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Our Saviors

“Our mediocre and bankrupt elite, concerned with its own survival, spends its energy and our resources desperately trying to save a system that cannot be saved.”

-Chris Hedges


This weekend I finished reading Death of The Liberal Class. It’s my kind of book. Not because I agreed with everything in it, but because it made me think outside of my comfort zone. Chris Hedges was fired by the New York Times for having a point of view.


Some people call Hedges a socialist; others call him a libertarian. I’ll call him one of the many men and women who need to be heard. You don’t have to agree with everything someone says to be empathetic to their perspective. That’s a democracy.


The perspective of almost every politician making central planning calls on the fly right now is that of their own political career risk. In the short-run (this morning), that means they might need a “coordinated action” for the market’s un-coordinate reaction. In the long-run (the next 3 years), doing more of what has not worked will make their political careers dead.


Back to the Global Macro Grind


Let’s start with what markets are not doing this morning – going up. This is coming off the 2nd Bailout Sunday in a row where the S&P Futures opened 15 handles higher than where they wound up come Monday morning.


Got expectations? Markets do. Sadly, Our Saviors don’t. From Obama’s Spanish bank bailout man Tim Geithner to Italy’s Mario Monti, these people don’t have a clue as to what they are building into this globally interconnected market’s set of expectations.


Big Government Intervention policies (causality) drive currencies. Currency moves drive asset price inflation/deflation (correlation). For now, that is the deep simplicity of what anyone who manages real-time risk has to deal with in real-time. Fun.


With the US Dollar DOWN for the 2nd consecutive week, Global Equity and Commodity prices went UP last week:

  1. US Dollar Index = -1.5% in the last 2 weeks to $81.63 (from $82.89, the weekly YTD closing high)
  2. CRB Commodities Index = +1.5% in the last 2 weeks to 272
  3. SP500 = +5.0% in the last 2 weeks to 1342 (from 1278, the weekly YTD closing low)

Now, while some might say the last few weeks of stocks and commodities rising were based on “fundamentals”, I’ll remind you that is a crock.


Never mind Europe, last week’s US economic data was as weak as any we have seen in 2012:

  1. US Retail Sales missing on Wednesday had stocks selloff hard on the news (Consumer stocks down -1.6% on the day)
  2. US Jobless Claims rising to 386,000 (20% higher than where the data was in March), got Qe3 whispering back “on”
  3. US Consumer Confidence (University of Michigan survey) dropped like a rock in June to 74.1 (vs 79.3 in May)



So, you buy stocks and commodities on that, right?


Right. Right.


The only reason why you’d do that (and more of it was short covering, by the way, because volume in this stock market has gone bone dry) is because you were either begging for (or fearing) more bailouts and easing.


Is that what Our Saviors have reduced our markets to? Begging and fearing? This is all turning out to be as pathetic and sad as each and every rally looks to lower long-term highs, on lower and lower volumes.


To be fair, some of the options brokers in currency and commodity markets are seeing some flow (the flow is what you get paid when customers pay you a commission to transact). Chucky Evans from the Chicago Fed loves getting a piece of that flow. Who said a politicized man at the Fed can’t be bought and paid for? Can you pay me $25,000 to speak at a road-show lunch?


To get a little more granular on the commodity “speculation” side of the flow, here’s how last week’s CFTC flow data looked:

  1. CRB Commodities net long contracts = +9.1% week-over-week (to 587,327 contracts)
  2. Silver net long contracts = +12% week-over-week
  3. Farm Goods net long contracts = +21% week-over-week

Yeah, bro. You get Chucky up there talking down the Dollar and we’re going to dance. Especially as global demand slows, bro. Because we are absolutely and positively paid to speculate on policy, not fundamentals, bro.


Not sure on the bro thing, but I am certain that I have no idea what do in these markets any more than the next guy/gal who has the next Fed or Treasury or ECB whisper. Maybe that’s what Our Saviors consider the New Democracy.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $95.72-98.47, $81.58-82.26, $1.24-1.26, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Our Saviors - Chart of the Day


Our Saviors - Virtual Portfolio


The Economic Data calendar for the week of the 18th of June through the 22nd 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.



