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You Built This

This note was originally published at 8am on July 17, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“If you’ve got a business, you didn’t build that.”

-Barack Obama, July 16th, 2012


Really? I couldn’t make up what the President of The United States said (off teleprompter) yesterday in Roanoke, Virginia if I tried. I guess I should send some wine to Barry and Timmy for keeping Citigroup’s research unit intact. Thanks for the help boys.


Obama went on to say that “somebody else made that happen.” I thought for a minute he was referring to my almighty God. Then I thought again. By somebody, he meant government.


Sadly, the same goes for how Obama, Bernanke, and Geithner think about the US stock market. They fundamentally believe that by not intervening, our markets won’t work. That’s not the America I came to in the early 1990s. That’s just sad. This is a No volume; No Trust market – if you’ve got a confidence and hiring problem Mr. President, you built this.


Back to the Global Macro Grind


Now that I got that off my chest, onto the American Made Central Planning Hope of The Day – Ben Bernanke’s testimony at 10AM EST in front of our clueless economic overlords in the Senate.


This is actually getting as funny as it is pathetic. Ahead of whatever sweet-nothing Bernanke will whisper about Qe4 today, markets are front-running him again. This has been happening all year. Each rally is shorter in duration, and to lower-highs in elevation.


Commodity markets in particular are straight up into the right. If you are into the Down Dollar Drugs (USD was up yesterday until that bomb of a June US Retail Sales print of -0.5%), that’s where you get your short-term fix. That’s where the boys who jacked 1.05 million commodities options contracts (CFTC data) right back up to their early April highs are looking for some pop.


“Pop, pop, bang!” (Jimmy Braddock’s punching combo in Cinderella Man).


Unfortunately, that’s how it all ends. They’ll get their pop, then its lights out for whatever is left of US Growth. With US GDP Growth this slow, everything on the margin really counts – and the last thing the US (and global) economy needed was a +17% rip in the price of oil since late June on Bernanke Begging.


That’s why we are starting to see the market leaders of both the US economy and US stock market (Technology and Consumer Discretionary) start to lag. While they loved the tax cut of $89 Brent oil in mid-June, they do not appreciate $104/barrel staring them in the face this morning.


With the SP500 down for 7 of the last 8 trading days, this is how the S&P Sector ETF laggards look like for July and Q3 to-date:

  1. Consumer Discretionary (XLY) = -1.01%
  2. Technology (XLK) = -1.69%
  3. Industrials (XLI) = -2.92%

Now if I have been anything since March 12th when we shorted Industrials (XLI) on the #GrowthSlowing call, I have been consistent. My team’s research has also been very consistent on what infects real (inflation adjusted) US Consumption Growth too – the marginal price inflation of food and energy.


Since 71% of the US Economy = Consumption, this is one of the main things you need to get right if you want to get the slope of growth in the US economy right. That’s precisely why the politicians of the 112th Congress have had their policy to inflate food/energy prices all wrong.


Post 2006, Bush had this as wrong as Obama has it now. Don’t forget that both Presidents empowered Bernanke. For Bush, that was then. For Obama, we live in the now. And not letting free-market prices clear for the sake of a broken belief system that central planners can “smooth” economic cycles and suspend economic gravity is now his problem.


Your conflicted and compromised cronies built this environment for small business owners and market participants in America. My team and I have been building our business in spite of you.


My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar Index, EUR/USD, Spain’s IBEX, and the SP500 are now $1559-1598, $100.25-104.02, $82.47-84.03, $1.20-1.23, 6408-6767, and 1339-1365, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


You Built This - Chart of the Day


You Built This - Virtual Portfolio


The Macau Metro Monitor, July 31, 2012




The 3% average yearly growth rate cap to be introduced for 2013 for live gaming tables will be liberally applied to ensure it doesn’t impact the development of the gaming industry.  This was already the understanding among industry insiders, but the Office of the Secretary for Economy and Finance has now confirmed it to Portuguese-language newspaper Ponto Final.


This means that the incremental cap is set to be liberally applied such that new tables will be allotted from the total number that will accrue by 2023 – around 1,650 new tables, according to Ponto Final – rather than be squeezed into the market through marginal annual increases that could hold back the opening of new casinos.


June could pull GGR growth into negative territory on the year



Based on taxi data and McCarran Airport figures, we project that June Strip gross gaming revenues (GGR) fell 6-10% YoY, assuming normal slot and table hold percentages.  Baccarat is always the wild card - both hold and volume - but if the Strip falls in our predicted range, June will drive YTD gaming revenue down versus the first half of 2011.  Remember that May was disastrous with GGR falling 18%.  It has become clear that Vegas is not only in the middle of a modest recovery, the recovery cannot even be called modest and may not even be a recovery.


