The Simplest Things

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

“Everything in war is simple, but the simplest thing is difficult.”

-Carl von Clausewitz


In hindsight, the perma Bull/Bear War in markets gets scored that way too. After the big moves, reasons for victory and defeat become simpler to understand.


Being a market strategist isn’t simple. You need to get to simple conclusions before the market does. And the deep simplicity of it all is born out of the complex. That’s why process matters. I’ve been highlighting the thought process of American Foreign Policy strategist George F. Kennan for the past few weeks. On #process, Chapter 11 (“A Grand Strategic Education”) of Gaddis’ Kennan biography, is a beauty.


“Kennan was struck by Clausewitz’s emphasis on psychologically disarming and adversary; finding the point at which the enemy realizes that victory is either too unlikely or too costly… the assailant weakens himself as he advances.” (George F. Kennan, pg 235)


Back to the Global Macro Grind


Relative to our current strategy on the US stock market, the enemy is the bear. Having been bearish plenty of times myself, I respect the physiological disarming process, big time. There is nothing worse than being squeezed.


With the SP500 tacking on another +2% last week to a fresh all-time daily (and weekly) closing high of 1614, the enemy is starting to give up on some core positions. You can see that by analyzing the Top 3 performing Style Factors on a 1-month duration:

  1. High Short Interest Stocks – 1-month price performance = +6.2%
  2. Consumer Discretionary Stocks (XLY) – the top performing Sector Style on a 1-month basis = +5.6%
  3. Technology Stocks (XLK) – 2nd best to Consumer on a 1-month duration = +5.0%

In other words, with employment, housing, and consumption #GrowthAccelerating in April (versus the 1-month head-fake of data slowing in March), what’s leading this market’s bullish charge are the simplest things associated with a growth. Gold doesn’t like growth.


Looking back at late March and early April, what was fascinating to us was how quickly consensus bulls got bearish. Since we consider ourselves Non-Consensus Bulls, this is a self-serving (and convenient) way to look at the market, in hindsight!


One way to look at consensus is via the net long positioning in non-commercial futures and options contracts. Going into last week’s melt-up in US Stocks, here’s how consensus was positioned:

  1. Uber long Treasuries at greater than +196,000 net long contracts (one of the highest positions of 2013)
  2. Way low in SP500 net exposure at less than +2,000 net long contracts (lowest position of 2013)

Consensus positioning wasn’t new – it was trending that way as Treasuries trended (higher) and SP500 (lower) throughout the middle of April. Many got sucked into the “March data is weak” narrative. Makes sense. Consensus sprints toward the last data point, whereas macro context wins the race.


Now what? The April economic data is undeniably better vs March – and that’s more in line with the intermediate-term TREND of the data that we have been signaling since late November, early December:

  1. NSA Jobless Claims hit a 5yr low last week at 324,000
  2. Commodities (CRB Index) and Oil (Brent) prices are -4% and -6% year-over-year, respectively
  3. Bloomberg’s Weekly Consumer Confidence Reading hit a 5yr high at 28.9

Confidence? Who in God’s good name in this country is actually confident? Aren’t we all supposed to be calling for the next crisis that most missed calling in early 2008? If people were as confident as I am right now, they wouldn’t be buying Treasuries as they make another lower-high versus their all-time bubble peak (November 2012).


What drives confidence? Does employment, housing, and consumption growth matter? How about the price of your home and stock market portfolio going up double digit year-over-year for the 1st time since 2006? If you want to broaden market trends beyond 3-6 months to year-over-year (y/y):

  1. SP500 = +16.1% y/y
  2. US Home Prices (Core Logic) = +10.3% y/y
  3. Gold = -10.9% y/y

How are end of the world ads for Cyprus, BitCoin, etc. doing this morning? That’s a confidence factor too. Some market it as “social mood.” Others sell fear in more ways than one. As George Kennan wrote in the late 1940s (when people in America were right petrified of anything they couldn’t see):


“We are in a peculiar position of having to defend ourselves against mortal attack, but yet not wishing to inflict mortal defeat on our attacker… We must be like the porcupine who only gradually convinces the carnivorous beast of prey that he is not a fit object of attack.” (George F. Kennan, pg 235)


So be the porcupine. Eventually these beastly bears will stop trying to scare the hell out of you; the perma bid for Treasuries will recede; and fear (VIX) might be priced at 10, 11, or 12 by then too. Then, the simplest of things will be to sell high, smile, and go away.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX and the SP500 are now $1406-1489, $98.81-105.24, $81.74-83.12, 97.59-100.13, 1.71-1.82%, 12.36-14.39, and 1590-1624, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


The Simplest Things - Chart of the Day


The Simplest Things - Virtual Portfolio


The Macau Metro Monitor, May 20, 2013




Angela Leong, the Managing Director of SJM, says SJM Cotai will not only include the government granted 74,000 square meters, but will total 250,000 square meters after combining with her privately-owned land lot nearby.  "The land grant [of my own project] next to the SJM project has already been approved [by the government]...The project [on Leong’s land] will have a 4D theme park as I mentioned earlier and a budget hotel, as well as a children’s wonderland and other facilities," she said.  She stressed the theme park doesn’t include any gaming facilities. 