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Bad, Bad Data: SP500 Levels, Refreshed

POSITIONSLong Consumer Staples (XLP), Long Term Treasury Bond (TLT), US Dollar (UUP), Short Industrials (XLI), and Euro ETF (FXE)

“Bad, Bad Leroy Brown” is the title of a song written by folk singer Jim Croce.  The song was written in 1973 (before this analyst was born) and spent two weeks at the top of the Billboard Hot 100.  According to Wikipedia:


“The song is about a man from the south side of Chicago who, due to his size and attitude, has a reputation as the "baddest man in the whole damn town." One day, in a bar, he makes a pass at a pretty, married woman, whose jealous husband proceeds to beat Leroy brutally in the ensuing brawl.”


It’s not clear who the baddest man or woman in the whole damn global economy is at the moment, but what is clear is that the economic data is turning bad in the U.S.


We had a slew of economic data out this morning and the data was not good.  Certainly, government data is at best a coincident indicator and much of it is obviously a lagging indicator.  Nonetheless, when taken in aggregate government data can provide us some insight into the state of the economy.


This morning we had the following releases:


Michigan consumer confidence – At 74.1%, this reading of consumer confidence came in at the lowest level since December 2011. 


Empire State manufacturing – The Empire State manufacturing survey was negative across the board as future orders halved to 15.5, future shipments more than halved to 12.4 and future prices paid fell 24 points to 34.0.  General business conditions were positive at +2.3, though down fifteen points sequentially.


Industrial production – While not a total disaster, industrial production did come in worse than expected at -0.1% versus +1.1% last month.  Capacity utilization also ticked down to 79% from 79.2%.


In the three charts below, we show this data going back ten years.  The key take away from this view is not that we are necessarily in another “Great Recession”, but rather that the economy is at best stumbling at low growth rates, if not decelerating. 


Bad, Bad Data: SP500 Levels, Refreshed - 10yrcon


Bad, Bad Data: SP500 Levels, Refreshed - Empire


Bad, Bad Data: SP500 Levels, Refreshed - US.indust


Yesterday, the key driver of stock market action of course was the Reuters report that the world’s central bankers were ready and willing to providing liquidity as needed.  In effect, the global equity put remained in place.  Today’s U.S. market action, as a function of that report and the economic data above, is in word: confused.  Specifically, yields on 10-year bonds are down 1.37% to 1.587 (so bond prices are up) and equities are also up with the SP500 up 0.74% to 1,338.  Both the fear trade and the risk trade are in play today !


Bad, Bad Data: SP500 Levels, Refreshed - MyChart


Our SP500 levels are refreshed below and support this idea of confusion.  While the TAIL support line is holding at 1,309, the SP500 remains below TRADE resistance at 1,344 and TREND resistance at 1,365.



Daryl G. Jones

Director of Research 


Bad, Bad Data: SP500 Levels, Refreshed - SPX







HedgeyeRetail: COTD: Handbags at Wholesale

Sales through the wholesale channel account for nearly 50% of revenues at both KORS and VRA, but at FNP’s Kate Spade you’re looking at closer to 30% of revenues and a fraction of the door count. Such an underpenetrated presence at wholesale suggests the growth opportunity for Kate Spade isn’t just at retail. While VRA and KORS sell through 3,300 and ~2,700 wholesale doors respectively, COH is now at ~1,200 and Kate only ~400. A few considerations:

  • COH wholesale door productivity has declined over the last few years as competition for share among newer brands has increased.
  • While VRA appears to have far too many doors, Kate Spade is substantially underpenetrated at wholesale accounts.
  • If we assume that Kate Spade door growth doubles its door count to 800 from 400  and continues to increase its productivity from $320 to $450 per door over the next 4-years, FNP could add an additional 200-300bps to its total top-line growth that we have growing at a high-teens rate over that time period.


HedgeyeRetail: COTD: Handbags at Wholesale - COTD FNP KORS V2



Weekly European Monitor: Suspended Gravity Ahead of Sunday’s Greek Elections

-- For specific questions on anything Europe, please contact me at to set up a call.


