TODAY’S S&P 500 SET-UP – June 24, 2013

As we look at today's setup for the S&P 500, the range is 56 points or 1.66% downside to 1566 and 1.86% upside to 1622.                  










  • YIELD CURVE: 2.22 from 2.16
  • VIX closed at 18.9 1 day percent change of -7.76%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Natl Activity Index, May (prior -0.53)
  • 10:30am: Dallas Fed Manuf Activ, June, est. -1.8 (pr -10.5)
  • 11am: Fed to buy $3b-$3.75b debt in 2019-2020 sector
  • 11:30am: U.S. to sell $30b 3-mo. bills, $25b 6-mo. bills
  • 1pm: Fed’s Fisher speaks in London
  • U.S. Weekly Rates Agenda


    • Supreme Court begins what is scheduled to be the final week of its term and may rule on cases including:
    • Affirmative-action dispute over whether the University of Texas may consider race in admissions
    • Calif. initiative banning same-sex marriage, law denying federal benefits to legally married gay couples
    • Whether Voting Rights Act can require some states to get “preclearance” from federal government before changing voting rules
    • Obama meets with business leaders on immigration overhaul
    • Senate cloture vote on border-security amendment to immigration bill, 5:30pm
    • Senate Homeland Security and Governmental Affairs Cmte vote on the nominations of Howard Shelanski to be OMB administrator, Daniel Tangherlini to be administrator of the GSA, 5:30pm
    • Senate Homeland Security and Governmental Affairs Cmte hearing on “Curbing Prescription Drug Abuse in Medicare,” 3pm
    • Washington Weekly Agenda
    • U.S. demands Russia expel Snowden as he seeks Ecuador asylum


  • Vodafone reaches $10.1b deal to acquire Kabel Deutschland
  • Rio Tinto to keep diamond unit after scrapping sale plans
  • Google confirms FTC has contacted co. over Waze acquisition
  • China may fine-tune policy as cash squeeze threatens growth
  • Facebook working on newspaper for mobile devices, WSJ says
  • DZ Bank drops MBS suits against JPMorgan over ~$645m
  • BP acted w/gross negligence in 2010 spill, plaintiffs say
  • Apple CEO Cook adjusts bonus in shift to performance rewards
  • Fiat said able to triple Chrysler payout after refinancing
  • Hostess’s Twinkies back on store shelves nationwide in July
  • AIG revives plane unit IPO after extending China sale deadline
  • N.Y. lawmakers set aside bill threatening to cut Tesla sales
  • Gartner says PC, tablet, mobile shipments to rise 5.9% in 2013
  • ENRC founders, Kazakhstan make bid valuing miner at $4.7b
  • U.K. regulator said to study banks’ share-sale lockup waivers
  • Oracle to reveal plans for cloud-computing expansion, FT says
  • German business confidence rises for 2nd month on recovery
  • Obama to announce emission curbs on power plants tomorrow
  • Disney’s “Monsters,” with $82m, tops Pitt’s zombies
  • Autos probably led consumer spending up: 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
  • U.S. Supreme Court, EU Summit, Wimbledon: Wk Ahead June 24-29


  • Copper Leads Industrial Metals Lower as China Adds to Oversupply
  • Gold Wagers Slump as $55 Billion Erased From Funds: Commodities
  • LME Looking at Feasibility of Clearing Products in Yuan, Li Says
  • Brent Trades Near Three-Week Low on Concern China Growth to Slow
  • Gold Drops With Silver on Fed Outlook as Goldman Cuts Forecasts
  • Rubber Trades Near Lowest in Nine Months on China Demand Concern
  • Shanghai Rebar Falls on Liquidity Crunch and Stock Market Slump
  • Freeport Indonesia Set to Increase Open-Pit Mining After Restart
  • Indian Jewelers to Halt Gold Bar, Coin Sales to Retail Buyers
  • China Moves Production Overseas to Avoid EU Solar Duties: Energy
  • White Sugar Near 3-Month High on Limited Supplies; Coffee Gains
  • Copper Stockpiles at Decade High as Warehouses Lure Excess Metal
  • Gold’s 2 1/2-Year Low Extending Below $1,200: Technical Analysis
  • LME Woos China’s Metal Traders as Shanghai Vies for Global Stake






















The Hedgeye Macro Team
















The record haze may prompt more visitors to reconsider trips to Singapore.  Resorts World Sentosa has closed several outdoor attractions, while Wildlife Reserves Singapore, which runs the famed Singapore Zoo, said it had observed a small decline in visitor numbers.  Some inhabitants of Singapore, which number 5.3 million with foreigners accounting for about a third, are trying to escape the island state.  Skyscanner, a global travel search website saw a 22% increase in outbound flight searches last week compared with the same period in the previous week



Macau visitor arrivals increased by 9.1% YoY to 2,342,523 in May 2013.  In May 2013, visitors from Mainland China increased by 17.3% YoY to 1,491,231, mainly coming from Guangdong Province (643,267) and Fujian Province (67,609); Mainland visitors traveling under the Individual Visit Scheme (IVS) totalled 598,790.  Visitors from the Republic of Korea (33,113) increased by 5.8% YoY, while those from Hong Kong (540,056), Taiwan (61,988) and the Philippines (29,231) decreased by 0.1%, 21.4% and 0.7%.  The average length of stay of visitors held stable from a year earlier, at 1.0 day in May 2013.





