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Fire Bernanke

This note was originally published at 8am on June 04, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The first thing you have to know is yourself.”

-George Goodman, The Money Game


Chapter 2 of The Money Game is about ‘You: Identity, Anxiety, and Money.’ It walks through some very basic training leadership lessons from “Mister Johnson” (as in Ned Johnson, the Founder of Fidelity Investments) on how to make it in this business.


A man who knows himself can step outside of himself and watch his own reactions like an observer… With the good men, you can see the learning juices churning around every mistake. You learn from mistakes. When I look back, my life seems to be an endless chain of mistakes.” (pages 26-27)


If only America’s economic pundits and politicians had the humility to reflect upon all of the forecasting and policy mistakes we have been making in this country for the last 6 years… if only we had the kind of accountable leadership that The People could trust…


Back to the Global Macro Grind


At the end of the day, you need to know yourself and your process, or your time in this profession will be relatively short. This is a profession that is in the middle of a revolution. We all need to Re-Think and Re-do what has not been working.


What is it that you do? Why did you do it that way? Is your risk management process malleable and repeatable?


Credible Sources and Accountable Leadership – find both and you’ll weather this Globally Interconnected economic storm just fine. Today is not a day to be freaking out and selling low. Friday was a Shorting Covering Opportunity. Today is a wait and watch day.


Know yourself; know your position:

  1. Cash = 82%
  2. International Currencies = 9% (US Dollar – UUP)
  3. US Equities = 9% (Utilities and Apple – XLU and AAPL)
  4. Fixed Income = 0%
  5. International Equities = 0%
  6. Commodities = 0%

That’s the Hedgeye Asset Allocation Model that we #TimeStamp each and every day. We update these positions daily because we believe strongly that there should be responsibility in recommendation.


Not being long anything Commodities in Q2 has been a choice. Not being long anything big beta (Basic Materials, Energy, or Financial stocks) was also a choice. So was not chasing Treasuries higher on Friday.


While Growth Slowing and Deflating The Inflation of Bernanke’s Bubbles (Commodities) remains our Q2 Global Macro Theme, that doesn’t mean we short-and-hold. From a time and price, almost everything that ticks is interesting.


So is the ongoing Macro Catalyst Calendar – here’s how that looks to us this week:

  1. Monday – capitulation selling on Asia’s Equity market open (despite Asian Equities being red since Feb-Mar)
  2. Tuesday – ISM non-Manufacturing data in the US, where #GrowthSlowing will remain a consensus concern
  3. Wednesday – ECB decision on rates, money printings, bailouts, etc.
  4. Thursday – Fed musings about whatever it is that they can/cannot do as Bernanke gives his economic “outlook”
  5. Friday – Chinese inflation data for May (CPI and PPI), which should slow as we see continued Deflating of The Inflation

Overall, the news-flow will get more policy-centric as we move into the belly of the week. Begging for Bernanke was already the focus of this weekend’s media coverage. So expect more of that – i.e. more of the same that slowed growth to begin with after Bernanke independently opted to debauch the Dollar on January 25thwith another Policy To Inflate.


A perpetual policy to inflate is only as good as its economic outcomes. Most people are figuring this out. In addition to their policy mistakes, The Fed has failed miserably on the two scores that matter most within their mandate:

  1. Price Stability
  2. Full Employment

So, rather than hoping for him to do more of the same, I think the best scenario for the 71% (i.e. US Consumption as a % of US GDP) is to fire Ben Bernanke.


Either Obama figures this out and shows that he is an executive leader who makes mistakes, understands them, and has the mental flexibility to change – or, Romney will run on it and state plainly that he’ll fire Bernanke himself.


Fire Bernanke? Yes. Just like you would any other Coach or Executive who is failing. If we fire Bernanke, I think whatever is left of Oil’s iQe4 upgrade speculation would go away, Gold would crash, and the US Dollar would remind the world who is going to wear the pants in this fiat world of European and Japanese policy makers threatening to blow us all up.


I know myself. And I know real people who will celebrate the only way out of this – and that’s by growing the 71% of US GDP by giving this country a monster $2/gallon tax cut at the pump. If you want that, you want a Strong Dollar. If you want a Strong Dollar, you want to get rid of Ben Bernanke too.


My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar, EUR/USD, and the SP500 are now $1601-1622, $81.29-89.43, $82.42-83.19, $1.22-1.25, and 1268-1300, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fire Bernanke - Chart of the Day


Fire Bernanke - Virtual Portfolio


TODAY’S S&P 500 SET-UP – June 18, 2012

As we look at today’s set up for the S&P 500, the range is 28 points or -1.78% downside to 1319 and 0.31% upside to 1347. 












