Just Say No

This note was originally published at 8am on April 02, 2013 for Hedgeye subscribers.

“Do not suffer your good nature to say yes when you ought to say no.”

-George Washington


Raising a firm is something I struggle with sometimes. I endemically trust people who are on my team. I want to believe they’ll succeed. With time, I’m learning that saying yes to everyone’s individual wants isn’t the way to accomplish the team’s goals.


Wants versus needs – it’s an interesting discussion I often have with myself. Do I need to hire? Do I want to grow? Do I need to get bearish? Do I want to be right? Why not just let the market tell me what to do?


On that score, the aforementioned quote inspired me last night. It comes from Chapter 1, “The Early Years”, of Volcker – The Triumph of Persistence. It hung prominently in Paul Volcker’s father’s office, and was “burrowed into young Paul’s brain” (page 15).


Back to the Global Macro Grind


From a behavioral perspective, yesterday was one of the many fascinating market days of 2013:

  1. On the open, the SP500 tested another fresh all-time high at 1570
  2. Into the close, the SP500 tested (and held) our immediate-term TRADE line of 1556 support

Did you chase the open (buy high)? Did you sell the close (sell low)? Or at both psychological pain points in the US equity market day did you Just Say No?


Selling on green and buying on red is a lot harder than it sounds. Sometimes I have to physically force myself to do the opposite of what I feel like I should do (I get up from my desk and go for a walk). For me at least, feeling anything about macro market moves is usually my first mistake. The second is not trusting my signal.


So, just say no buds – it’s ok, really (so is talking to yourself). Oh, and don’t forget to #timestamp all of those decisions so that you are accountable to every time your process answers, as my 3 yr old daughter asks, “yes or no?” Buy or sell?


The decisions I made yesterday were as follows:

  1. Sold 3 LONG positions on the open (OZM, FDX, and HOLX)
  2. Shorted 1 core short idea at 10:18AM (Basic Materials, XLB)
  3. Bought/Covered positions between 12:50PM and the close (CJES, EWM, IWM)

Now some will call that whatever they want to call that. I’m just calling it out as what I did. Whenever I do something, I consider the 2 big parts of our process (the Research View and the Risk Management Signal):

  1. Research View: on the margin, the ISM report released at 10AM EST was bearish (that’s why I sold FDX and shorted XLB)
  2. Quantitative Signal: both the SP500 and Russell2000 held immediate-term TRADE support (that’s why I bought IWM)

Within a 15 point (-0.7%) intraday move on a no-volume day (actually a big move considering how few and far between down moves in US stocks have been), you might just say that I said no to fear – and worked the top and bottom ends of my risk range, both ways.


Some call it trading. Others call it timing. Many call both trading and timing bad things – and for good reason. If I didn’t have a repeatable process to signal a probable risk range, I wouldn’t be risk managing intraday moves either.


No matter what I said yes or no to yesterday, now I have to deal with today:

  1. ASIA: mixed as Equity Indexes continues to make higher-lows and higher-highs; Yen overbought; Nikkei oversold.
  2. EUROPE: strong moves from important support levels for both the DAX and the FTSE on ok PMI data
  3. USA: US Dollar remains Strong Like Bull; 10yr Yield at low-end of our risk range; US Equity futures up

So, we’ll start the day with 13 LONGS and 8 SHORTS @Hedgeye. Two of those 8 SHORTS are Treasuries (TLT) and the Yen (FXY). And the question I have in my mind is why wasn’t I more aggressive getting longer?


It’s in my nature (no matter how bullish I am on US growth or stocks) to be relatively conservative in my net long positioning. But Mr Market doesn’t care about my nature. So I have to work on finding a way to just say no more to my natural instincts.


Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1592-1605, $108.95-111.44, $82.53-83.38, 93.07-96.12, 1.83-1.94%, 12.14-14.34, 935-955, and 1557-1572, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Just Say No - Chart of the Day


Just Say No - Virtual Portfolio


The Macau Metro Monitor, April 16, 2013




Visitor arrivals in package tours increased by 21.6% YoY to 803,934 in February 2013, attributable to the long holiday of Lunar New Year.  Package tour visitors mainly came from Mainland China (600,005), with 278,140 coming from Guangdong Province, followed by those from Taiwan (61,853); the Republic of Korea (38,318) and Hong Kong (35,912).  


There were 100 hotels and guesthouses operating at the end of February 2013, providing 28,122 rooms, up by 26.1% YoY; guest rooms of 5-star hotels accounted for 66.5% of the total.  The average length of stay of guests held stable from a year earlier at 1.4 nights.


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Predicting The Past

“We cannot predict where it might be headed in the future, but we can describe how it came to be in the past.”

-Eric Chaisson


First, my entire team’s thoughts and prayers go out to all of the people affected by the horrible act at the Boston Marathon yesterday.


Without having inside information, predicting an external event like that is impossible. So is consistently predicting tops and bottoms in markets. They are processes, not points. It’s my job to A) contextualize the past so that B) I put us in the best position I can for the future.


