Key Takeaways

* Default probabilities rising globally. European sovereign CDS widened across the board last week. Simlarly, nearly all European Bank credit default swaps widened last week. Italian and French banks saw their spreads widen by double digits WoW. Domestic bank CDS followed suit. 


* Junk bonds signaling trouble. High yield rates rose 53 bps last week to 7.65%, underscoring increased risk in the market. 


* Muni debt default risk on the rise. The MCDX, our preferred measure of municipal credit risk, rose sharply last week.


* It has been a while since we've seen this many risk indicators flashing red on the short and intermediate term durations.  


* If there's a silver lining, our macro team's quantitative model shows that the XLF has 5.4% upside to immediate-term resistance and only 1.0% downside to immediate term support.


Financial Risk Monitor Summary  

• Short-term(WoW): Negative / 0 of 12 improved / 8 out of 12 worsened / 4 of 12 unchanged  

• Intermediate-term(WoW): Negative / 3 of 12 improved / 7 out of 12 worsened / 2 of 12 unchanged  

• Long-term(WoW): Neutral / 3 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged



1. US Financials CDS Monitor – Swaps widened for every domestic financial company reference entity we track last week. MS ended the week at 447 bps, up 45 bps, GS ended at 346 bps, also up 45 bps. 


Widened the most WoW: SLM, MTG, AIG

Widened the least WoW: UNM, ACE, TRV

Widened the most MoM:  MTG, RDN, JPM

Widened the least MoM:  UNM, ACE, TRV




2. European Financial CDS - Bank swaps were wider in Europe last week for 38 of the 39 reference entities we track. Notably, French banks widened dramatically. Societe Generale widened by 65 bps to 402 bps while Credit Agricole widened by 69 bps to 404 bps. The debt markets are casting their vote on the outcome of the French elections. Meanwhile, Italian bank swaps weren't far behind with increases of 48 to 97 bps week-over-week. Spanish banks were wider as well, though more modestly than their French or Italian counterparts.


We've also included a few Chinese banks for reference at the bottom of the table, and we will be soon rolling a table of Asian Financial CDS. The three Chinese banks we track showed week over week increases, but are generally trading in the low-200 bps range.  




3. European Sovereign CDS – European sovereign swaps also widened across the board last week. Spanish sovereign swaps widened the least on a percentage basis (+2.3%) to 554 bps, while Irish sovereign swaps widened the most by 15.8% to 712 bps.








4. High Yield (YTM) Monitor – High yield rates rose sharply last week, increasing by 53 bps to end the week at 7.65% versus 7.11% the prior week.




5. Leveraged Loan Index Monitor – Following high yield's lead, the leveraged loan index posted its sharpest decline since mid-2011, dropping 23 points last week 1652.




6. TED Spread Monitor – The TED spread rose 1.5 bps last week, ending the week at 38.8 bps versus last week’s print of 37.3 bps.




7. Journal of Commerce Commodity Price Index – Commodity prices continued to cool off reflecting the strengthening dollar. The JOC index fell 3.3 points, ending the week at -11.1 versus -7.8 the prior week.




8. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was roughly flat over last week, ending the week at 38 bps.




9. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing more from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  




10. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. Last week spreads widened, ending the week at 167 bps versus 152 bps the prior week.




11. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Generally speaking, higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion, though there are supply dynamics at play as well. Last week the index rose 3 points, ending the week at 1141 versus 1138 the prior week.




12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread tightened a dramatic 16 bps to 143 bps.




13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 5.4% upside to TRADE resistance and 1.0% downside to TRADE support.




Margin Debt - April: +0.93 standard deviations 

We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did last April, it has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May 2011. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move. Overall, however, this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  


The chart shows data through April. 




Joshua Steiner, CFA


Allison Kaptur


Robert Belsky


Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser. 




This note was originally published at 8am on May 07, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“For they have sown the wind, and they shall reap the whirlwind.”

-Hosea 8:7


It’s windy out there this morning. But, then again, if you look back at where Global Stock and Commodity markets all peaked in 2012, it’s been windy since March. Today is not a day to freak-out. It’s just another day to price in what’s been happening.


