Market Slavery

“Nature has made no man a slave.”



What would the #OldWall’s manic media mouthpieces do without this week’s central planning events? What would we all do without the drugs that promise to suspend economic gravity? What would we wake up to this morning if markets were actually free?


Alcidamas was a popular Greek philosopher in 4th century BC who Victor Davis Hanson cites at the end of Chapter 8 in “The Soul of Battle.” That quote precedes an excellent chapter in human history titled “And All of Greece Became Independent and Free.”


It’s too bad that when we use the word free in today’s marketplace, the first thing that comes to mind is getting a sticker.


Back to the Global Macro Grind


US Stocks closed down for the 7th day in the last 9 yesterday, but no worries, we have a central plan on tap at 745AM EST that is going to whip this sucker right back up to a level where perma-bull marketers can say “but the market is up year-to-date.”


Everything in the land of nodding (other than where the entire street gets paid - fund flows, volumes, and performance), is just dandy right now. Buy, hold, and pray.


I have absolutely no idea what this conflicted and compromised central planner is going to tell us today. All I can assure you is that there’s at least -3.5% downside in the EuroStoxx50 and a stiff move to $1.20 in the EUR/USD if he doesn’t deliver the drugs.


Bernanke didn’t crack open the cocaine lines yesterday, and for that, I give him a golf clap. What his pseudo sober decision did to the rest of Global Macro markets was proactively predictable:

  1. US Dollar went straight back up (+0.7% on the day, closing above an important TRADE line of $82.95 support)
  2. Gold went straight back down (down a full 1% where we covered our short position at $1603 support)
  3. US Stocks went down, then up, then back down as underperforming hedgies got whipped around, again

What happens next?


I have no idea. Once I get Draghi’s Italian Job, I’ll let you know. Until then I can only wait and watch for “whatever” as I score ranges, probabilities, and risk managed scenarios – like I do every morning.


On that front, here’s a morning dump for you in US markets:

  1. US Dollar Index remains in a Bullish Formation (bullish on all 3 of our risk management durations, TRADE/TREND/TAIL)
  2. US Treasury Yields (10yr) remain in a Bearish Formation (bearish on all 3 of our risk management durations)
  3. US Treasury Yield Spread (10s minus 2s) = +129bps wide and continues to compress; very bearish economic signal
  4. SP500 immediate-term risk range of 1, with its intermediate-term TREND line right in the middle of that (1376)
  5. US Equity Volatility (VIX) remains in a Bullish Formation with intermediate-term TREND support = $17.62
  6. US Equity Volume studies are as nasty as I have ever measured them in my career (+16% on yesterday’s down move)
  7. Russell2000 negatively diverging from SP500, already bearish TRADE and TREND, closing down -1.7% yesterday
  8. S&P Sector Studies continue to flag on 3 Sectors (out of the 9 majors) as buys (Healthcare, Consumer Staples, Utilities)
  9. S&P Sectors recently snapping both TRADE and TREND lines = Consumer Discretionary, Transports, and Basic Materials
  10. Energy (which is asset price inflation, not growth) continues to be the best performer on a 1-month duration

On that last point, Keynesian central planners get their tighty whities in a bunch. I think that’s primarily because it implies that they themselves are perpetuating #GrowthSlowing by infusing a market wedgie of expectations that jams commodity prices higher.


#tighty #whitie #wedgie – none of those words spell checked on my PC, weird.


What might also seem a bit odd to the beggars for more of what isn’t working is what’s going on in the rest of the world this morning:

  1. Chinese Stocks, after having 1 up day, went straight back down last night (Bearish Formation, down -14% since May)
  2. Japanese Equities remain no volume/no bid (Bearish Formation, Nikkei225 down -16% since March)
  3. South Korean Equities (KOSPI, great leading indicator) backed off TRADE resistance of 1881 again last night

Oh, right – the rest of the world, per the Fed and ECB, is really the West. Damn them people in the East who eat inflated food and consume derivatives of $106/barrel Brent Oil.


As we beg the Italian for more of what the British are chastising Chinese swimmers for using, let’s get a medal count:

  1. China = 30 medals
  2. USA = 29 medals
  3. Japan = 17 medals

Not sure what that means for Global Macro other than China is not Japan.


In the spirit of winning, let’s just play the game that’s in front of us out there today. At the end of the day, Market Slavery to the next central plan or not, we can fight this for a lot longer than our overlords can remain in office.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $105.29-107.84, $82.35-84.03, $1.20-1.23, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Market Slavery - Chart of the Day


Market Slavery - Virtual Portfolio


The Macau Metro Monitor, August 2, 2012




According to sources from Business Daily, Sands regained the second spot in the monthly casino gross gaming revenue ranking in July at 22% share.  Galaxy's share came in third at 19%.  SJM Holdings Ltd remained the market leader, with a stable 26% stake.  The market shares for the other operators are as follows:  MPEL-13%, WYNN-11% and MGM-9%.




