Rolling the Bones

Client Talking Points


You may as well just "roll the bones" at the craps table to trade daily volume in the #WeimarNikkei. Overnight, Yen down -0.75% had Nikkei +2.7%, but that's still below our broken TREND line of 13,773. The USD/YEN pair needs to recover 96.35 TREND line now to matter in our model too. In other words, I’d fade today’s move.


Away from the Japanese gong show, Asia is really starting to slow in the aggregate. KOSPI and Shanghai Comp both closed -0.3% last night, despite the move in Yen/Nikkei.Meanwhile, Singapore posted an ugly export number of -4.6% year-over-year for May as well. More to be revealed.


Brent’s breakout (on USD breakdown + Syria) is not a good thing for the marginal rate of change in Consumption in our model. Brent is now back above my immediate-term TRADE line of $105.84 this morning too. That’s good for oil, not consumers. We are paying close attention to these unfolding developments.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Financials sector head Josh Steiner is the Street’s head bull on residential mortgage originator/servicer Nationstar, projecting $9 in earnings for the company in 2014.  This is well above the company’s own guidance range, which tops out at around $7.50. NSM had a successful start to the year as it won servicing bids on substantial mortgage portfolios.  They also reported significant increases in their profit margins on those portfolios, and double-digit increases in their own originations.  Housing prices are ramping significantly higher, as Steiner predicted, as demand continues to exceed supply in both new and existing homes.  Steiner says this quality mortgage company could ride the crest of a sustained wave of sector improvement.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.  


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

Three for the Road


Big day for $LINE energy on Tuesday as @HedgeyeENERGY goes through the "not so top 10" about Linn Energy ...



"He who lives by the crystal ball will eat shattered glass."
- Ray Dalio 


300 million: The number of pictures uploaded to Facebook every day via Instagram.


TODAY’S S&P 500 SET-UP – June 17, 2013

As we look at today's setup for the S&P 500, the range is 46 points or 1.34% downside to 1605 and 1.49% upside to 1651.                  










  • YIELD CURVE: 1.85 from 1.86
  • VIX closed at 17.15 1 day percent change of 4.51%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Empire Manufacturing, June, est. 0 (prior -1.43)
  • 10am: NAHB Housing Market Index, June, est. 45 (prior 44)
  • 11am: Fed to purchase $4.75b-$5.75b notes in 2018-2019 sector
  • 11:30am: U.S. to sell $30b 3M, $25b 6M bills
  • U.S. Weekly Rates Agenda


    • Two day G-8 Summit in Northern Ireland begins
    • House begins debate, voting as early as this wk on Farm Bill, possibly ending subsidies for farmers regardless of what they grow and replacing them with expanded subsidized crop insurance; measure proposes reducing food-stamp spending by $20.5b over 10 yrs, vs reduction of $4b in Senate-passed bill
    • 5-day pretrial hearing in case of Khalid Sheikh Mohammed and four other men accused of planning the Sept. 11, 2001, attacks
    • 8:45am: Energy Sec. Ernest Moniz keynote at EIA Energy Conf.


  • Rockwood to sell ceramics unit CeramTec to Cinven for $2b
  • GE lease unit said to order 10 of Boeing’s biggest 787 jets
  • Airbus wins A380 commitment for 20 planes valued at $8.1b
  • Paris Air Show seen w/ positive, wide-body focus
  • Smithfield investor urges producer to consider breakup: WSJ
  • Google said to negotiate with U.S. over data requests
  • Apple joins Facebook, Microsoft in outlining data requests
  • Facebook sends out invitations for event on “new product”
  • BP holders seek to sue as group over 2010 Gulf spill losses
  • Weyerhaeuser to buy Longview for $2.65b to add Timberland
  • Wells Fargo to begin 2nd Minnesota securities-lending trial
  • Telefonica denies AT&T made approach for takeover
  • CF Industries says one dead in Louisiana plant accident
  • Dole Food investors sue over CEO’s $645m buyout offer
  • Virgin seeks U.S. car-rental entry by buying Advantage
  • Citigroup, JPMorgan release May credit-card charge-off data
  • Sundance Energy will look to acquire more U.S. shale assets
  • “Man of Steel” takes $113m in year’s 2nd-best premiere
  • Tronox, Vringo, Zale among prelim. adds to Russell 3000
  • Housing mkt probably brightened in May: U.S. Wkly Eco Preview
  • 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, G-8 Summit, Paris Air Show, NBA: Wk Ahead June 17-22


