TODAY’S S&P 500 SET-UP – January 14, 2013


As we look at today's setup for the S&P 500, the range is 26 points or 0.89% downside to 1459 and 0.88% upside to 1485.                                           















  • YIELD CURVE: 1.60 from 1.62
  • VIX closed at 13.36 1 day percent change of -0.96%

MACRO DATA POINTS (Bloomberg Estimates):

  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2042 sector
  • 11:30am: U.S. Treasury to sell $32b 3M bills, $28b 6M bills
  • 11:55am: Fed’s Williams speaks in Half Moon Bay, Calif.
  • 12:40pm: Fed’s Lockhart speaks in Atlanta
  • 4pm: Fed’s Bernanke speaks in Ann Arbor, Mich.


    • Senate not in session, House in session
    • White House to push for comprehensive immigration plan
    • Agriculture Sec. Tom Vilsack speaks at American Farm Bureau Federation annual meeting


  • UPS prepares to end $6.9b TNT Express takover as EU wants to block deal
  • JPMorgan said to weigh releasing Whale rept faulting Dimon
  • Transocean says Icahn acquired 1.56% of shrs, wants more
  • Hostess names Flowers as lead bidder for bread business
  • Evans says Fed support needed while govt tackles deficit
  • Hedge fund leverage rises to most since 2004 as margin grows
  • EnCana CEO Eresman steps down, takes advisory role
  • Lockheed’s F-35 falls short of testing goals
  • Japan Airlines probes Dreamliner fuel leak as FAA holds review
  • BlackRock profit seen accelerating as ETF sales rise to record
  • China’s unexpected export surge spurs skepticism
  • Swatch buys Harry Winston jewelry brand for $1b
  • Saint-Gobain sells U.S. jar unit to Ardagh for $1.7b


    • Corus Entertainment (CJR/B CN) 7am, C$0.62
    • PPG Industries (PPG) 8:11am, $1.53
    • Cogeco Cable (CCA CN) After-mkt, C$0.88



CORN – fast short squeeze in Corn (+7% off the lows, up +2% this morning) after a bullish supply report from WASD (World Ag Supply/Demand) on Friday. Supply is a lagging indicator here, but with the long-term Commodity Bubble popping, volatility is much higher here than that implied by an oversold 13.36 VIX.

  • WTI Oil Trades Near Four-Month High on Seaway Pipeline Expansion
  • Hedge Funds Cut Bets to Six-Month Low Before Rally: Commodities
  • Gold Gains in London as U.S. Stimulus Signal Weakens Dollar
  • Crop Prices Advance After U.S. Supply Shrinks More Than Expected
  • Copper Rises as U.S. and Japan Signal More Stimulus Is Possible
  • Raw Sugar Falls in as Goldman Cuts Price Forecast; Cocoa Rises
  • Rebar Rallies Most in Three Weeks as China’s Economy May Rebound
  • Wilmar Boosts Africa Expansion With Palm Oil Refinery in Ghana
  • Goldman Sachs Turns Neutral on Commodities Seeing Advance of 5%
  • Argentine Corn Output May Rise to Record 24 Mln Tons, FAO Says
  • Russia’s Yuriev Opens U.S. Shale Fund as State Dominates at Home
  • Cotton Seen Climbing to $1 on Elliott Wave: Technical Analysis
  • Fish & Chips Battered in U.K. as Deluge Leaves Soggy Potato Crop
  • Chinese Steelmakers Boost Use of Domestic Iron Ore, Mysteel Says



YEN – getting very newsy here all of a sudden as A) the Yen hits my immediate-term TRADE oversold signal at $89.41 and B) Abe steals the top one-liner in the monetary policy world this morning stating he wants a “Bold new leader” at the BOJ (read, Money Printer who wants to live large in the Political Media spotlight like Bernanke).










CHINA – Most Read stories on Bloomberg this morn are all about Chinese growth and Japanese devaluation; Shanghai Comp ripped another +3.1% move to higher intermediate-term highs and the rest of Asian equities followed their lead (Indonesia +1.8% after leading losers at -2.4% last wk; Vietnam +12% is the best stock mkt in the world YTD).








