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Lie To Us

“The average person lies 3 times for every 10 minutes of conversation.”

-Dr. Cal Lightman


Most recently, I have thrown a little spice into my life – staying up past 10PM, watching some Netflix. Since I generally don’t watch TV, the whole experience of viewing something that’s not on mute has been exhilarating.


This past week while on vacation, I stumbled upon a crime mini-series called “Lie To Me.” Dr. Cal Lightman (Tim Roth) is the star of the show. He runs a firm called The Lightman Group where, through the study of micro-expressions, body language, etc., his team’s job is to figure out when people are lying.


I loved the premise of the show because it’s all about something our head of Healthcare Research, Tom Tobin, and I have been studying since at least 2003 – liars. Formally, it’s called Kinesics. And, if you take some time to embrace its principles, it won’t take you long to figure out when a central planner or banker is probably lying.


Back to the Global Macro Grind


Fiction or non? This morning’s Global Macro news-flow had 2 different lines of storytelling:

  1. Pre-4AM US Futures down 6 handles on a bad start to US earnings season, Patriot Coal (PCX) filing for bankruptcy, and Chinese import growth continuing to slow.
  2. Post 5AM US Futures up 5 handles on Spain getting a re-do (almost as popular as getting a sticker for trying hard) on the timing of its bank bailout and Barclays execs lying on TV.

Ok, maybe these guys aren’t lying. Maybe they are just fibbing. Or, maybe, they aren’t lying to themselves as they (internally) attempt to define the difference between what Barclays Chairman, Marcus Agius, called the “difference between culpability and responsibility.”


You see, when deciding what ex-Barclays CEO, Bob Diamond, should be paid on the way out ($100M or $3M? What’s a few million, amongst friends?), you wouldn’t want things like the Sherman Act or a US criminal investigation to get in way of who has already greased whom in British politics.


Downward and upward we go.


Whether we are lying to ourselves or not that the bull case at this point isn’t bailouts, we have ourselves a classic Bull/Bear debate brewing that boils down to 1 very simple risk management question:


Is Global #GrowthSlowing fully priced into corporate earnings, or not?


From a long-term investor’s perspective, Kinesics (and a little probability based math) will help us start to answer this question. In trying to deduce the probability of whether or not the “earnings are great” bulls are lying to themselves, a picture will be more effective than prose.


In today’s Chart of The Day, our jedi Hedgeye mean reversion analyst from the Yale Shiller School of long-term cycles shows you all you need to know about where US corporate profit margins are in the context of long-term history.


In other words (sorry, had to use some words), if Global #GrowthSlowing continues, the longest of long-term corporate profit margin cycle peak is probably in.




If you are buying stocks based on the premise that they are “cheap” (based on the wrong sales, margins, and earnings expectations), you are lying to yourself. Cheap, when using the right numbers, gets a lot cheaper.


To be clear, I’m not calling everyone a liar. To the contrary, if Dr. Lightman is right (and if you read this far in 10 minutes), you could accuse me of lying at least 3 times already.


But just because most politicians get paid to Lie To Us, that doesn’t mean I’ve been lying to you about #GrowthSlowing too. My team has been storytelling about that, since March.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $96.76-103.07, $82.49-83.47, $1.22-1.24, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Lie To Us - Chart of the Day


Lie To Us - Virtual Portfolio


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

As we look at today’s set up for the S&P 500, the range is 29 points or -1.66% downside to 1330 and 0.48% upside to 1359. 











  • ADVANCE/DECLINE LINE: on 07/09 NYSE -340
    • Up versus the prior day’s trading of -1048
  • VOLUME: on 07/09 NYSE 649.72
    • Increase versus prior day’s trading of 8.94%
  • VIX:  as of 07/09 was at 17.98
    • Increase versus most recent day’s trading of 5.15%
    • Year-to-date decrease of -23.16%
  • SPX PUT/CALL RATIO: as of 07/09 closed at 2.09
    • Down from the day prior at 2.31 


  • TED SPREAD: as of this morning 37
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.53%
    • Increase from prior day’s trading at 1.51%
  • YIELD CURVE: as of this morning 1.27
    • Up from prior day’s trading at 1.25 

MACRO DATA POINTS (Bloomberg Estimates):

