TODAY’S S&P 500 SET-UP – January 28, 2013

As we look at today's setup for the S&P 500, the range is 23 points or 1.19% downside to 1485 and 0.34% upside to 1508.       















  • YIELD CURVE: 1.69 from 1.68
  • VIX  closed at 12.89 1 day percent change of 1.58%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Durable Goods Orders, Dec., est. 1.9% (prior 0.8%)
  • 8:30am: Durables Ex Trans., Dec., est. 0.9% (prior 1.6%)
  • 10am: Pending Home Sales M/m, Dec., est. 0.4% (prior 1.7%)
  • 10:30am: Dallas Fed Manf. Activity, Jan. (prior 6.8)
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2042 sector
  • 11:30am: U.S. Treasury to sell $32b 3M bills, $28b 6M bills
  • 1pm: U.S. Treasury to sell $35b 2Y notes


    • Deadline for FERC staff to respond to Barclays over $470m penalty for alleged manipulation of energy market
    • U.S. Comptroller of the Currency Thomas Curry delivers keynote address at American Securitization Forum
    • U.S., EU, Japan to request WTO judges investigate Argentina’s import restrictions; Argentina to ask WTO to set up panel to probe U.S. curbs on imports of its animals, animal products
    • Ryan says U.S. budget needs spending cuts, not increased revenue


  • Goods orders probably climbed as U.S. manufacturing stabilized
  • Boeing risks revenue of $5b on Dreamliner probe’s outcome
  • Japan’s Amari says mkts set currencies amid yen criticism
  • LodgeNet files for bankruptcy on Colony, DirecTV partner plans
  • J&J failed to forecast flaws leading to hip recall, jury told
  • China needs stricter rules on generic biologic drugs, group says
  • Barnes & Noble to cut 33% of stores over next decade: WSJ
  • Volvo to buy 45% of Dongfeng Motor Groups unit for RMB5.6b
  • U.S. air safety group urged tougher battery standards, WSJ says
  • ‘Hansel & Gretel’ top weekend N.A. film with $19m ticket sales
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • Canada Weekly Agendas: Energy, Mining
  • Fed Meeting, U.S. Jobs, Boeing: Wk Ahead Jan. 28-Feb. 2


    • Roper Industries (ROP) 7am, $1.46
    • Biogen Idec (BIIB) 7am, $1.46 - Preview
    • Rent-A-Center (RCII) 7am, $0.84
    • Caterpillar (CAT) 7:30am, $1.70 - Preview
    • Old National Bancorp (ONB) 9am, $0.23
    • International Rectifier (IRF) 4pm, $(0.51)
    • Integrated Device Technology (IDTI) 4pm, $0.04
    • J&J Snack Foods (JJSF) 4pm, $0.44
    • VMware (VMW) 4:01pm, $0.78
    • Seagate Technology (STX) 4:01pm, $1.29
    • Plum Creek Timber Co (PCL) 4:02pm, $0.29
    • Yahoo! (YHOO) 4:05pm, $0.28
    • Illumina (ILMN) 4:05pm, $0.41
    • Sanmini-SCI (SANM) 4:05pm, $0.34
    • BMC Software (BMC) 4:05pm, $1.02
    • Zions (ZION) 4:10pm, $0.41
    • Graco (GGG) 4:30pm, $0.60
    • Brookfield Canada Office (BOX-U CN) 5pm, C$0.37
    • NewMarket (NEU) 5:01pm, $4.11
    • Crane Co (CR) 5:15pm, $0.96
    • Celanese (CE) 5:25pm, $0.63
    • Steel Dynamics (STLD) 6pm, $0.14
    • Olin (OLN) Late PM, $0.35


  • Russia, Kazakhstan Expand Gold Reserves as Central Banks Buy
  • Hedge Funds Boost Bullish Bets by Most Since July: Commodities
  • Oil Trades Near Highest Level in Four Months on Economic Outlook
  • Copper Advances as Chinese Earnings Add to Revival Indications
  • Gold Trades Near Two-Week Low Amid Signs Economy Is Improving
  • Wheat Climbs Second Day After Tenders From Bangladesh and Jordan
  • Sugar Climbs as Bets on Lower Prices Reach Record; Coffee Falls
  • ICE to Start Iron Ore Futures as Market Grows on China Bets
  • Oil Bulls Ride Longest-Winning Streak Since 2006: Energy Markets
  • Indonesia Increasing Palm Oil Export Tax Seen Curbing Shipments
  • German Green Energy Push Bites Mittelstand Hand That Feeds GDP
  • Xstrata CEO Says Markets Not Best Route to Fund New Business: FT
  • Zinc Seen Climbing in Rebound From Average: Technical Analysis
  • Fonterra CEO Seeks to Reassure China, World on Milk Safety
  • India Imported 33% More Gold in January to Beat Tax, Group Says



















The Hedgeye Macro Team





The Macau Metro Monitor, January 28, 2013




According to LVS CEO Edward Tracy, Sands China has already received official approval for 200 additional live gaming tables.  Tracy didn’t say if the tables would be made available on time for the Lunar New Year holiday, which starts on February 10.


Meanwhile, Mr Tracy also announced today that Sands China would soon raise salaries. But he didn’t provide details.


The second tower of the Sheraton Macao Hotel, located at Sands China’s Cotai Central casino resort, was officially completed today. The tower is however still waiting for government approval to start welcoming guests. Sheraton Macao managing director Josef Dolp, the property could be up and running as early as next month, ahead of the Lunar New Year, pending government approval.



Sands China declared on Friday an interim dividend of HK$0.67 (US$8.6 cents) per share, payable on or about February 28.