    • Korn/Ferry (KFY) 4pm, $0.31


  • Soybeans Drop With Corn as Drier U.S. Weather May Boost Crops
  • Hedge Funds Cut Gold Bets as Paulson’s Loss Widens: Commodities
  • WTI Crude Trades at Nine-Month High on Mideast Unrest Concern
  • Copper Declines as Investors Await Meeting of Fed Policy Makers
  • Record Soybean Glut Is Seen Worsening as China’s Appetite Eases
  • Gold Falls Before Fed Meets as Investors Weigh Stimulus Outlook
  • Sugar Rebounds After Bearish Bets Reach Record; Cocoa Retreats
  • Rebar Advances to Highest in Three Weeks on Reduced Inventory
  • Serge Schoen Resigns as CEO of Louis Dreyfus Commodities
  • Money Managers Boost Crude Bets to 15-Month High: Energy Markets
  • Monsoon Covering India in Record Time May Boost Rice, Sugar
  • Smithfield Investor Urges Producer to Consider Breakup, WSJ Says
  • Minneapolis Wheat Premium May Double Amid Rain: Chart of the Day
  • Palladium Only Precious Metal That Hasn’t Surprised in LBMA Poll






















The Hedgeye Macro Team











Speed And Surprise

This note was originally published at 8am on June 03, 2013 for Hedgeye subscribers.

“He made brilliant use of speed and surprise on the battlefield.”

-Jack Weatherford


In Genghis Khan And the Making of The Modern World that’s how Jack Weatherford characterized the self-made boy (Temujin) who became the man (Genghis Kahn) on his battlefield for liberty and freedom from aristocratic rule.


“Year by year, he gradually defeated everyone more powerful than he was… Genghis Kahn conquered more than twice as much as any man in history… In American terms, the accomplishment of Genghis Kahn might be understood if the United States had been founded by one of its illiterate slaves who by sheer force of personality, charisma, and determination liberated America from foreign rule.” (Introduction)


Needless to say, I am loving this case study in human history. We aren’t all Keynesians yet.


Back to the Global Macro Grind


Got speed and surprise? How about that move in the last few hours of trading on a summer Friday into month end? With the US stock market down -1.4% on the day (only -2.3% from its all-time high), the US stock market bears claimed victory over the weekend.


Winning a no volume battle doesn’t mean they’ve won the war. Ironically enough, it was US #GrowthAccelerating to the upside (again) on Friday that drove the Fed fear (PMI 58.7 vs 49 last month and US Consumer Confidence hitting another new YTD high).


Context is always critical. To put the 2 hour selloff in perspective, this is what happened to markets in May:

  1. SP500 +2.1% to +14.3% YTD
  2. US Financials (XLF) +6.1% to +21.1% YTD
  3. Utilities -9.1% to +7.9% YTD

In other words, May was the best month of 2013 to be long US #GrowthAccelerating, and short the #GrowthSlowing trade.


To review why getting the slope of growth (accelerating or decelerating) matters to markets:

  1. When Growth Accelerates, Treasury Bond yields rise – Gold and low growth (high yield chasing) Equities weaken
  2. When Growth Decelerates, Treasury Bond yields fall – Gold and low growth (high yield chasing) Equities strengthen

And the speed really catches the growth bears by surprise when inflation slows as growth accelerates.


On that score, for 2013 YTD:

  1. #StrongDollar = +4.4%
  2. #CommodityDeflation (CRB Index) = -4.5%

Reminder - the highest multiples ever paid for US stocks have occurred when:


1.       Growth is accelerating

2.       Inflation is slowing


That was the mid to late 1990s. US Consumption Growth was ripping alongside #StrongDollar and then people ultimately paid way too much for the growth that became more a perception than a reality.


But there was speed and surprise coming out of the 1991-1992 recession too don’t forget. And, from a US economic cycle perspective, today is a lot more like 1992 than 1999.


During Clinton’s presidency, here’s what the American people had:

  1. Average US Dollar Index price of $97.89
  2. Average price of Brent Oil of $19.69/barrel
  3. Average pace of US GDP +3.5%

That last part of the equation is what I really care about next. What will the speed and surprise be on the downside for prices at the pump? Last week, the price of Brent Oil (lead pump prices by 3-4 weeks) dropped another -2.5% to -9.9% YTD. Alongside a ripping consumer confidence report from the University of Michigan in May (new YTD high), what did we hear from bears about that?




US Consumption bears (@DougKass) being rattled don’t matter as much as the speculators in the Oil markets. Last week’s CFTC (futures and options) data finally showed the 1st downtick in net long oil contracts since April 23rd. Oil bulls don’t like the idea of Bernanke getting out of our way either. There’s still a +217,531 net long position to burn off in Oil. Oh what a #TaxCut for consumption that would be.


I’m tired of our conflicted/compromised governments getting paid to burn our currency. Getting Bernanke out of the way is the most misunderstood bullish catalyst I can think of. #StrongDollar is already sniffing that out. There are huge benefits. It will pulverize the bubbles Bernanke has left – two of the biggest ones being Commodity Prices and 0% you earn on your hard earned savings accounts.


