TODAY’S S&P 500 SET-UP – March 7, 2012

As we look at today’s set up for the S&P 500, the range is 23 points or -0.55% downside to 1336 and 1.16% upside to 1359. 














  • ADVANCE/DECLINE LINE: -2509 (-1923) 
  • VOLUME: NYSE 877.82 (24.29%)
  • VIX:  20.87 15.62% YTD PERFORMANCE: -10.81%
  • SPX PUT/CALL RATIO: 1.63 from 2.04 (-20.10%)


USD – this is not a political comment, it’s a correlation one – Romney’s momentum rising/falling is starting to track the US Dollar Index and our new Hedgeye Election Index (Obama at 58.4% before Super Tuesday results). The back-test is meaningful – send us a note if you want the data series. US Dollar Index = +2% since Romney won Michigan/Arizona and you see what happened to inflation in the face of that (deflated, fast). 

  • TED SPREAD: 40.85
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 1.96 from 1.94
  • YIELD CURVE: 1.68 from 1.67 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Apps, week of Mar. 2 (prior -0.3%)
  • 8:15am: ADP Employment Change, Feb., est. 215k (prior 170k)
  • 8:30am: Nonfarm Productivity 4Q F, est. 0.8% (prior 0.7%)
  • 10:30am: DOE inventories
  • 3:00pm: Consumer Credit, Jan., est. $10.45b (prior $19.308b) 


  • President Barack Obama visits Daimler truck manufacturing plant in Mt. Holly, N.C., delivers remarks on economy, 12:45pm
  • House, Senate in session:
    • House Financial Services subcommittee holds hearing on modernizing Securities Investor Protection Corp., 9:30am
    • Senate Agriculture holds hearing on healthy food, nutrition as part of farm bill drafting, 9:30am
    • House Energy and Commerce hearing on gasoline prices, 10:30am
    • Congressional Progressive Caucus holds news conference on home foreclosures, 12:15pm 


  • Apple to host iPad event; watch for details on processing speed, display, pricing, effect on potential suppliers, 1pm
  • Mitt Romney won 6 states including Ohio; Rick Santorum captured 3, signaling fight for Republican delegates may last months
  • SocGen, Generali, UniCredit joined firms saying they would participate in Greece’s debt swap
  • Sprint said to plan end to network-sharing deal with Falcone’s LightSquared
  • Netflix explores putting film streaming service on cable systems
  • JHL Capital Group says subsidiary of Clear Channel Communications Inc. improperly moved $656m to its parent
  • Freddie Mac faulted with FHFA for oversight of loan servicers
  • Calpers may cut assumed rate of return for 1st time since 2004
  • Delphi investors can’t block Tokio Marine offer, judge ruled yesterday 


    • Fresh Market (TFM) 6 a.m., $0.38
    • Children’s Place (PLCE) 6:30 a.m., $0.90
    • Ciena (CIEN) 7 a.m., $(0.04)
    • Brown-Forman (BF/B) 7:30 a.m., $1.01
    • American Eagle Outfitters (AEO) 8 a.m., $0.35
    • Laurentian Bank of Canada (LB CN) 8:54 a.m., C$1.26
    • Hot Topic (HOTT) 4 p.m., $0.20
    • Men’s Wearhouse (MW) 4:01 p.m., $(0.13)
    • Express (EXPR) 4:01 p.m., $0.68
    • H&R Block (HRB) 4:03 p.m., $0.07
    • Semtech (SMTC) 4:30 p.m., $0.31
    • Pall (PLL) 5:01 p.m., $0.74
    • Canadian Western Bank (CWB CN) 7 p.m., C$0.55
    • HudBay Minerals (HBM CN) Post-Mkt, C$0.15 


OIL  - both Brent and WTIC continue to hold all 3 durations of support  (TRADE, TREND, TAIL) in our model with Brent Oil’s refreshed risk management range = $120.83-123.98. It would have to break $118 (and WTIC break $102) for us to consider this a tailwind of Deflating The Inflation for the benefit of US Consumption. 