WYNN and LVS already reported a 33% and 8% drop in GGR, respectively, on the Strip in Q2 2012.  Despite their awful revenue performance, we believe WYNN and LVS actually gained volume market share YoY, which means the two gaming operators yet to report earnings - MGM and CZR - probably performed poorly as well. 


The number of enplaned/deplaned airport passengers at McCarran fell by 0.1% YoY, the 1st decrease since December 2010.  McCarran's expansion into Terminal 3 is ongoing and may help with the ease of transportation and additional capacity.  Taxi trips increased 2.2% YoY in June.  


June results will also be hurt by lower than normal slot hold due to an accounting rule which defers slot win on the last day to July, since June ends on a Saturday.  Moreover, June 2012 faces slightly higher than normal table and slot hold percentages generated in June of 2011.


Here are our projections:



Early Look

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TODAY’S S&P 500 SET-UP – July 31, 2012

As we look at today’s set up for the S&P 500, the range is 35 points or -1.61% downside to 1363 and 0.92% upside to 1398. 











    • Down  versus the prior day’s trading of 2012
  • VOLUME: on 07/30 NYSE 658.58
    • Decrease versus prior day’s trading of -27.85%
  • VIX:  as of 07/30 was at 18.03
    • Increase versus most recent day’s trading of 7.96%
    • Year-to-date decrease of -22.95%
  • SPX PUT/CALL RATIO: as of 07/30 closed at 1.00
    • Down from the day prior at 1.26 


10yr – both the US and German 10yr fall right back after testing immediate-term TRADE resistance (yields); immediate-term TRADE resistance for the UST 10yr = 1.59%, so we bought back our long-bond TLT position on that yesterday, taking our Fixed Income asset allocation back up to 21%; the bond market has been nailing #GrowthSlowing since March. 

  • TED SPREAD: as of this morning 34
  • 3-MONTH T-BILL YIELD: as of this morning 0.11%
  • 10-Year: as of this morning 1.49%
    • Decrease from prior day’s trading at 1.50%
  • YIELD CURVE: as of this morning 1.27
    • Down from prior day’s trading at 1.28 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook retail sales
  • 8:30am: Annual Revisions: Personal Income and Spending
  • 8:30am: Employment Cost Index, 2Q, est. 0.5% (prior 0.4%)
  • 8:30am: Personal Income, June, est. 0.4% (prior 0.2%)
  • 8:30am: Personal Spending, June, est. 0.1% (prior 0.0%)
  • 8:30am: PCE Deflator M/m, June, est. 0.0% (prior -0.2%)
  • 8:30am: PCE Core M/m, June, est. 0.2% (prior 0.1%)
  • 9am: S&P/CS 20 City M/m, May, est. 0.4% (prior 0.7%)
  • 9am: S&P/CaseShiller Home Price Index, May, est. 137.55 (prior 135.8)
  • 9:45am: Chicago Purchasing Manager, July, est. 52.4 (prior 52.9)
  • 10am: Consumer Confidence, July, est. 61.5 (prior 62)
  • 11am: Fed to purchase $4.25b-$5b notes due July 31, 2018-May 15, 2020
  • 11:30am: U.S. to sell 4-wk bills
  • 2pm: Fed will release tentative outright Treasury operation schedule
  • 4:30pm: API Inventories 


    • House Energy and Commerce subcommittee holds forum to discuss state and federal cooperation on the Clean Air Act, 2pm
    • House Oversight Committee hearing on federal privacy and data security, 10am
    • Senate Committee on Commerce, Science Transportation markup to extend 2006 law to stop spam, spyware, fraud across borders; nomination of Michael Huerta, to be FAA admin., 2:30am
    • Treasury Secretary Timothy F. Geithner speaks to the Los Angeles World Affairs Council on U.S, and world economies, 3pm
    • David Cohen, Treasury’s undersecretary for terrorism and financial intelligence, speaks at department’s public hearing on plans to propose rules on customer due diligence requirements for financial institutions, 9:30am
    • Senate Appropriations defense subcommittee drafts its version of the annual defense spending bill, 10:30am
    • Air Force holds press briefing at Pentagon on latest assessment of oxygen-deficiency symptoms that have affected pilots flying Lockheed Martin’s F-22 Raptor, 3pm
    • FERC Chairman Jon Wellinghoff discusses reliability of electric grid, EPA regulations, climate change in appearance at Platts Energy Podium, 1pm
    • ITC hears evidence in a microprocessors patent-infringement case brought against Apple by Taiwan-based VIA Technologies, which is affiliated with HTC, 9am