The Hedgeye Macro Team




CHART OF THE DAY: Simpletons & Dunderheads


CHART OF THE DAY: Simpletons & Dunderheads - Chart of the Day

Simpletons & Dunderheads

“Our affairs are not conducted entirely by simpletons and dunderheads.”

-Winston Churchill


Per the Urban Dictionary, a “dunderhead” is, amongst other things, an idiot, dunce, numskull, or bonehead. With public opinion of him falling in early 1942, Churchill was irritated. Losing the war was one thing; being chastised by Ivory Tower academics was entirely another.


Singapore fell on February 15 (1942). It was death foretold – too few defenses, a weak commanding general, a demoralized garrison, and too savvy an enemy … Churchill had no need to resort to hyperbole… he informed Roosevelt that the fall of Singapore was the greatest disaster in our history.” (The Last Lion, page 484-485)


While the 113th United States Congress has yet to prove that it is the worst in free-market history (the 112th is a tough compare), it still has time. I’m just elated that these economic dunderheads of the #PoliticalClass have been out of this market’s way for the last few weeks. Geithner leaving and Congress being out of the way definitely helped the Russell2000 close last week at an all-time high.


Back to the Global Macro Grind


This is the first Global Macro morning that I can remember where the names Boehner and Reid aren’t in the Bloomberg’s “Most Read.” Today it’s all about Chinese growth (acceleration) and Japanese currency (debauchery).


Neither of those macro stories are new. That’s the point about consensus macro – by the time it becomes this newsy, the big moves in the related markets have already occurred.


From their intermediate-term troughs/peaks in November 2012 (as global growth stopped slowing):

  1. Chinese stocks (Shanghai Composite) are up +18%
  2. Japanese Yen (vs the US Dollar) is down -11%

Especially in the context of the SP500 and US Dollar Index being +8.7% and -2.1% from their respective November 2012 lows/highs, respectively, those are massive moves in Asian markets.


The move in Japanese Equities has been even more powerful than China’s. Since November 13th, the Nikkei225 is +25%! Krugman/Bernanke Playbook 101: burn your currency at the stake, admit nothing about it publicly, and point at the daily closing price of stocks.


How will what Jim Rickards coined the Currency War end? I don’t know. But it probably won’t end well. So, as you ride the bull of higher-lows and higher-highs in stocks out there, just keep that in mind. Remember, in Chaos Theory, our daily objective is to embrace uncertainty.


CONSENSUS WATCH: On Friday I highlighted the massive shift from bearish to bullish we have seen in US Equity market sentiment in the last two months. Today, it’s worth reminding you that the sentiment in Commodities has done almost the exact opposite.


Last week’s CFTC (futures and options) net long commodities figures revealed the following realities:

  1. Total net long positions down another -5.4% wk-over-wk to 654,443 contracts (down -51% from all-time highs in SEP 2012)
  2. Gold’s net long position dropped another -13% wk-over-wk to 92,115 (lowest level since August 2012)
  3. Corn’s net long positioned dropped another -15% wk-over-wk to 115,113 (lowest since June 2012)

In other words, when it comes to risk managing the Commodities Bubble, you are best served doing the exact opposite of what the hedge fund community is doing. This may be the most glaring intermediate-term example of BUY HIGH, SELL LOW I have seen in a decade.


Both Gold and Corn prices went up on that last week. What better bull case do you need other than consensus dunderheads who call themselves “smart” getting bearish? While we have deflated the inflation in commodity prices (CRB Index -8% from its SEP 2012 lower long-term high) for the last 3 months, that certainly doesn’t mean they can’t re-flate.


With the US Dollar Down hard last week (-1.2%), here’s where the beta-juice was to Down Dollar:

  1. Platinum +4.8%
  2. Corn +4.2%
  3. Coffee +4.1% 

At the same time, we saw some of the widest global equity market divergences (by geographic region) that we have seen in some time. Europe saw Germany down -0.8% on the week, but Italy was +3.2%. In Asia, Vietnam was +8.6% versus Indonesia -2.4%.


