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This note was originally published at 8am on January 12, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It’s not the dreamers that are remembered, it’s the doers.”

-Tim Tebow


This morning one of our top Global Macro leadership sources (ESPN) reports Tim Tebow is now America’s favorite athlete.


The poll, calculated monthly, had the Denver Broncos quarterback ranked atop the list for the month of December. In the last 18 years of the ESPN Sports Poll only 11 different athletes (Michael Jordan, Tiger Woods, etc.) have been No. 1.” (ESPN.com)


I can already hear the mumbling from the weenie bins  - ‘there goes that knucklehead hockey player talking about winners again’…


Yep – and I love it.


Back to the Global Macro Grind


When it comes to playing at the highest level of Global Macro Risk Management, you really have to do it each and every day. Global Markets wait for no one.


We were on a Hedgeye Morning Call in mid-December and our Financials guru, Josh Steiner, said ‘look Keith, people are just exhausted out there.’ On a call in late December, our Gaming Ace, Todd Jordan, said ‘no one is picking up the phones – it’s dead.’


And I love that too.


If you want to drive absolute returns, consistently, in up and/or down markets, dealing with emotions, losses, and exhaustion is part of this profession. You have to suck up its adversity, absorb it, and turn it into something positive. The alternative to not playing this game confidently is deer-in-headlights.


When I watch Europe trade this morning, that’s exactly what I see. I see a lot of people reacting to what was 2011’s playbook. I see journalists claiming authority on what to do with European positions into and out of bond auctions. And I see one mother of a short squeeze in almost everything that was going down in November.


This Game of Risk is globally interconnected. You can’t anchor on 1 fear-factor and react. You have to work your tail off to proactively prepare for where the game is going next.


“Hard work beats talent when talent doesn’t work hard.”

-poster above Tebow’s bed growing up in Jacksonville, Florida


What’s going on in Global Macro markets across our Multi-factor, Multi-duration, model this morning?



  1. US Dollar Index remains King (up +11.5% since the end of QE2)
  2. US Equities remain in a Bullish Formation (bullish TRADE, TREND, and TAIL)
  3. SP500’s immediate-term TRADE range moves to 1277-1299 (so buy red closer to 1277, sell green closer to 1299)
  4. US Equity Volatility (VIX) is breaking down into a Bearish Formation (bearish TRADE, TREND, TAIL)
  5. Strong/Stable US Dollar = Lower Volatility (30-day inverse correlation between USD and VIX = -0.77%!)
  6. US Equity Volume Studies are starting to shift to the bullish side (up volume days on up moves)
  7. US Treasuries not yet confirming a breakout in US Growth expectations (10yr under my TREND line of 2.03%)
  8. US Yield Spread (10yr yields minus 2s) = 170 bps wide = 6 basis points wider than where it started 2012
  9. The 3-day range (lead indicator for VIX) in my model is only 44 points wide = very trade-able market vs OCT-NOV
  10. All 9 Sectors in our S&P Sector ETF model are bullish from an immediate-term TRADE perspective
  11. 7 of 9 Sectors in our S&P Sector ETF model are bullish from an intermediate-term TREND perspective
  12. 2 of 9 Sectors in our S&P Sectors ETF model are bearish from a long-term TAIL perspective (Financials and Basic Materials)


  1. Chinese Equities = +3.5% for 2012 YTD and breaking out > immediate-term TRADE line support (Shanghai Composite)
  2. Chinese Consumer Inflation (CPI) falls to a 15-month low this morning at 4.1% = Deflating The Inflation
  3. Hang Seng (Hong Kong) = +3.6% YTD = bullish TREND
  4. Japan’s Nikkei is flashing a very negative divergence at down -0.8% for 2012 YTD = bearish TREND
  5. South Korean unemployment unchanged m/m at 3.1% for DEC and the KOSPI was up +1% overnight = bullish TREND
  6. India down -0.6% last night to 16,077 on the Sensex = bearish TREND
  7. Germany’s DAX is powering forward again this morning to +5.6% YTD = bullish TREND
  8. France’s CAC is up +1% this morning and has moved to bullish on our immediate-term TRADE duration
  9. Italian and Spanish stocks are getting squeezed after lower bond yields (vs last auction)
  10. Russia, Norway, Hungary – all markets that got spanked in 2011 = up and frustrating shorts
  11. Dr Copper breaking out > $3.45/lb TREND line support (this was new as of yesterday) = bearish TAIL up at $3.99/lb
  12. Gold is up +0.7% this morning and is trading in between a rock (TREND resistance = $1682) and TRADE support = $1633

That’s about ½ of what’s already hand-written in my notebook, every day, before 6AM.