  • Federal Open Markets Committee begins 2-day meeting
  • Euro-area unemployment rate reaches record 11.2%
  • Apple said to prepare iPhone redesign for Sept. 12 release
  • Yahoo Interim CEO Ross Levinsohn departs after Marissa Mayer gets CEO job
  • BP 2Q net loss $1.39b vs net income $5.72b Y/y
  • Cantor placed on review for cut by Moody’s amid trading weakness
  • Japan’s unexpected drop in unemployment helps sustain growth
  • UBS, Deutsche Bank profits decline, missing ests.
  • Panasonic 1Q net income 12.8b yen, analyst est. 9.2b yen
  • Honda 1Q net 131.7b yen, est. 150.7b yen
  • Manchester United seeks as much as $333m in U.S. IPO
  • Sanofi’s Genzyme unit sued by Teva over worker-raiding claims
  • RealD fell as much as 21% after missing ests. due to costs to supply theaters with new eyeglasses
  • Humana cuts profit forecast as rising Medicare costs surprise
  • Lehman raises $4.7b in 2Q toward creditor payments
  • Boeing 787’s debris-spewing GE engine to be dismantled in probe
  • Ex-UBS Officers “lied and cheated’ on muni bond deals, U.S. says


    • Yandex (YNDX) 6am, $0.16
    • Tyco (TYC) 6am, $0.93; Preview
    • Aetna (AET) 6am, $1.25
    • NiSource (NI) 6:30am, $0.20
    • Harris (HRS) 6:30am, $1.41
    • Goodyear Tire & Rubber (GT) 6:30am, $0.45
    • Cobalt International Energy (CIE) 6:40am, $(0.09)
    • Foster Wheeler (FWLT) 6:45am, $0.43
    • Delphi Automotive (DLPH) 7am, $0.92
    • Thomson Reuters (TRI CN) 7am, $0.50
    • Pfizer (PFE) 7am, $0.54; Preview
    • Dentsply International (XRAY) 7am, $0.56
    • Coach (COH) 7am, $0.85
    • TRW Automotive Holdings (TRW) 7am, $1.55
    • Archer-Daniels-Midland Co (ADM) 7am, $0.58
    • Entergy (ETR) 7am, $1.41
    • Discovery Communications (DISCA) 7am, $0.70
    • United States Steel (X) 7:05am, $0.49
    • Marathon Petroleum (MPC) 7:06am, $2.51; Preview
    • Public Service Enterprise Group (PEG) 7:30am, $0.45
    • Revlon (REV) 7:30am, $0.32
    • Cummins (CMI) 7:30am, $2.28
    • Valero Energy (VLO) 7:30am, $1.43; Preview
    • HCP (HCP) 7:45am, $0.68
    • Louisiana-Pacific (LPX) 8am, $0.05
    • George Weston (WN CN) 8am, C$0.96
    • Martin Marietta Materials (MLM) 8:05am, $1.01
    • Ecolab (ECL) 8:25am, $0.72
    • TransAlta (TA CN) 8:50am, C$(0.03)
    • Toromont Industries (TIH CN) 11:13am, C$0.36
    • Saputo (SAP CN) 11:58am, C$0.66
    • Edison International (EIX) 4pm, $0.32
    • WebMd (WBMD) 4pm, $0.123
    • Electronic Arts (EA) 4:01pm, $(0.42)
    • DreamWorks Animation SKG (DWA) 4:01pm, $0.25
    • Solar Capital (SLRC) 4:01pm, $0.58
    • Axis Capital Holdings (AXS) 4:01pm, $0.93
    • Life Technologies (LIFE) 4:01pm, $0.97
    • BMC Software (BMC) 4:05pm, $0.75
    • Take-Two Interactive (TTWO) 4:05pm, $(0.66)
    • ONEOK (OKE) 4:05pm, $0.33
    • ONEOK Partners (OKS) 4:05pm, $0.70
    • Allstate (ALL) 4:05pm, $0.52
    • QEP Resources (QEP) 4:05pm, $0.33
    • Genworth Financial (GNW) 4:07pm, $0.18
    • Arthur J Gallagher (AJG) 4:09pm, $0.56
    • Kimco Realty (KIM) 4:09pm, $0.31
    • Verisk Analytics (VRSK) 4:10pm, $0.47
    • Frontier Communications (FTR) 4:11pm, $0.05
    • RenaissanceRe Holdings (RNR) 4:22pm, $2.48
    • FMC (FMC) 4:30pm, $0.91
    • Jones Lang LaSalle (JLL) 4:30pm, $1.24
    • BRE Properties (BRE) 4:30pm, $0.58
    • DDR (DDR) 5pm, $0.25 