Positions in Europe: Short EUR/USD (FXE); Short Spain (EWP); Long German Bunds (BUNL)


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed up +0.9% week-over-week vs +2.9% last week and is down -0.1% year-to-date. Top performers:  Cyprus +26.6%; Greece +13.7%; Ukraine +9.0%; Poland +3.1%; Russia (MICEX) +2.9%; Spain +2.5%; Romania +2.4%. Bottom performers: Finland -1.5%; Italy -0.4%; Czech Republic -0.1%.
  • FX:  The EUR/USD is up +0.93% week-over-week vs -0.58% last week.  W/W Divergences: PLN/EUR +1.04%, SEK/EUR +1.01%, NOK/EUR +0.66%, HUF/EUR +0.43%, GBP/EUR +0.32%, DKK/EUR +0.02%, CHF/EUR +0.01%.
  • Fixed Income:  Yields swung around for yet another week. Greece saw the biggest move, falling -120bps week-over-week to 27.73% on increased bets that a coalition with the pro-austerity party New Democracy will win on Sunday. Portugal also saw large declines, falling -60bps to 10.58%.  Spain powered higher, at +66bps to 6.88% and Italy gained +22bps to 6.00%, however dropped a full -25bps from Friday over Thursday.  Germany also put on quite a move, bouncing +22bps to 1.50%. 

Weekly European Monitor: Suspended Gravity Ahead of Sunday’s Greek Elections - 111. yields




We’ll keep it short this week. We’re assigning a 60/40 probability in favor of a victory of pro-austerity party New Democracy in the Greek election on Sunday. Anti-austerity Syriza party head Alexis Tsipras has been very vocal this week stressing that he wants to “keep Greece in the Eurozone and restore growth”, however based on recent opinion polls we’re still behind the opinion that Greeks identify their future “prosperity” bound with membership in the Eurozone, and not removed with the Drachma, and we think Greeks are uncertain Tsipras can deliver.


That said, we view the timing of Spain’s €100B banking credit line as incredibility inept. Leading up to Saturday’s announcement, Troika was playing a relatively strong hand of cards, positioning the vote in Greece along the lines:  vote New Democracy and stay in the Eurozone, or vote Syriza and default and exit the Eurozone. Saturday’s Spanish bailout folded a number of those strategic cards and encouraged the view that Troika will remain an unconditional backstop, regardless of who wins. To this end, Syriza could make this a very tight race. Yet in our opinion the pop in Greek equities this week (+13.7% w/w) is baking in a ND win.


The first exit polls are likely to be published at 5pm GMT on Sunday with the first official projections due out a few hours later. However, we may have to wait until late Sunday night or Monday morning for conclusive results.


Either way, the winner will most likely need to form a coalition government and will get 3 days to get this accomplished. If that fails, it passes to the 2nd place party for 3 days, and then to the 3rd place party. 


The political set-up appears to simply be wait-and-see what happens in the Greek elections. Eurozone ministers have already said that they’ll hold a conference call on Sunday to discuss the outcome of elections. The wild card remains just what the outcome will be and what goalposts Eurocrats could decide to move on Sunday. However, we’d expect a bounce from equity markets and the EUR/USD on a New Democracy victory; and conversely, a sell off should Syriza poll ahead of ND, or if either party struggles to form a decisive coalition.


Don’t forget that Eurocrats mostly tread slowly; it’s the market participants and the media that want a resolution from Europe yesterday. As we said many times, given the constrained and conflicted nature of the Union of such uneven states under one monetary policy, Eurocrats have a long road to travel to save the region’s current fabric, if they can at all.


In a thick calendar for June we see a high likelihood that no firm policy action comes from the meetings this month.  Monday starts the G20 Summit in Mexico; the Eurogroup and EcoFin meet on June 20-21; and the EU Summit convenes in Brussels on June 28-29. The main topics of discussion will include:

  • Fiscal Compact
  • Pan-European Deposit Insurance
  • Eurobonds
  • European Redemption Fund
  • ESM (and EFSF)
  • European Financial Transactions Tax

We continue to view Ms. Merkel as the Eurozone’s paymaster, the lead horse pulling the Eurozone cart along. We see Germany pushing the fiscal compact route, the initial building block should Germany even decide to sign off on Eurobonds or a pan-European deposit insurance facility.   That said, we see agreement on a fiscal union over the near term as incredibly challenged as countries are unwilling to part with their fiscal sovereignty.


Interestingly, there have been mixed messages on the Germans’ position on the potential of a €2.3T European redemption fund that would essentially take over the excess sovereign debt of all countries that exceed the EU’s Growth and Stability Pact’s 60% debt to GDP limit in exchange for stricter economic oversight. This, however, especially in its initial discussion, seems out of character for the Germans who don’t want to signal they’re taking on the bulk of Europe’s risk (debt) – even though they’re carrying the lion’s share— and it also goes against their positioning that the member countries should do more for themselves (at least initially) to sort their fiscal houses before big brother Germany or Troika has to jump in.