What do we do with all of it? We hold ourselves accountable to every play we make, time-stamping every position, so that you can trust that the summary of all our hard work has conclusions that we have the convictions to act on.


Sometimes (like now in Europe), we have no positions. Sometimes we have many. But all of the time, we want to try to make this Tebow Time at Hedgeye Risk Management.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1633-1663, $111.89-115.99, $1.26-1.28, $80.64-81.73, 2235-2292, and 1277-1299, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Just Do It - Chart of the Day


Just Do It - Virtual Portfolio


The Macau Metro Monitor, January 17, 2012



For the quarter ending December 31, 2011, there were 5,302 tables (77 less than the previous quarter) and 16,056 (156 more slots than the previous quarter).



Mocha Clubs will open its 10th club in Macau tomorrow.  Located at Hotel Golden Dragon, the all-new venue operates 24 hours and occupies three floors.


According to a company source, City of Dreams is working on big changes, starting with a rebranding of the property.  “The rebranding is still very secret but will go ahead this year,” the source said.  Meanwhile, from February 5, City of Dreams’ signature restaurant Horizons will be closed for a two-month complete renovation.  Horizons will have a new entrance and private dining rooms as well as a bar that will introduce guests to fine dining.  City of Dreams is also targeting to open another Chinese restaurant in July to add to the existing ones.



Singapore’s December private home sales dropped to the lowest in two years after the government imposed new taxes on house purchases.  Private home sales in the island city fell to 632 units in December, the lowest since December 2009, according to data from the Urban Redevelopment Authority. 



Macau's Tourist Price Index (TPI) for 4Q 2011 increased by 18.9% YoY to 128.1.  4Q TPI rose by 9.8% QoQ, of which hotel room rate soared substantially during the National Day, the Macao Grand Prix and Christmas holidays, driving up the price index of Accommodation by 30.4%.


According to Rádio Macau, Secretary Tam said checks will start to be distributed at the beginning of 2Q 2012.  This year, permanent and non-permanent residents will receive a cash handout of MOP 7,000 and MOP 4,200 respectively. 



TODAY’S S&P 500 SET-UP – January 17, 2012


As we look at today’s set up for the S&P 500, the range is 18 points or -0.39% downside to 1284 and 1.00% upside to 1302. 












  • ADVANCE/DECLINE LINE: -922 (-1591) 
  • VOLUME: NYSE 827.88 (+7.51%)
  • VIX:  20.91 +2.15% YTD PERFORMANCE: +10.64%
  • SPX PUT/CALL RATIO: 1.82 from 1.55 (+17.54%)



  • TED SPREAD: 54.46
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.89 from 1.86   
  • YIELD CURVE: 1.67 from 1.64


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, Jan., est. 11 (prior 9.53)
  • 8:30am: NOPA oil stocks, soybean capacity
  • 11am: Export inspections, corn, soybean, wheat
  • 11:30am: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 9pm: World Bank releases new growth forecasts