  • 6:05am: Fed’s Bullard speaks in London
  • 7:30am: NFIB Small Bus. Optimism, June, est. 93.3 (prior 94.4)
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 10am: IBD/TIPP Economic Optimism, July, est. 46.9 (prior 46.7)
  • 10am: JOLTs Job Openings, May, est. 3.588m (prior 3.416m)
  • 11am: Fed to purchase $1b-1.5b TIPS maturing 7/15/2018-2/15/2042
  • 11:30am: U.S. to sell 4-wk bills
  • 12pm: DOE short-term energy outlook
  • 1pm: U.S. to sell $32b 3-yr notes
  • 4:30pm: API inventories


    • Obama to deliver remarks on economy at Kirkwood Community College in Cedar Rapids. 12:50pm
    • House, Senate in session
    • Senate Banking meets on mobile payments, 10am
    • Senate Finance holds hearing on tax overhaul, 2pm
    • House Oversight holds hearing on Obama administration’s auto bailouts, Delphi pension decision, 10am
    • House Rules meets on the “National Strategic and Critical Minerals Production Act of 2012,” 3pm
    • House Energy panel holds hearing on alternative fuels, 10am
    • House Financial Services panel holds hearing on Dodd- Frank’s impact on consumers, job creators, 10am
    • House Ways and Means meets on tax implications of Supreme Court upholding Affordable Care Act, 10:30am
    • National Transportation Safety Board meets to determine cause of Enbridge pipeline rupture in 2010 that spilled oil into tributary of Kalamazoo River in Michigan, 9:30am
    • CFTC meets to consider final Dodd-Frank rules, 9:30am
    • World Trade Organization’s Dispute Settlement Body holds mtg where U.S., EU, Japan to request establishment of panel to rule on legality of Chinese curbs on rare earth exports   


  • Alcoa earnings beat ests. after carmakers buy more aluminum
  • U.K. manufacturing unexpectedly surges most in a year, boosted by additional working day
  • RIM CEO Thorsten Heins faces investors at annual meeting
  • Duke CEO Rogers to testify in N.C. on leadership change
  • AMD says 2Q sales to fall 11%, reducing forecast
  • Intel agrees to buy 15% of ASML in $4.1b investment
  • Google said near $22.5m settlement over breach of browser
  • ASML rises 11% after Intel investment
  • Alibaba said to get $1b loan to fund stake buyback from YHOO
  • Euro states to speed Spanish bank aid
  • Spanish Economy Minister says Spain may pay <4% on bank bailout debt
  • Hurricane Emilia strengthens to Category 4 storm over Pacific 


    • Wolverine World Wide (WWW) 6:30am, $0.44
    • Jean Coutu Group (PJC/A CN) 7am, C$0.24
    • Shaw Group (SHAW) 7am, $0.58
    • Helen of Troy (HELE) 7:30am, $0.86
    • Alimentation Couche Tard (ATD/B CN) 1:30pm, $0.39 



GOLD – continues to be the stealth leading indicator on what’s really left in these #bailouts (not much); Bearish Formation for the Gold price remains intact as long as TRADE line resistance of $1599 does; no support to $1551, but that’s loose. 

  • Bulls Lift Wagers by Most in Two Years After Rally: Commodities
  • Norway Ends Oil Strike, Averting Lockout of Platform Workers
  • Oil Declines as Norway Ends Energy Strike, China Curbs Imports
  • Wheat and Corn Futures Fall as Recent Price Jump May Curb Demand
  • China’s Gold Demand Seen Rising 13% as Council Pares Target
  • Sugar Climbs for a Third Day as Weather Fuels Supply Concern
  • Gold Set to Decline as Dollar Strength Curbs Investment Demand
  • Copper Rises 0.1% to $7,568 a Ton in London, Erasing Decline
  • Malaysian Palm-Oil Reserves at 14-Month Low as Output Slows
  • Hedge Funds Raise Bullish Gas Bets to Year High: Energy Markets
  • Oil-Backed Bond Losing Haven Status on Strike: Argentina Credit
  • Food-Stamp Clash Combines With Election to Slow Farm Law Revamp
  • Palm Oil Drops as Forecast Rain May Ease Stress on U.S. Soybeans
  • U.K. Dairy Farmers Face Going Out of Business or Taking Milk Cut
  • Rubber Declines to One-Week Low as China’s Demand May Weaken
  • China Cuts Copper Exports as Public Works Jump: Chart of the Day 










SPAIN – was teetering on free-fall and tah-dah, another #bailout – or was it just a reiteration of the strong buy bailout that they already did on a different timeline? Piling more debt-upon-debt will only perpetuate the growth slowdown and amplify the market’s volatility in the meantime; TREND resist line for IBEX = 7361.