The tail ends of this morning’s Global Macro meltdown will have a lot more to do with Global Growth Slowing and hedge funds caught off-sides long oil than it does France. Friday’s US Employment report was a mess.


The aforementioned quote came from Seth Klarman’s year-end 2011 letter ($22B hedge fund, The Baupost Group). We were obviously not alone in realizing that crossing the Rubicon of sovereign deficit and debt ratios would structurally impair Global Growth. Klarman, Einhorn, Dalio – these are the new leaders of Wall Street 2.0 – they all nailed Growth Slowing too.


Back to the Global Macro Grind


If you weren’t long US stocks or commodities last week, you probably had a very good week. Everything is relative while you are watching the whirlwind, I suppose. Our allocation to Commodities in the Hedgeye Asset Allocation Model remains 0%.


As Growth Slows and hopes for an iQe4 upgrade abate, we think the US Dollar stops going down and that, in turn, will provide a much needed break for American and Global Consumers of food and energy alike. We call it Deflating The Inflation.


Now, to be clear, this was only the 2ndweek of the last 8 where the US Dollar didn’t drop. And, as long as we have Ben Bernanke promising Qe as the elixir of a centrally planned life, America’s currency will continue to have headwinds. That all said, bullish is as bullish does, and the US Dollar has been up for 4 consecutive days. That’s a good thing.


Dollar up (in the immediate-term) means most things stocks and commodities go down. We call it the Correlation Risk. It’s what most perma-bulls got addicted to at the Q1 tops of 2008, 2010, 2011, and now, evidently, 2012. When the Dollar Debauchery stops, beta chasing anything inflation stops. Inflation and Growth are not the same thing.


Lets score that statement in real-time. With the US Dollar Index up +1.0% last week, here’s what everything else did:

  1. US STOCKS: SP500 -2.4%, Nasdaq -3.7%, Russell2000 -4.1%
  2. COMMODITIES: CRB Index -2.6, WTIC Oil -6.1%, Copper -2.6%
  3. BONDS: both German Bunds and US Treasuries hit YTD highs last week (UST 10yr = 1.83% today)

Another way to look at how perverse Old Wall Street has become when begging for Bernanke’s Policies To Inflate is that the US Dollar Index has developed an immediate-term positive correlation to US Equity Volatility of +0.93.


Think about that.


A credible currency costs this market a lot more than central planners think. With the USD up +1% last week, US Equity Volatility (VIX) spiked +17.8% week-over-week. That’s not “price stability”, Mr. Bernanke. That’s not good.


Volatility kills returns. Ask anyone who has successfully not lost money versus their 2007 high-water marks how hard it’s been to generate absolute returns and you’ll get the point.


One of the best strategies to not lose money has been not getting picked off ahead of any of these major stock and commodity market draw-downs (Q1 to Q3 SP500 draw-downs of -15-30% in 2008, 2010, 2011).


That’s why we’re so focused on the slope of growth as opposed to the level. As growth slows, “cheap” stocks get cheaper.


Valuation is not a catalyst until growth either slows at a slower rate or you have some sort of “event” whereby a cheap asset gets something like a management change or a takeout bid.


The best news I can give you this morning is that Deflating The Inflation at the pump has the highest probability of giving the US Consumer in particular a much needed tax break for Memorial Day Weekend.


I’m not suggesting our Growth Slowing call stops right here, right now. I’m just reminding you how our globally interconnected economic growth and inflation model works. Unlike most models that have failed you, ours goes both ways.


Long and short. All great teams play this game both ways (even when it’s windy).


Immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, French Stocks (CAC40), and the SP500 are now $1631-1652, $112.45-118.18, $79.34-79.81, 3107-3279, and 1364-1389, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Windy - Chart of the Day


Windy - Virtual Portfolio

FL: 1Q12 Report Card

Conclusion: FL's 1Q results support our positive outlook on the name. The incremental deltas in the quarter reflect that not only is there still substantial operational improvement from key initiatives ahead, but also that European results weren’t as onerous as expected. In fact, Europe has turned positive May-to-date, which is a stark contrast to most other retailers with exposure to Europe. With early indications suggesting a solid start to Q2 and compares getting easier in 2H, we like the name here.

