TODAY’S S&P 500 SET-UP – March 20, 2013

As we look at today's setup for the S&P 500, the range is 27 points or 0.67% downside to 1538 and 1.08% upside to 1565.            














  • YIELD CURVE: 1.69 from 1.66
  • VIX  closed at 14.39 1 day percent change of 7.71%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 15 (prior -4.7%)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC announces rate decision, releases summary of economic projections
  • 2:30pm: Fed Chairman Ben Bernanke holds news conference


    • Obama’s first visit to Israel; 3-day trip includes mtgs, news conferences with Palestinian Authority President Mahmoud Abbas, Jordanian King Abdullah II in Amman
    • 10am: Sen. Judiciary Cmte hold hearing on domestic drones, law enforcement, privacy issues
    • 11am: Interior Dept opens bids to lease 38.6m acres off coasts of La., Miss., Ala., for exploration that may tap 1b barrels of oil, 4t cubic feet of natural gas
    • 2:30pm: FAA Admin. Michael Huerta, NTSB Chairman Debbie Hersman testify at Senate Commerce Cmte hearing on FAA’s safety initiatives and the effect of sequestration
    • 3pm: Japan Intl Transport Inst forum on vehicle safety w/ speakers from NHTSA, Japanese regulator and Toyota


  • Bernanke seen keeping QE pace until 4Q as Fed meets
  • Freddie Mac sues BofA, UBS, JPMorgan for alleged Libor rigging
  • Europe weighs Cyprus’s fate after lawmakers reject bank levy
  • BlackRock’s CEO Fink says Cyprus is not major problem
  • HP holds annual meeting amid dismay over Autonomy purchase
  • Apple may face sanctions in privacy suit over document sharing
  • Hostess wins approval of asset sales of more than $800m
  • MF Global trustee reaches agreement with JPMorgan
  • Chesapeake trial over $1.3b bond call set for April 23
  • Wall Street may win swap-rule reprieve in House legislation
  • Vodafone said to be ready to accept lower debt rating on M&A
  • Yahoo may buy stake in France Telecom’s Dailymotion: WSJ
  • Norwegian Air plans follow-on order for stricken Boeing 787
  • Transocean “should have done more” before blowout, CEO says
  • Los Angeles to halt purchases of coal-generated electric power


    • Lennar (LEN) 6am, $0.16 - Preview
    • General Mills (GIS) 6:59am, $0.57
    • FedEx (FDX) 7:30am, $1.38 - Preview
    • Actuant (ATU) 7:30am, $0.37
    • Herman Miller (MLHR) 4pm, $0.28
    • Oracle (ORCL) 4:01pm, $0.66
    • Tumi (TUMI) 4:01pm, $0.26
    • Guess (GES) 4:03pm, $0.87
    • Jabil Circuit (JBL) 4:30pm, $0.54
    • Clarcor (CLC) After-mkt, $0.46


  • WTI Crude Oil Rebounds in New York After Biggest Drop in a Month
  • Arabica’s Allure Returning for Roasters After Rout: Commodities
  • Gold Trades Below Three-Week High as Investors Weigh Cyprus, Fed
  • Gold Falls From Three-Week High as Investors Weigh Fed, Cyprus
  • Wheat Gains on Signs of Increasing Demand, U.S. Weather Concerns
  • Biggest Exporter Australia Increases Iron Ore Forecast on China
  • European Council Votes to End Sugar Quotas in 2017, EU Says
  • Physical Lead Market Seen by Macquarie Under Downward Pressure
  • Rebar Rises for Second Day as Moving Average Signals Rebound
  • Milk Jumps to Record on New Zealand’s Worst Drought in Decades
  • Russia, Egypt Yet to Contribute to AMIS Farm-Commodity Database
  • Wheat Buying by Bangladesh to Climb as Price Drop Boosts Demand
  • Olam Shares Top Level Last Reached Before Carson Block Attacked
  • Arabica Coffee Gains as Roasters May Switch Blends; Sugar Rises          


















The Hedgeye Macro Team









American Progress

This note was originally published at 8am on March 06, 2013 for Hedgeye subscribers.

“He gave the nation the idea of American progress.”

-John Meacham


That’s what John Meacham wrote about Thomas Jefferson in his prologue to the latest brick I tackled on a flight yesterday to San Francisco, California: Thomas Jefferson: The Art of Power.