According to the mayor of Zhuhai, He Ningka, the Gongbei border checkpoint expansion could be ready in a few months.  The expansion will almost double the Gongbei checkpoint’s capacity.  It currently handles 260,000 to 300,000 travelers a day, but in the future it will be able to accommodate up to 500,000 crossings. The Gongbei expansion will cost RMB400 million (MOP513 million).


The Barrier Gate, its counterpart in Macau, through which travelers must pass before or after Gongbei, can already handle up to 500,000 people per day. 



Macau unemployment rate for October-December held stable at 1.9% in comparison with the previous period (September-November 2012).  Total labor force was 357,000 and the labor force participation rate stood at 72.4%. Total employment reached 350,000, an increase of 500 over the previous period. 

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See and Show

“To see, and to show, is the mission now undertaken.”

-Henry Luce


Born in China to missionary parents, Henry Luce went on to graduate from Yale in 1920 and become one of the most influential multi-media content generators in world history.


In June of 1944 in Life magazine, Luce declared the following about America: “With the establishment of a firm lodgment on the continent, we are now the most powerful nation on earth.” (The Last Lion, page 847)


That’s one way to get Americans to like you. Another is calling it like it is. Now that central planners of the world have saved us from themselves (again), I wonder how Luce would characterize the new world order today.


Back to the Global Macro Grind


If there was another Luce born in China in the 21st century, she probably wouldn’t be able to publish what she really thinks about China’s role as a burgeoning super-power anyway. Power and influence have some ugly disclosures.


This morning China’s power-center is ticked-off (expressing it in their state controlled media) because the Japanese are adding 287 people to their military. That’s not a typo, 287. Since Japan’s armed forces number north of 225,000, what’s the point?


The point is that we are in a Currency War, and the Japanese continue to tick just about everyone from South Korea to China off. This isn’t going to end any time soon. Neither will the longstanding cultural differences between Japan and China. If we are right on how it ends for the currency debaucherers in Japan, the Chinese won’t be there to bail them out like they did Europe.


Last week, in what was nothing short of another fantastic one for US Equities (SP500 and Russell2000 up another +1.1% and +1.5% to fresh YTD highs, respectively), there were 3 major divergences in Global Equities:

  1. South Korea = KOSPI -2.1% (breaking TRADE and TREND support)
  2. Brazil = Bovespa -1.3% (holding TRADE and TREND support)
  3. China = Shanghai Composite -1.1% (holding TRADE and TREND support)

Now, when a market price snaps TRADE and TREND support in our model, we don’t buy-the-the-damn-dip. We wait and watch. When a market price holds TRADE/TREND support, we like buying those instead.


If you bought China on Friday (we’re long Taiwan via EWT), nice job. This morning, Chinese stocks ripped a fresh new YTD high, closing up another +2.4% at 2364 in Shanghai. That’s what bull markets do – they correct and climb.


South Korea’s stock market didn’t do that however. The KOSPI saw follow through selling overnight, down another -0.36% to immediate-term TRADE oversold within its freshly established bearish intermediate-term TREND (1961 = resistance).


Since the KOSPI is an important leading indicator in our multi-factor Global Macro model, what is this signal telling us?


In any risk management model with Chaos Theory at its core, the 1st answer to an early signal is ‘I don’t know.’ That might not sound as smart as someone who allegedly knows something about everything, but over the years the limits of my thick hockey skull remain readily apparent – so I’ll stick with Embracing Uncertainty.


The other big question you should be asking yourself is could we see a 6% handle on the US unemployment rate in 2013?


Remember, expectations of the Fed getting out of the way matter more than them actually doing so. Looking at this week’s Macro Catalyst Calendar, there will be plenty of data to consider on that front:

  1. Monday – Pending Home Sales and Durable Goods are both released for the USA
  2. Tuesday – Case Shiller Home Prices and US Consumer Confidence
  3. Wednesday – PMI (JAN), Q412 GDP, and the Fed’s decision/commentary on rates
  4. Thursday – US weekly Jobless Claims (and month end)
  5. Friday – US Employment Report (JAN) and the ISM report for January

And, as usual, the market has already front-run some of these considerations via its own expectations:

  1. US Treasury Bonds (10yr Yield) continued lower again last week, with the 10yr rising to 1.95% from 1.84%
  2. Gold continued lower last week, closing down another -1.7% in a broadly bullish Global Equity tape
  3. CRB Commodities Index continued to make a series of lower-highs, closing down -0.6% last week

Now I know some people are calling for both epic levels of inflation and the end of the world – but the good news is that we have neither of those two things, yet. Nor do we expect them before you have to report results to your investors at month-end.


What we have so far (and for the last 2 months really) is a Growth Scare, and it’s to the upside. How else can you explain another all-time high in the Russell2000 of 905 (all-time is a long time) and confirmed 5-yr lows in US Equity Volatility (VIX)?


To see and show our Top 3 Global Macro Themes (#GrowthStabilizing, #HousingsHammer, and #QuadrillYen) as they are happening helps illustrate that Global Macro A) works both ways and B) is interconnected. This is our mission, undertaken.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $111.75-114.28, $79.62-80.14, $1.32-1.34, 89.55-91.11, 1.88-1.98%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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Simpletons & Dunderheads

This note was originally published at 8am on January 14, 2013 for Hedgeye subscribers.

“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 $1642-1671, $109.98-111.48, 3.64-3.75, $79.39-79.98, $1.31-1.33, 1.84-1.97%, and 1459-1485, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Simpletons & Dunderheads - Chart of the Day


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