Yesterday’s market collapse started with more of what has been happening for months – commodities collapsing. Combine intermediate-term TREND collapse with an immediate-term external event and you run out of time and space into the market’s close. That’s why describing where we came from to reach an intraday capitulation like that is critical this morning.


Back to the Global Macro Grind


Historical Context:

  1. SP500 was immediate-term TRADE overbought into last week’s all-time closing high of 1593 (so we made sales there)
  2. CRB Commodities Index was already in a Bearish Formation going into yesterday’s open (bearish TRADE/TREND/TAIL)
  3. Gold was not only in a Bearish Formation into Friday’s close, it started crashing pre-open yesterday too

Crashes (20% peak-to-trough declines) are very bad. We don’t buy those. Predicting The Past on that score is actually quite easy. Old Wall calls it “catching a falling knife” for a reason. Unless you have a catalyst, “cheap” gets a lot cheaper during a crash in price expectations.


But the thing about the past, on both things that matter to our process (Research and Risk Signals) is that you can see it today. That’s why our Research and Risk Management Models often get lucky in not being long something like Gold, Energy, or Brazil on days like yesterday. A multi-duration, multi-factor, Research and Risk Management #Process makes its own luck.


Describing how Bernanke’s Bubble (Commodities) is deflating is actually quite easy. You simply have to accept causality in terms of what made Bubble#3 (Greenspan/Bernanke Bubbles #1 and #2 were Tech and Housing) to begin with. If you reverse that causal factor’s intermediate-term TREND (Dollar Up instead of Debauched), you start describing why the Commodity/Gold Bubble is popping.


Reviewing 2013 YTD:

  1. Gold Miners (GDX) are down -37% YTD
  2. Gold is down -18% YTD
  3. Copper is down -11% YTD

Freeport McMoran (FCX) is a Gold and Copper expectations proxy (that’s why we’re short it); it’s down -14% YTD. And Brazil’s stock market (the best liquid proxy for a country commodity index) is down -13.1% YTD. For the month-to-date (APR) alone, Basic Materials (XLB) and Energy (XLE) stocks are down -4.8% and -5.7%, respectively.


This is why describing where we are matters. It’s the #CommodityDeflation that’s been driving US Consumption expectations higher all year long too. Q: So on the biggest down day for both US stocks and commodities of the year, why didn’t I buy US stocks yesterday? A: it’s the signal – and, above all else, I respect the market’s Risk Management Signal.


For US stocks, let’s go through why I’m at 10 LONGS, 9 SHORTS @Hedgeye instead of sending you another “Buyem” email into the close:

  1. SP500 broke my immediate-term TRADE line of 1557 support yesterday (that was new)
  2. US Equity Volatility (VIX) broke out above my immediate-term TRADE line of 14.07 resistance yesterday
  3. S&P Sector Studies flagged 5 of 9 core Sectors broken on our immediate-term TRADE duration

Those 3 things, combined with a nasty volume signal (+32% vs my TREND avg), predicts plenty enough for me to do 1 thing in a situation like that (a situation I have seen many times before) – to simply wait and watch.


I’m not happy to miss a big US stock market open, but if I do, I know why I made that decision. Having sold into an immediate-term TRADE overbought signal of 1593, I’m more than happy to wait and see if the bulls recapture 1557. If they can, with intermediate-term TREND support for the SP500 (1515) and TREND resistance for the VIX (18.69) intact, predicting the past gets easier again.


My Macro Team and I will be hosting our Q213 Global Macro Themes Call at 1PM EST today. Please ping for the details. Our intermediate-term TREND to long-term TAIL Research Views will be the focus of that call. That always helps us contextualize what was confusing about yesterday’s immediate-term duration risk too.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, EUR/USD, UST10yr Yield, VIX and the SP500 are now $1, $100.21-104.79, $82.04-83.14, 95.87-102.11, $1.28-1.31, 1.69-1.76%, 14.07-18.69, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Predicting The Past - Chart of the Day


Predicting The Past - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 16, 2013

As we look at today's setup for the S&P 500, the range is 31 points or 0.99% downside to 1537 and 1.01% upside to 1568.   










  • YIELD CURVE: 1.50 from 1.46
  • VIX closed at 17.27 1 day percent change of 43.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8am: Fed’s Dudley speaks in Staten Island, N.Y.
  • 8:30am: Consumer Price Index M/m, March, est. 0.0% (prior 0.7%)
  • 8:30am: CPI Ex Food & Energy M/m, March, est. 0.2% (prior 0.2%)
  • 8:30am: Housing Starts, March, est. 930k (prior 917K)
  • 8:30am: Housing Starts M/m, March, est. 1.4% (prior 0.8%)
  • 8:30am: Building Permits, March, est. 943k (prior 939k)
  • 8:30am: Building Permits M/m, March, est. 0.4% (prior 3.9%)
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: Fed’s Evans speaks in Chicago
  • 9am: ECB’s Draghi speaks before European Parliament
  • 9:15am: Industrial Production, March, est. 0.2%  (prior 0.8%)
  • 9:15am: Capacity Utilization, March, est. 78.4% (prior 78.3%)
  • 9:15am: Manuf (SIC) Production, March, est. 0.1% (prior 0.8%)
  • 11:30am: U.S. to sell 4W bills
  • 12pm: Fed’s Duke speaks in Washington
  • 3pm: Fed’s Yellen speaks in Washington
  • 3pm: BOE’s King speaks in Washington
  • 4:30pm: API energy inventories
  • 5pm: Fed’s Kocherlakota speaks in Minneapolis
  • 5pm: BOE’s Haldane speaks in Washington