  • Boar Hunter Sets Sights on China After MF Global: Commodities
  • Oil Rises on Forecast of U.S. Fuel Supply Drop, Jobs Increase
  • Copper Swings Between Gains, Losses on Stocks, Slowdown Signals
  • Soybeans Climb for Second Day as Chinese Demand May Strengthen
  • Gold Gains in London as Drop to Six-Week Low Attracts Buyers
  • Robusta Coffee Falls as Supplies May Increase; Cocoa Advances
  • Palm Oil Seen Rallying 24% as World Cooking-Oil Supply Drops
  • Australian Beef to Compete With Brazil, India as Demand Surges
  • Jinchuan Plans to Raise Nickel Output, Look for Mines Abroad
  • Goldman Takes Lead in M&A List Spurred by Natural-Resource Deals
  • New Iraq Oil Terminal Starts Pumping Today, Minister Says
  • California Nuclear Backlash Mounts After Japan Meltdown: Energy
  • Netanyahu Sees Red Sea-Negev Rail Spurring China Trade: Freight
  • China to Buy Corn If Prices Are Right, Reserve Chief Says
  • India’s Singh Demands Urgent Review of Cotton-Export Ban
  • Australian Wool May Tumble 8% as Slowing Economy Hurts Demand
  • Copper Demand to Grow At Least 6% This Year, Tongling’s Wei Says 









SPAIN – never mind Greece, pull up a chart of the IBEX = straight down and, more importantly, this is the 1st major European stock market to snap its intermediate term TREND line (8499). Spanish Equities are down -4% all of a sudden YTD. Debt structurally impairs growth – these economies and markets are stagflating, big time – and even a Keynesian can’t stop gravity in perpetuity.















The Hedgeye Macro Team


Old Habits

“He was a man of habits.”

-Benjamin Wallace


Earlier this week I cited a book I am enjoying, “The Billionaire’s Vinegar.” Today’s quote summarizes the unique persona of Michael Broadbent. Becoming the world’s most prominent wine auctioneer didn’t just happen.


Neither does risk in these globally interconnected markets. There is no such thing as “risk on” and “risk off.” In real life, risk is always on. Risk never sleeps.


Habits in this business can be as polarizing as a legacy media channel’s partisanship. Fortunately, Old Habits on Wall Street and News Media 2.0 are dying on opacity’s vine.


Back to the Global Macro Grind


I personally have a habit of selling on green and buying on red. Most of the time it saves me from grossly violating Rule #1 – Don’t Lose Money. Some of the time it doesn’t.


Buying too early is also called being wrong. The lynx-eyed Jeff Gundlach at Doubleline says “an investor is a trader who is under-water.” Great one liner – primarily because it royally annoys Captain Stock Picker. Especially after a day like yesterday.


Yesterday’s Short Covering Opportunity in everything that was immediate-term TRADE oversold was as obvious to me as the Short Selling Opportunities we were signaling 2.5% higher with the SP500 at its YTD highs last week.


On red, after a 3-day correction in Global Equities and Commodities, here’s what I’ve done in the Hedgeye Asset Allocation Model:

  1. Cash = 46% (down from 58% on Friday)
  2. Fixed Income = 24% (no change)
  3. US Equities = 18% (up from 12% on Friday)
  4. Commodities = 9% (sold Corn, bought Oil)
  5. International Equities = 3% (bought Canada)
  6. International FX = 0%

I’m not saying this positioning is right or wrong. The market will decide my fate on that. I’m just TimeStamping what I did. Repeatable Process is a habit too.


Getting longer here certainly has risks. In the Hedgeye Portfolio I went into yesterday’s open with 11 LONGS, 9 SHORTS. This morning I have 13 LONGS and 7 SHORTS. I’ll most likely tighten that up, selling some on green today.