    • Down from the prior day’s trading of 1229
  • VOLUME: on 6/15 NYSE 1513.30
    • Increase versus prior day’s trading of 94.17%
  • VIX:  as of 6/15 was at 21.11
    • Decrease versus most recent day’s trading of -2.63%
    • Year-to-date decrease of -9.79%
  • SPX PUT/CALL RATIO: as of 6/15 closed at 1.72
    • Up from the day prior at 1.23 


BONDS – US and European bond markets continue to front-run manic equity traders; both didn’t change TREND last wk, and this morning you are seeing Spanish 10s shoot back above 7% as UST 10yr remains in Growth Slowing formation at 1.59% (Yield Spread in the US (10s -2s) was down 6bps last wk, despite the no volume rally in stocks. 

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.56
    • Decrease from prior day’s trading at 1.58
  • YIELD CURVE: as of this morning 1.28
    • Down from prior day’s trading at 1.72 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: NAHB Housing Market Index, June, est. 28 (prior 29)
  • 11am: Fed to purchase $1.5b-$2.25b notes in 2/15/2018-5/15/2042 range
  • 11:30am: U.S. to sell $30b 3-mo., $27b 6-mo. bills
  • 2pm: Fed to sell $8b-$8.75b notes in 5/15/2013-11/30/2013 range 


    • President Obama attends G-20 Summit in Mexico
    • House, Senate in session
    • AFSCME union holds convention, elects successor to President Gerald McEntee (through Thurs.)


  • Samaras begins bid to form Greek coalition to stop crisis
  • Euro leaders signal softening on Greek austerity
  • Spain 10-yr yield surges past 7% to new record
  • Hollande’s Socialist party wins control of French parliament
  • Melrose in talks over $2.3b offer for CVC’s Elster
  • China May home prices fall in record number of cities on curbs
  • FDA staff reports due for 6/20 advisory committee meeting on Sanofi’s semuloparin for prevention of blood clots in chemotherapy patients, ONXX/LGND’s carfilzomib for 3rd-line multiple myeloma
  • Orbis will back Vodafone’s bid for Cable & Wireless
  • Microsoft, B&N may unveil e-reader/tablet: TechCrunch
  • Fairfax Media to cut 1,900 workers as readers migrate to web
  • G-20 said to be discussing mix of global stimulus if needed
  • Weekly agendas for finance, energy, health, real estate, transports, industrials, technology, consumer, media/entertainment, Canada mining, Canada oil & gas
  • Greek Election, G-20 Summit, Fed Meeting: Week Ahead 


    • IHS (IHS) After-mkt, $0.94
    • Platinum Underwriters (PTP) After-mkt, $1.16 



GOLD – no bailout or Monday morning money printing (yet) is pressuring Gold – will be interesting to watch it as a leading indicator into the FOMC meeting on Wednesday and whatever Geithner begs for at the G20 all the while (he wants the US (IMF) to bailout Spanish banks). Sold our long Gold position; shorted the Euro and bought cattle on Friday. 

  • Hedge Funds Boost Bullish Bets on Stimulus Outlook: Commodities
  • Oil Little Changed as European Debt Woes Outweigh Greek Optimism
  • HKEx Shares Tumble as ‘Expensive’ LME Bid Seen Passing Regulator
  • Wall Street Gas Bears Squeezed by Utility Buyers: Energy Markets
  • European Union Says Iran Oil Embargo on July 1 Will Go Forward
  • Copper Seen Advancing as Greek Vote Eases Debt-Crisis Concern
  • Gold Set for First Decline in Seven Days After Greek Elections
  • Cotton Area in India to Drop 10% This Year as Prices Slump
  • Gazprom May Offer China Lower Gas Price With Advance Payments
  • German Clean-Dark Spread Declines as 2013 Power Contract Drops
  • Solar Boom Heads to Japan Creating $9.6 Billion Market: Energy
  • U.K. Natural Gas Advances as Norwegian, Dutch Flows Decline
  • Noda Ends Japan Nuclear Freeze, Risking Backlash at Polls
  • Funds Add Bullish Bets on Stimulus Outlook
  • Iran Nuclear Offer Fails to Stall EU Oil Embargo at Moscow Talks
  • Corn Climbs After Greek Election Eases Concern Over Euro Crisis
  • Angola to Boost August Daily Crude Exports to Six-Month High










SPAIN – Greece is the tree, Spain/Italy/Japan is the forest; markets get that – they also get that “coordinated action” means they can’t be fully invested (hedged), which is just sad to watch; Spain’s IBEX and Italy’s MIB down -1.8% and -1.5% this morn in un-coordinate reaction to whatever remains (both continue to crash, down -26% and -23% from YTD tops).















The Hedgeye Macro Team

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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.



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