Resist The Crowd

This note was originally published at 8am on March 13, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Resist the crowd: cherish numbers only.”

-Jeremy Grantham


Doesn’t that sound hard core? We all aspire to know all of the numbers. We all want to sell every top, and buy every bottom. This is easy, right?


Whether I’m looking at rising US Equity futures this morning or whether I was looking at them in either March of 2008 or 2011, it’s the same old grind. In the last 4 years, literally every time US Stock Market Volatility (VIX) has tested the 14-15 zone, you’ve been paid to Resist The Crowd.


This time, despite the lowest trading volumes in US stock market history – oh, and the highest monthly US government deficit in US history (FEB = -$237.7B US Deficit) – is going to be different. Right?


Back to the Global Macro Grind


Flying back from California last week, I had the opportunity to crush my reading pile. Long-time readers of my rants know that from a process perspective, I just love digging into my pile.


Here are the 3 market views that jumped out of the required reading:

  1. Your Grandchildren Have No Value” - Grantham’s Quarterly Letter
  2. Defense” – Bill Gross Monthly
  3. S&P 1,700” – Birinyi Associates

Addressing these in the reverse order that they appear (not suggesting causality), the big round number from Laszlo Birinyi was backed up by the least impressive risk management process. If I recall his market views correctly from right around this time last year (pre 30% crashes in everything small cap, cyclicals, and commodities), they haven’t really changed.


After seeing his newly minted academic CEO, Mohamed El-Erian, get roughed up by Doubleline’s lynx-eyed Jeff Gundlach last year, Bill Gross’ title explains exactly how he feels after calling for US Credit Risk and a melt-down in US Treasuries (again, right around this time last year) – he’s playing defense. The most obvious defense for PIMCO is probably firing Mohamed.


Finally, back to Grantham, his longest Quarterly Letter ever was highlighted by the following 3 risk management thoughts:

  1. “Recognize your advantages over the professionals… the individual is far better positioned to wait patiently…”
  2. “Try to contain natural optimism… not easy, but easier…”
  3. “We can agree that in real life, as opposed to theoretical life… the enthusiasm of the crowd is hard to resist.”

Accuse me of having a confirmation bias towards Grantham – I’ll take that as a compliment. Like me, he’s had his own performance issues in this game. Unlike most, he’s self effacing in addressing our innate weaknesses as human beings. Markets humble the “smart.”


I personally do not think that calling for big round numbers and “year-end targets” in major indices requires any risk management process whatsoever. Neither does writing Op-Eds to support theoretical views that have no actual precedent.


The only thing I am certain of in this business is that the more I know about what it is that my competition thinks they know, the less I know about what is going to happen next.


Embrace Uncertainty.


Can Global Equities go a lot higher? Evidently yes. After that, can they go a lot lower (May-Aug of 2008, 2010, 2011)? Evidently yes.


So what do you do now? For me, the answer is always changing:

  1. Last Tuesday at 1129AM EST with the SP500 30 points lower, I was buying
  2. This Tuesday at some point in/around 10AM EST, I’ll probably be selling

That definitely doesn’t mean I nailed it. It just means that in the immediate-term, I am proactively managing the risk of the price range as both volume and volatility signals instruct me to front-run people staring at single factor-model moving averages.


Why “cherish the numbers” in our Global Macro Research (Growth, Inflation, Policy) model? Because over the intermediate to long-term (2007-2012), Resisting The Crowd’s career risk management decisions to ignore those numbers has worked.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, US Equity Volatility (VIX), and the SP500 are now $1691-1711, $123.87-126.79, $79.34-80.24, 15.23-17.98, and 1363-1382, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Resist The Crowd - 22. VIX


Resist The Crowd - 22. VP

This Time Is?

“Mr. Dalio admits to being wrong roughly a third of the time…”

-The Economist, March 2012


At least there’s someone out there who doesn’t proclaim to nail it on every Global Macro market move. Bridgewater’s Ray Dalio is, incidentally, one of the only major hedge fund managers to not blow up in a down tape going back to the 2007 turn.


There are, of course, different definitions of being right and wrong in markets. All you need to do is change the duration of your prospective holding and/or risk management period, and you are all set.


While the Fed Chairman’s Policy to Debauch The Dollar and Inflate provided for a fascinating time to watch another no volume rally in US stocks yesterday, my process also reminded me that it was a time to sell.


Back to the Global Macro Grind


I came into the day with 14 LONG positions in the Hedgeye Portfolio and ended the day with 10. I came into the day with 13 SHORT positions and ended the day with 14. #TimeStamped - that’s just what I did. It doesn’t mean that all 27 of my LONG/SHORT positions were right or wrong. I’m simply showing you what I do in real-time. Most people won’t.


Per the same article in The Economist, Dalio also “attributes a big part of his success to managing the risk of bad calls.” That’s something that Steve Cohen says too. If you’ve successfully managed risk with live ammo across all of the big bull and bear moves since 2007, you’ll recall that being perma-anything has not worked.


Maybe this time it’s different. Maybe it’s not.


