TODAY’S S&P 500 SET-UP – June 19, 2013

As we look at today's setup for the S&P 500, the range is 38 points or 1.26% downside to 1631 and 1.04% upside to 1669.                       










  • YIELD CURVE: 1.92 from 1.92
  • VIX closed at 16.61 1 day percent change of -1.13%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, June 14 (prior 5%)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC seen Fed Funds rate target between zero and 0.25%
  • Release of Fed’s Summary of Economic Projections
  • 2:30pm: Fed’s Bernanke to hold news conference on FOMC


    • 9:30am: Senate Appropriations Cmte panel on Joint Strike Fighter FY14 budget request
    • 10am: Natl Governors Assn., Natl Conf. of State Legislatures hold discussion of Marketplace Fairness Act, with 7 tech cos. making software to collect remote sales tax online
    • 10am: Senate Commerce, Science and Transportation Cmte hearing on improving passenger, freight rail safety
    • 10am: Senate Judiciary Cmte hears from FBI Director Robert Mueller at oversight hearing
    • 10am: House Oversight and Govt Affairs Cmte holds hearing on biometric ID use in fed govt
    • 2:30pm: Senate Commerce, Science and Transportation Cmte panel on airline industry consolidation, with reps. from US Airways, American Airlines


  • Google considering PE alliances amid buying spree
  • Icahn urges Dell to buy back shrs at $14 in revised approach
  • Dish won’t make new Sprint bid by deadline
  • Microsoft said to add Qualcomm as supplier for Surface RT
  • BC Partners to buy Springer Science for $4.4b
  • Shuanghui getting $7.9b financing for Smithfield bid: WSJ
  • Smithfield got another $34/shr bid prior to Shuanghui deal
  • GE sees $20b order tally from Paris Air Show: Aviation CEO
  • Tesla issues recall for some Model S vehicles
  • Netflix to expand streaming service to Netherlands by yr-end
  • GM says China luxury vehicle demand slower than expected
  • U.K. banker bonuses face decade delays in industry overhaul
  • HSBC cuts China growth forecasts to 7.4% in 2013 and 2014
  • Japan’s exports surge by most since ‘10 in boost for Abenomics
  • Porsche $2.6b hedge-fund suit moved to Hanover court
  • King loses final BOE vote as majority sees recovery strength
  • Cuomo said to win agreement for four upstate N.Y. casinos


    • FedEx (FDX) 7:30am, $1.95 - Preview
    • Actuant (ATU) 7:30am, $0.59
    • Finisar (FNSR) 4pm, $0.17
    • Steelcase (SCS) 4:01pm, $0.13
    • Jabil Circuit (JBL) 4:02pm, $0.54
    • Red Hat (RHT) 4:04pm, $0.31
    • Micron Technology (MU) 4:05pm, $0.03 - Preview
    • Clarcor (CLC) 5:30pm, $0.67


  • Timah Sees Tin Climbing 20% as Supply Curbed From Indonesia
  • Mining CEOs Punished as FTSE 100 Peers Keep Pay: Commodities
  • WTI Crude Advances to Nine-Month High as U.S. Stockpiles Decline
  • Copper Swings Between Gains and Drops Before Fed Meeting’s End
  • Hog Futures Rise in Chicago, Heading for Biggest Gain in a Week
  • Gold Holds Above Three-Week Low Before Fed Concludes Meeting
  • Arabica Coffee Gains as Investors May Start Buying; Sugar Slides
  • Rice Exports From Thailand to Advance as Support Prices Reduced
  • Carbon Rescue Seen Surviving European Panel Vote: Energy Markets
  • Aluminum Contango Widest in Four Years as Stockpiles Swell
  • Singapore Urges Naming of Firms After Worst Smog Since 1997
  • Argentina Banks on Railroads to Prolong Soybean Boom: Freight
  • Copper Slump Longest Since 2001 on Supply Gain: Chart of the Day
  • Corn Falls on Outlook for U.S. Supply and Signs of Weaker Demand






















The Hedgeye Macro Team











God's Hands

This note was originally published at 8am on June 05, 2013 for Hedgeye subscribers.

“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 1913-1920.


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 1983-1989 and/or 1993-1999) 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 $1355-1424, $100.35-104.29, $82.46-83.51, 98.76-103.06, 2.08-2.22%, 14.17-16.93, and 1624-1648, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


God's Hands - Chart of the Day


God's Hands - Virtual Portfolio

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Taper or Tighten?

“Start slow, and taper off.”