GOLD – the #BailoutBulls are going for gold here into this week’s central planning events; TRADE resistance now support at $1606; long term-TAIL risk line up at $1679. Be careful what you beg for; another Qe will cut whatever is left of the US consumption growth phalanx to shreds. 

  • Most-Accurate Gold Forecasters Splitting After Rout: Commodities
  • Oil Supplies Decline in Survey on Refining High: Energy Markets
  • Grain Cargoes Seen Slowing Most in 19 Years on Drought: Freight
  • Corn Climbs to Record as Futures Head for Best Month Since 1988
  • Weak India Rains to Spur Record Cooking-Oil, Lentil Imports
  • Rubber Demand in China to Contract 5% as Truck Sales Tumble
  • Palm-Oil Shipments From Indonesia Set to Gain on Lower Duty
  • WTI Crude May Slump to $83 Fibonacci Level: Technical Analysis
  • Copper Rises as China Increases Spending on Railroad Network
  • Gold Seen Extending Monthly Gain on Monetary Easing Stimulus
  • Australia Wins as Buyers Shift to Wheat From Corn on Drought
  • Rice Stockpiles in Japan Seen Declining, Boosting Prices
  • Iron Ore Price Decline in China Seen by Arctic as Import Spur
  • Gold-Backed Loans to Climb at Indonesian Banks: Islamic Finance
  • Chinese Steelmakers Profit Tumbles 96% on Lower Demand, Prices
  • Oil Rises, Set for First Monthly Gain in Three on Stimulus Talk















CHINA – last day of the month, so why not throw some Chinese rumoring on top of the markup pile? Regardless, Chinese stocks make fresh new lows, down another -0.3% (down -14.5% since May); we do not think they cut rates w/ $106/barrel Brent Oil.











The Hedgeye Macro Team


President Obama’s Reelection Chances

Since the de facto central planning standard is back to bailing out everything in sight, markets have rallied and in turn, that bodes well for President Obama. After holding flat last week, the President saw his reelection chances jump by 1.1% to 58.2% according to the Hedgeye Election Indicator. These Keynesian groupthinkers will likely do “whatever” it takes to get each other reelected/reappointed.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama’s Reelection Chances - HEI

Idea Alert: BA Consensus Isn’t Always Wrong

BA Long:  Consensus Isn’t Always Wrong


Keith added Boeing to the Virtual Portfolio today and a summary of why we are positive on BA is below.




  • Cycle:  Boeing is in the midst of a long up cycle in commercial Aerospace, with 7 years trailing revenue in backlog.  The company also has a major product cycle in the 787.
  • Industry Structure:  Boeing has a largely unassailable competitive position in a highly consolidated industry.
  • Valuation: The valuation of Boeing is attractive at these levels on a sector relative basis, in our view, both in a DCF and on screening metrics like relative EV/S  (0.5 standard deviations below the trailing 8-year mean).
  • Sector Relative: With growth slowing and estimates in the industrial sector under pressure, we believe BA remains an attractive destination for investors.
  • Sentiment:  Unfortunately, consensus seems to agree with us.  We note that consensus can be right.

Idea Alert: BA Consensus Isn’t Always Wrong - aircraft deliveries

  • Global aircraft fleet aging has set-up robust backlogs for commercial aircraft makers
  • Strong deliveries in the late 1980s/early 1990s were partly driven by deregulation (US, UK, Japan in the 70s and 80s and, in the early 90s, Europe), which drove demand growth
  • Late 1980s/early 1990s deliveries are now retired or approaching retirement (20 to 25 year sum)
  • Boeing and Airbus have very high backlogs as deliveries have trailed orders for much of the last decade 

Fleet aging is particularly noticeable in the US.  Though only about 15% of commercial aircraft orders, the US aircraft fleet will need to be replenished over time. 


Idea Alert: BA Consensus Isn’t Always Wrong - fleet age 2

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 80.48%
  • SHORT SIGNALS 78.35%