No More

This note was originally published at 8am on September 04, 2012 for Hedgeye subscribers.

“And so he urged his countrymen: No more.”

-Hampton Sides (Blood and Thunder)


That’s what the head of the Navajo warriors, Manuelito, said to his people before ultimately succumbing to General Sherman’s troops. Maybe we’re going down versus the Fed’s Bailout Beggars too, but it won’t be without one heck of a fight.


Last week ended with a Draghi bagging the Jackson Hole meeting and Ben Bernanke doing nothing that resembled what he was allegedly going to do only 2 weeks prior. Rumor versus reality is a widening spread.


“What is the truth (Ray Dalio)?” Stocks continue to make lower-highs as bonds continue to make higher-lows. I urge all of you to join me in calling for No More of what has not worked. Otherwise, you’ll have $130-150 Oil and 1970s stagflation all over again.


Back to the Global Macro Grind


Both US and Global Equities were down again last week (2 consecutive down weeks for the SP500, 1 month lows for Asia). Both Treasury Bonds and Commodities were up. The latter perpetuates #GrowthSlowing expectations in the former.


But no worries. Everyone who drives to work, eats food, and sends their kids to school this week understands the very basic P&L problem associated with cost of living rising as nominal wages are falling:

  1. American median incomes = down -5% since 2009
  2. US Dollar = down -5% since January 20, 2009
  3. Oil (WTIC) = +150% since January 20, 2009

Almost everyone, that is…


Mostly everyone else understands the concept of long-term lower-highs (stocks) and higher-lows (bonds) as well.  Here’s what’s happened in the last 2 weeks as we setup for risk managing September:

  1. US Stocks (SP500) = down -0.85% (from 1418) to 1406 on Friday
  2. European Stocks (Eurostoxx600) = down -1.8% (from 272) to 267 this morning
  3. Chinese Stocks (Shanghai Comp) = down -3.5% (from 2118) to 2043 this morning

All the while:

  1. US Equity Volatility (VIX) = up +30% from its YTD closing low (2wks ago)
  2. Commodities (CRB Index) = up +1.9% (from 303) to 309 this morning
  3. US Treasury Yields (10yr) = down -14% (from 1.81%) to 1.55% this morning

So, who on God’s good earth profits from this economic model? If you bought bonds, volatility, and commodities 2 weeks ago, you did. But what % is that of the global population? Did higher prices in those 3 things perpetuate economic growth, or slow it?

If you bought Gold 2 weeks ago (we didn’t because we didn’t think Bernanke would go to Qe4 – and he didn’t), that’s up +4.8%. Great trade! But what does that mean? It means that the purchasing power of US Dollars continues to be debauched.


Are institutional investors long Gold? You bet your Madoff they are – and with headlines dominating your every day like this: “Gold, Near 5mth High, Seen Gaining on Prospects for More Stimulus” (Bloomberg), why shouldn’t they be?


Weekly CFTC data implies Gold buyers ramped bets on Bernanke right back up to where they were before they started falling in March (+19% wk-over-wk to almost 132,000 contracts).


Those are called expectations. Instead of jobs and economic growth, that’s what Bernanke really stimulates and, in doing so, perpetuates the US growth slow-down via commodity inflation.


This is why our Global Macro Model continues to nail  #GrowthSlowing calls at these shortened economic cycle turns well ahead of consensus. Our models adjust, real-time, for Dollar Debauchery and Oil Inflation.


How long can inflation of market prices be masked as “economic growth”? Not for long. Each and every one of these Qe experiments gives markets shorter-term pops and more volatile reversals.


So, if you bought Gold (or Commodities) at the month-end markup of February 2012, or if you bought it there at lower-highs on Friday, the probability just went straight up (like the asset price did) that they will now come down again.