We continue to think the key growth initiatives that will play the biggest role over the intermediate-term will be in women’s and apparel.


1) In Lady Foot Locker, a redesigned store format is expected to be set by Fall. In the meantime, the company is adding significantly more apparel to the mix with the addition of bra and bottom bars. Women already come into Lady Foot Locker for shoes. What this mix shift presents is the opportunity to drive incremental traffic looking for apparel. With this banner still operating below all others, we expect the seismic shift in strategy to be nothing but an incremental positive.

2) As for apparel, the company is adding more of it to the mix. Margins remain below footwear, but the gap continues to converge. It’s not just the product itself that will be traffic driver, but how the product is presented that is likely to provide the biggest boost to traffic initially. One of the most notable changes to new store format in the works is to take all apparel and display it on the wall and in turn move all footwear to the floor. With the early success of this format, we’d be surprised if we don’t see broad adoption by year end. Moreover, the emphasis on presentation will likely increase vendor interest in showcasing a greater assortment of exclusive product i.e. better for both parties.

The positive momentum behind this story remains firmly in place and is so far driving solid results at a time when it should be its most trying. With tailwinds and easing comps come 2H, we are shaking out at 5% and 10% above consensus for this year and next. With many of these initiatives not kicking in meaningfully until next year, investors that were concerned over European exposure can check that box and now have greater visibility into forward earnings – especially relative to other retail peers.


What Drove the Beat?

Strong sales with tighter cost control drove the $0.09 beat relative to $0.74E. Importantly, this was the tenth consecutive quarter of a positive sale/inventory spread and a sequential improvement up 3pts to +10% against tough comps. Positive spreads and gross margin expansion continues to be the new normal for FL and the expectation.


Casey Flavin


FL: 1Q12 Report Card  - FL S


Outlook: In order to properly measure performance relative to original expectations, we look at management’s Q1 results relative to management guidance as well as any updates to previously provided full year 2013 outlook:

FL: 1Q12 Report Card  - FL outlook


Highlights from the Call:


Comps: +9.7% (DTC up +16.5%; Stores +9.1%)

Feb = +High-teen

March = +HSD

April =  +MSD

**May-to-date comps in-line at +HSD


All of divisions posted positive comp ex-Eur

Europe finished Q1 with -MSD comp decline after starting Feb
down -HSD (March/Apr -LSD)

Europe is now up LSD

FL US, FL Canada, and Foot Action all up ~DD


Champs comps 20%+

DTC +16.5%

CCS positive comps, but less than rest of DTC

Suggests rebranding launch in Feb gaining traction perhaps indicating turn


FW/App/Acc all up strong; Apparel up nearly +20%

In FW - Men's and kids strongest, women's was mixed

In Men's - basketball strongest, training and classics also strong - running positive but smaller

In running, NKE Free and New Balance Minimus very strong


GM:  +132bps due to:

  • Occupancy +100bps
  • +30bps from merchandise margins
    • Higher in US across divisions led by apparel
    • margins down slightly in Eur
    • FW margins increased, stayed ahead of apparel margins


  • SG&A increased by only $8mm
  • Kept tight control over store wages
  • Spent $2mm more on marketing
  • Showing success with increased traffic and conversion rates


  • Opened 25 stores most in Eur
  • Closed 34 stores most in U.S.
  • Will continue to close unproductive stores over balance of year


  • Inventory - up slightly on Constant currency basis
    • Turns improving
  • $909mm in cash
  • CapEx: Board approved add'n $10mm increase in Capex plan to $170mm from $160mm
    • Some of incremental increase specifically intended for women's and tech upgrades in allocation and warehouse mgmt systems
  • Repo's 878k shares for $27mm - first under $400mm SRA