Why sell on green? Isolating the USA, here are some of the risk management signals jumping off my notebook page today:

  1. SP500 broke immediate-term TRADE support of 1364 and now has a lower-high of resistance up at 1359
  2. Equity Volatility (VIX) broke out above immediate-term TRADE resistance of 17.72 yesterday; upside to 23.17
  3. US Equity Volumes continue to flash gnarly negative skew – accelerating volumes on the down days, not up ones
  4. S&P Sector Rotation call we made last week remains crystal clear (Utilities (XLU) best yesterday; Financials (XLF) the worst)
  5. S&P Sectors that have broken their immediate-term TRADE lines = 5 of 9 (XLB, XLI, XLF, XLV, and XLE)
  6. 10-year US Treasury Yields continue to signal Growth Slowing (trading below my TREND line of 2.03%)
  7. Yield Spread (10yr minus 2yr) is down 3bps week-over-week; benign but not bullish at 167bps wide
  8. US Dollar Index has moved back to bullish TRADE and TREND after Romney wins in Michigan and Ohio

That last point is probably the one that rings the political gong louder than any other. Why? Because people are partisan. But the math trumps partisanship and the fact of the matter is that the US Dollar Index is up +2.1% since Romney won in Michigan last week (see our newly minted Hedgeye Election Index). Causal? Correlated? Does it matter which?


Strong Dollar = Strong America. Period.


That’s the most bullish long-term (and sustainable) economic strategy I can paint for Americans right now. Sadly, it’s also the most unexpected. Old Habits, and the economists and politicians who get paid to pander to them, won’t agree with this because none of them have tried it in the last decade (i.e. so none of them can take credit for it when it works).


To get a stable and strong US Dollar will take both fiscal and monetary sacrifice. God forbid the stock market goes down for a few weeks to get there. But inflation expectations will go down too. Whether it was $20/barrel (average price of oil) between 1 or 1, these were the most bountiful decades or US job creation and economic prosperity, ever.


Ever is a long time. Old Habits of debauching your currency for short-term political votes should be held accountable to ever, too.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $120.83-123.89, $79.32-79.91, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Old Habits - Chart of the Day


Old Habits - Virtual Portfolio

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.


The Macau Metro Monitor, March 7, 2012




An international law firm founded by Bill Gates' father, K&L Gates, has filed a writ at the High Court against MPEL.  The firm is seeking a court order to find out how much of MPEL's property represents money that ex-employee of K&L Gates, Navin Kumar Aggarwal, took, or his net winnings, or both, and to have MPEL pay what it owes.  K&L Gates claims that Aggarwal transferred at least HK$34 million from the client accounts to Melco and gambled with that money and other funds.  He made a net loss of at least HK$9.9 million.  K&L Gates also says MPEL received the misappropriated money knowing it was not entitled to do so, that the money did not belong to Aggarwal and that the former partner had a history as an unsuccessful gambler, among other things.


The filing says Aggarwal took millions of dollars from the escrow accounts of clients, including those four parties.  Four clients had been repaid a total of HK$117 million, the writ said.  The clients are Hui Kau-mo, Mark Lightbown, Golden Bridge United Holdings Group (HK), and Laxmi Niwas Jhunjhunwala.   


Initially the figure involved was put at HK$16.6 million. Prosecutors later revised it to HK$780 million.  The criminal case is scheduled for a brief hearing on April 2 at Eastern Court.



Macau's secretary for economy and finance, Francis Tam Pak Yuen, says Macau GGR growth is expected to be up only 'low double-digts or high single-digits' in 2012.  Macau government estimates regarding the growth of the casino industry are traditionally very conservative.


Taking into account the expected revenue from direct taxes from gaming included in the 2012 government budget, presented in November last year, that would actually mean a contraction of the sector, opposing the general view among industry players and analysts.


ECB and BOE Preview

Thursday has announcements from the ECB and BOE on monetary policy. We do not expect moves from either bank in interest rate levels or calls for additional non-standard measures or QE.


