TODAY’S S&P 500 SET-UP – September 5, 2012

As we look at today’s set up for the S&P 500, the range is 9 points or -0.49% downside to 1398 and 0.15% upside to 1407. 











    • Decrease versus the prior day’s trading of 1174
  • VOLUME: on 09/04 NYSE 639.22
    • Decrease versus prior day’s trading of -14.32%
  • VIX:  as of 09/04 was at 17.98
    • Increase versus most recent day’s trading of 2.92%
    • Year-to-date decrease of -23.16%
  • SPX PUT/CALL RATIO: as of 09/04 closed at 1.17
    • Down from the day prior at 1.84


YIELD SPREAD – one of the top3 risks we’ve discussed in our Global Macro Themes deck for Q312 remains a question – will the Yield Spread snap this 125bps level (held it in 2008 and a few times since)?; 133bps wide this morn, down -20bps in 2wks like a knife through hot bull butter. 

  • TED SPREAD: as of this morning 32.06
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.56%
    • Decrease from prior day’s trading of 1.57%
  • YIELD CURVE: as of this morning 1.33
    • Down from prior day’s trading at 1.34

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Aug. 31 (prior -4.3%)
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 8:30am: Nonfarm Productivity, 2Q final, est. 1.8% (prior 1.6%)
  • 8:30am: Unit Labor Costs, 2Q final, est. 1.4% (prior 1.7%)
  • 9:45am: ISM New York, Aug. (prior 55.2)
  • 11am: Fed to buy $4.5b-$5.5b notes
  • 11:30am: U.S. to sell $40b 4-wk bills, $35b 11-day cash management bill
  • 4:30pm: API weekly inventories


    • President Barack Obama arrives in Charlotte for DNC, 2:45pm
    • Prime-time DNC speakers include former President Bill Clinton, who will formally nominate Obama as party’s candidate for a second term, and Chicago Mayor Rahm Emanuel
    • House, Senate not in session
    • American Bankers Association set to vote tmw on whether to create non-profit political fund allowing members to funnel donations anonymously to pro-industry candidates


  • FedEx cuts profit forecast as sales slump on economy
  • Facebook CEO Zuckerberg won’t sell shrs for at least a yr
  • 3M still in talks to buy Avery unit after regulator objections
  • GM August China sales rise 7.3% as demand for Chevrolet rebounds
  • GE wins $7b contract as Pentagon August awards drop 40%
  • American, United Airlines can’t avoid trial over 9/11 attacks
  • Nokia, Microsoft unveil latest interation of Windows phones
  • Motorola, Verizon Wireless roll out new phone
  • Americans say better off since Obama even as slump impact lasts
  • Australia’s eco growth slows more than forecast on housing
  • ING to sell entire Capital One stake after online bank deal
  • Solyndra will add tax-break details to resolve U.S. objection
  • Hackers claim release of 1m Apple IDs; FBI denies breach
  • Portugal 10-Year Yield Falls Below 9%, First Time Since May 2011


    • Pharmacyclics (PCYC) 6am, $(0.26)
    • Dollar General (DG) 7am, $0.64 - Preview
    • Conn’s (CONN) 7am, $0.35
    • Alimentation Couche Tard (ATD/B CN) 11am, $0.90
    • H&R Block (HRB) 4pm, $(0.37)
    • VeriFone Systems (PAY) 4:01pm, $0.70
    • Verint Systems (VRNT) 4:05pm, $0.51
    • Korn/Ferry (KFY) 4:30pm, $0.18
    • ABM Industries (ABM) 5pm, $0.42
    • Men’s Wearhouse (MW) 5:30pm, $1.13
    • Harry Winston Diamond (HW CN) Post-Mkt, $0.15
    • FuelCell Energy (FCEL) Post-Mkt, $(0.05)


  • Oil Supplies Tumble on Hurricane Isaac in Survey: Energy Markets
  • Monsanto Corn Seen Losing Effect Amid U.S. Drought: Commodities
  • Gold Holdings Signal Prices Surging to $1,900: Chart of the Day
  • Oil Trades Near One-Week Low as U.S. Manufacturing Contracts
  • Europe’s Grains Won’t Make Up for Losses of U.S., Russia Drought
  • Gold Set to Decline in London as Stronger Dollar Curbs Demand
  • Copper Drops as Australian Slowdown Fuels World Growth Concern
  • German Next-Week Power Falls on More Wind; French Contract Drops
  • India to Maintain Price of State Wheat for Mills, Traders
  • U.K. Gas Rises as Norway Deliveries to Belgium Resume After Work
  • Total, Lukoil to Halt Hydrocracker at Dutch Refinery Tomorrow
  • Hormuz Strait Unlikely to Close, Iraq’s Shahristani Tells Sabah
  • Venezuela’s Amuay Refinery to Resume Normal Operations in ‘Days’
  • Ghana Cocoa Buyer Cancels $260 Million Debt Sale on High Yields
  • India Rules Out Banning Grain Exports
  • Wheat Drops as Cheap Russian Supply Lures Buyers Away From U.S.
  • Robusta Coffee Extends Losses on Producer Selling; Sugar Rises









RUSSIA – can you say beta? If the USD rises and Oil/Gold etc fall from here, this could be Epic Part Deux (remember the March to May fall?); Russian stocks (RTSI) move back into crash mode this morning (-21% from the March top). Beta eats alpha.