  • Expect MSD comp
  • Can chase if demand warrants
  • Expect further GM leverage, but more modestly than in recent years
    • 30-40 bps in Q1 in-line
    • SG&A down 60-80bps (could be a bit higher given Q1)
  • Fx impact less than $0.01 in EPS in Q1
  • Expect similar impact in Q2
  • FY Fx would impact EPS ~$0.05 (in-line with plan)


  • Basketball key driver
    • Strong Jordan also in classics, retro Jordan sold out almost immediately
    • Adidas very strong in stores and online in both Rose as well as Hardcore and Somoa
    • Converse contributed as well
  • Running not as strong, tech and lightweight offset by legacy styles
    • Europe saw boost from intro of NKE Free during Q1
  • Slides were a big category in the qtr
  • Apparel: NKE Jordan , Adidas, and UA fleece all performed well

Update on Initiatives:



  • intro new Nike NFL apparel in Champs stores
  • New women's bra and bottoms in Lady FL stores
  • Lady FL apparel sales significantly outpaced FW


  • Has been very strong recently off a small base
  • Have planned several pop-up stores for BTS
  • Planning to open select kids stores in Europe this yr
  • Allocating more product towards kids


  • In the process of coming up with a redesigned Lady Foot Locker format (as discussed at analyst day)
  • Also mentioned that they are testing a new women's concept altogether
  • Will be some time before they get full feedback on it




Women's /Lady Foot Locker:

  • As part of the new women's growth initiative, part of adding more apparel includes bra and bottoms bars
  • Looking at having new store design nailed down by fall
  • Women already coming in for shoes, looking to offer more apparel to drive incremental traffic
  • Looking to have new concept prototype in place by end of the year to test new growth in women's
  • Still performing below the level of men's chains = room for substantial upside - can match men's

New Store Formats:

  • Will have 10 new prototypes in for Champs by end of Spring that they will be able to measure to gauge roll outs next year
  • Core FL prototypes about 6mo behind Champs


  • Greece "somewhat of a basket case" only 6 stores there
  • Southern Europe (Port, Spain, Italy) more challenging - still productive and profitable stores
  • Northern Europe (Ger, Fr, Benelux, etc) - performing better
  • See it as a three tier performance environment
  • NKE Free was a positive performer, Adi classics, Converse
  • Apparel (a bigger business in Eur) has underperformed - down a little bit (-LSD)
  • Think colder weather hampered sales
  • Now running up a little bit
  • Forecasting apparel down LSD for the year
  • Fashion getting more impacted due to higher unemployment
    • Ex: selling NKE Free better up in North Eur; well in South and more challenged in Italy and Spain. Fashion more discretionary.

Private Label:

  • Branded remains very strong, private coming on
  • 'vendors coming out with some great product' - NKE and Adi in particular
  • Continuing to improve PL margins - branded still higher but improving
  • Shifting some of private brand business to Team Edition printed apparel from the brands


  • A lot of newness coming out - Lightweight is really driving the business
  • Re tougher comps in 2H - Olympics will help
  • People shifting from higher ticket heavier FW to lower ticket lightweight which is reducing overall sales $$

UA Relationships:

  • UA - realizing to be successful in the mall, need to work with FL
  • Expect tailwind from World Cup, Olympics, full season of FB and BB

Fw/Apparel Margins:

  • Footwear margins still increasing - cont to increase product flow that is driving expansion
  • Apparel still below FW margins, did narrow the gap
  • As they build apparel business, expect margins to expand
  • Higher FW margins driven by:
    • Selective pricing to offset higher AUC
    • Product flow is resulting in more full-price sales
  • Still expect 30-40bps of expansion for the balance of the year
  • Gap b/w IMU to AUC has narrowed - product flow has helped offset

Europe - Event Impact on SG&A:

  • Will get benefit from 1) apparel (t-shirts to high price letter jackets), and 2) shoes similar to what athletes are wearing
  • New technology in shoes will drive interest + traffic


  • Traffic, AUR and conversion were all up in 1Q

Europe - Competitive Env:

  • Competition getting weaker and some bankruptcies have enabled them to take over some leases
  • Added 6 stores in Poland and Czech-Rep
  • Those stores doing very well, expect to open more in these regions