-Harry Truman


If I was Ben Bernanke today, that’s what I’d tell the world I am going to do. US consumption, employment, and housing growth supports a slow start to tapering. So does the Russell 2000 closing at an all-time high  of 999 (+17.7% YTD) yesterday.


As we often remind history buffs, all-time is a long time, and there comes a time (within all-time) when things start to change. Gold and Treasuries have already been front-running Bernanke on this. All-time lows in US Treasury rates are ending.


The beginning of the end of Bernanke’s financial market “innovations” is a good thing. I think most people in this country are tired of listening to politicians preface the need for their interference in our lives and markets with “what would have happened” if they didn’t save us from the problems they perpetuated. That’s now half a decade ago. Get over it.


Back to the Global Macro Grind


I spent the entire day meeting with our Institutional Clients in San Francisco, California yesterday. And I don’t know if it was something in the air (gorgeous day) or what, but investors down here are a lot more chill about the end of QE than some folks on the East Coast.


In most meetings, it seemed like a generally accepted reality that A) tapering expectations are in motion and B) this is potentially a pro-growth signal. In other words, tapering is becoming yesterday’s news. The next debate is about tightening.




Oui, oui, mes amis. This is what happens after the tapering – the tightening. And since every measure of consensus you can consider is not considering a Federal Reserve rate hike, that’s what my sharpest clients were asking me about; not what Liesman rehashes today.


Six months ago, consensus didn’t expect a tapering decision at the June 2013 Fed meeting. We did. That’s why we have 0% asset allocations to Commodities and Fixed Income.


The fundamental view wasn’t based on getting a whisper from a Washington “consultant.” It was based on the following forecast:

  1. US Dollar was going to stabilize and strengthen from Bernanke’s burning 40 year lows
  2. Commodity Prices would deflate from their 2011-2012 all-time highs
  3. US consumption, employment, and housing growth would enjoy that and surprise to the upside

That’s not a victory lap. That was just our call.


So the question now is where will we be 6 months from now?

  1. Will the US Dollar continue to make a series of higher-lows and higher-highs?
  2. Will Commodity Deflation remain a 2013 reality?
  3. Will the US Housing and Stock markets continue to add to their double digit YTD gains?

I think that if Bernanke starts slow and follows through with tapering through the fall, Americans will be ok with that. And when I say Americans, I mean the 95 to 99% of us who want:

  1. #StrongDollar
  2. Down Oil prices
  3. Appreciating home and equity prices

To be clear, the dudes who are riding the Bernanke Zero-Bound train (long Mortgage Backed Securities, Gold, Treasuries, MLPs, and whatever else it was that he jammed yield chasers into like mashed potatoes into a garden hose), do not want this.


But what % of the population cares about being long unproductive assets likes Gold (or depleting assets like an Oil and Gas MLP) and selling ads on Sirius satellite radio about the end of the world anyway?


The sad reality is that the 1-5% of Americans who need the #EOW (end of world) trade to work probably control 50% of the airtime. Oh, and by the way, they also get paid to fear-monger. That’s why their ratings suck. America gets it. We are the silent majority that tweets loudly on mute.


Our natural intuition is to prosper and grow.  We all know that waiting on the whim of a central planning overlord’s whispers about tapering is no way to live. It’s time to tighten our belts, hold ourselves to the future’s account, and stop fighting the last 5 year’s war.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Nikkei, and the SP500 are now $1, $104.55-106.64, $80.31-81.21, 93.27-96.17, 2.09-2.29%, 14.62-18.64, 121, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Taper or Tighten? - Chart of the Day


Taper or Tighten? - Virtual Portfolio

June 19, 2013

June 19, 2013 - dtr



June 19, 2013 - 10yr

June 19, 2013 - spx

June 19, 2013 - dax

June 19, 2013 - euro

June 19, 2013 - yen



June 19, 2013 - VIX

June 19, 2013 - dxy

June 19, 2013 - natgas

June 19, 2013 - gold

June 19, 2013 - copper






The performance of the Philippine casino industry in 2013 is so far meeting expectations, says Cristino Naguiat, the chairman and CEO of PAGCOR.  PAGCOR operates 13 casinos in the Philippines and is also the country’s regulator.  “I’m certain that the first five months of the year has been higher compared to the same period last year,” Naguiat said.

He estimates that the country’s gaming revenue will reach US$2.5 billion this year, up from US$2 billion in 2012.  “The bulk of that growth will basically come from Solaire Resort and Casino,” inaugurated in March, Naguiat said.  Naguiat expects annual casino gaming revenue in the Philippines to grow to US$10 billion by 2017-2018.


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