  • BB&T, Toronto-Dominion Bank said to be among cos. in talks to buy BankUnited
  • Ista Pharmaceuticals received revised non-binding takeover offer from Valeant, will consider updated proposal
  • Electricite de France withdrew opposition to merger between Exelon, Constellation Energy
  • Georgia Gulf yesterday rejected $1.03b buyout offer from Westlake Chemical as too low
  • Morgan Stanley said to plan to tell employees this week it’s capping, delaying some bonuses: WSJ
  • IRS pursuing documents from CME Group as part of probe into whether some members underreported income earned from leasing their seats
  • Greek PM due to meet tomorrow with group representing private Greek bondholders after 5-day break to discuss forgiving at least half of nation’s debt
  • Seventh victim recovered from Costa Concordia cruise ship; Carnival fell 16% in London yday; also watch RCL
  • Capital One, Citigroup among those reporting monthly credit- card delinquencies, charge-offs
  • Solyndra deadline today for final bids to buy bankrupt co. that got $535m in govt. loan guarantees
  • New York Governor Andrew Cuomo to announce budget at 1pm on spending cuts to erase $2b deficit in yr starting April
  • “Contraband” from Universal opened as weekend’s top film in N.A. theaters 
  • No IPOs scheduled
  • EARNINGS: Citigroup, Wells Fargo, McMoran among those reporting financial results today. Selected companies, with approximate time and Bloomberg est.:
    • TD Ameritrade Holding (AMTD) 7:30 a.m., $0.26
    • M&T Bank (MTB) 7:46 a.m., $1.52
    • Forest Laboratories (FRX) 8 a.m., $1.01
    • First Republic Bank/SF (FRC) 8 a.m., $0.43
    • Citigroup (C) 8 a.m., $0.52
    • Wells Fargo & Co (WFC) 8 a.m., $0.72
    • McMoRan Exploration Co (MMR) 8 a.m., $(0.13)
    • Cree (CREE) 4 p.m., $0.26
    • Fulton Financial (FULT) 4:30 p.m., $0.20
    • American Water Works Co (AWK) 4:30 p.m., $0.33
    • Linear Technology (LLTC) 5 p.m., $0.38
    • Bank of the Ozarks (OZRK) 6 p.m., $0.49
    • Adtran (ADTN) 8 p.m., $0.46




COPPER – the breakout above our intermediate-term TREND line of $3.45/lb last week helps bust a huge +3.1% meltup this morning to $3.75/lb; TAIL resistance remains overhead at $3.99, but this move should force capitulation on the short covering side.

  • Consumer Electronics Frenzy Tops $1 Trillion as Tin Rebounds: Commodities
  • Commodities Rise Most in Two Weeks Amid Speculation China May Ease Policy
  • Copper Nears Four-Month High on Chinese Growth, Falling Production At Rio
  • Oil Rises to Three-Day High as Saudi Arabia Is Seen Targeting $100 Crude
  • Gold Climbs to One-Month High on China Easing Outlook, Weakening Dollar
  • Coffee Gains for a Second Day as Colombian Harvest Declines; Sugar Rises
  • Soybeans, Corn Advance as China May Ease Policy After Slowdown in Growth
  • India Increases Tax on Bullion Imports as Government Seeks to Lift Revenu
  • Posco 2011 Profit Declines as Demand for Steel Wanes, Missing Estimates
  • Persian Gulf Debt Risk at Two-Year High on Iran Hormuz Fears: Arab Credit
  • Best Refiner Returns on Naphtha Since May Show China Boom: Energy Markets
  • Sino-Forest Rallies on Outlook for China Asset Recoveries: Canada Credit
  • Morgan Stanley Favors Gold, Copper on Investment Demand, Global Shortage
  • Commodities Rally on Optimism China May Ease Policy












GERMANY – can you say ZEW? Biggest m/m pop in the German confidence reading ever – and ever is a long-time; DAX +1.7% to +7.2% for 2012 YTD! And finally immediate-term TRADE overbought here. Germany has done a great job, all things considered, keeping unemployment low and fiscal conservatism intact.






CHINA – Chinese stocks up +4.2% overnight and we’ll take that on the long side with a smile as Chinese GDP beats bombed out expectations w/ a +8.9% y/y Q4 print and, more importantly, a re-acceleration in Industrial Production in DEC to +12.8% y/y vs +12.4% NOV + a big re-accel in Singapore’s Exports to +9% y/y in DEC vs +1.4% NOV











The Hedgeye Macro Team




Early Look

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Expert Cues

“Expert intuition strikes us as magical, but it is not.”