To his friends, who were numerous and devoted, Jefferson was among the greatest men who ever lived… to his foes, who were numerous and prolific, Jefferson was an atheist and a fanatic, a demagogue and a dreamer.” (Prologue xxiii)


Do you have a vision for your family and firm? Are you a dreamer? I am. And I’m damn proud of it too. Listening to politicians who don’t get liberty, free markets, and the purchasing power of success (#StrongDollar) has run its course. It’s a cycle. And so is American Progress.


Back to the Global Macro Grind


At this point, the sequential progress in the US Economic data from December 2012 to March 2013 is glaringly obvious. When my signals tell me to, I have no problem fighting the Fed. But I don’t fight the data.


From US Housing to Employment (they progressed first), to more coincident economic indicators like yesterday’s ISM Services report (best since 2011), the risk management question now isn’t “where do I sell?” It’s “could growth stabilizing become #GrowthAccelerating?”


We analyze a lot of “stuff”, but some of the more forward looking “stuff” comes in the form of new order growth:

  1. ISM Manufacturing New Orders accelerated from 53.3 in JAN to 57.8 in FEB
  2. ISM Services New Orders accelerated from 54.4 in JAN to 58.2 in FEB
  3. PMI Manufacturing New Orders accelerated from 58.2 in JAN to 60.2 in FEB

So, if you use that “stuff” (otherwise known as economic data), you’d answer yes to the question of recent American Progress. But these are new orders, what about new consumption growth tailwinds that we didn’t have in JAN or FEB?


How about Oil prices coming down? Amidst all of the #PoliticalClass fear-mongering about the spending problem they created, could Sequestration = Strong Dollar = Down Oil = Stronger real (inflation adjusted) Consumption Growth?


I’m no atheist, and my loathers can call me fanatic about this Strong Dollar Tax Cut idea all they want, but history sides with the Canadian on this front, bros. As you can see in today’s Chart of The Day, under both Reagan (1983-1989) and Clinton (1993-1999), American Progress was built on the back of a Strong Dollar, pro growth, recovery.


How does Mr Market score our theme of being long Consumption?

  1. US Healthcare Stocks (very much an American Consumption story) = +11.33% YTD (XLV)
  2. US Consumer Staples Stocks = +10.72% YTD (XLP)
  3. US Consumer Discretionary Stocks = +9.66% YTD (XLY)

Yes. All of those are beating what’s been a fantastic +7.9% YTD return for the SP500. And how does Mr Market score being short (or underweight) Commodity Inflation Expectations?

  1. US Basic Materials Stocks = +3.41% YTD (XLB is the worst performing Sector in the S&P Sector Model)
  2. CRB Index (19 commodities) = -1.35% YTD (awful relative to any major asset class)
  3. WTI Crude Oil = -1.4% YTD (having recently broke our $93.79/barrel TREND line of support)

OK. So being long Consumption growth and short Commodity exposures is still working. How is the end of the world trade going?

  1. Gold = down again this morning to $1574, = down -6.02% YTD
  2. US Treasuries = 10yr Yield up to 1.92% this morning = up +9.09% YTD

Again, if the world was going to end: A) all US economic data wouldn’t have gone from slowing to stabilizing to accelerating (look at the slope of the line) and B) Gold and Treasuries wouldn’t be losing you money in 2013 YTD.


I know, I know. People want to bring up what happened last year, and the year before that. I know, it’s like arguing with my college girlfriend. It was painful. But I got over it.


I don’t live a regressive life. I’m writing about American Progress because we have a tremendous opportunity here. What’s not only been happening for 3 months, but what could keep happening if the #StrongDollar setup remains excites me. It should excite you too.


Look at your screens. Markets are testing all-time highs. Be a leader. Be proud. Cut government spending. Get these people you already have on mute off TV. Let’s get back to what makes this country the most progressive that the world has ever seen. This is our chance.


Our immediate-term Risk Ranges for Gold, Oil (WTIC), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000 and the SP500 are now $1549-1584, $89.76-91.98, $81.76-82.38, 91.79-94.68, 12.21-14.63, 910-932, and 1519-1543, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


American Progress - Chart of the Day


American Progress - Virtual Portfolio

Psychological Ballet

“There’s a kind of psychological ballet: who will outstare who?”

-John Vaillant, The Tiger


Sound familiar? After a 3-day correction of 1% from the YTD high in the SP500, look into my eyes and tell me how you really feel. And “you should not suddenly turn tail because the scent of fear passes quickly.”


