“Golf is a game in which one endeavors to control a ball with implements ill adapted for the purpose.”

                -Woodrow Wilson


Yesterday I took a few of my colleagues out to play in a charity golf tournament at The Course at Yale.   For those of you who haven’t played it, the Yale course is not for the faint of heart.  It has some incredibly challenging holes replete with hazards in the most untoward places.  The more we became engrossed in golf yesterday, and marginally removed from stock market operating, the more I actually began to see the parallels between the two.


Now as anyone will tell you, I am far from a great golfer.  But just as a broken clock tells time twice a day, every round I pull a few shots out of thin air that make me look like a veritable Arnold Palmer, albeit a younger and more Canadian version.  In between my great shots, of course, were many less than spectacular shots.  The bad shots, though, made me think more strategically about the game and I realized that if I could stay out of trouble – avoid the sand traps, out of bounds, and water hazards – I could still score reasonably well.


In short, the key parallel between golf and investment management: avoid the looming hazards and you will remain competitive.  The caveat to this point is that in golf there are hazards that are not so obvious to the casual observer.  The wild card hazard yesterday on the course was my colleague, and Hedgeye’s Asia Analyst, Darius Dale.


Darius is a novice golfer but was a lineman in college and still has the strength of a few normal men.   Needless to say, when he winds up on the tee, it’s best to hide behind your cart if you are within a few fairways.  Being the risk manager he is, Darius is not afraid to yell - fore!  Collectively, we appreciated this risk management aspect of his golf game.


Speaking of avoiding hazards, the rumors coming out of Europe this morning imply that the Europeans hope to avoid any future sovereign debt sand traps.  This morning the Telegraph is reporting that Jorg Asmussen, Germany’s director at the ECB, is supporting unlimited purchases of peripheral debt.  This plan is in line with Draghi’s plan, though is in conflict with the German Bundesbank.  This article also re-stated the report from Der Spiegel on the weekend that suggested the ECB was studying plans to cap Spanish and Italian yields.  (It seems both Greece and Portugal have been all but forgotten!)


Purportedly, the key criteria to trigger this plan is a formal request from Spain for a bailout from the EFSF/ESM and agreeing to the fiscal terms therein.  On a positive note, the market appears to be of the view that Spain will get onside as the Spanish bond auction yesterday was seemingly successful.  Specifically, Spain sold its maximum target of €4.51 billion of 12-18 month bills this morning. The 12-month average yield was 3.070% versus 3.918% on July 17th, 18-month average yield 3.335% versus 4.242% on July 17th.  Further, the bid-to-cover was a veritably euphoric 2.4x.


In the Chart of the Day today we show Spanish 10-year yields going back one year.  The Spanish 10-year has backed off of its highs, so it seems that the rumors the ECB may change the lay of the course and bring out some bigger clubs (The Bazooka Driver?), which have had at least a marginally positive impact on Europe’s debt woes.  The history of the last couple of years has indicated that any proposed solution in Europe has typically been short term in nature and never quite as good as the rumors in Der Spiegel.  Of course, perhaps this time is truly different . . .


Switching clubs briefly, our Energy Analyst Kevin Kaiser recently did an update on the key factors he sees as supporting the price of oil and wrote the following:


“The fundamentals (read: supply and demand) warrant lower oil prices, but expectations for easier monetary policy and fears of supply disruptions (geopolitical risk) have lifted prices recently.  Note that the oil market has shrugged off actual data in favor of events that may or may not occur – the Fed has not gone to QE3, Europe has yet to implement a comprehensive solution to its debt crisis (if there is one), and there has been little aside from increased rhetoric out of Iran and Israel – yet oil continues to trade higher in expectation of some or all of those events.” 


On the last point, it seems the rhetoric is at the very least heightening, especially according to reports from The Times of Israel this morning.   Well it is quite possible this is saber rattling by the Israeli government, the report was very specific and as such we wanted to highlight it below (emphasis ours):


“Israel’s Prime Minister Benjamin Netanyahu “is determined to attack Iran before the US elections,” Israel’s Channel 10 News claimed on Monday night, and Israel is now “closer than ever” to a strike designed to thwart Iran’s nuclear drive.


The TV station’s military reporter Alon Ben-David, who earlier this year was given extensive access to the Israel Air Force as it trained for a possible attack, reported that, since upgraded sanctions against Iran have failed to force a suspension of the Iranian nuclear program in the past two months, “from the prime minister’s point of view, the time for action is getting ever closer.”