Angela estimated her project to cost around MOP10BN to be completed after 2017.  Although the two land plots are separated by a road, she said they will be technically combined after constructing connections between them.



LVS and MPEL are fighting in court over trademarks that use the words “Cotai Strip”.  In a judgement handed down on April 25 but made public last week, the Court of Second Instance has sided with MPEL and rejected Sands’ attempt to register the “Cotai Strip CotaiTravel” as a trademark.  The court said the expression is “ambiguous, generic and indefinite” and that it failed to distinguish LVS from other companies “that could produce or sell the same goods”.


In December 2011, the Economic Services Bureau approved the application by LVS to register “Cotai Strip CotaiTravel” as a trademark, but MPEL objected, taking its case to the Court of First Instance.  The Court of First Instance upheld the objection, and the Economic Services Bureau and LVS appealed against this ruling.

CHART OF THE DAY: Nose Diving Expedition


CHART OF THE DAY: Nose Diving Expedition - Chart of the Day

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Nose Diving Expedition

“I was very pleased to read a prediction that the price of gold will nosedive.”

-Ronald Reagan


Can you imagine if Obama got up in front of his old media paparazzi and talked about Gold like that? Reagan did in 1980. That’s because someone advising him actually understood the marketing message - #StrongDollar, Strong America. It’s pro-growth.


Instead of taking a victory lap on that and talking about the most bullish development in American Purchasing Power in a decade, let’s talk about how the IRS scandal is a “partisan fishing expedition designed to distract” Americans.


Distract us from what? Our liberty and freedom being encroached upon by conflicted politicians again, or Gold nose diving?


Back to the Global Macro Grind


If you’ve never been on a fishing expedition, I can hook you up with my peeps (Luch and RP). They’ll take you up into the bushes of Northern Ontario where you might want to bring a gun.


Word has it that this year’s Canadian black bear population could be massive. There’s lots of Gold up near Red Lake, Ontario. And with Gold -19.3% now for 2013 YTD, the Gold Bears are hungry.


What happens when a commodity bull comes across a hungry Gold bear on a camp trail in the dark? If for only behavioral observations, last week’s CFTC futures and options data might help answer that:

  1. Total Commodities net long contracts were up +1.1% wk-over-wk to +588,482 contracts
  2. Farm Goods saw the biggest net long buyers +15% wk-over-wk to +270,486 contracts
  3. Silver’s net long position was eviscerated (-72% on the week!) to +1,413 contracts

All the while, bears dog piled the total short position in Gold short contracts to its highest position ever (74,432 contracts).


So how is it that a bull becomes a bear in the downward dog pile position so fast anyway?


I don’t want anything to do with my nose diving into something like that.


How about stocks?


Last week’s #StrongDollar bulls brought the thunder, with both the US Dollar Index and the SP500 closing at fresh YTD highs. In the year that even a hockey player could do it, here’s the updated score:

  1. US Dollar +1.3% wk-over-wk to +5.6% YTD
  2. Commodities (CRB Index) -0.4% wk-over-wk to -2.5% YTD
  3. SP500 and Russell2000 +2.1% and +2.2% wk-over-wk, to +16.8% and +17.3% YTD, respectively

Get the Dollar right, and you get a long of other things right.


How about bonds?

  1. Treasury Bond Yields lagged again this week, big time, with the 10yr UST Yield rising to 1.95%
  2. UST Yield Spread (proxy for economic growth) widened by another 5bps wk-over-wk to +171 basis pts wide
  3. Financials (XLF) love it when Yield Spread widens like that; they’re already +6.7% for May

Sell in May and go away? If US stock market bears just sold Gold and/or Treasuries in May, they’d have nailed it.


What else is ripping in May?

  1. #StrongDollar, Strong Consumer Discretionary Stocks (XLY) = +5.4% in May and +21.3% YTD
  2. High Short Interest Stocks = +12.6% in the last month and +21.0% YTD
  3. Low Yield (Higher Growth) Stocks = +11.4% in the last month and +21.9% YTD

It won’t take Americans or their compromised politicians long into their yield chasing expedition to realize that people are bidding up #GrowthAccelerating as bear scraps are issued to the #EOW (end of the world) trade. You should be very please to read that.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $$1, $101.32-105.29, $83.18-84.71, 101.21-104.36, 1.88-2.01%, 12.13-13.81, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Nose Diving Expedition - Chart of the Day


Nose Diving Expedition - Virtual Portfolio


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

As we look at today's setup for the S&P 500, the range is 29 points or 1.47% downside to 1643 and 0.27% upside to 1672.