    • IMF issues World Economic Outlook, growth projection
    • House Energy and Commerce panel marks up approval bill for TransCanada Corp.’s Keystone XL pipeline, 2pm
    • FDIC Chairman Martin Gruenberg, White House Council of Economic Advisors Chairman Alan Krueger, House Financial Svcs Cmte Chairman Jeb Hensarling, R-Texas, speak at American Bankers’ Assn Government Relations Summit, 7:30am
    • Senate Judiciary panel hears from DOJ antitrust chief William Baer and FTC Chairwoman Edith Ramirez on enforcement of antitrust laws, 2:30p
    • Senate Commerce and Transportation Cmte hears from FAA Administrator Michael Huerta, NTSB Chairwoman Deborah Hersman on FAA’s progress on safety initiatives and the investigation of Boeing 787, 2:30pm
    • 3M IP lawyer Kevin Rhodes, former USPTO director Jonathan Dudas testify before Judiciary Cmte on abusive patent litigation, 2pm
    • Boston explosions kill 3, injure scores at marathon’s finish


  • Housing starts in U.S. probably increased as progress sustained
  • Gold selloff sparked by Cyprus-sale concern, Goldman says
  • Putin calls for stimulus as minister sounds recession alarm
  • IMF issues World Economic Outlook, growth projection
  • Energy Future proposes opening salvo as KKR, TPG seek 15% stake
  • Fairway Group seeks premium to supermarket rivals in U.S. IPO
  • AMR files bankruptcy-exit plan hinged on merger with US Airways
  • Gensler-Wheatley panel aims to end conflicts in benchmark rates
  • Blackstone-backed Senrigan’s fund said to lose 13% on Sundance
  • Twitter said to seek deals with Viacom, NBC to feature TV online
  • Glencore-Xstrata deal said to win China regulator’s approval
  • Facebook talking with Apple about new version of home software


    • BlackRock (BLK) 6:30am, $3.57
    • Wolverine World Wide (WWW) 6:30am, $0.55
    • Comerica (CMA) 6:40am, $0.68
    • Coca-Cola (KO) 7:30am, $0.44 - Preview
    • Northern Trust (NTRS) 7:30am, $0.72
    • US Bancorp (USB) 7:30am, $0.73
    • Goldman Sachs Group (GS) 7:30am, $3.87 - Preview
    • TD Ameritrade Holding (AMTD) 7:30am, $0.26
    • Johnson & Johnson (JNJ) 7:45am, $1.39 - Preview
    • WW Grainger (GWW) 8am, $2.75
    • CSX (CSX) 4:01pm, $0.40
    • Intel (INTC) 4:01pm, $0.41 - Preview
    • Yahoo! (YHOO) 4:05pm, $0.25
    • United Rentals (URI) 4:05pm, $0.48
    • Cathay General Bancorp (CATY) 4:30pm, $0.31
    • Fulton Financial (FULT) 4:30pm, $0.20
    • Linear Technology (LLTC) 5pm, $0.43


  • Gold Drop Splits Central Banks as Sri Lanka Sees Opportunity
  • Silver Slump Splits Hedge Funds From Ingot Hoarders: Commodities
  • Brent Crude Falls Below $100 a Barrel; WTI Lowest in Four Months
  • Gold Gains as 14% Plunge Seen as Overdone, Central Banks May Buy
  • Gold Slump Sparked by European Sale Concern, Goldman Sachs Says
  • Japan Gold Retailer Sees Purchases Double Today as Price Tumbles
  • Rebar Rises From Lowest in Four Months on Iron Ore Price, Demand
  • Glencore’s $30 Billion Xstrata Deal Clears China Approval Hurdle
  • Sugar Rebounds on Speculation Prices Fell Too Far; Coffee Gains
  • Wheat Erases Decline, Climbs as Much as 0.3% to $7.0125 a Bushel
  • Crude Supply Gains in Survey as Production Jumps: Energy Markets
  • Record Ship Lines in Brazil Fail to Erase Capacity Glut: Freight
  • Aluminum Rebound Seen as Opportunity to Sell: Technical Analysis
  • Commodity Index Investments Fell $900 Million, Citigroup Says






















The Hedgeye Macro Team












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  • LVS’s $4 billion and climbing investment in Sands Cotai Central has depressed its ROI
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