Product Costs:

  • Expect further increases expected - mostly from labor increases, but more modest in 2013


  • In non-East Bay sites, (FL, Lady FL, Champs, Kids FL, banners are up +3-40%
  • Under penetrated in Eur
  • Have sites in UK, Benelux, France, Germany and planning to roll out to Southern countries - planning to add 1-2 by year end with more next Spring

SG&A Costs:

  • Expect roughly 60-80bps of leverage each qtr
  • Expect continued incremental marketing spend

NKE - Flyknit:

  • Will launch in best running stores and on Eastbay - expect bigger boost to come in 2013

Basketball/Running Mix:

  • New tech in lightweight drove demand for running increasing share over last 1yr+
  • 3 things have driven recent surge in Basketball:
    • 1. New tech - lightweight & support
    • 2. Number of key players with own shoes has grown - no longer just Jordan, LeBron, etc.
    • 3. Better styling

Store Openings / Rent:

  • Still pulling out of underperforming stores - see more opportunities there
  • Opening more Champs stores as % of new opening mix - more underpenetrated + better performing

Champs Outperformance:

  • First banner to be defined and clarified - about 6-8 months ahead of other banners
  • Pushed apparel and straightened that out sooner than others
  • First to step up marketing for = realizing those efforts
  • Expect other banners to start ramping  as well, but not necessarily to degree that Champs has (20%+)

JCP/NKE Shop Threat:

  • Nike currently sells product at JCP at a lower level
  • Not as concerned bc FL's NKE product higher level = better quality
  • Typically when others open in the mall, helps FL - drives traffic to them bc better assortments
  • "our merchants and our position in the market with Nike will allow us to be well-positioned and to be able to beat somebody who that's not their forte." - Ken Hicks


  • Competitive advantage bc of exclusives
  • Have best assortment from key players NKE, Adi, UA, and Reebok
  • Vs. running where they have benefitted similarly to everyone else
  • Still think they can have more running - underpenetrated



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Fortune Cookie

“A different world cannot be built by indifferent people.”

-Jack’s fortune cookie


My son Jack was born right around the same time that I came up with this crazy idea to start Hedgeye. I love them both dearly.


Last night was the typical Sunday night at the McCullough dinner table. Our kids were exhausted from spending a beautiful day outside, but fired up enough to pound back a few more fortune cookies.


By the time I made my last cover/buy move late on Friday afternoon, that’s pretty much how I felt too.


Back to the Global Macro Grind


As my son grows up, he’ll be taught that it’s always better to be early in life than late. If he ever gets into this business, we’re going to have to work on how early though. Being too early, for too long, is also called being wrong.


In buying US Equities, I’m at least a few days early. That’s definitely better than being a few months late in selling them. The last 2 months have been flat out nasty. The highest conviction position you should have had was Cash.


We peaked at 91% Cash. That’s 5% lower than where we went in Q3 of 2008. This morning’s Cash position in the Hedgeye Asset Allocation Model is 61% (down from 85% at the start of last week).


Here’s how our asset allocation looks this morning:

  1. Cash = 61%
  2. US Equities = 27% (SP500, Consumer Discretionary, Healthcare, and Apple – SPY, XLY, XLV, and AAPL)
  3. Int’l Equities = 12% (China and Brazil – CAF and EWZ)
  4. Int’l Currencies = 0%
  5. Fixed Income = 0%
  6. Commodities = 0%

Not being long anything in Commodities wasn’t something Jack came up with at dinner last night. It’s been part of our Q2 Global Macro Themes calls that include Fed Fighting and Bernanke’s Bubbles (email if you’d like an updated slide deck with our refreshed risk management levels – all of the long-term bubble charts are in there, most of them Commodities).


Buying Brazilian Equities early was my biggest mistake on the long-side (buying anything Global Equities other than Chinese Equities has pretty much been a big mistake since the end of Q1). Of the major countries, China is the world’s top performer since April.


