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Chinese Rebar Prices Rebound

Takeaway: Chinese rebar may have bounced but it'll be short-lived as it continues to drop in price heading into 2013.

We’ve examined the relationship between Brent crude oil and the price of Chinese rebar as the price of rebar fell nearly 50% over the last year. Though there is a significant bounce in September pricing, we believe it’s nothing but a dead cat bounce and that rebar prices will continue to fall.


The spot rebar price is +7% off the September 7 low, coinciding with the rip in most risk assets after the ECB announced its new bond-buying program.  That makes intuitive sense – Europe is China’s #1 export customer.  China likely has a bunch of steel it can’t get rid of or we’re not getting the entire picture.



Chinese Rebar Prices Rebound - china rebar

Industrial Indicator: NAV Losing Ground

Takeaway: $NAV's heavy discounting may not be sustainable with less efficient operations. An end to discount would help competitors, including $PCAR.


Trucks per Employee: NAV Losing Ground

  • Efficiency: Trucks per employee is an interesting measure of efficiency and capacity utilization.  On that measure, NAV is losing ground while PCAR is gaining.  Absolute numbers are impacted by the high percentage of smaller Class 5-7 vehicles produced by Navistar.
  • NAV Discounting Heavily: NAV’s product and regulatory issues have resulted in reduced market share, even with discounting to maintain sale volumes.  Lower sales rates relative to competitors can create negative feedback in the form of higher costs and increasing losses.  In turn, higher costs make NAV’s discounting more difficult.
  • Unsustainable: Customer perception of product quality and OEM financial stability is important for truck sales, in our view.  Navistar’s problems may not yet be over, particularly if Volvo and Daimler again sue the EPA over revised non-conformance penalties.

Industrial Indicator: NAV Losing Ground - truck per employee



Industrial Indicator: NAV Losing Ground - perf 9 18 12

UNH: Dealing With Rising Costs

Takeaway: The Affordable Care Act is putting pressure on managed care providers like $UNH who will undoubtedly deal with rising costs.


The future of managed care has an increasingly negative undertone in regards to the Affordable Care Act. UnitedHealth Group (UNH) will undoubtedly be affected by the Act and rising costs are cause for concern and have made us increasingly bearish on the stock. We expect cost trend to accelerate into 2013, with limited pricing leverage on either the premium or provider payments side to offset the risks to 2013 guidance.



UNH: Dealing With Rising Costs  - UNH chart1



Hedgeye’s Healthcare team has outlined two major drivers of increasing costs that directly affect UNH heading into the new year:


• Physician Utilization: Physician traffic represents roughly 30% of commercial cost trend for managed care, and we expect utilization to accelerate 2H12 and into 2013.  A physician visit leads the care continuum, so we expect incremental utilization to follow subsequent to a rise in physician utilization.


• Birth recovery: We expect births to recover as early as 4Q12 and into 2013.   Not only do births represent a considerable portion of commercial inpatient volumes (30%) and Medicaid inpatient volume (40%), but pregnancies  add additional physician utilization as pre-natal and post-natal populations carrying significantly higher than than average utilization.



UNH: Dealing With Rising Costs  - UNH chart3

Early Look

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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

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.