You must back off, slowly, slowly – especially if the tiger has a kill, or if she’s a mother with cubs: she makes a step, you make a step – you must not run away.” (The Tiger, pg 126)


To be clear, I remain bullish – and to the well known newsletter author (who sent me hate mail intraday yesterday) who wants me to roll-over and die… well, I say good luck. “Tigers will bluff-charge the same way bears do and, in most cases, all the tiger wants is an indication of submission.” (pg 150). If this market rips from here, I don’t want his apology – I just want him to publicly admit defeat.


Back to the Global Macro Grind


I know, I know – fights are breaking out and it’s getting gnarly out there. Old Wall guys sending me emails, former Perma Bulls going bearish – it’s all out there right now. It’s a Psychological Ballet. And I like it.


I also liked buying on red yesterday. We bought the SP500 (SPY) after seeing the low-end of our immediate-term Risk Range (1) tested and tried. After 3 straight down days for US stocks, the US 10yr Bond Yield is down a whole 3 basis points.


End Of World (#EOW) or correction? Who will outstare who into month and quarter-end?


Let’s drop the Siberian tiger stuff and getting into the Global Macro meat of the matter (currencies, countries, fear, etc.):


1.   CURRENCIES: the fulcrum piece of our bullish case on Asian and US #GrowthStabilizing remains the US Dollar. What Cyprus Storytelling gave us this week was an even Stronger Dollar, and Weaker Oil. The US Dollar Index is now up for 6 of the last 7 weeks and, not ironically, the CRB Commodities Index is down for 6 of the last 7 weeks.


2.   COUNTRIES: note that I wrote Asian and US #GrowthStabilizing; so, if you want to freak-out about Europe, just get over it and short Europe – but make sure you sell the right country (we prefer Italy, Russia, and France – in that order, short side). China’s Shanghai Composite ripped a +2.7% move overnight and Germany’s DAX is +0.8% testing 5-year highs. Not #EOW, yet.


3.   VOLATILITY: the epicenter of fear is in both the front-month and term structure of US Equity Volatility (VIX). I’ve written about this exhaustively for 3-months because I want to be Fading Fear (buying High Short Interest, Shorting Gold, Shorting Treasuries, etc.). Front-month VIX just failed at immediate-term TRADE resistance of 14.74 and has no support to 10.77.


I could always smell them. Now that they are sending me idle threats of hereditary right, I can see the Old Wall very clearly now. So what is it, gentlemen? To be long or short of stocks here? Buy or sell?  It really is an ok question to answer, transparently and accountably. I am watching you.


There are two categories of people when it comes to extreme situations… One gets scared first, and then starts thinking; the other starts thinking first and gets scared after the fact. Only the latter survives in the taiga.” (The Tiger, pg 155)


Having made over 2,000 long/short calls (all #timestamped, since 2008), almost 50% of the calls I have made have been on the short side. Inclusive of having to manage plenty of risk to the upside, my batting average on the short side = 79.12%. So A) unlike some of these pundits, I get things wrong and B) I have no problem shorting markets when my process tells me to do so.


Fear of fiction or perceived top-calling wisdoms only computes one way into my process – as contrarian indicators. If it’s the Italian Election or Cyprus that you fear, I am not scared. If you’ve been bearish the whole way up and it’s your reputation you fear, I don’t blame you.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, Russell2000, and the SP500 are now $1, $107.14-109.53, $82.61-83.29, 93.68-97.17, 1.89-1.97%, 10.77-14.74, 933-955, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Psychological Ballet - Strong Dollar   Strong America


Psychological Ballet - Virtual Portfolio

Footwear: Market Share By Numbers

Takeaway: Here’s who’s gaining share, who’s losing it, and who barely has their head above water. Hint – a) Nike, b) AdiBok, c) UnderArmour

Here’s a review of who’s gaining share, who’s losing it, and who barely has their head above water. Hint – a) Nike, b) AdiBok, c) UnderArmour


Here’s an overview of market share winners and losers, based on NPD’s monthly market share data.

a)      Nike Brand market share is parabolic. Brand Jordan and Converse are both healthy, but stable.

b)      AdiBok is a train wreck – both sides of the house. It’s a good thing that the brands have better allure outside the US.

c)       UnderArmour is barely UnderWater. The general trajectory of its market share change is positive, but still unable to sustain share above 1% of the US market.

d)      Puma is in a death spiral.

e)      New Balance continues to grind higher in regaining its position as one of the top five brands. Its share now exceeds Reebok and equals Adidas.


