proverbial mitts in terms of going after Gingrich and more broadly defining him to the electorate.  The best example is the attached video advertisement that highlights the fact that Gingrich isn’t overly conservative and likely has too much baggage to beat Obama.


In recent days, Gingrich has tried to fight back, most notably by outright calling Romney a liar, but it appears to be too little, too late.  On InTrade, Gingrich’s probability of winning in Iowa is at 0.5% and his probability of winning the Republican nomination is at 5%.  Conversely, Romney is registering a 52% probability of winning in Iowa and 80.2% of winning the Republican nomination, which is an all-time high for Romney.  As we know from watching far too many hockey games, dropping the mitts can be a momentum changer and this seems to be the case in Romney versus Gingrich.


Daryl G. Jones

Director of Research


Romney Drops the Mitts - 3

Preannouncement Roadmap Part 1


With both Sales Day and ICR over the next week, we’re likely to see 10-15 preannouncements. Here’s a roadmap as to the companies who have most commonly updated guidance in advance of the event. We’ll be back shortly with our picks and themes headed into the conference.


We’re officially in the “unofficial” earnings season for retailers with both Sales Day and the annual ICR Exchange set to take place over the next several days. History paints an interesting picture (and precedent) of pre-announcements over this two week period. As such, we’ve updated our matrix of companies with a history of pre-announcing at or around the annual pilgrimage to ICR. Those with positive releases are highlighted in green while those with less positive news are highlighted in red. This year should be no different than in years past, where we are likely to see 10-15 companies update guidance in the coming days.

As noted, we’ll be back soon with Part 2 of this analysis, which includes our targeted themes and companies headed into the event.


Preannouncement Roadmap Part 1                                 - ICR Preann Table

Preannouncement Roadmap Part 1                                 - ICR Preann Table 2



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