That’s called Deflating The Inflation. And while Bernanke wants you to believe that you’ll have no more of that (maybe ever), I’ll repeat what we all can’t afford any more of – policies to inflate asset prices that, in turn, slow growth.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1665-1696, $113.69-116.57, $81.11-81.91, $1.24-1.26, 1.55-1.64%, and 1399-1417, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


No More - Chart of the Day


No More - Virtual Portfolio


TODAY’S S&P 500 SET-UP – September 18, 2012

As we look at today’s set up for the S&P 500, the range is 35 points or -1.52% downside to 1439 and 0.88% upside to 1474. 











  • ADVANCE/DECLINE LINE: on 09/17 NYSE -1137
    • Decrease versus the prior day’s trading of 1130
  • VOLUME: on 09/17 NYSE 665.89
    • Decrease versus prior day’s trading of -26.00%
  • VIX:  as of 09/17 was at 14.59
    • Increase versus most recent day’s trading of 0.55%
    • Year-to-date decrease of -37.65%
  • SPX PUT/CALL RATIO: as of 09/17 closed at 1.33
    • Up  from the day prior at 1.06


BOND YIELDS – the bond market continues to deliver the same anti-Bernanke message on growth – lower-highs again in 10yr yields (1.81% this morn vs 1.87% Friday) on global #GrowthSlowing.

  • TED SPREAD: as of this morning 28.93
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.81%
    • Decrease from prior day’s trading of 1.84%
  • YIELD CURVE: as of this morning 1.56
    • Down from prior day’s trading at 1.59 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7:45am/8:55am: ICSC/Redbook weekly sales
  • 8am: Fed’s Evans speaks in Michigan on economy
  • 8:30am: Current Account Trade Balance, 2Q, est. - $125.9b (prior -$137.3b)
  • 9am: Total Net TIC Flows, July (prior $16.7b)
  • 10am: NAHB Housing Market Index, Sept. est. 38 (prior 37)
  • 11am: Fed to purchase $4.25b-$5b notes due 9/30/2018-8/15/2020
  • 11:30am: Fed to sell 4-wk bills, 1-yr bills
  • 12:45pm: Fed’s Dudley speaks in New Jersey on economy
  • 4:30pm: Fed’s Dudley speaks in New Jersey on economy
  • 4:30pm: API inventories
  • 7:45pm: Fed’s Lacker speaks in New York on monetary policy


    • Washington Day Ahead
    • House meets at noon in pro forma session, Senate not in session
    • Treasury Dept. issues interim final rule on assessment of fees on large bank holding companies, non-bank financial firms overseen by Fed to cover expenses of Financial Research Fund
    • Marion Blakey, president of AIA, delivers remarks on “Countdown to Sequestration,” at Air Force Assn conf., 9am
    • Boeing, AMR’s American Airlines, FAA hold media briefing and tour of 737-800 ecoDemonstrator airplane, 10am
    • National Transportation Safety Board Chairman Deborah Hersman will address aviation industry about improving safety, 12:30pm


  • Spanish bonds declined on concern European leaders will struggle to contain the debt crisis
  • Toyota among companies shutting some plants as China-Japan islands dispute continues
  • Apple reaches $700 after iPhone shatters sales record
  • Apple may sell 6m-10m iPhone 5s in first weekend: Piper’s Munster
  • German investor confidence rises first time in 5 months
  • Oil extends decline in NY after biggest drop in 2 months
  • Lenovo buys Stoneware to gain cloud-computing products
  • Itochu pays $1.69b in cash for 2 Dole Food units
  • China home prices rise in fewer cities in Aug. vs prev. month
  • American Airlines cuts seating capacity amid cancelled flights
  • United under investigation for tarmac delays during July thunderstorms
  • Advanced Micro CFO Seifert resigns to seek other opportunities
  • GM, Chrysler talks with Canadian Auto Workers Union extended
  • Europe auto sales fall 8.5% in Aug. amid weaker German demand


    • Cracker Barrel (CBRL) 7am, $1.30
    • FedEx (FDX) 7:30am, $1.40 - Preview


OIL – it didn’t take much of a USD move to knock Oil off its highs yesterday; the USD was up +0.14%, and Oil got hammered; SPR or no SPR rumors, reality is called the Correlation Risk, and for almost every major commodity its ripping in the -0.7-0.9 range right now vs USD; important immediate-term TRADE line of price momentum for Brent Oil = $114.69 broke.