My long SPY (SP500) position is at 9% in the asset allocation model and that’s likely to have a short leash. If the SP500 doesn’t hold our long-term TAIL line of 1282 support, I won’t have a position in it at all. That’s when the crash (YTD peak to trough drop of 20% or more) risk comes into play. Being early by a few days is one thing – buying into a crash is not what we do.


With the SP500 down -4.3% last week, down -7.4% for the month-to-date, and down -8.7% from the YTD high, this is either the only obvious “buying opportunity” we’ve had since early January, or a not so friendly signal for the weeks and months ahead.


Growth Slowing and Deflating The Inflation – we get that. What we don’t get is how quickly these fundamental research factors get fully priced in. That’s why we reserve the unalienable right to change our mind any minute of the day.


Embrace Uncertainty.


If we get a lift today and/or tomorrow, we’re likely going to sell into it. That’s because A) we’re too long and B) the Macro Catalyst Calendar starts to get gnarly again starting on Wednesday:

  1. Wednesday = New Home Sales for April (expectations are high at 335,000 given the weather in Feb/Mar)
  2. Thursday = Durable Goods for April are “expected” to rise, sequentially, versus March – that’s not a given either
  3. Friday = University of Michigan Consumer Confidence (for May) is expected to hold fairly elevated gains at 77.8

Then you have the long weekend…


And then… you have Europe, a potential mess of a Q2 “earnings season”, and Volcker Rule implementation in July.


Don’t be indifferent. Keep moving out there. And keep a Fortune Cookie or two nearby if you need to feel better about America’s economic future. If we don’t evolve our policy making process soon, our kids are going to need all the help they can get.


My immediate-term support and resistance ranges Gold, Oil (WTIC), US Dollar Index, EUR/USD, 10-year Treasury Yield, and the SP500 are now $1, $90.57-94.42, $80.67-81.81, $1.26-1.28, 1.66-1.80%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Fortune Cookie - Chart of the Day


Fortune Cookie - Virtual Portfolio


TODAY’S S&P 500 SET-UP – May 21, 2012

As we look at today’s set up for the S&P 500, the range is 53 points or -1.02% downside to 1282 and 3.07% upside to 1335. 












  • ADVANCE/DECLINE LINE: on 5/18 NYSE -1586
    • Up from the prior day’s trading of -2242
  • VOLUME: on 5/18 NYSE 1162.10
    • Increase versus prior day’s trading of 23.00%
  • VIX:  as of 5/18 was at 25.10
    • Increase versus most recent day’s trading of 2.49%
    • Year-to-date increase of 7.26%
  • SPX PUT/CALL RATIO: as of 05/18 closed at 2.08
    • Down from the day prior at 2.30 


  • TED SPREAD: as of this morning 39
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.76
    • Increase from prior day’s trading at 1.72
  • YIELD CURVE: as of this morning 1.47
    • Up from prior day’s trading at 1.43 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed National Activity Index
  • 11am: Fed to purchase $1.5b-$2b notes in 2/15/2036 to 5/15/2042 range
  • 11:30am: U.S. to sell $30b 3-mo., $27b 6-mo. bills 


    • NATO Summit of World Leaders in Chicago
    • Senate in session, House not in session
    • Interior Secretary Salazar, Bureau of Safety and Environmental Enforcement Chief Watson conduct forum on oil well blowout preventers and federal oversight, 8am
    • BASF CFO Engel, International Energy Agency Deputy Director Jones among speakers at Deloitte energy conf., 8am
    • Deadline for SEC to respond to Senate inquiries seeking explanation for decision to place chief investigator on leave
    • Donald H. Layton takes over as CEO of Freddie Mac
    • Financial Industry Regulatory Authority holds annual conference; opening address by CFTC Chairman Gensler     


