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

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.


And VIP as well



Clearly, the opening of Galaxy Macau on May 15, 2011 was a big catalyst for Cotai growth.  Mass revenue growth on Cotai has outpaced the peninsula for 12 straight months.  For VIP, the migration resumed earlier – in February 2011.  With Sands Cotai Central’s (SCC) opening in mid-April, those trends should continue and probably would continue even without the opening of SCC.  SJM and Wynn, the two peninsula only operators, look to be continued market share losers until they open their respective Cotai properties, likely in 2015 or 2016 for Wynn and 2016 or 2017 for SJM.


Here are the charts:







The Economic Data calendar for the week of the 21st of May through the 25th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.



Weekly European Monitor: On Why Greeks Shouldn’t Leave the Eurozone/EU

-- Below is a condensed version of our thinking on why Greece is shooting itself in the face if it decides to leave the Eurozone and why Eurocrats are motivated to keep it in the Union. For more specifics, please contact me at to set up a call.


No Current European Positions in the Hedgeye Virtual Portfolio


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -5.2% week-over-week vs -0.4% last week. Bottom performers: Cyprus -10.7%; Greece -10.1%; Ukraine -8.4%; Russia (RTSI) -8.3%; Portugal -8.1%; Finland -7.5%; Romania -7.4%; Austria -7.2%; Italy -7.1%.  Top performers:  Slovakia -0.5%; Denmark -2.0%; Switzerland -2.2%. 
  • FX:  The EUR/USD is down -1.18% week-over-week vs -1.15% last week.  W/W Divergences: HUF/EUR -3.09%, RUB/EUR -2.56%, PLN/EUR -2.10%, TRY/EUR -1.61%; SEK/EUR -1.52%, CHF/EUR +0.02%, DKK/EUR +0.02%, ISK/EUR +0.36%.
  • Fixed Income:  Greece’s 10YR government bond yield saw the biggest gain, at +461bps week-over-week to 29.14% after a gain of +396bps last week.   Portugal followed at +112bps to 12.08%, then Italy +25bps to 5.74% and Spain +24bps to 6.22%.  Germany fell -9bps to 1.42%.  On a month-over-month basis, the Greek 10YR yield is up a monster +802bps!, while Germany fell -31bps over the period.

Weekly European Monitor: On Why Greeks Shouldn’t Leave the Eurozone/EU - bb. yields



On Why Greeks Shouldn’t Leave the Eurozone/EU:

Below is a condensed version of our thinking on why Greece is shooting itself in the face if it decides to leave the Eurozone and why Eurocrats are motivated to keep it in the Union. As preface to the commentary below, importantly, we DO think that a currency union governing highly uneven economies and culturally divided populations with one monetary policy is a flawed structure. Additionally, we DO NOT think that states will give up their full fiscal sovereignty to Brussels and the region will run into the same flaws witness by the Growth and Stability pact. We DO think that fiscal consolidation targets across many of the PIIGS are unrealistic, and that the stronger states, Germany in particular, will continue to subsidize the weak to keep the exiting membership structure intact, as it’s to Germany’s benefit from a currency and export market perspective.


As it relates to Greece specifically, we expect Eurocrats to rhetorically take a hard line on the real possibility of a Greek default as to encourage the future leadership of Greece (and the Greek people themselves) that bailout funds are contingent on upholding austerity. While we view it highly likely that terms on austerity could be reduced (and not just for Greece), ahead of June 17th elections in Greece, Eurocrats must signal to the Greeks that their fate is tied to their vote: for or against austerity, which will impact if it stays or leaves the Union. Germany’s Finance Minister Wolfgang Schaeuble nicely states this point:


“If Greece decides not to stay in the Eurozone, we cannot force Greece. They will decide whether to stay in the euro zone or not.”



Here’s a taste of the hard line put forward this week from key Eurocrats:

  • IMF's Christine Lagarde: A Greek exit from euro would be "extremely expensive", still the IMF must be technically prepared (Dutch public tv).
  • ECB President Mario Draghi: "Our strong preference is that Greece will continue to stay in the euro area," and suggested the ECB won't go to extraordinary lengths just to prop up Athens.


