TODAY’S S&P 500 SET-UP – June 5, 2013

As we look at today's setup for the S&P 500, the range is 21 points or 0.64% downside to 1630 and 0.64% upside to 1651.                           










  • YIELD CURVE: 1.83 from 1.85
  • VIX closed at 16.27 1 day percent change of -0.06%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, May 31 (prior -8.8%)
  • 8:15am: ADP Employment Report, May, est. 165k (prior 119k)
  • 8:30am: Nonfarm Productivity, 1Q final, est. 0.6% (prior 0.7%)
  • 8:30am: Unit Labor Costs, 1Q final, est. 0.5% (prior 0.5%)
  • 10am: Factory Orders, April, est. 1.5% (prior rev to -4.9%)
  • 10am: ISM Non-Manuf Composite, May, est. 53.5 (prior 53.1)
  • 10:30am: DoE Energy Inventories
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 2pm: Fed releases Beige Book


    • House Armed Svcs Cmte may vote on plan to buy 4 additional Littoral Combat Ships in fiscal year starting Oct. 1
    • 10am: SEC votes on proposal to require floating-share value for riskiest type of money-market mutual funds; rule would apply only to funds that buy corporate debt and cater to institutional clients
    • 1pm: Senate Indian Affairs Cmte holds roundtable on energy development on American Indian lands
    • 2pm: Bloomberg Government webinar on “The Outlook for Corporate Tax Reform,” w/ Bob Litan, dir. of research; Loren Duggan, dir. of legislative analysis; Patrick Driessen, taxation policy analyst
    • Missouri Republican Jason Smith wins special U.S. House election, keeping district w/ same party


  • Samsung wins patent case against Apple at U.S. ITC
  • Goldman said to pledge $500m to Alibaba as IPO looms
  • Penn West Petroleum to cut jobs, div. as CEO steps down
  • Fed’s Fisher urges QE reduction seeing end to 30-yr bond rally
  • AIG casts doubt on completing ILFC sale to China investors
  • SEC to vote on money-market mutual fund rules
  • HSBC faces New York lawsuit over alleged foreclosure violations
  • AB InBev judge refuses to block Modelo buyout in antitrust case
  • CFO optimism in U.S. rises to Four-Yr High
  • Apple was ready to “take or Leave” e-books, Penguin CEO says
  • Abe pledges legislative campaign to loosen Japan business rules
  • Australia’s economy expanded less than forecast in 1Q
  • Sprint voters should abstain on SoftBank bid, Glass Lewis Says
  • Euro-area 1Q GDP unrevised at down 0.2% in qtr
  • U.K. May services growth rose to highest since March 2012
  • Eurozone April retail sales down 0.5% M/m; est. down 0.2% M/m


    • Jos A Bank Clothiers (JOSB) 6am, $0.34
    • Cyberonics (CYBX) 7am, $0.43
    • Brown-Forman (BF/B) 8am, $0.46
    • Laurentian Bank of Canada (LB CN) 8:54am, C$1.24 - Preview
    • Saputo (SAP CN) 12:38pm, $0.73
    • Ascena Retail Group (ASNA) 4pm, $0.30
    • VeriFone Systems (PAY) 4:01pm, $0.47
    • Francesca’s Holdings (FRAN) 4:01pm, $0.26
    • Greif (GEF) 4:07pm, $0.69
    • AMERCO (UHAL) 4:16pm, $1.23
    • Dominion Diamond (DDC CN) 5pm, $0.05


  • Taurus Shuts Gold Fund on Investor Redemptions After Price Slump
  • Alcoa Junk Downgrade Is Rare Trauma for Dow Stocks: Commodities
  • Copper Swings Between Advances and Declines Amid Supply Concern
  • WTI Trades Near Four-Day High on Signs of Reduced U.S. Supply
  • Counting on Gold to Navigate a Currency Crash? Don’t Delay
  • Czarnikow Sees Sugar Surplus Falling 62% as Beet Output Declines
  • Sugar Gains With Czarnikow Seeing Smaller Surplus; Cocoa Climbs
  • U.K. Natural Gas Rises From 5-Month Low as Exports Boost Demand
  • Port Hedland Ships Record Iron Ore as China Boosts Demand
  • BP’s Oil Spill Deal Sours as Claims Add Billions to Cost: Energy
  • Shanghai Gold Exchange Volume Falls 44% vs. April Peak: BI Chart
  • Asia Naphtha Crack Narrows; BP Buys Fuel Cargoes: Oil Products
  • Adnoc Narrows Murban Premium; Refinery Margins Climb: Asia Crude
  • Commodities Daybook: Taurus Shuts Gold Fund on Redemptions
  • LME to Start Clearing in 2014 After 25 Years With LCH.Clearnet























The Hedgeye Macro Team












God's Hands

“You hold in your hands, the future of the world.”

-Raymond Poincare


Not to be confused with someone who does math (his famous cousin and mathematical genius Henri Poincare), Raymond was a lawyer turned politician. In France, that’s a potent mix. Poincare was President of France from 1.


The aforementioned quote is a friendly reminder that politicians have always thought that they can control your life. It was part of Poincare’s speech that officially opened the Paris Peace Conference in 1919. (Paris 1919: Six Months That Changed The World, pg 62)


Setting aside the fact that the Russians weren’t even at the conference, the comment reeks of the kind of political hubris that scares people. Today’s French President doesn’t scare me, but the people advising him and the President of the United States on economic and monetary policy do.


