• run with the bulls

    get your first month

    of hedgeye free


SMP Buying Stuck at Zero

Position in Europe: Long Germany (EWG)

For a fourth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 4/6, to take the total program to €214 Billion.


February-to-date the Bank has purchased a mere €210 Million versus €2.2 BILLION in the week ended 1/20, and €3.8 BILLION in the week ended 1/12.


While the Bank has been in a wait and watch pattern, European capital markets are far from still.  As a risk signal, sovereign bond yields for the Spanish and Italian 10YR maturity are trading up 100bps and 84bps month-over-month to 5.95% and 5.61%, respectively.


While there are other channels to suck up sovereign bond issuance, including funding from the two 36-month LTRO programs, the SMP’s lack of buying may send a negative signal to market participants. This has perhaps been witnessed in recent weeks by sovereign auctions in which average yields were priced higher than previous auctions. This is an inflection versus February and the first half of March in which most European bond auctions went off with lower yields than previous issuance.


Europe’s response to its sovereign and banking “crisis” remains a reactive one. There's been no increase to the collective size of the EFSF and ESM, while the inability of Spain to reduce its fiscal imbalances is creating increased market nervousness. Should bonds yields continue to break out, we may see the ECB get involved again, perhaps by renewing its secondary bond purchasing.


SMP Buying Stuck at Zero - 11. smp


Matthew Hedrick

Senior Analyst








Comments: Keith closed out the PFCB position yesterday, based on quantitative factors.  We remain bullish on the intermediate term TREND from a fundamental perspective.




Comments: Keith shorted BWLD yesterday in the virtual portfolio.  We continue to like it on the short side.  20% COGS inflation after seeing zero margin flow-through in a much more benign cost environment last quarter is going to pose a problem.  At the recent Telsey Advisory Group presentation, nobody brought up commodity pressures. 




Commentary from CEO Keith McCullough


Pick your leading indicator in Global Macro – most stopped going up in late Feb/early March:

  1. HANG SENG – Hong Kong did not like the Chinese demand message for March w/ Chinese Imports only running +5.3% y/y; HK traded down another -1.1% overnight, taking the Hang Seng’s correction to -6.1% since peaking Feb 29th
  2. DAX – from an employment and stability perspective, Germany is definitely a healthier economy than the USA’s right now and the correction in German stocks is 2x that of the SP500’s; down -0.9% to start the wk (down -6.2% from the YTD high established March 16th)
  3. COMMODITIES – Dollar up days crush commodities; evidently dollar down days don’t help them now either as “weakening demand” rolls off the tongues of most who’s business is global. The CRB index is in what we call a Bearish Formation. Not good. Brent Oil broke $124.23 TRADE line support.

Growth Slowing will matter until growth slows at a slower rate.







THE HBM: MCD, DRI, CBRL - subsector




MCD:  OpenSecrets.org has an interesting page on the McDonald’s Political Action Committee which details its spending by election cycle and also the party split per cycle of spending.  It shows that from 1998 through 2006, 84% of the Federal McDonald’s PAC was spent supporting Republicans.  In 2008, 70% of the PAC’s spend went to Republicans.  In 2010, the GOP and Democratic party received 52% and 47% of the PAC’s spend, respectively. 


MCD: MCD Japan’s March same-store sales gained 6% year-over-year.  March 2011 performance, of course, was greatly impacted by the earthquake and tsunami of March 11th, 2011.





CMG: Chipotle gained in a down tape yesterday.  Unit level returns remain strong as this growth story sustains itself longer than many have expected along the way.


MCD: McDonald’s gained in a down tape yesterday.


DOM.LN: Domino's UK & Ireland cannot catch a bid.  The stock is down 10% since reporting disappointing comps on 3/28.





CBRL: Cracker Barrel adopted a new shareholder rights plan with a 20% triggering threshold and a qualifying offer exception.  The Board also declared a dividend distribution of one preferred share purchase right on each outstanding share of CBRL common stock.  The Board’s action, according to CEO Sandra Cochran, is “in response to Biglari Holdings’ continuing open-market acquisition program of CBRL shares”.


DRI: Darden is planning to create the world’s largest lobster farm in Malaysia, allowing it to sell the crustaceans in Asia and supply them to its chains such as Red Lobster.



RT: The market didn’t buy on the leg down.  Ruby Tuesday declined 4.1% on accelerating volume yesterday.


THE HBM: MCD, DRI, CBRL - stocks



Howard Penney

Managing Director


Rory Green




TODAY’S S&P 500 SET-UP – April 10, 2012

As we look at today’s set up for the S&P 500, the range is 17 points or -0.59% downside to 1374 and 0.64% upside to 1391. 