What do we simpletons do with all of this? We stay with the research and risk management process; we do our best to incorporate all of the real-time economic data and price changes (across multiple factors and durations) in our models;  and we keep moving.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST10yr Yield, and the SP500 are now $1, $109.98-111.48, 3.64-3.75, $79.39-79.98, $1.31-1.33, 1.84-1.97%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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The Macau Metro Monitor, January 14, 2013




After the Secretary for Economy and Finance Francis Tam said that some existing casinos will be entitled an increase to the number of live tables in operation, SJM executive director, Angela Leong, was quoted saying that SJM will soon apply for more gaming tables.  She also urged the government to accelerate the official land grant of SJM's land in Cotai.  While the company announced back in October 2012 that they had accepted the government's draft land concession for a 70,500 SQM plot in Cotai, the contract has yet to to be gazetted and made official.  SJM is the only concessionaire without a gazetted plot of land on Cotai. 



Previously reported HK firm being probed by Tiawanese prosecutors for allegedly carrying out large illegal money transfers on January 9 has been identified as a subsidiary of Melco Crown Entertainment.  Melco's head of corporate communications, Maggie Ma said " “Investigations are currently ongoing in Taiwan related to certain activities regulated by their banking regulations. We are not in a position to comment on the investigation.” However, she also said that “We believe our corporate activities are consistent with general market practice…None of Melco Crown’s corporate entities has been charged at the current time. If required, we will cooperate with the authorities.”



In order to east border congestion, mainland custom authorities are considering implementing HK-Macau visitor permits in the form of a card that can be read by automatic checkpoints. The proposed card format would replace permits in booklets that mainlanders are currently using to enter Macau. 



A new air route with daily flights was opened opened on Saturday between Taichung in central Taiwan and Macau by TransAsia Airways. 



Singapore authorities have introduced higher taxes on industrial and residential to reign in real estate prices, which have been rising despite a sluggish economy and previous government cooling measures. Stamp duty on residential property purchases is being increased from 10% to 15% for foreigners and corporations.  A 5-15% stamp duty is also being introduced for sellers of warehouses and factories occurring within 3 years of their purchase.


Industry data points are continuing to confirm our bearish stance on casual dining.


December’s employment data was suggestive of a sluggish month for casual dining, as we wrote a week ago.  Yesterday, Malcolm Knapp released his Knapp Track sales results for December, estimating that casual dining same-restaurant sales declined -1.3% versus the same month last year.  Traffic is estimated to have declined by 310 basis points versus December 2012.


In terms of two year average trends, the results imply sequential change of +10 and -40 basis points for same-restaurant sales and traffic, respectively.


Knapp noted that a calendar shift of Christmas day from Sunday to Tuesday led to a significant spread of 17.9% between week 4 and week 5.  The estimated Knapp Track same-restaurant sales number for the first four weeks was +0.9% versus -1.3% for the full five weeks.  The final accounting period number for December should be between those two numbers.





We believe that consensus expectations for several casual dining companies’ sales growth in FY13 are overly optimistic.  The year-ago comparisons in January and February are 3.3% versus 2.8% in December.  The price war that Darden has declared, likely commodity pressure, increasing health care costs, and changing competitive dynamics continue to weigh on the outlook for the group.                          


On a relative basis, we favor EAT over all other casual dining stocks.  Our top ideas on the short side are BWLD and DRI.



Howard Penney

Managing Director


Rory Green

Senior Analyst

Second-Hand Dealers

This note was originally published at 8am on December 31, 2012 for Hedgeye subscribers.

“There is little that the ordinary man of today learns about events or ideas except through the medium of this class.”



After spending plenty of time with common sense people (my family and friends) for the last week, I’ve reinforced an entrenched view in my thick hockey skull about America’s #PoliticalClass – they don’t get free-market liberty and/or economics.


By the 1960s, F.A. Hayek thought the same about Europe’s political elite but he was, as Joseph Schumpeter argued “in his review of Hayek’s Road to Serfdom, polite to a fault.” (Classical Liberalism and The Austrian School, page 119).


Particularly when I have to get up at this hour on family vacation, I’m not always polite; especially to politicians who are lying to me. When a Republican is arguing for a new calculation for “chained CPI” and a Democrat for changing the rules to raise the US Debt Ceiling, I’ll call them out for who they are (Hayek called them this first) – “Second-Hand Dealers in ideas.”  (The Intellectuals and Socialism, Hayek 1976).