Bearish Factors in my notebook this morning:

  1. SP500 = immediate-term TRADE overbought at 1417
  2. SP500 immediate-term downside versus upside (3 weeks or less) = 10:1
  3. Financials (XLF) and Tech (XLK) are 3.7 and 3.9 standard deviations overbought on my TREND duration
  4. US Equity Volatility (VIX) at 14 anything = the most obvious clean cut sell signal since Q1 2008
  5. US Equity Volumes are the most bearish I have ever seen (yesterday’s volume = -17% vs my TREND avg!)
  6. US Dollar Down -0.62% yesterday on Ben Bernanke’s Policy To Inflate will only slow growth faster
  7. US Treasury Bond Yields (10yr) stopped going up at 2.31% and 2.47% TRADE and TAIL resistance, respectively
  8. China Slowing had the Shanghai Composite down -0.2% overnight and the Hang Seng remains bearish TRADE
  9. India’s stock market had a no volume bounce to a lower-high and remains bearish TRADE (Growth Slowing)
  10. Spain’s stock market (-3.5% YTD) remains in a Bearish Formation as Spanish bond yields won’t go down
  11. Greek stocks stopped going up on FEB 13thand are down -8% since
  12. Oil prices remain in a Bullish Formation with immediate-term upside on Brent Oil at $126.92/barrel
  13. Copper remains below its long-term TAIL of 4.03% resistance (and all-time bubble high)
  14. US Housing (New and Pending Home sales) numbers are suggesting a potential Triple Dip
  15. Japanese Yen continues to signal we are crossing the Rubicon of the mother of all Sovereign Debt Crises

Bullish Factors in my notebook this morning:

  1. SP500 remains in a Bullish Formation provided that 1402 holds (intermediate-term TREND support = 1312)
  2. S&P Equity Sector Model has 8 of 9 Sector ETFs bullish TRADE and TREND (Energy is the only bear – XLE)
  3. SP500 is up +12.6% YTD, perpetuating the performance chase into month and quarter end (Friday)
  4. SP500 is finally developing less bearish Correlation Risk to the US Dollar (30-day correlation = +0.27%)
  5. Japanese stocks, closed up +2.4% overnight (like European stocks did in Q1 of 2011, they love FX devaluation)
  6. South Korea’s KOSPI is holding onto its Bullish Formation with critical TRADE support of 2,012 intact
  7. Germany’s DAX remains on fire at +20.2% YTD (Bullish Formation)
  8. Russia’s Trading System Index loves the fuel of the almighty Petro-Dollar (down dollar, up oil) = RTSI +24.5% YTD
  9. Brazil’s Bovespa remains bullish intermediate-term TREND (we sold our long position yesterday at overbought)
  10. Canada’s TSX remains in a Bullish Formation (we sold that too yesterday at immediate-term TRADE overbought)
  11. Gold prices didn’t snap long-term TAIL support of $1652/oz yet
  12. US Treasury Yields on the short-end of the curve are moving into a Bullish Formation with TAIL support = 0.35% (2yr)
  13. US Treasury Curve Yield Spread (10s minus 2s) is +3bps wider day-over-day at +192bps wide
  14. Euro is back above intermediate-term TREND support of $1.32 vs USD (bullish for European purchasing power)
  15. President Obama’s probabilities of re-election just hit a fresh new high in our Election Indicator of 62.3%

In other words, if you open your process to what’s going on in the entire world, there’s a lot going on out there.


Every investor has their own unique investment time horizon and appetite for draw-down risk. You can make your call on what to do next. That’s is the beauty of this game. It’s always changing and offering you another chance to do the same.


Yesterday is over. Risk is managed proactively for tomorrow. Inasmuch as selling low in 2009 was, buying high can be a “bad call” too. So just keep that in mind at VIX 14 if you think buying in Q1 of 2012 is going to be different this time.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), and the SP500 are now $1, $124.45-126.92, $78.83-79.38, $82.41-84.12, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


This Time Is? - Chart of the Day


This Time Is? - Virtual Portfolio


TODAY’S S&P 500 SET-UP – March 27, 2012


As we look at today’s set up for the S&P 500, the range is 15 points or -1.02% downside to 1402 and 0.03% upside to 1417. 











  • ADVANCE/DECLINE LINE: 1566 (304)  
  • VOLUME: NYSE 754.94 (1.79%) 
  • VIX:  14.26 -3.78% YTD PERFORMANCE: -39.06% 
  • SPX PUT/CALL RATIO: 1.72 from 1.96 (-12.25%) 


  • TED SPREAD: 40.14
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.25 from 2.25
  • YIELD CURVE: 1.91 from 1.90 

MACRO DATA POINTS (Bloomberg Estimates): 