Although the ECB does need to cut its main interest rate as the region is dragged into recession, we’ll likely see Draghi remain on hold due to the timing of the 2nd 36 month LTRO (€529.5 billion) just last week and given that there’s plenty of runway left in 2012 to cut off the 1.00% bound. Another gauge that may weigh on inaction is the improvement in the EURIBOR-OIS spread, down 40% year-to-date to 58bps. However, as the chart below shows, a fair amount of the LTRO’s credit may be flowing to safety in the ECB’s overnight deposit facility (which is hitting new highs), and not to its intended audience of corporates and personal loans.   


ECB and BOE Preview - 1111. MEIN


Remember, Draghi revised the language on the main outlook on the Eurozone economy in the last meeting (on 2/9) to “tentative signs of stabilization in economic activity at a low level” versus “substantial downside risks” in the previous report. We could see a return to his previous language.


Recent data since the last meeting that will weigh on the decision, and collectively hasn’t shown “tentative signs of stabilization”, includes:


Eurozone Q4 GDP -0.3% Q/Q vs 0.1% in Q4 2011

Eurozone M3 2.5% JAN Y/Y (exp. 1.8%) vs 1.6% DEC

Eurozone Unemployment Rate 10.7% JAN vs 10.6% DEC  (highest since ‘97)

Eurozone CPI Y/Y 2.7% FEB (exp. 2.6%) vs 2.7% JAN

Eurozone PPI 3.7% JAN Y/Y (exp. 3.5%) vs 4.3% DEC  [0.7% JAN M/M (exp. 0.5%) vs -0.2% DEC]


Eurozone Retail Sales 0.0% JAN Y/Y vs -1.3% DEC   [0.3% JAN M/M vs -0.5%]

Eurozone PMI Manufacturing  49 FEB vs 48.8 JAN

Eurozone PMI Services  48.8 FEB vs 50.4 JAN


Eurozone Business Climate Indicator -0.18 FEB vs -0.21 JAN

Eurozone Consumer Confidence -20.3 FEB Final vs -20.7 JAN

Eurozone Economic Confidence 94.4 FEB (exp. 94) vs 93.4 JAN

Eurozone Industrial Confidence -5.8 FEB (exp. -6.9) vs -7 JAN

Eurozone Services Confidence -0.9 FEB (exp. -0.6) vs -0.7 JAN



The BOE should also maintain its 0.50% benchmark rate and £325 Billion bond purchasing program, following a £50 Billion increase last month. Fundamental data hasn’t shown signs of material improvement, though improvement on the margin, but again, there’s a lot of runway left in 2012 for monetary policy and still much uncertainty surrounding the direction of the Eurozone, the UK’s main trading partner.


In the last meeting, David Miles and Adam Posen pushed for £75 Billion in stimulus, and looser monetary policy, so we’ll have to wait for the minutes to see if the two had any more influence on the committee.


Recent data weighing on the decision includes:


UK Q4 GDP -0.2% Q/Q vs 0.6% in Q4 2011

UK CPI 3.6% JAN Y/Y (exp. 3.6%) vs 4.2% DEC 

UK PPI Output 4.1% JAN Y/Y (exp. 3.7%) vs 4.8% DEC

UK PPI Input  7.0% JAN Y/Y (exp. 6.8%) vs 8.9% DEC


UK RPI   3.9% JAN Y/Y (exp. 4.1)  vs 4.8% DEC

UK ILO Unemployment Rate 8.4% DEC vs 8.4% NOV

UK Jobless Claims Chg 6.9K JAN (exp. 3K) vs 1.9K

UK Avg Wkly Earnings 2.0% DEC Y/Y vs 1.9% NOV


UK Net Consumer Credit 0.1 B GBP JAN vs 0.0B GBP DEC

UK Mortgage Approvals 58.7K JAN vs 55K DEC

UK M4 Money Supply -1.8% JAN Y/Y vs -2.5% DEC

UK Nationwide House Prices 0.9% FEB Y/Y (exp. 0.3%) vs 0.6% JAN


UK PMI Manufacturing 51.2 FEB vs 52.0 JAN  

UK PMI Services 53.8 FEB vs 56.0 JAN

UK PMI Construction 54.3 FEB (exp. 51.3) vs 51.4 JAN



Matthew Hedrick

Senior Analyst

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.