ASIA – in a replay of March/April, Asian Equities are leading indicators for US Equities which seem to hold out for the hope until the bitter end of lower-highs; #GrowthSlowing is accelerating on the downside in both Japan and China (big economies that are #TooBigToBail); Nikkei’s decline since March to -15.4% (China hits another new low this morn, -17.1% since May).










The Hedgeye Macro Team

CHART OF THE DAY: Manufacturing To Nowhere


CHART OF THE DAY: Manufacturing To Nowhere - Chart of the Day

Manufacturing To Nowhere

“You can’t build a railroad from nowhere to nowhere.”

-Cornelius Vanderbilt


While I am sure some partisan politician had a rebuttal to one of America’s most successful businessman’s thoughts on the matter at the time, that remains one of the most poignant risk management quotes from 1873.


“The Panic of 1873 began shortly before 11AM on Thursday, September 18, when the Wall Street branch of the nation’s most prestigious private banking house, Jay Cooke & Associates, unexpectedly ushered its customers out and then literally closed its doors, signaling it was bankrupt.” (John Lubetkin, in Jay Cooke’s Gamble)


Yes, I know. We have centrally planned our way to never worrying about fundamentally flawed policies and business risks again in this country. Right?


Back to the Global Macro Grind


While the Keynesians are storytelling about needing “more time”, the fact remains that Policies To Inflate haven’t done a darn thing they were designed to do:

  1. Debauching the Dollar was supposed to generate “export and manufacturing growth”
  2. Economic growth slowing was supposed to be met with a “growth recovery” that lasted more than 3 months
  3. Corporate growth and earnings were supposed to remain at all-time highs; hiring would follow

Political theory versus economic reality: let’s fast forward to, well, yesterday:

  1. America’s ISM Manufacturing Survey for August slowed for the 3rd consecutive month to 49.6 (signaling economic contraction)
  2. The Prices Paid component of the ISM survey ripped higher month-over-month to 54 vs 39.5 in July (+37% sequentially)
  3. Fedex, a $28B US company, pre-announced another revenue and earnings miss after the market close

But no worries…


We need to beg for more of what has not worked – must do something – need more stimulus – need more time so that we can build elevated stock market prices, on no-volume, into the market’s risk matrix so that we can get from nowhere to nowhere, again.


To review what the aforementioned data points mean to real business people in this country in September 2012:

  1. Global Demand (yes, including Asia) slowed in August as inflation, on the margin, rose
  2. As inflation (prices paid by manufacturers, consumers, etc.) rises, on the margin, profits slow
  3. As profits slow, hiring slows – again

This isn’t a vicious cycle anymore. It’s just a sad one to watch. How definitively insane it is to watch people make the same mistakes over, and over, and over again?


I know, I know. After they are wrong on growth, and half-baked right on how bailout policies keep market prices up for 6 week intervals, perma-bulls say “the market is up and stocks are cheap.”


Well, there’s a little fibbing in that too. Since the 2007 top (1565 SPX) and lower 2012 high (1419 SPX) that followed it, stocks are down – and they’re expensive, if you don’t use the wrong growth and earnings numbers.


So where does the great Keynesian economic vision of building bridges and railway tracks to end demand that’s slowing take us? I don’t know. And, if they tell you the truth, neither do they.


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1, $111.51-115.78, $81.19-81.98, $1.24-1.26, 1.54-1.63%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Manufacturing To Nowhere - Chart of the Day


Manufacturing To Nowhere - Virtual Portfolio

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

UnderArmour Endorsement Dollars At Work

Takeaway: $UA's endorsement dollars paid off in a venue it is rarely known to frequent -- the US Open (that's right, tennis, not golf).

People often debate the efficacy of athlete endorsements. Generally speaking, we think that those that perform at the highest level in their respective sport BUT can also cross over to mainstream appeal are the only ones worth paying for. For example, just after the Olympics, Nike's Alyson Felix was featured in Sports Illustrated while also being on the cover of Teen Vogue. That's when endorsements turn commercial. Same goes for someone like LeBron James, who dominates sports headlines, but also has dominated the cover of GQ.


There are always exceptions. Sometimes those exceptions are with people, like Tom Brady, who simply can't sell due to his lack of mass appeal to most men (not our opinion -- those are simply the facts -- it's why Nike ditched him). Sometimes the exceptions are with brands, like UnderArmour, which brings us to the image below. 


Enter Sloane Stephens, the youngest tennis player ranked in the top 50. While sh'e not going to win the US Open, she raised eyebrows when the 44th seed upset Francesca Schiavone -- who was ranked as high as #4 last year. 