-Daniel Kahneman


This weekend I finally started reading Daniel Kahneman’s “Thinking, Fast and Slow” and was pleasantly surprised to see him cite one of my favorite American thinkers, Herbert Simon (read “Models of My Life”), in the Introduction:


“The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.” (Thinking, Fast and Slow, page 11)


Pattern recognition is the fulcrum principle of Chaos Theory. While neither Kahneman nor Simon have drawn that parallel to Global Macro Risk Management, if they did what we do every day I think they probably would have.


Back to the Global Macro Grind


While consensus has spent 2012 caught in the vacuum of 2011’s news (European Crisis and Growth Slowing), we’ve been letting this globally interconnected marketplace of colliding factors give us cues on Growth Slowing’s Bottom (Q1 Hedgeye Macro Theme):

  1. Strong US Dollar = Stronger US Consumption, Confidence, and Employment
  2. Deflating The Inflation = Growth Slowing at a slower rate in Asia (China in particular)
  3. German Fiscal Conservatism = Bullish German Stocks on both our TRADE and TREND durations

There should be no surprises about what’s happening in US, Chinese, or German stocks this morning. Our leading indicators have been giving us Crystal Clear Cues for the last 3 weeks. That’s why we have our largest asset allocation to US Equities in over a year. That’s why we’re long Chinese and Hong Kong Equity exposures. That’s why we’ll open this morning with no European shorts.


In the order that these Expert Cues appear in my notebook this morning:


1.   CHINA – closing up +4.2% overnight, the Shanghai Composite had its best move since October of 2009. Growth Slowing in China is a 2-year stale story that we have signaled in real-time. Looking at the higher-frequency economic data that was reported closest to now (the December data, not the quarterly), China appears to be seeing Growth Slow at a Slower Rate. Chinese Industrial Production for DEC accelerated to +12.8% y/y (vs +12.4% in NOV). Meanwhile, Singapore’s Export Growth for DEC jumped to +9% y/y (vs +1.4% in NOV). You’ll recall we use Singapore as a leading indicator for Eastern demand.


2.   GERMANY – trading up another +1.7% to an impressive +7.2% for 2012 YTD, the German DAX is proving that this morning’s concurrent indicator of confidence (the German ZEW reading) was better than bad for good reason. It was actually the biggest 1-month pop in the ZEW reading ever – and ever is a long time. Germany is proving that fiscal conservatism can support strong domestic employment (6.8% vs USA’s 8.6%). Not pandering to the political winds of the Keynesian bailout beggars should also be commended.


3.   USA – holding above both my long-term TAIL line (1267 support) and the closing high of October 29th, 2011 (1285), the SP500 is proving that Strong Dollar = Strong Consumption works where it matters in the American economy – on 71% of US GDP Growth. Neither we (nor the US Treasury Bond Market) are suggesting US Growth is great, but the US Currency and Equity markets aren’t signaling a US recession either. Provided that the US Dollar remains strong (Romney winning in South Carolina this week will continue to help), we think US Growth’s Bottom could very well be happening in Q411 through Q112.


With Expert Cues in hand, we derive our summary positioning in the Hedgeye Asset Allocation Model

  1. Cash 58% = down from 70% at the end of 2011
  2. US Equities = 18% (Consumer Discretionary, Consumer Staples, Utilities – XLY, XLP, and XLU)
  3. Int’l Currency = 15% (US Dollar – UUP)
  4. Int’l Equities = 9% (China and Hong Kong – CAF and EWH)
  5. Fixed Income = 0%
  6. Commodities = 0%

That’s a very different mix in my asset allocation than what I was carrying from April-November of 2011. I’ve moved from a big allocation to Growth Slowing at an accelerating rate (Long Fixed Income) to long Growth Slowing’s Bottom (Long Equities).


What hasn’t changed is my position in the US Dollar and Commodities. I still think that Strong Dollar = Deflates The Inflation, so look for me to potentially short some Commodities today.


Having a repeatable risk management process isn’t magical. Neither is it perfect. It’s just what we do.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Comp, German DAX, and the SP500 are now $1, $110.20-114.33, $1.25-1.28, $80.72-81.97, 2, 6151-6329, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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