Nike Brand Market Share

Footwear: Market Share By Numbers - nikebrandmarketshare

Source: NPD


Brand Jordan Market Share

Footwear: Market Share By Numbers - brandjordanshare

Source: NPD


Converse Market Share

Footwear: Market Share By Numbers - conversemarketshare

Source: NPD


Adidas Brand Market Share

Footwear: Market Share By Numbers - adidasmarketshare

Source: NPD


Reebok Market Share

Footwear: Market Share By Numbers - reebokmarketshare

Source: NPD


UnderArmour Market Share

Footwear: Market Share By Numbers - underarmourmarketshare

Source: NPD


New Balance Market Share

Footwear: Market Share By Numbers - newbalancemarketshare

Source: NPD


Puma Market Share

Footwear: Market Share By Numbers - pumamarketshare

Source: NPD


Sentiment isn’t actually at the bottom of the sea but the Carnival brand image may be sinking.



Carnival has had a rough March so far, in share price and public sentiment. While sentiment has turned sour, it probably hasn’t bottomed.  We think the deterioration of its brand could be the lasting issue.  With the company still licking its wounds from the Costa Concordia tragedy, a compounding number of heavily publicized brand specific issues have further tarnished the brand.  Until sentiment bottoms and/or visibility improves, we’re not sure investors should be buying the thesis that this is just a short-term blip.


Multiple ship mechanical issues and an unrelenting media attack stemming from each incident have surely damaged the Carnival brand and potentially the whole cruise industry.  The timing of less publicized stories regarding a gastroenteritis outbreak at Grand Turk (Holland America Line, Princess Cruises, and Carnival Cruises) and a robbery that left two people dead (P&O Cruises) hasn’t helped.  Other cruise liners also have incidents in 2013 (e.g. Norovirus on Royal Caribbean’s Vision of the Seas; minor fire on Norwegian’s Getaway new build) but they have remained relatively shielded from the media and public.  In addition, there have been more cancellations.  Carnival Triumph today canceled 10 more cruise itineraries, which means service will not resume until June 3.  Carnival Sunshine canceled two European cruises to allow enough time to complete its dry dock and ensure its operations are fully improved.  All is well though because travel agents and Carnival management are working nonstop to reassure its clients and interested parties that these are one-off incidents and that all ships are safe.  Tired of those words? 


Investors have punished the stock, which has fallen 12% since the Carnival Triumph fire (February 10).  As we wrote in “CHART DU JOUR: CCL: IT COULD GET SMELLIER (2/14/13),” CCL could underperform the S&P 500 over the next month if we use the Carnival Splendor fire as a comp.  Thus far, CCL has trailed the S&P by 15% since February 10.




But all is good because Carnival is low balling guidance again, right?  Not so fast.  We think whisper expectations are for a beat.  Current 2013 Street EPS is at the high end of CCL’s guidance range of $1.80-$2.10 for fiscal year 2013.  Moreover, sentiment metrics haven’t been overextended to the bearish side.  The percent of buy/overweight analyst ratings have actually crept higher since December 2012.  Meanwhile, short interest is climbing out of a recent bottom.  






Before addressing the question of whether the brand is tarnished, some fundamental concerns were already emerging.  Onboard and other yield growth, which mitigated some of the net yield decline in 2012, may be slowing.  From a net yield perspective, this is troubling as CCL’s onboard and other yield as a % contribution to net yield recently grew to its highest level ever.  This could be an indication that the resilient and robust onboard spending by North Americans may be losing its ability to offset the thrifty spending by Europeans.  RCL’s onboard spending, on the other hand, while not immune, is less exposed to this.


The macro still looks ok for the cruisers so we may be looking at just a CCL issue.  US weekend (leisure) REVPAR is not suggesting a major pullback.  We track weekend REVPAR on a weekly basis and its R2 to CCL’s onboard & other yield is 82%.  




At 13x 2014 EPS, it is trading below its 5 year average valuation.  However, if the brand is indeed tarnished, revenue and EPS estimates might be aggressive.  Sentiment still has room to fall, in our opinion, and combined with a potentially less attractive fundamental backdrop suggests a much lower stock price.

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