We are NOT of the camp that there will be an imminent exit of Greece from the Eurozone and EUR, despite recent headlines and even polls like one recently released from Bloomberg that recorded a 50% chance Greece exits the Eurozone this year. The main points that support our position are:

  • The resolve of Eurocrats to keep their jobs and preserve the “idea” of the collective benefit from bound states.
  • The Fear of the Unknown: snowball effect of a Greece default precipitates Portugal leaving and then the much more serious threats of a Spain or Italy, far larger economies, defaulting.
  • Greeks want to stay: A poll suggests 78% of Greeks want to stay in the Eurozone and with EUR.
  • Returning to the Drachma would not be a competitive advantage in the near to long term (more below).
  • There are no provisions in the relevant European Treaties (Lisbon Treaty or Maastricht Treaty) for a country to exit the Euro, nor any provisions for a country to be expelled from the Euro.

However, we’re well aware that Greece teeters with one foot in the Eurozone (surviving on bailouts from Troika) and one foot out (by most measures the country has defaulted), and we can’t rule out that a catalytic force like a massive run on the banks (beyond what’s already left the country) could come in a matter of days. Such an event, short of the ECB backing Greek deposits, would spell a swift exit.



Why Greece Leaving the Eurozone/EUR is NOT to its competitive advantage:

  • A return to the Drachma (or “New” Drachma) would result in an immediate and sharp depreciation versus the EUR, with a few of the main outcomes being:
    • An immediate run on Greek banks = destruction of Greek banking system
    • High inflation, pushing up labor costs (and therefore negating “competitiveness” argument)
    • A “cheap” currency is a tax for Greece because it is a heavy importer of its energy and food
    • Borrowing costs to raise debt under the Drachma would be very costly
    • Does not have an export base, like an Argentina (which defaulted in 2001) to export its way to growth


From a cultural and economic perspective, it is also worth noting that Greeks have witnessed a relative prosperity in the 2000s under the EUR. Although this prosperity was propped up by fudged government books and cheap loans from European banks, nevertheless it’s worth consideration that Greeks still identify prosperity with the EUR. Therefore, the poll suggesting 78% of Greeks want to stay in the Eurozone and with the EUR, is not surprising. Further, it’s our view that Greeks view the financial health of the country tied to Troika’s handouts. If the line of funding is severed, we do not expect this to be viewed positively by the populous, a position which politicians will be forced to address in elections.


The latest poll from MARC/Alpha survey, conducted on May 15-17, showed that New Democracy would win 26.1% of the vote compared with 23.7% for Syriza (the anti-austerity party). It added that based on this result, New Democracy would win 123 seats. Combined with the 41 seats projected to be won by Pasok, Greece's two major bailout parties would have a 14-seat majority in the 300-seat parliament. You’ll note that in a previous poll conducted before talks to form a government collapsed, Syriza led with 27.7%, up seven points over New Democracy. We think the shift is representative of a populous that understands it needs to play ball with Brussels despite its resistance to austerity.



CDS Risk Monitor:


Week-over-week CDS was up across the main countries we track.  Portugal saw the largest gain in CDS w/w for a second straight week, +109bps to 1184bps, followed by Ireland +90bps to 683bps, Italy +61bps to 517bps, and Spain +39bps to 553bps.   


Weekly European Monitor: On Why Greeks Shouldn’t Leave the Eurozone/EU - bb. cds a


Weekly European Monitor: On Why Greeks Shouldn’t Leave the Eurozone/EU - bb. cds b


Data Dump:


Weekly European Monitor: On Why Greeks Shouldn’t Leave the Eurozone/EU - bb. gdp


Eurozone CPI 2.6% APR Y/Y

Eurozone Industrial Production -2.2% MAR Y/Y (exp. -1.4%) vs -1.5% FEB

                                                                                -0.3% MAR M/M (exp. 0.4%) vs 0.8% FEB

Eurozone ZEW Economic Sentiment -2.4 MAY vs 13.1 APR

EU 25 New Car Registrations -6.9% APR Y/Y vs -7% MAR

    • Volkswagen (VOW.GR) 261.571, (5.2%)
    • PSA (UG.FP) 132,466 (0.2%)
    • GM (GM) 85,493 (11.2%)
    • Renault (RNO.FP) 89,724 (15.1%)
    • Fiat (F.IM) 75,462 (11.3%)
    • Daimler (DAI.GR) 56,677 +1.1%
    • Toyota (TM) 41,259 (13.2%)
    • BMW (BMW.GR) 68,334, +2.6%
    • Nissan (NSANY) 29,719 (19.5%)
    • Honda (HMC) 10,310 +2.5%
    • Ford (F) 79,223 (8.3%)