Back to the Global Macro Grind


I was spending time with clients in Pittsburgh yesterday and throughout the day I kept coming back to the conclusion that the biggest risk to the rally in US stocks is an un-elected central planner who has built a series of unintended consequences into our risk matrix.


Un-elected and un-accountable – his name, by the way, is Ben Bernanke. He isn’t a chaos theorist or mathematician either. Bernanke, like most Keynesian central planners who have never traded Global Macro risk in their life (actually Keynes did and lost 90% of his capital speculating on commodities in the late 1920s), fundamentally believes that he can bend and smooth gravity.


Markets obviously couldn’t care less what he thinks about defying the laws of physics. We’ve often used the thermodynamic metaphor of The Waterfall. Funds that have flowed into what appeared to be a calm and steady river of yield chasing and fixed income oriented securities are now approaching the point of entropy. A breakout in Treasury yields looks like Niagra Falls to me.


Most free market clients agree with me on this: A) we like gravity but B) we’re leerier when it happens to the anti-dog-eat-dog, anti-economic gravity, crowd fast! It’s all about the speed of the water (yields rising) now and there are a series of real-time risk management signals we are monitoring for velocity:


1.   US Dollar - #StrongDollar breakouts across intermediate and long-term durations have always front-run central planners and growth bears alike in this country. There has never been a sustainable US economic recovery (think 1 and/or 1) when the US Dollar didn’t rip alongside economic growth ripping. Treasury Bond yields rose, in kind.


2.   Gold and Oil – these are coincident and highly correlated (on an inverse basis to the US Dollar) real-time signals that anyone with macro historical context (that goes beyond a 5-10yr chart) will acknowledge as pro-growth signals. Gold hates growth. Falling Oil prices perpetuate US #GrowthAccelerating. So think about falling oil as entropy. #Speed


3.   US Treasury Yields – since Bernanke has opted to attempt to suspend economic gravity by marking the US Yield curve to model (not clear if he learned this from Tricky Dick Fuld or not), his decision to “taper” (whatever that means) is the equivalent of trying to smooth the flow of the Teton Dam on this day in 1976.


Huh? Yep, today in 1976, the Teton Dam collapsed. Big man-made structure built on false premise, evidently, too. Sound familiar? Engineers started to notice the dam was leaking ahead of time (the pool of “steady state” water was rising – real subtle hint!). And then boom! #Waterfall


To stay with the metaphor, the leaks are both economic data points and real-time market reactions to them. As US employment, housing and consumption data build the water level of, god forbid, rising growth expectations – both the dam and the government itself starts to leak.


Bernanke calls his leaks “communication tools”, or something like that. Since I don’t do the inside information thing from “consultants” in Washington, I depend on my engineers (analysts) who spend their time measuring crazy things like velocity, convexity, etc. at the proverbial dam’s bifurcation point.


Just to give you some key water levels on that:

  1. 2yr US Treasury Yield TAIL risk line = 0.27%
  2. 10yr US Treasury Yield TAIL risk line = 1.85%
  3. 10yr Japanese Government Bond TAIL risk line = 0.89%

So, you don’t have to be Raymond Poincare’s cousin or Albert Einstein to understand what is already happening here. And that’s the point – it’s already in motion folks – and if you want to try to arrest the speed of the decline of a waterfall (one that’s been bubbled up for say, 30 years, in this case) with your hands, you might want to dial up God himself for this one.


Because Bernanke’s political hands aren’t going to work.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX and the SP500 are now $1, $100.35-104.29, $82.46-83.51, 98.76-103.06, 2.08-2.22%, 14.17-16.93, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


God's Hands - Chart of the Day


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Trades of the Day: OIL & GLD

Takeaway: We shorted oil (OIL) at 12:00PM at $21.86. We also shorted gold (GLD) at 2:33PM at $135.09.

We've been waiting patiently for an immediate-term TRADE overbought signal to re-short oil on - here it is. Oil’s bearish TREND remains courtesy of #StrongDollar. As for gold, it remains mired in a Bearish Formation after failing at $1424 immediate-term TRADE resistance yesterday. We remain The Gold Bears. Bullish on Growth. 


Trades of the Day: OIL & GLD - oil.gld


Keith's Top-5 Tweets Today

Takeaway: A quick look at some of Keith's top tweets today.

What you need to be bullish on is $MD - get out there and love someone

@KeithMcCullough 2:41 PM


Treasuries still act like death; bond yields breaking out is a pro-growth signal

@KeithMcCullough 2:39 PM


At the highs of the day we shorted $OIL today - so we get the short selling thing - we like those that work

@KeithMcCullough 2:22 PM


I realize that some of you will feel uneasy being part of a cult, but wearing the frayed jorts is mandatory

@KeithMcCullough 9:28 AM


Just a friendly reminder to the housing bears - you said y/y US Home prices would be up +5-6%- already running 2x that

@KeithMcCullough 8:59 AM


Keith's Top-5 Tweets Today - twitter

Long CAT? Be Careful

Takeaway: The chart below suggests caution is in order for Caterpillar longs.

Long CAT? Be Careful - Cat 789D


For CAT longs, the renewed slide in iron ore prices should be a cause for concern. 


Recently, iron ore has been a key correlate for the relative performance of shares, as iron ore mine expansions are a major end-market.  We believe CAT and other capital equipment suppliers to resource-related industries are in the midst of a long and significant decline in demand as resource capital spending returns to normal (i.e. not far from depreciation) levels.


Long CAT? Be Careful - qqqqq2