  • YIELD CURVE: 1.71 from 1.71
  • VIX  closed at 12.45 1 day percent change of -4.74%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Nat Activity Index, April (prior -0.23)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell $30b 3M bills, $25b 6M bills
  • 1pm: Fed’s Evans speaks on economy in Chicago
  • U.S. Rates Weekly Agenda


    • Obama aide: no cooperation in Republican fishing for scandal
    • Myanmar’s president, Thein Sein, visits White House
    • Financial Industry Regulatory Authority holds conf. on regulatory developments, FINRA’s priorities
    • Deadline for FDA to come up w/ regulations intended to help prevent outbreaks of foodborne illnesses
    • House Energy and Commerce panel holds hearing on health insurance premiums under Affordable Care Act, 4pm
    • Senate Judiciary marks up S.744, “Border Security, Economic Opportunity and Immigration Modernization Act,” 10am


  • Yahoo board said to agree to $1.1b Tumblr acquisition
  • Yahoo said to unveil Flickr updates
  • DirecTV said to be considering buying part or all of Hulu
  • Freeport death toll rises to 14 as CEO Adkerson arrives
  • Freeport said to meet Plains holders to salvage merger vote
  • SAC digs in as deadline nears for U.S. to file insider cases
  • JPMorgan holders led by chairmen-CEOs to vote on Dimon titles
  • Blankfein tells Welt euro breakup risk lower than year ago
  • Clearwire investors anticipate higher bid as Sprint vote looms
  • U.S. home sales probably rose toward 2009 high
  • Apollo, Harbinger subpoenaed on fixed annuity investments: WSJ
  • Morgan Stanley agrees to sell India wealth unit
  • GE Real Estate sells portfolio of Toronto properties to Slate
  • Pentagon seeks to move $9.6b to higher-priority projects
  • Amtrak, Metro-North service still limited or suspended in N.Y., Conn., after train derailment on Fri.
  • NYSE busts 1c/shr trades in Anadarko from late Fri.
  • North Korea test fires fifth missile in three days off coast
  • Gains in China new-home prices are growth challenge for Li
  • “Star Trek” is top U.S./Canada weekend film w/ $70.6m
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • Bernanke, BOJ, Dimon, IRS Probe: Wk Ahead May 20-25


    • Campbell Soup (CPB) 7:30am, $0.56 - Preview
    • Raven Industries (RAVN) 9am, $0.44
    • Urban Outfitters (URBN) 4pm, $0.29
    • TiVo (TIVO) 4:01pm, $(0.14)


  • Silver Plunges to Lowest Since 2010 as Gold Drops for Eighth Day
  • Gold Bear Bets Reach Record as Soros Cuts Holdings: Commodities
  • WTI Crude Oil Halts Three-Day Advance Amid Offensive by Syria
  • Corn Climbs Before Planting Report on Forecast for More Rainfall
  • Copper Falls in London on Speculation China Will Curb Property
  • Silver’s Weakness Is Overdone, Deutsche Bank’s Lewis Says
  • China’s Sugar Prices Fall as Stockpile Program Seen Too Small
  • Freeport Death Toll Rises to 14 as CEO Adkerson Arrives
  • Enron No Lesson to Traders as EU Probes Oil-Price Manipulation
  • Soybeans May Decline Below $10 as U.S. Farmers Boost Acreage
  • Aluminum Production Averaged 126,500 Tons a Day in April
  • Steak-Loving Japan Seen Propelling JBS Profits: Corporate Brazil
  • Rebar Falls on High Steel-Mill Output, Lower Raw-Material Price
  • Robusta Coffee Falls to 1-Week Low on Vietnam Sales; Sugar Drops






















The Hedgeye Macro Team












Are We Entering Into a New Phase of the Currency War? - Conference Call With Jim Rickards

Are We Entering Into a New Phase of the Currency War? - Conference Call With Jim Rickards - rickards2


We will be hosting an expert call featuring Jim Rickards, renowned author of Currency Wars: The Making of the Next Global Crisis, on Thursday, May 23rd at 11:00am EDT titled Are We Entering Into a New Phase of the Currency War?  Hedgeye hosted a call with Rickards on August 29, 2012 where he discussed the following:

  • Philosophical views on the Chaos Theory 
  • Obama's U.S. Dollar policy
  • Acceleration of the money velocity may be the key catalyst that leads to a tipping point in inflation
  • Contrarian view of the EUR/USD
  • The four horsemen of the USD apocalypse vs the upside in gold

This time around, Jim will update us on those views and provide his thoughts on the following topics:

  • The sustainability of USD strength
  • The bear market in Gold
  • Japanese monetary policy and the JPY
  • Where the EUR goes from here
  • The sustainability of emerging market and commodity currency weakness
  • If the global monetary regime is poised to be shaken up



To gain a better understanding of the global capital markets and their geopolitical drivers and what investment implications this will have looking forward.




James G. Rickards is Senior Managing Director at Tangent Capital Partners LLC, a merchant bank based in New York City, and is Senior Managing Director for Market Intelligence at Omnis, Inc. Mr. Rickards is a seasoned counselor, investment banker and risk manager with over thirty years experience in capital markets. 


Mr. Rickards' previously held senior executive positions at sell side firms (Citibank and RBS Greenwich Capital Markets) and buy side firms (Long-Term Capital Management and Caxton Associates) as well as technology firms (OptiMark). Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the U.S. national security community and the Department of Defense. He is the author of Currency Wars: The Making of the Next Global Crisis.




  • Date: Thursday, May 23rd at 11:00am EDT
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 478237#
  • Materials: will be distributed prior to the call

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