Asked by the news anchor in the Hebrew-language TV report how close Israel now was to “a decision and perhaps an attack,” Ben-David said: “It appears that we are closer than ever.”


Obviously, the Israel government makes statements to the media for strategic reasons and much of this could well be rhetorical.  That said, one thing I’m pretty sure of is that at a VIX of 14.02, the tail risk of an Israeli strike on Iran is not even remotely priced into the U.S. equity markets.  To some, my emphasis on the article above may be construed as fear-mongering, but in reality it is just like golf – you need to be aware of the hazards on the course.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1, $113.21-115.49, $82.21-82.81, $1.22-1.24, 1.74-1.88%, and 1, respectively.




Keep your eye on the ball,


Daryl G. Jones

Director of Research 


Fore! - Chart of the Day


Fore! - Virtual Portfolio

Comanche Market

This note was originally published at 8am on August 07, 2012 for Hedgeye subscribers.

“… and meant, anyone who is against me all the time.”

-S.C Gwynne


That’s what the white guys in New Mexico “translated in various ways (Cumanche, Commanche), but eventually as “Comanche.” It would take the Spaniards years to figure out exactly who these new invaders were.” (S.C. Gwynne)


As I come to the end of what’s been a wildly educating experience reading Gwynne’s Empire of The Summer Moon, it’s twisting so many thoughts in my head that I don’t particularly know what I’m allowed to write about it. So I’ll just stop there.


All I can tell you is that as a professional short seller of everything US Dollar debauchery and centrally planned markets, I’m getting really comfortable having all of the same people against me all of the time. Their moves are becoming blatantly predictable.


Back to the Global Macro Grind


Against me? How about +25% at the pump against you? That’s what the price of Brent Oil has done since it bottomed at the end of June. With the US Dollar down now for 3 consecutive weeks, the purchasing power of your currency is once again under enemy attack.


Enemy? Who is the enemy? Is it Johnny Hilsenrath with his now almost daily Dollar debauchery articles in the Wall Street Journal? Or is it his editor? Or is it his editor’s brother’s boss who just plowed back a $35,000 plate at Obama’s CT dinner last night?


Whoever you are, market prices can see you now.


Got causality (begging for more Qe policies) that are driving immediate-term market price correlations? Here’s an update on that (USD versus Big Macro stock and commodity market moves in the last 3 weeks):


  1. Brent Oil vs USD = -0.74
  2. SP500 vs USD = -0.90
  3. EuroStoxx600 vs USD = -0.92


That’s right folks. Today’s centrally planned market is American-European. How else can Italy deliver a -2.5% year-over-year GDP disaster for Q2 2012 this morning (and 36% youth unemployment), and have their stock market “up” on that? Dollar down this morning.


Devaluing your currency is cool though, right? Look at how well life is going in Venezuela after Chavez devalued The People’s currency by 50%. The stock market  in Venezuela leads the world YTD at +110% YTD (not a typo). How screwed up is that?


President Obama and his centrally planned stock market advisors have figured this out. If the US stock market goes up, his chances of winning the Presidential Election go way up. In this morning’s Chart of The Day, we show you that in our Hedgeye Election Indicator:


  1. Obama’s chances went up +110 basis points wk-over-wk
  2. At 58.7% probability, this is the highest we’ve scored Obama’s chances since mid-May
  3. Unless the US Dollar stops going down (and US stock stop going up), Obama could run the tables


Now isn’t that a tad perverse? Burn The People’s hard earned currency at the stake, keep rates of return on hard earned Fixed Incomes at 0%, and pretend that jamming them with $4.50/gallon at the pump isn’t going to leave a mark on the 99%’s dinner table tonight.




Unfortunately, the globally interconnected growth signals around the world get that Down Dollar, Up Oil is only going to perpetuate the world’s biggest problem (#GrowthSlowing) further.


Here’s your latest real-time signaling on the Global Macro front:


  1. Chinese Stocks (Shanghai Composite) whimpered in day 2 of the “stock market rally”, closing up +0.13%, failing at resistance
  2. South Korea’s leading indicator (KOSPI) barely banged out a green close last night, closing +0.05%, failing at resistance
  3. Dr. Copper, one of the world’s best growth indicators, was down -1.7% last week, and remains broken this morning at $3.40


Those are just growth signals though (Asia, demand, etc.). But who needs those when we can chase Energy and Basic Material stocks in order to keep up with the SP500’s “being up” +1% already for August?


We’ve seen this movie before. Month by month, we’re killing whatever trust remains in our said “free” markets. Like the devastation of what was a wild, yet free, Comancheria, a centrally planned life ends in tears for many, and smiles for some.