Junket operator Asia Entertainment & Resources Ltd (AERL) announced that beginning next month it will be changing its remuneration model to a revenue sharing model for all of its three VIP rooms--at StarWorld, Galaxy Macau, and Venetian Macau.  Currently, all AERL VIP rooms are under a fixed commission model of 1.25% of rolling chip turnover.  By shifting to a revenue sharing model, the company says it believes it can generate commission of “over 1.30% of rolling chip turnover, and in addition, be able to negotiate on additional allowances and other incentives, thus increasing revenue and ultimately, net income,” it explained in a press release.



Singapore visitation increased 8.77% to 1,146,246 visitors in May.




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Will the Debt Ceiling Be Déjà Vu All Over Again?

Conclusion: Our analysis shows us that another breach of the debt ceiling is imminent later this year.  In 2011, the SP500 had a drawdown of -16.8% around the debt ceiling debate.

Last summer during the debt ceiling debate, the U.S. equity markets were volatile to say the least.  In the chart below, we highlight the VIX and the SP500 from July 22nd to August 8th 2011, which shows the massive increase in volatility and downside in equities that occurred as the debt ceiling debate, and a potential breach, reached its fervor.  In fact, in that period the SP500 had -16.8% drawdown.


Will the Debt Ceiling Be Déjà Vu All Over Again? - spx.vix.2011


Our Healthcare Team has done a substantial amount of work on the next potential breach of the debt ceiling.  In the table below, they come up with three scenarios – aggressive, base case, and conservative – that outline potential dates for the next breach in the debt ceiling.  In the aggressive scenario that date is November 28th, in the base case that date is December 11th, and finally in the conservative case the breach doesn’t occur until January 14th of 2013. 


Will the Debt Ceiling Be Déjà Vu All Over Again? - chart2


With the most recent budget data from the Treasury department, we are increasingly comfortable with our base case scenario in which the breach occurs before the end of the year.  Specifically, the Treasury indicated they will issue $276 billion of debt in calendar Q3 of 2012 and $316 billion in calendar Q4 of 2012.  So in total, the projected issuance will take the overall debt balance to $16.4 trillion, or $53 billion above the debt ceiling.


The debt ceiling debate last summer was about as contentious as possible and finally did reach a compromised solution, though not after creating massive confusion and uncertainty in the markets.  Given that this is an election year, it is unlikely that this issue even gets touched until after the fall elections that occur on November 6th 2012.  Thereafter, the new government will have 22 days to avert another debt ceiling crisis in our aggressive scenario.  Reaching an agreement quickly in this period is unlikely unless one party controls both the executive and legislative branches.


The electoral scenario under which either the Democrats or Republicans control both the Presidency and Congress currently appears very unlikely.  As it relates to the Presidency, Obama currently has a meaningful lead in the Hedgeye Election Indicator, he is at 57.5% on Intrade, and has a two point lead versus Romney in the real clear politics poll aggregate.  Conversely, in the most Generic Congressional poll from Rasmussen, the Republicans are up by three points.  This is validated by Intrade as well, as Intrade has the Republicans at a 51% probability of controlling the Senate and 82% of controlling the House of Representatives.


Will the Debt Ceiling Be Déjà Vu All Over Again? - Chart3


Clearly, a split part government is a likely scenario post the elections this fall.  As a result, so is deadlock on major issues, such as the debt ceiling.  As Yogi Berra once said, “It’s déjà vu all over again.”  This is increasingly likely to be the case with debt ceiling later this fall. 




Daryl G. Jones

Director of Research



Linsanity On Life Support

Now that Jeremy Lin is no longer with the Knicks, the question remains: what do retailers do with all the leftover LINSANITY merchandise?


Answer: mark it down for $5 an item and pray no one notices. This sale was spotted at the Modell’s Sporting Goods in NYC.



Linsanity On Life Support - LINSANITY Modells

NKE: Brilliant Product Placement

Check out this picture of the US Olympic Women's gymnastics team on the podium with gold medals. Check out their feet. Do you think that just MAYBE Nike proactively outfitted them with FlyKnits in a 'hey look at me' bright Green Summit colorway?


Brilliant product placement, and exceptional sell-through of this product to date. Certain colors are already sold out at Nike stores.


This picture almost rivals the shot of the US Basketball Dream team covering their Reebok logos with American flags in the 1992 Olympics. 



NKE: Brilliant Product Placement - 8 1 2012 1 56 30 PM

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