“As he smashed the feudal system of aristocratic privilege and birth, he built a new and unique system based on individual merit, loyalty, and achievement… Genghis Kahn insisted on laws holding rulers as equally accountable as the lowest herder … (Introduction, pg xix)” and with more speed and surprise, the American People I know best will surprise governments and bears on growth too.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1354-1410, $100.27-102.95, $82.91-83.79, 100.27-103.34, 2.06-2.19%, 14.27-17.21, and 1624-1653, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Speed And Surprise - Chart of the Day


Speed And Surprise - Virtual Portfolio

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

June 17, 2013

June 17, 2013 - dtr



June 17, 2013 - 10yr

June 17, 2013 - spx

June 17, 2013 - dax

June 17, 2013 - euro

June 17, 2013 - yen



June 17, 2013 - VIX

June 17, 2013 - dxy

June 17, 2013 - natgas

June 17, 2013 - gold

June 17, 2013 - copper

No Easy Money

“None of them are easy.”

-Justin Rose


Making money in Global Macro markets hasn’t been easy for the last 6 months. It hasn’t been easy for the last 6 years either. I doubt the next 6 weeks will be any different. None of this is easy.


Justin Rose turned pro in 1998 and won his first Major Championship golf tournament yesterday. Rose is still only 32 years old but he is a veteran of the game. He is a South African born Brit who lives in the US. He is highly respected by his peers. He is a grinder.


Usually it takes a while, but eventually most grinders in both this business and in life find a way to win. Progressively building a repeatable process that you can evolve is the key. There are no easy wins. You have to keep learning.


Back to the Global Macro Grind


Getting out of the way on the long side of both the US Dollar and the US stock market last week was another win for us. Today, with the Dollar and US Equity Futures up, we’ll probably get tagged with a loss.


But what is it that we do when we have a bad day? Do we fold on the process or do we embrace its challenges. Justin Rose was the 1st British player to win the US Open since Tony Jacklin (1970), and he won by shooting over par. Winning is always a challenge.


One day obviously doesn’t a TRADE never mind a TREND make – so today will be a critical one to test if it ultimately refutes or confirms what’s been developing out there in Global Macro for the last few weeks. This is all relatively new (and bearish for US stocks):

  1. US Dollar Index snapping $81.21 TREND support
  2. USD/YEN breakdown below 96.31 TREND support
  3. US Equity Volatility (VIX) breakout above immediate-term TRADE support of 14.52

Not unlike the greens at Marion Golf Club in northwest Philadelphia, there are plenty of elements striking down on us all at the same time out here. Whether it’s overnight buy-and-hope from Japan or gusts of wind slowing Chinese growth (Singapore Exports -4.6% y/y for May), it’s all out there. There’s No Easy Money.


At the same time as Down Dollar drove Up Oil (bearish for consumption) last week, we have a Syrian conflict to consider. We also have The Bernank’s almighty central planning to deal with this week. The latter scares me more than the former. Bernanke can, at any time, directly confiscate my ball and #StrongDollar theme. The dudes in Syria would at least need some lightning to get me off the course.


So what will our anti-free-market overlord say? Or better yet, what will he do? Will he say he will taper the green? Or will he allude to his Caddy Shack style gopher “communication tools” that can appear and disappear with a whisper of a Washington “consultant”?


Who knows (some in the aristocracy of connections actually do), but into Ben’s decision, here’s the bond market’s setup:

  1. US Treasury Yields (10yr) have bullish immediate-term TRADE support at 2.06%
  2. US Treasury Yields (10yr) have bullish intermediate-term TREND support at 1.83%
  3. Immediate and intermediate-term resistance for the 10yr are 2.27% and 2.41%, respectively

In other words, after another outstanding US weekly Jobless Claims report and US Retail Sales #GrowthAccelerating last week, economic gravity is pushing bond yields higher and Bernanke thinks he has to try to “smooth” that.


But how does a man bend and smooth gravity? And what would it mean, God forbid, if he just stopped with the nonsense of it all and just got out of the way? We are half a decade past the pin on an economic crisis that will only re-appear without tapering.


If he pushes out the tapering – he’s going to push down the Dollar. If he pushes down the Dollar, he is going to press oil and commodity prices higher. If commodities re-flate, real (inflation adjusted) US Consumption growth is going to stop accelerating.


But you already know that …


#StrongDollar is the path of least resistance to a sustained US economic growth recovery. And it’s getting less easy for Bernanke to spin the ball away from gravity’s hole using his anti-dog-eat-dogmatic government driver.


Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $105.84-108.66, $80.09-81.21, 93.56-96.31, 2.06-2.27%, 14.52-18.67, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


No Easy Money - Chart of the Day


No Easy Money - Virtual Portfolio

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.