Eric Rosengren, inflation is not growth.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1591-1624, $106.40-110.84, $82.05-82.84, $1.23-1.24, 782-803, and 1374-1408, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Comanche Market - Chart of the Day


Comanche Market - Virtual Portfolio

Idea Alert: The Bear Thesis On Cat

Takeaway: Multi-decade highs in mining/resources investment leave CAT vulnerable to a slowdown in its most profitable division.


CAT’s TAIL remains broken = 94.27

No TRADE support to 88.04



The Resources Cycle May Be Turning Against CAT

  • Recent Results Signal Weakness: CAT’s 2Q earnings report showed that implied orders had declined year-over-year as backlogs were drained.  The company “beat” in the quarter, but only by recognizing revenue on previously accumulated orders.
  • Resources Equipment Important: Resources investment may be set to weaken, given what appears to be slowing developing market growth.  Should that occur, CAT’s most profitable could see meaningful declines.
  • Industry Structure:  While CAT is a strong competitor in an industry with a healthy structure, recent competitive entry by emerging market rivals like SANY and Zoomlion is not positive.  Should demand slowdown in key Asian markets, the additional competition would not be helpful.  Typically, we look for weaker industry structures on the short side.
  • Valuation:  If the resources investment cycle does turn against CAT, the cyclically-adjusted valuation would be shown to be meaningfully lower than current levels.  CAT does not appear to offer a wide enough discount at current levels to provide compensation for this risk, in our view. 
  • Risky US Construction Exposure: CAT is frequently owned for exposure to a rebound in developed market construction.  While CAT would benefit from higher construction equipment sales, the risks on the resources investment front far exceed the benefits of a cyclical rebound in developed market construction activity.


If History Rhymes, CAT Could Decline Significantly If Resources Investment Stalls

Idea Alert:  The Bear Thesis On Cat - 1



Second Quarter Results Showed Implied Order Declines

Idea Alert:  The Bear Thesis On Cat - 2



CAT’s Stock Tends To Follow The Backlog

Idea Alert:  The Bear Thesis On Cat - 3


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The Macau Metro Monitor, August 21, 2012




VIP junket operator Asia Entertainment & Resources Ltd yesterday announced it would implement a new programme for large VIP agents who do not require credit.  AERL will provide an option for these non-credit large agents to share the win/loss under the revenue sharing model based on their proportionate contribution of total rolling chip turnover.  With this new programme, AERL says it expects to reignite growth in rolling chip turnover. The new programme will be effective September 1.


“This incremental non-credit business will have lower margins than our existing credit business, but we believe the new programme will ultimately be responsible for an increase in our net income,” said AERL chairman Lam Man Pou.



Macau CPI in July increased 6.04% YoY and 0.37% MoM.


TODAY’S S&P 500 SET-UP – August 21, 2012

As we look at today’s set up for the S&P 500, the range is 11 points or -0.71% downside to 1408 and 0.06% upside to 1419. 











  • ADVANCE/DECLINE LINE: on 08/20 NYSE -343
    • Decrease versus the prior day’s trading of 706
  • VOLUME: on 08/20 NYSE 550.72
    • Decrease versus prior day’s trading of -18.49%
  • VIX:  as of 08/20 was at 14.02
    • Increase versus most recent day’s trading of 4.24%
    • Year-to-date decrease of -40.09%
  • SPX PUT/CALL RATIO: as of 08/20 closed at 2.44
    • Up from the day prior at 1.77 


  • TED SPREAD: as of this morning 34
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.82%
    • Increase from prior day’s trading of 1.81%
  • YIELD CURVE: as of this morning 1.54
    • Up from prior day’s trading of 1.52 

MACRO DATA POINTS (Bloomberg Estimates)

  • 6am: EFSF to sell up to EU1.5b 182-day bills
  • 7:55am/8:45am: ICSC/Redbook retail sales
  • 8:45am: Fed’s Lockhart speaks in Atlanta
  • 11am: Fed to sell $7b-8b notes 9/15/2014-4/30/2015
  • 11:30am: U.S. Treasury to sell $40b 4-wk., $25b 52-wk. bills