  • ADVANCE/DECLINE LINE: on 4/09 NYSE -1747
    • Down from the prior day’s trading of -410
  • VOLUME: on 4/09 NYSE 724.55
    • Increase versus prior day’s trading of +0.73%
  • VIX:  as of 4/09 was at 18.81
    • Increase versus most recent day’s trading of +12.63%
    • Year-to-date decrease of -19.62%
  • SPX PUT/CALL RATIO: as of 04/09 closed at 2.10
    • Decrease from 2.51 the day prior, -16.33%


  • TED SPREAD: as of this morning 39
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 2.05
  • YIELD CURVE: as of this morning 1.74
    • Increase from prior day’s trading at 1.73 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Business optimism, est. 95.0 (prior 94.3)
  • 7:30am/8:45am: ICSC/Redbook weekly retail sales
  • 8:30am: WASDE: Soybean, corn, cotton, wheat
  • 10am: IBD/TIPP economic optimism, est. 48.5 (prior 47.5)
  • 10:00am: JOLTs Job Openings, Feb.
  • 10:00am: Wholesale Inventories, Feb., est. 0.5% (prior 0.4%)
  • 12pm: DOE short-term outlook
  • 12:30pm: Dallas Fed’s Fisher speaks on U.S. economy in Norman, Oklahoma
  • 12:45pm: Atlanta Fed’s Lockhart gives welcome remarks at Atlanta Fed conference in Stone Mountain, Georgia
  • 2:30pm: Minneapolis Fed’s Kocherlakota speaks to Southern Minnesota Initiative Foundation in Nicollet, Minnesota
  • 4:30pm: API inventories 


    • Obama goes to Southeast Florida, expected to urge Congress to pass the Buffett rule, attend campaign fundraisers
    • Federal Housing Finance Agency Acting Director Ed DeMarco speaks at the Brookings Institution in Washington on principal reduction, 9:30am 


  • Alcoa is the first Dow component to report 1Q earnings after the close, kicking off the “traditional” earnings season
  • Bernanke calls on regulators to limit risks of shadow banking
  • IMF releases analysis of global economy in advance of its spring meeting later this month, 9am
  • China reports unexpected March trade surplus as import growth trailed forecasts
  • Bank of Japan keeps key rate, asset-purchase and credit lending programs unchanged
  • U.S. to ask federal appeals court to restore requirement that pictures of diseased lungs and other consequences of smoking be on cigarette packages
  • Express Scripts purchase of Medco to be challenged by pharma trade groups in court
  • CVC may seek more than $2b from Formula One IPO
  • Sony posts record loss after taking $3.7b charge to write down deferred tax assets; watch suppliers
  • Sharp posts $4.7b loss for year, wider than it forecast
  • Foxtel gets antitrust approval to buy Austar after agreeing to drop exclusive rights to Nickelodeon, National Geographic
  • Calpers said to be seeking to sell about $1.5b in private- equity fund stakes
  • U.S. Department of Agriculture releases estimates for global production, consumption and stockpiles of wheat, corn, soybeans and cotton 


    • Supervalu (SVU) 8am, $0.35
    • Mattress Firm (MFRM) 4:01p, $0.19
    • Alcoa (AA) 4:05pm, ($0.04) 


COMMODITIES – Dollar up days crush commodities; evidently dollar down days don’t help them now either as “weakening demand” rolls off the tongues of most who’s business is global. The CRB index is in what we call a Bearish Formation. Not good. Brent Oil broke $124.23 TRADE line support.











DAX – from an employment and stability perspective, Germany is definitely a healthier economy than the USA’s right now and the correction in German stocks is 2x that of the SP500’s; down -0.9% to start the wk (down -6.2% from the YTD high established March 16th).






HANG SENG – Hong Kong did not like the Chinese demand message for March w/ Chinese Imports only running +5.3% y/y; HK traded down another -1.1% overnight, taking the Hang Seng’s correction to -6.1% since peaking Feb 29th.










The Hedgeye Macro Team


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

This Time Is?

This note was originally published at 8am on March 27, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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 $1652-1704, $124.45-126.92, $78.83-79.38, $82.41-84.12, and 1402-1417, 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


Keith shorted LVS in the Hedgeye Virtual Portfolio at $60.43.  According to his model, the TRADE range is between $58.22 and $60.69. TREND support is at $52.54 .



In anticipation of the Sands Cotai Central (SCC) opening tomorrow and better than expected Macau market growth, LVS has ripped higher by 33% since the start of the year.  While SCC will help LVS regain share, its existing properties face potentially greater cannibalization than currently anticipated by the Street.  When MPEL and Galaxy both opened their new properties, shares zoomed higher ahead of their openings, only to sell off post opening.  LVS could be a similar case.


Current Street expectations of 20%+ growth for the rest of the year may be a little rosy as a lot of the Q1 growth was driven by easy hold comparisons.  Comparisons are much more difficult for the rest of the year and while Mass has looked good, VIP volume growth has been essentially non-existent since June of last year.



Liz Claiborne Takeover Seen With Allure of Kate Spade: Real M&A