  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 9am: S&P/Case-Shiller (Y/y), Jan., est. -3.8% (prior -3.99%)
  • 10am: Consumer Confidence, Mar., est. 70.1 (prior 70.8)
  • 10am: Richmond Fed, Mar., est. 18 (prior 20)
  • 10am: Fed’s Dudley, Kamin to speak at hearing in Washington on Eurozone aid
  • 11:30am: U.S. to sell $35b 4-week bills
  • 12:35pm: Fed’s Rosengren speaks in London
  • 12:45pm: Fed’s Bernanke lectures at George Washington (3 of 4)
  • 1pm: U.S. to sell $35b 2-yr notes
  • 1:20pm: Fed’s Fisher speaks in Choudrant, Louisiana
  • 3:45pm: Fed’s Duke speaks via videoconference on building sustainable communities
  • 4:30pm: API inventories
  • 9pm: Fed’s Bullard speaks at Tsinghua University 


  • President Obama meets with Pakistan PM Yousaf Raza Gillani, says he hopes countries can repair strained ties
  • Nuclear Regulatory Commission holds a briefing on license renewal for research and test reactors, 9am
  • House, Senate in session:
    • Treasury Secretary Tim Geithner testifies on the budget to House Appropriations subcommittee, 10am
    • Natural Resources Committee holds a hearing on impact of rising gasoline prices on U.S. tourism industry, 10am
    • House Financial Services subcommittee hears from New York Fed President William Dudley on Fed aid to the Eurozone, 10am
    • House Energy subcommittee hearing on cosmetics, 10:15 am
    • House Financial Services Committee marks up FHA Emergency Fiscal Solvency Act, 1pm 


  • Home prices in 20 U.S. cities measured by S&P/Case-Shiller probably fell 3.8%, smallest decline in 3 mos., economists est.
  • Obama administration today will defend requirement that Americans obtain insurance or pay a penalty in second of three days of arguments before Supreme Court over health- care law
  • Annie’s, maker of organic and natural packaged foods, boosted its IPO range to $16-$18 ahead of today’s expected offering
  • Michaels Stores, owned by Blackstone, Bain, said to consider filing for IPO as soon as next week
  • Universal Music said to ready three publishing catalogs for sale which may raise as much as $200m
  • United Technologies faces in-depth EU probe into bid to buy Goodrich for $16.5b; UTX says sees closing of deal mid-year
  • RBS up 6% in London after two people familiar with situation said the U.K. govt. held talks with investors, including Middle Eastern sovereign wealth funds, about sale of part of its stake
  • Sharp plans to raise ~$800m in share sale of unit to Hon Hai Precision, three related companies, to replenish capital
  • Rio Tinto weighing sale of diamond assets as part of strategy review 


    • Lennar (LEN) 6am, $0.05
    • Charming Shoppes (CHRS) 6:58am, $(0.02)
    • McCormick (MKC) 7am, $0.53
    • Walgreen (WAG) 7:30am, $0.77
    • Neogen (NEOG) 8:45am, $0.22
    • Oxford Industries (OXM) 4pm, $0.55
    • Exfo (EXF CN) 4pm, $0.08
    • Christopher & Banks (CBK) 4:01pm, $(0.47)
    • Synnex (SNX) 4:02pm, $0.92
    • PVH (PVH) 4:02pm, $1.10
    • Robbins & Myers (RBN) Post-Mkt, $0.75 


  • Russia-Sized Mistakes Driving Corn Prices to Limit: Commodities
  • Oil Near Three-Day High as Equity Gains Balance Supply Increase
  • Soybeans Gain as Dry Weather Hurts Yields in Southern Brazil
  • U.S. Corn Exports to Japan Drop as Brazil, Ukraine Boost Sales
  • Gold May Gain From 2-Week High in London on Fed Monetary Policy
  • Copper May Rise for Third Day on Federal Reserve Policy Outlook
  • White Sugar Slides After India Allows More Exports; Cocoa Rises
  • La Nina Weather Pattern ‘Is Dead,’ World’s Forecasters Say
  • Shell Shearwater Field Pumping Gas After Total’s Elgin Halt
  • Oil Stockpiles Rise to Six-Month High in Survey: Energy Markets
  • Palm Oil Rallies to One-Year High as Vegetable-Oil Supplies Drop
  • Oil-Sands Firm Sells U.S. Debt on Keystone Faith: Canada Credit
  • Cars Sent to U.S. Rise Most Since ‘06 Aiding Wilhelmsen: Freight
  • Oil Stockpiles at Six-Month High in Survey
  • Enbridge Venture Plans New Oil Pipes to Gulf as Keystone Blocked
  • China Aluminum Smelters Undo Alcoa, Rio Cuts: Chart of the Day
  • Fracking Boom Makes U.S. Laggard No More on Greenhouse-Gas Cuts 
























The Hedgeye Macro Team





The Macau Metro Monitor, March 27, 2012




Marina Bay Sands have filed 21 High Court claims against casino debtors this year.  This is the highest reported for a single quarter since MBS opened in April 2010.  The majority of these debtors are understood to be Malaysians who have failed to respond to reminders to make good on what they owe MBS as a result of bad runs at the gaming tables from 2010.



Macau's unemployment rate for December 2011-February 2012 was flat with the previous period (November 2011-January 2012), at 2.1%.  Total labor force was 346,000 in December 2011-February 2012 and the labour force participation rate stood at 73.2%, same as the previous period.


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