  • Alibaba to buy 20% stake in itself back from Yahoo for ~$7.1b
  • JPMorgan CEO Jamie Dimon to speak at investor conference in New York
  • JPMorgan CIO Risk Chief Irvin Goldman said to have history of trading losses
  • DaVita, a provider of kidney dialysis services, agreed to buy HealthCare Partners for ~$4.42b
  • China’s Wanda Group to buy AMC Entertainment for $2.6b   * Raj Gupta, former Goldman director, goes on trial
  • Premier Wen says China to focus on growth, Xinhua says
  • China to speed up approvals for qualified foreign investors
  • Nasdaq CEO says ‘poor design’ in IPO software delayed Facebook; SEC to review problems
  • U.S. ITC judge may release ruling this week on Kodak’s $1b patent dispute vs. Apple, RIM
  • Fed’s Lockhart says QE3 can’t be ruled out amid European risks
  • Facebook closed at $38.23 Friday, with underwriter support keeping it above $38 IPO price
  • Vodafone may be forced to share Cable & Wireless: Telegraph
  • Apple, Samsung are unlikely to resolve their worldwide fight over mobile device patents in court-ordered talks that start today between their CEOs, said lawyers following the case
  • German, French leaders meet this wk to map out a revised plan for the euro as the Group of 8 exposed disagreement on a rescue strategy
  • Osborne says U.K. is making contingency plans for euro-zone turmoil
  • Canadian Pacific Railway workers said they may strike as soon as Weds.
  • No IPOs expected to price today
  • NATO Summit, China, JPMorgan, Formula 1: Week Ahead May 21-26 


    • Lowe’s Cos (LOW) 6am, $0.42; Preview
    • Tech Data (TECD) 6am, $1.16
    • Krispy Kreme (KKD) 6:30am, $0.09
    • Campbell Soup (CPB) 7:30am, $0.52; Preview
    • Tidewater (TDW) 8:03am, $0.60
    • Urban Outfitters (URBN) 4pm, $0.20
    • Post Holdings (POST) 4:17pm, $0.48
    • Nordson Corp (NDSN) 4:30pm, $0.87 



COMMODITIES – Deflating The Inflation of Bernanke’s Bubbles remains our top Q2 Macro Theme, so on the bounce you don’t want to be buying anything commodities related – energy and basic materials stocks are easily the worst looking in our Sector studies, so use the bounces as selling opportunities. 

  • Investors Least Bullish in 2012 as Crisis Escalates: Commodities
  • Ex-SocGen Commodity Officials Plan Hedge Fund in Final Quarter
  • Oil Rises First Time in Seven Days; Goldman Sees Tighter Supply
  • Copper Climbs for Second Day as China Pledges to Boost Growth
  • Gold Seen Climbing a Third Day in London on Europe Debt Concern
  • Coffee Reaches Eight-Month High as European Stockpiles Decline
  • Grain-Pit Traders Squeezed Out as CME Expands to Match ICE Hours
  • Fonterra May Cut Milk Payout on Price Drop, Curbing Supply
  • Palm Oil Ends Little Changed as Europe’s Crisis May Hurt Demand
  • Saudi Aramco Plans to Start Operating Jazan Refinery Before 2017
  • Oil Decline Exaggerated as Market Tightening, Goldman Sachs Says
  • Japan Copper-Cable Shipments Climb in April for Third Month
  • Chinese Iron Ore, Coking Coal Buyers Defer Imports, Mirae Says
  • Wheat Climbs to Eight-Month High on Weather
  • Wheat Climbs to Highest Level Since September on Dry Weather
  • Speculators Boost Gas Bets as Surplus Shrinks: Energy Markets
  • Chesapeake Director’s Firm Paid $343 Million Amid Ties: Energy





US DOLLAR – after 3 consecutive up weeks (up 12 of the last 13 days), the Correlation Risk spike to -0.91-0.99 (depending on your USD vs whatever pair) takes a breather. Dollar down this morning finally stops oil, copper, etc from going down and Petro-Dollar equity markets (Russia, Norway, Saudi) all lead gainers #interconnected.











CHINA – plenty of bears out there, but this is the best major country in terms of stock performance for Q2 to-date, and the Chinese have plenty of policy ammo that you can wake up to any day of the week, both fiscal and monetary (see China Securities Daily for the latest whispers from Wen).










The Hedgeye Macro Team

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 80.43%
  • SHORT SIGNALS 78.35%