As a reminder there will also be final round of parliamentary elections in France this weekend; the Socialists under PM Hollande look set to gain control.  


For more on the impact of Spain’s €100B bank credit line see our note on 6/11 titled “Spain’s Cracked Credibility and Europe’s Bailout Messaging”.




Keith shorted the EUR/USD today in the Hedgeye Virtual Portfolio. Below is an updated EUR/USD price level chart. Our immediate term TRADE support is $1.24 and resistance is $1.27. Our intermediate term TREND support level remains at $1.23 and resistance is $1.29. Our call is that if $1.23 breaks, look out below! We’re not EUR parity folks because we see Eurocrats stepping in to prevent it. As we said above, we think the cross bounces on a New Democracy win and falls on a Syriza victory or any stumbles in coalition formation. That said, the wild card remains just how Eurocrats will responds on their Sunday conference call to the elections. Eurocrats, after all, can suspend gravity longer than you can remain solvent.


Weekly European Monitor: Suspended Gravity Ahead of Sunday’s Greek Elections - 111. EUR



Call Outs:

Spain:  El Mundo reported on Wednesday that loans made under the €100B bank bailout for Spain will have to be repaid in 15 years. The paper added that Spain will have to start repaying the loans in 2017, giving it a five-year grace period.


Germany's bailout bill continues to rise:  The WSJ noted that the Spanish bank bailout will raise Germany's exposure to financially troubled Eurozone countries by as much as €25B. According to Credit Suisse, Germany's total commitment to crisis-fighting programs currently amounts to €113B, or 4.4% of German GDP. The firm also said that if the entire resources of the EFSF and ESM are eventually called upon, Germany's exposure to these facilities would be €401B. In addition, Germany has indirect exposure to the crisis via the ECB of €57B of the central bank's €212B holdings of peripheral sovereign debt, while its share of the €660B Target2 liabilities of Greece, Ireland, Italy, Portugal, and Spain is €179B. According to Credit Suisse, added together all the potential German exposure accumulates to €671B, or 25% of German GDP.


Italian tax increases back fire:  Value-added tax receipts have declined since raised by 1 percentage point in Sept. as the economy was slipping into recession, government data released June 5 showed.

Germany:  The government and opposition parties failed on Wednesday to resolve a row holding up parliamentary ratification of both the EU's new fiscal treaty and the euro zone's permanent rescue fund (ESM), and will resume talks next week. The ESM is meant to start working from July 1 but cannot do so without the approval of Germany. Merkel wants parliament to approve the two items at the same time, but needs opposition support for the fiscal treaty.


Spanish banks borrowed new record high from ECB in May:  Bank of Spain noted that Spanish banks borrowed a new record high of €324.6B from the ECB in May, up from €316.9B in April. It added that total net borrowing was €287.8B in May, up from €263.5B in April.  


Spain:  ABC reports that Oliver Wyman & Roland Berger have set the capital needs for Spanish Banks at ~ €60-65 billion according to a draft report of the audit. 



CDS Risk Monitor:


Week-over-week CDS were largely down.  Portugal saw the largest declines in CDS w/w at -47bps to 1042bps, followed by Ireland -17bps to 669bps, and France -16bps to 197bps. Of the countries we track Spain saw a notable gain on the week of +4bps to 590bps.


Weekly European Monitor: Suspended Gravity Ahead of Sunday’s Greek Elections - 111. cds   a


Weekly European Monitor: Suspended Gravity Ahead of Sunday’s Greek Elections - 111. cds   b


Data Dump:

Eurozone CPI 2.4% MAY Y/Y vs 2.4% APR

Eurozone Labor Costs 2.0% in Q1 Y/Y vs 2.8% in Q4

Eurozone Industrial Production -2.3% APR Y/Y (exp. -2.7%) vs -1.5% MAR   [-0.8% APR M/M (exp. -1.2%) vs -0.1% MAR]

EU 25 New Car Registrations -8.7% MAY Y/Y vs -6.9% APR


Germany CPI 2.2% MAY Final Y/Y vs pre vest 2.1%

Germany Wholesale Price Index 1.7% MAY Y/Y vs 2.4% APR


France CPI 2.3% MAY Y/Y vs 2.4% APR

France Industrial Production 0.9% APR Y/Y (exp. -0.3%) vs -1% MAR

France Manufacturing Production -1.4% APR (exp. -0.9%) vs -0.4% MAR

France Non-Farm Payroll 0.1% in Q1 Q/Q [UNCH vs prev. est.]