CHINA – down another -0.3% on bad trade data, but finally moves to immediate-term TRADE oversold within the context of a Bearish Formation (bearish on all 3 of our risk mgt durations – TRADE/TREND/TAIL); Shanghai Comp = -12% drawdown from the March highs; should bounce to another lower-high tomorrow.










The Hedgeye Macro Team

Conference Call: Q3 Retail Themes

The HedgeyeRetail Team will be hosting a Q3 RETAIL THEMES call this Thursday. There are some critical themes evolving within Retail that should be the bedrock for idea generation in 3Q. The HedgeyeRetail team will explore them in depth with a conference call and Black Book on Thursday, July 12th at 11am EST.


Topics will include:


  • James Cash Rolling in Other People's Graves. We all know about the problems at JCP. After a year, that call is finally consensus. But what is not consensus is the impact that JCP will have on different competitors, suppliers, and 'partners' as its shop-in-shop build out program rolls out. 
  • Capital Intensity Intensifying. 'Invested Capital' is completely misunderstood in retail. It's not just capex, working capital, or sg&a. A company can tweak any of these factors at any point in time, and get much different outcomes. The reality is that we need to look at them in aggregate, for each company and the industry. The results are not pretty as it relates to industry returns. 
  • Who's Margin Dollar Is It Anyway. We're now in 2H, where raw materials costs are 'easy' vs. last year. But when most retailers say they're going to keep the savings, brands say they're going to keep it, and manufacturers staking their claim as well, it adds up to a number above 100%. We'll identify who wins and who loses. 


Please reach out or contact  if you would like to attend this conference and receive the materials.  

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

European Banking Monitor: The Tail That Wags the Dog

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:

* Last week we flagged the divergence between European bank swaps and European sovereign swaps as the former were moving higher while the latter tightened. Apparently the banks remain the tail wagging the dog in Europe, as this week European sovereign swaps are higher as uncertainty once again dominates headlines. This week there is less ambiguity. German, Italian and Spanish bank swaps were broadly wider last week while French bank swaps were mixed. This is consistent with what we saw in the sovereigns. 



 If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor UK, Spanish, Italian French and German banks saw swaps widen last week. Greek banks tightened.


Overall, 21 of the 39 European financial reference entities we track saw spreads widened last week. The median widening was 0.33% and the mean widening was 1.03%. 


European Banking Monitor: The Tail That Wags the Dog - dd. banks


Euribor-OIS spread – The Euribor-OIS spread widened by 1 bps to 42 bps.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. 


European Banking Monitor: The Tail That Wags the Dog - dd. euribor


ECB Liquidity Recourse to the Deposit Facility – This index remains near its all time peak. 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 from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. This chart shows data through Thursday. 


European Banking Monitor: The Tail That Wags the Dog - dd. ecb facility


Security Market Program – For the seventeenth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 7/6, to take the total program to €211.5 Billion.


European Banking Monitor: The Tail That Wags the Dog - dd. smp

Obama: Arbiter of the Market

Last summer, Obama’s approval rating on InTrade shot upward from June into about early July. After that, his approval rating fell, caught a slight bounce, and then continued downward. It has yet to recover to 2011 levels.



Obama: Arbiter of the Market - OBAMA SPX



Now that we’ve entered July once again, the same pattern has shown itself. And right now we’re in the middle of the bounce as is the S&P 500, which is highly correlated to Obama’s approval rating. The question remains: will the bounce continue upward into recovery or will it break and send Obama’s rating even lower?


It remains to be seen what will happen to the President, but we release our Hedgeye Election Indicator (HEI) every Tuesday. And according to the HEI, the President is just barely hanging on in this fight.


Early July GGR projection of -2% to +6% YoY change



While a significant pick up from the prior week (maybe due to the typhoon), this past week’s average daily table revenues (ADTR) actually fell 1% from last year.  Our full month projection for July stands at HK$23-25 billion, representing YoY growth of -2% to +6%.  Remember that July had above normal hold last year and GGR was up 48% so the comp is very difficult.  VIP likely will be negative for the second straight month.  Early anecdotal evidence indicates that the Mass floors remain busy, however.




Market shares at this stage of the month are not very important since hold usually has an outsized impact on shorter durations.  The only takeaways are that MPEL had a great week, LVS is trending where we think they should be, and Galaxy likely got whacked on the tables.




Early Look

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