  • Harvard Losing Out to South Dakota in Graduate Pay: Commodities
  • Mendillo Returns to Timberland as Harvard Vies for Ivy Rebound
  • European Central Banks’ Gold Sales Are Second Lowest Since 1999
  • Oil Extends Decline in New York After Biggest Drop in Two Months
  • Copper Drops for Second Day as Chinese Easing May Be Less Likely
  • Gold Set to Fall as Rally to Six-Month High Spurs Investor Sales
  • Coffee Falls in New York as Farmers Boost Sales; Sugar Declines
  • Rebar Advances to Four-Week High as Property Data Ease Concern
  • Palm Oil Drops Most in 19 Months as Oilseed Supplies Improve
  • Falkland Gas Find Heralds World’s Most Remote LNG Plant: Energy
  • Australia Cuts Iron Ore Price Outlook on China Demand Woes
  • Stealth Sugar Lobbying Funds Health Group’s Corn-Sweetener Fight
  • Iron-Ore Swaps Seen Extending Gains for 4th Day in Clarkson Data
  • Australia Cuts Iron Ore Outlook on China
  • Oil Supplies Gain for Second Week in Survey: Energy Markets
  • Soybeans Reach One-Month Low on Signs of Slowing U.S. Exports
  • Aluminum Premiums for Japan Said to Reach Record on Supply Curbs













CHINA – Shanghai Comp down -3% in 2 days (-0.9% overnight) led Asian stocks lower, as Asian Equities are making lower-highs vs March. That -10.6% Singapore y/y export print for August mattered. No stimuli from China w/ inflation up here.










The Hedgeye Macro Team

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Whatever They Want

“These guys can do whatever they want, whenever they want.”

-Neil Barofsky


Sounds like the American Dream, right? Right. That, and the Fed proclaiming their mystery of faith this morning that “unemployment would be close to 7%... if it wasn’t for consumer doubt”, will get you a free scratch-and-sniff at the Washington Sticker Institute of fair play.


The aforementioned quote comes from Chapter 3 of Neil Barofsky’s Bailout, where he explains how Hank Paulson and Tim Geithner got a “blank check” to bailout GM, AIG, etc. “Well, the good news is that we didn’t approve an illegal transaction as our first official act…” (page 50)


At the highs, market volumes and equity fund inflows are dead right now because the America’s trust in the political system is. Both Bush and Obama have signed off on giving un-elected central planners like Ben Bernanke un-precedented powers to do Whatever They Want.


Back to the Global Macro Grind


For Obama, evidently that’s working. His probability of winning the US Presidency just hit a new high in our weekly Hedgeye Election Indicator. Week-over-week Obama just picked up another +220 basis points in our model, taking him to 63%. Romney is in trouble.


What does another Obama Administration mean for the US economy? Is there still a chance that Obama loses? How do you dynamically risk manage this binary event if and when the probabilities change in the coming weeks?


Last night, our Director of Research, Daryl Jones, and I enjoyed a dinner with pollster Scott Rasmussen. Daryl will have a more detailed note on Rasmussen’s current election thoughts tomorrow. The bottom line is that he still sees this one too close to call.


What isn’t too close to call is what the rest of the world’s interconnected risks are doing in the face of Ben Bernanke devaluing the US Dollar and ripping inflation higher (India consumer price inflation hit +10.03% this morning) for the sake of short-term political votes.  


Across our durations in our risk management model, here are some key Global Equity market callouts:

  1. Asian Equities continue to make lower-highs versus those established before growth slowing started, globally, in March
  2. Chinese Equities, down 3% in 2 days this wk, continue lower as China won’t “stimulate” during Bernanke commodity inflations
  3. Japanese Equities (down -11% since the March top) continue to languish as their 20yr experiment with Keynesian economics fails
  4. European Equities (EuroStoxx50), down -1.2% this morning, are now making lower-highs versus those established in March
  5. Italian Equities (MIB Index), down -1.8% this morning, are leading today’s decline; no Spanish bailout imminent for them
  6. Russian Equities (like Japan, down -11% from the March top), are getting tagged for a -1.7% decline this morning (Oil down)

Did something bad happen in the last 24 hours; what’s all the economic gravity and commotion about?