Eurozone Trade Balance SA 4.3B EUR MAR vs 4B EUR FEB



Germany ZEW Current Situation 44.1 MAY (exp. 39) vs 40.7 APR

Germany ZEW Economic Sentiment 10.8 MAY (exp. 19) vs 23.4 APR

Germany Wholesale Price Index 2.4% APR Y/Y vs 2.2% MAR

Germany Producer Prices 2.4% APR Y/Y (exp. 2.5%) vs 3.3% MAR

                                                0.2% APR M/M (exp. 0.3%) vs 0.6% MAR


UK Jobless Claims Change -13.7K APR vs -5.4K

UK ILO Unemployment Rate 8.2% MAR Y/Y (exp. 8.4%) vs 8.3% FEB


France CPI 2.4% APR Y/Y vs 2.6% MAR

Italy CPI 3.7% APR Final Y/Y vs 3.8% MAR

Italy Industrial Orders -14.3% MAR Y/Y vs -13.2% FEB


Spain Q1 GDP Final -0.3% Q/Q vs -0.3% in Q4

Spain Q1 GDP Final -0.4% Y/Y vs +0.3% in Q4


Austria CPI 2.3% APR Y/Y vs 2.4% MAR

Switzerland Credit Suisse ZEW Survey -4 MAY vs 2.1 APR

Switzerland Producer and Import Prices -2.3% APR Y/Y vs -2.0% MAR

Portugal Unemployment Rate 14.9% in 1Q vs 14% in Q4

Portugal Producer Prices 3.6% APR Y/Y vs 3.7% MAR


Finland CPI 3.1% APR Y/Y vs 2.9% MAR

Netherlands Retail Sales 2.2% MAR Y/Y vs 1.1% FEB


Slovakia CPI 3.6% APR Y/Y vs 3.8% MAR

Slovakia Industrial Orders 13.5% MAR Y/Y vs 10.6% FEB



Interest Rate Decisions:

(5/16) Iceland Sedlabanki Interest Rate HIKE 50bps to 5.50%



The European Week Ahead:

Sunday: NATO Summit in Chicago


Monday: European Parliament Plenary (May 21-24); Mar. Eurozone Construction Output; Mar. Eurozone Current Account


Tuesday: Eurozone OECD Economic Outlook; May Eurozone Consumer Confidence – Advance; Apr. UK Public Finances, Public Sector Net Borrowing, CPI, Retail Price Index; Mar. UK ONS House Price


Wednesday: Summit of EU leaders to Discuss Growth; Mar. Eurozone Current Account; May UK CBI Trends Total Orders and Selling Prices; Apr. UK Retail Sales; May Italy Consumer Confidence; Mar. Greece Current Account


Thursday: May Eurozone PMI Composite, Manufacturing, and Services – Advance; May Germany PMI Manufacturing and Services – Advance, IFO Business Climate, Current Assessment, and Expectations; 1Q Germany GDP – Final, Domestic Demand, Exports, Capital Investment, Govt Spending, Construction Spending, Imports, Private Consumption; Apr. UK BBA Loans for House Purchase; 1Q UK GDP, Private Consumption, Govt Spending, Gross Fixed Capital Formation, Exports, Imports, Total Business Investment, Index of Services – Preliminary; May France PMI Manufacturing and Services – Preliminary, Production Outlook and Business Confidence Indicator; Mar. Spain Mortgages-capital loaned; Mortgages on Houses


Friday: Jun. Germany GfK Consumer Confidence Survey; May France Consumer Confidence Indicator; Apr. Spain Producer Prices; Apr. Italy Hourly Wages, Retail Sales



Matthew Hedrick

Senior Analyst

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%