Back to the Global Macro Grind


Want a deal on the #KeynesianCliff? Here’s the latest deal that encroaches on your liberty:


  1. SPENDING – after the US government has changed how they calculate inflation 9x since 1996, the Republicans Second-Hand Idea is to cut spending on old people and screw them over with an understated COLA (cost of living adjustment in Social Security). Both Bush and Obama did this with Bernanke – change the calculation for inflation so that there never is any inflation to report.
  2. DEBT CEILING – right on time with Hedgeye’s forecast that the US would bonk the debt ceiling by the end of December, Geithner “officially warned” Congress of the math (thanks for the early look buds). If you didn’t know why Pelosi wants Obama to have a veto (not having to have Congress vote on raising the US Debt Ceiling beyond $16.394 TRILLION), now you know.


Oh, and then there’s taxes – but who wants to read about #ClassWarfare and taxes anymore anyway? These second-hand Marxist ideas are as old socialism itself. As of this weekend, even the French Court agrees, saying “non, non” on 75% tax rates for les “riches.”


All the while, for the last few weeks (actually US stocks are down for 3 of the last 4 weeks taking December to-date for the SP500 to -1%; SP500 down -4.9% from the September YTD top), people are starting to freak-out about “what the cliff will do to the US recovery.”


Please don’t let these central planners freak you out. Fire them, and let them freak-out.


First Hand Idea: the only sustainable US economic recovery you are ever going to have is through Strong Dollar, Down Commodity Inflation. It worked for Reagan in the 1980s. It worked for Clinton in the 1990s. Keynesian Policies To Inflate didn’t work for Bush or Obama.


On the monetary policy side, getting Bernanke out of the way has helped – now we need to get Congress out of the way. So rise above the couch – and turn your TV off while these people perpetuate a crisis that they created. Don’t pay them a lick of your free time or respect.


To review, since Bernanke’s Top (September 14th, 2012) where he said he’d print to infinity and beyond:


  1. US Dollar Index = up for 10 of 14 weeks (making higher all-time lows, holding $78.11 long-term TAIL support)
  2. CRB Commodities Index = down -8.4% (easily the worst performing major asset class in the world over that time-period)
  3. Gold = down -13.1% in 3 months (yes, real inflation-adjusted economic growth stabilizing is bad for bonds and gold)


Yes, on the margin, that’s what I am talking about – bring on the spending cuts and stick a cap on that US debt clock while you are at it. That’s all good for the US Dollar. What’s good for the Dollar is bad for food and energy prices – that’ll be your real-time tax cut.


Expectations update on Bernanke’s Bubble (Commodities):


  1. CFTC Futures & Options net long positioning dropped another -11% wk-over-wk to 675,625 contracts
  2. CFTC net longs are now down -49.6% from their all-time high (1.34 million contracts) in SEP 2012, post Qe4
  3. Gold’s net long position fell another -9% last week to 101,922 contracts (lowest since August 2012)


As commodity inflation (real-world inflation as opposed to this cochamamy Keynesian concept of “chained CPI”) fell, real inflation-adjusted global growth stabilized. That’s not a Second-Hand Idea. That’s a fact:


  1. Chinese PMI manufacturing for DEC hit its highest level since May of 2011 (at 51.5)
  2. Chinese Stocks (Shanghai Composite) closed up another +1.6% overnight (up +15.8% in a straight line in DEC alone!)
  3. South Korean Inflation (CPI) dropped to a 4-month low in DEC (1st Asian inflation reading for DEC) to 1.4%


Do you think people in Asia who are trying to put food on their family table for the holidays care about what a politicized donkey is doing in D.C. this morning? Get real. They can think for themselves too.


Our immediate-term Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1636-1671, $109.71-111.48, $3.51-3.61, $79.52-79.97, $1.31-1.33, 1.70-1.78%, and 1397-1412, respectively.


From my family and firm to yours, we’d like to wish you a happy, healthy, and free 2013,



Keith R. McCullough
Chief Executive Officer


Second-Hand Dealers - Chart of the Day


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