It’s called Correlation Risk to the US Dollar. Sadly, those two words are not part of the Washington, D.C. central planning narrative. And yes, dear Keynesian academics, we get that sometimes (like now) causality (monetary policy) perpetuates correlation.


All it took to get things like Oil and Russian Equities down was stopping the US Dollar from going down. The US Dollar Index remains the other side of the Ben Bernanke trade. He can do and say whatever he wants until that massive asymmetric risk goes the other way.


What would happen to stocks and commodities if the US Dollar recovered its last 6 weeks of losses? What if there was political leadership on the fiscal or monetary side to drive the US Dollar Index back to its July high of $84?


I don’t know. What I do know is that $84 on the US Dollar Index is +7% higher than where Bernanke Burned The Buck to yesterday – and that if a +0.14% move off the lows gets you this kind of constipation in Global Equity markets this morning, he may be spending more time in the men’s room than Paulson did in October 2008.


Since the speculation that Bernanke will do Whatever He Wants pre-election has found its way into commodities (and commodity linked stocks and currencies) more so than anywhere else, it’s going to be critical to monitor our immediate-term TRADE duration risk in things like oil in the coming weeks and months.


Across durations, here’s how Brent Oil looks in our risk management model:

  1. Immediate-term TRADE line = $114.69/barrel
  2. Intermediate-term TREND support = $105.85/barrel
  3. Long-term TAIL risk line = $111.47/barrel

In other words, the Ball Under Water trade (Dollar Down) just stopped going down, and Oil’s immediate-term TRADE line of momentum snapped almost instantly. If anything real drives the Dollar up +3-6%, our TAIL risk line for the Oil price comes into play, fast.


That, of course, would be good for Consumers, globally. But, perversely, it will be very bad for the stock market (and Obama’s chances), in a hurry. If you didn’t know Obama has already figured this out, now you know. He’s smart. And for the next 50 days his boys will say whatever they want to tell you Dollar Down, Oil Up is about everything other than what the Fed is doing when you aren’t looking.


My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $112.49-116.86, $78.56-79.99, $1.28-1.31, 1.73-1.87%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Whatever They Want - Chart of the Day


Whatever They Want - Virtual Portfolio


The Macau Metro Monitor, September 18, 2012




A group of unidentified investors is proposing to build a US$800 million (MOP 6.4 billion) boutique-style hotel casino just next to the One Oasis Cotai South luxury residential project.  The project is eyeing to have a mid-double digit number of live gaming tables.  Construction could break ground as early as 2013 with the aim of opening in 4Q 2015 or early 2016.  The project doesn’t involve any government land grant, as it is being developed on private land.


Business Daily says the casino included in the project would operate under a service provider agreement, but the partnering gaming operator’s name is yet to be disclosed.  The report adds the project was submitted to the government before the 2008 moratorium on new casino projects.  The principals in the boutique scheme are understood to be Stephen Hung, Peter Coker and Walter Power, according to Business Daily.



Kazuo Okada said investors have lost confidence in WYNN's management and the board.  That loss comes amid a "history of poor corporate governance" and "questionable actions" under Mr. Wynn, the CEO, Okada wrote.  He says that currently only 7 of the 12 board members are independent.  Okada asked a Nevada court earlier in September that he be allowed to nominate new directors for consideration at Wynn’s November annual meeting.  He has already put forward two names.




President Obama’s Reelection Chances

Barack Obama is on fire, with his odds of being reelected jumping +2.2% week-over-week to an all time high (on a closing basis) of 63% according to the Hedgeye Election Indicator, consistent with InTrade odds. It’s now apparent that the President will likely win the November election unless Mitt Romney can pull off a miraculous comeback or if Obama falters in policy over the next month.  


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 63% on September 17, 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

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