It takes all of about half a second to look at this picture and realize that something is different. No Swooshes. No Stripes (Adidas). No K Swiss Shield. No Reebok (remember them?). All you see is the edgy UA logo.


If Sloane was wearing a Swoosh, would anyone notice? No way. They'd probably expect it. But when they see the logo of a company Wall Street discounts will ever actually build a footwear business, it matters.


Remember, from a branding perspective, the US athletic market is a 2-horse race. Nike and UnderArmour. This is fairly represented in Apparel market share stats. 


But Nike has about 40% share of the footwear market versus UA at 1%. We understand that this seems like a very unfair comparison. It is. But brands like Adidas, Asics, Reebok, and New Balance have between 5-7%.  Brands like Saucony, Brooks and K-Swiss have another 3-4%. 


Every point of share gain in footwear amounts to about $0.20 per share off of UA's $0.92 EPS base in 2011.


UnderArmour Endorsement Dollars At Work - 9 5 2012 6 29 50 AM

Idea Alert: Shorting EWP

Takeaway: Spain’s risk profile continues to set up to the downside. Shorting tactically.

Positions in Europe: Short Spain (EWP); Long German Bunds (BUNL); Short EUR/USD (FXE)

Today Keith shorted Spain via the etf EWP in the Hedgeye Virtual Portfolio. The etf is immediate term TRADE overbought and nearing our long-term TAIL resistance line of $27.79 (see chart below).


Idea Alert: Shorting EWP - bb. ewp


Our thesis on Spain hasn’t changed materially in recent months, including that the market has not fully priced in all the downside risks in the broader economy.


As a reminder, some of these risks and signals include:

  • Bombed out PMI Manufacturing number, 42 in August
  • Housing and Property values that have another 30% to fall
  • Mortgages on Houses data at -25.2% in JUNE Y/Y
  • Further credit ratings downgrades: Moody’s is expected to downgrade the sovereign to junk this month
  • Rising debt levels (68% of GDP in 2011) as the future bank credit line, funneled through the FROB, adds to the debt
  • Unemployment Rate at 24.6% and over 50% for youths
  • The inability of PM Rajoy to reduce the country’s 8.9% deficit (as % of GDP)
  • Bombed out Retail Sales: -6.9% in JULY Y/Y
  • GDP in Contraction: -1.3% in Q2 Y/Y (vs an initial estimate of -1.3%) or -0.4% Q/Q
  • Sticky stagflation: CPI at 2.2% in JULY Y/Y
  • GDP Fudging: 2010 GDP restated to -0.3% vs -0.1% initial; 2011 restated to +0.4% vs +0.7% initial
  • The spread between the Spanish 10YR yield and 2YR is at all-time wides of 350bps, as Draghi talks down the lower end of the curve via reengagement of a bond purchasing program
  • The IBEX 35 is down -16% since a ytd top in early February

Idea Alert: Shorting EWP - bb. gdp


Idea Alert: Shorting EWP - bb. spread



Matthew Hedrick

Senior Analyst

Idea Alert: Buying BUNL

Takeaway: Tactically buying German bonds in a very uncertain environment.

Positions in Europe: Long German Bunds (BUNL); Short EUR/USD (FXE); Short Spain (EWP)


Keith bought German Bunds via the etf BUNL in the Hedgeye Virtual Portfolio today. The etf is in a bullish formation, meaning the current price is above its intermediate term TREND and long term TAIL levels (see chart below).


Idea Alert: Buying BUNL - cc. bunl


Aware that there is no “safe haven” play in Europe, we like the risk/reward set-up of German fixed income at the right price. Germany’s “messaging” has not been completely of one mind in recent months.  Bundesbank President Weidmann continues to reiterate his opposition to ECB purchases of peripheral sovereign debt, warning that “central bank financing can become addictive like a drug.” He is also opposed to the sharing of risk via Eurobonds. Meanwhile, Chancellor Merkel has voiced support for Weidmann but has stopped short of endorsing his views outright, and continues to suggest that she will continue to pull out all stops to save Greece (and other peripherals as necessary) and has not completely ruled out Eurobonds.


Certainly German fundamentals in recent months have not provided a hook to hang one’s hat. Despite a marginal improvement in Manufacturing PMI for August (44.7 vs 43.0 in JULY); the unemployment rate has been locked in at 6.8%; CPI increased 30bps to 2.2% in August Y/Y; Retail Sales fell -1% in JULY Y/Y vs +3.7% JUNE; and IFO, ZEW, and GfK consumer and business confidence surveys largely continue to decelerate or show little material inflection. 


Idea Alert: Buying BUNL - cc. ifo


Idea Alert: Buying BUNL - cc. zew


Idea Alert: Buying BUNL - cc. factory orders



Matthew Hedrick

Senior Analyst

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 80.43%
  • SHORT SIGNALS 78.34%