Italy Q1 GDP Final -0.8% Q/Q (UNCH)   [-1.4% Y/Y vs prev est. -1.3%]

Italy Consumer Confidence 61 MAY vs 62.5 APR

Italy CPI 3.5% MAY Final Y/Y [unch]


Spain House Transactions -9.9% APR Y/Y vs -22.7% MAR

Spain CPI 1.9% MAY Final Y/Y [unch]

Spain Home Prices -12.6% in Q1 Y/Y vs -11.2% in Q4


UK Industrial Production -1% APR Y/Y vs -2.6% MAR

UK Manufacturing Production -0.3% APR Y/Y vs -0.9% MAR


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

Portugal CPI 2.7% MAY Y/Y vs 2.9% APR


Norway CPI 0.5% MAY Y/Y (inline) vs 0.3% APR

Norway Producer Prices incl. oil 2.5% MAY Y/Y vs 2.5% APR

Finland CPI 3.1% MAY Y/Y vs 3.1% APR

Sweden CPI 1.0% MAY Y/Y vs 1.3% APR


Greece Unemployment Rate 22.6% in Q1 vs 20.7% in Q4

Malta CPI 3.7% MAY Y/Y vs 3.8% APR


Latvia Unemployment Rate 12.3% MAY vs 12.9% APR

Hungary CPI 5.3% MAY Y/Y vs 5.7% APR

Hungary Industrial Production -3.1% APR Final Y/Y [unch vs prev. est]

Slovakia CPI 3.4% MAY Y/Y vs 3.6% APR


Interest Rate Decisions:

(6/14) SNB 3-Month Libor Target Rate UNCH at 0.00%

(6/15) Russia Overnight Deposit Rate UNCH 4.00%

(6/15) Russia Overnight Auction-Based Repo UNCH 5.25%

(6/15) Russia Refinancing Rate UNCH 8.00%



The Week Ahead:


Sunday: Greek Elections; parliamentary elections in France; May UK Rightmove House Prices


Monday: G20 Summit in Los Cabos, Mexico; May UK Nationwide Consumer Confidence (Jun. 18-22)


Tuesday: Apr. Eurozone Construction Output; Jun. Germany Zew Survey; May UK CPI, Retail Price Index; Apr. UK ONS House Price; Jun. France Own-Company Production Outlook, Business Confidence Indicator, Production Outlook Indicator


Wednesday: Eurogroup Meeting, Ecofin Meeting in Luxembourg (Jun. 20-21); May Germany Producer Prices; BoE Minutes; May UK Claimant Count, Jobless Claims Change; Apr. UK Average Weekly Earnings, ILO Unemployment Rate, Employment Change; Apr. Spain Trade Balance; Apr. Italy Industrial Orders, Industrial Sales, Current Account


Thursday: Jun. Eurozone Consumer Confidence – Advance, PMI Composite – Advance, PMI Manufacturing and Services - Advance; Apr. Eurozone BoP Current Account, ECB Current Account; Jun. Germany PMI Manufacturing and Services – Advance; Jun. UK CBI Trends Total Orders, CBI Trends Selling Prices; May UK Retail Sales; Jun. France PMI Manufacturing and Services – Preliminary; Apr. Spain Mortgages-Capital Loaned, Mortgages on Houses; 1Q Netherlands GDP - Final


Friday: Jun. Germany IFO - Business Climate, Current Assessment, Expectations; 1Q France Wages – Final; Jun. Italy Consumer Confidence Indicator; Greek T-Bill Redemption for €1.3B; Apr. Greece Current Account


Extended Calendar Call-Outs:


18-19 June: G20 Summit in Los Cabos, Mexico


20-21 June: Eurogroup Meeting; Ecofin Meeting in Luxembourg


22 June: Greek T-Bill Redemption for 1.3 Billion EUR


28-29 June: EU Summit in Brussels, aim to formally sign off on growth proposals; EC meets to discuss Institutional Affairs


30 June:  Deadline for EU Banks to meet €106B capital target/the 9% Tier 1 capital ratio, Iceland – Presidential election


JULY:  France – extraordinary session of parliament in July is due to re-draft the 2013 budget 


1 July:  ESM to come into force


5 July: ECB governing council meeting


19 July: ECB governing council meeting


18-19 October: Summit of EU Leaders



Matthew Hedrick

Senior Analyst


Early Look

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