    • House, Senate not in session
    • Manufacturers Alliance for Productivity and Innovation hosts discussion on NERA report on impact of regulations on U.S. manufacturers, 10am
    • API holds conference call briefing to discuss SEC regulations on companies that make payments to foreign governments under Section 1504 of Dodd-Frank financial regulations bill, 10:30am
    • Acting Commerce Secretary Rebecca Blank meets local business leaders in Philadelphia, Allentown Pa. on job creation
    • NRC holds conference call to discuss apparent violations of regulations regarding radiation safety, security of portable nuclear gauges at facility in Juneau, Alaska, 3pm
    • AICPA 2012 National Governmental Accounting & Auditing Update Conference
    • ITC meets on seamless carbon, alloy steel standard, line and pressure pipe imports from Germany, 9:30am
    • ITC hears patent-infringement case X2Y Attenuators filed against Intel over processor chips in Apple, HP computers, 9am 


  • Citigroup became first Western bank to issue credit cards in China without co-branding from local financial institution
  • Lawyers for Apple, Samsung to make final arguments to jury today following three-week trial over patents
  • Spanish borrowing costs fall at 12-month bill auction
  • Conoco, Origin Energy said to be working with JPMorgan to help sell stake in their $20b natgas project in Australia
  • J&J said to agree to pay ~$600k to resolve 3 cases in first settlements of litigation over hip implants
  • Apple set U.S. record for mkt value yesterday
  • Facebook director Peter Thiel sold most of his stake yday
  • Edison to cut staff at shuttered San Onofre nuclear plant
  • Samsung to invest ~$4b in Texas factory to boost output of processors used in smartphones, tablet computers
  • President Obama raised almost $9m more in July than Mitt Romney; combined balances as of July 31 for Republican election bid $169m vs $107m for Democrats
  • Elpida Memory to get $3.5b in support from Micron
  • Consolidated Media Holdings expects to receive details from News Corp. on its takeover proposal within six weeks
  • Samick studying possible tender offer for Steinway
  • U.S. Trustee overseeing Kodak’s bankruptcy asked to probe patent auction by New York hedge fund
  • Apple sued by ex-worker who says Steve Jobs guaranteed his job
  • Wall Street struggling to find champion to replace Dimon
  • U.S. consumers rated automakers this year at same level as record-high satisfaction score in 2009: American Customer Satisfaction Index 


    • Tech Data (TECD) 6am, $1.19
    • Williams-Sonoma (WSM) 6am, $0.41
    • DSW (DSW) 7am, $0.62
    • Globe Specialty Metals (GSM) 7am, $0.15
    • Medtronic (MDT) 7:15am, $0.85; Preview
    • Best Buy (BBY) 8am, $0.31; Preview
    • Barnes & Noble (BKS) 8:30am
    • Raven Industries (RAVN) 9:10am, $0.38
    • Intuit (INTU) 4pm, $0.06
    • Analog Devices (ADI) 4:01pm, $0.56
    • Aspen Technology (AZPN) 4:01pm, $(0.04)
    • Dell (DELL) 4:01pm, $0.45 


  • Bear Market in Tin Shuts 70% of Indonesian Capacity: Commodities
  • Oil Supply Rises First Time in Month in Survey: Energy Markets
  • Soybeans Top $17 for First Time as Demand Jumps for U.S. Exports
  • Commodities Headed for Bull Market as U.S. Drought Withers Crops
  • Oil Advances to Three-Month High Before European Debt Meetings
  • Copper Gains as European Meetings May Aid Debt-Crisis Progress
  • Gold Advances to Three-Week High as Weaker Dollar Spurs Demand
  • Glencore CEO to Abandon Xstrata Bid Should Qatar Stymie Deal
  • China Buys Most Corn in Six Months as Imports Set for Record
  • Cocoa Seen Gaining as Dry Weather Curbs Output; Sugar Declines
  • Asia-Pacific Oil Drillers in U.S. Gulf Seen With BP Sale: Energy
  • Natural Gas Advances in New York as Tropical Storm May Develop
  • South Dakota Corn, Soybean Yields 47 Percent Lower Than 2011
  • Copper May Extend Decline While Below $7,622: Technical Analysis
  • Soybeans Advance to Record as Demand Rises
  • Ohio Corn Yield Falls 29%, Soy Counts Decline, Tour Shows
  • Norden Profits as Smallest Ships Beat Bigger Carriers: Freight 

























The Hedgeye Macro Team

President Obama’s Reelection Chances

It appears President Obama is on the fast track to another four years in the White House according to the latest results from the Hedgeye Election Indicator (HEI). President Obama’s reelection chances jumped 80 basis points (0.8%) to 59.8% and is fast approaching his peak of 62.3% that occurred back in March. No one knows what the catalyst is, but several weeks of consecutive gains indicate Mitt Romney has his work cut out for him going into September.


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

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.