Echo Entertainment Group Ltd, licensed to run Sydney’s only casino until 2019, plans to spend more than A$1.1 billion (USD1 billion) expanding the property to fend off a challenge from billionaire James Packer’s Crown Ltd.  The proposed extensions to Echo’s harborside Star casino include two new hotels and more than 50 bars and restaurants.  Echo also proposes making a A$250 million payment to the New South Wales government to extend its exclusive casino licence, it said. This comes after Packer last month unveiled rival plans for a A$1 billion hotel-casino project at Barangaroo, a development site southwest of the Sydney Harbour Bridge. 

Bullish Places

This note was originally published at 8am on June 10, 2013 for Hedgeye subscribers.

“Books can lie, but places never do.”

-Jack Weatherford


I love that quote. Jack Weatherford uses it in the Introduction to this epic book I am still reading – Genghis Kahn and The Making of The Modern World.  Politicians and market pundits can lie too, but markets are always scoring the truth.


Some will disagree and say that markets are often wrong. Agreed – if the market goes your way on the timeline that you outlined prior to taking your position, that is. Being positioned for what the market currently accepts as truth is the name of the game.


If you could be right every day, you would be. Very few will disagree with me on that.


Back to the Global Macro Grind


Last week’s employment data continued to drive home a very simple, but trending, score in 2013 – US employment and consumption growth is accelerating. This shouldn’t have been a surprise by the time you saw the sequential improvement in the payroll data on Friday. Our preferred leading indicator (non-seasonally adjusted rolling jobless claims) has been trending bullish for 6 months.


Every 3 months, we update our Top 3 Global Macro Themes @Hedgeye. This quarter I was definitely nervous about one of them. Making a call that US growth could go from stabilizing to accelerating was more of a question to us than it was a definitive answer. Throughout Q213 however, US employment, housing, and consumption data has improved, impressively.


To review - our Macro Themes for Q2 2013 are:


1.       US #GrowthAccelerating

2.       #StrongDollar

3.       #EmergingOutflows


Since the fulcrum factor in our trending themes remains the US Dollar, last week’s abrupt selloff in the US Dollar versus the Japanese Yen definitely mattered. An immediate-term TRADE does not an intermediate-term TREND make though, so this morning’s -1.25% reversal in that move to #StrongDollar’s benefit has me smiling again.


Alongside a big bounce in #StrongDollar versus Burning Yen, this is what you get pre-open:

  1. Gold and Silver down another -0.5-1.3%, respectively
  2. Copper and Corn down another -1.1-1.3% respectively
  3. US Equity Futures up another 6 handles, following Friday’s +1.3% bullish breakout back above 1624 SPX

If you are betting on growth, you’ve recognized that the market’s version of the truth is currently paying people who have embraced the non-consensus bullish case that #StrongDollar is a pro-growth signal. You can see that in the following trending correlations:

  1. USD vs SP500 (on our intermediate-term TREND duration) has a positive correlation of +0.81
  2. USD vs Gold (on our intermediate-term TREND duration) has a negative correlation of -0.72

Moreover, if you want to dig into the multi-factor, multi-duration update, these correlations have actually strengthened across multiple factors in the last month. In addition to rising US Treasury yields, here are some more pro-growth signals to consider:

  1. US Financial Stocks (XLF) are +4.2% in the last month vs slow growth Utility Stocks (XLU) at -4.5%
  2. Low Dividend Yield stocks (i.e. higher growth stocks) = +20.9% YTD
  3. High Short Interest stocks (i.e. the ones that squeeze hedgies shorting them on “valuation”) = +19.1% YTD

Again, the score in the book may very well feel like a lie to people who are still bearish on growth, but where this market has scored the game for 2013 YTD isn’t. I’m not a fan of investing alongside what people are “feeling” anyway.


Another score that is developing quickly here is that a #StrongDollar eventually drives underperformance in Emerging Markets.  We call this Theme #EmergingOutflows and it’s worth scoring this morning as well:

  1. MSCI Emerging Markets Index = down another -2.4% last week and -6.6% for 2013 YTD
  2. China’s Shanghai Composite Index = down another -3.9% last week and -2% for 2013 YTD
  3. Brazil’s Bovespa Index = down another -3.6% last week and -15% YTD

Investors we speak with on #EmergingOutflows fall into 1 of 3 camps:

  1. Bearish on everything (we aren’t) – so they think Copper and China going down is bearish for US stocks
  2. Bullish on Global Growth (we aren’t) – so they think they should buy Emerging Markets because they “look cheap”
  3. Bullish on US #GrowthAccelerating and #StrongDollar – so they are bearish on Emerging Markets tied to commodities

We’re obviously in the 3rd camp. Looking at this week’s contra-indicator camps (weekly futures and options contracts in the CFTC data) we’re still seeing Camp 1 A) buy Gold (weekly net long position +19% wk-over-wk) and B) short SPY (there’s still a net short position in SPY right now of -3,061 non-commercial contracts).


I’m not saying we’re going to nail the macro call in perpetuity. All I’m saying is that last week was one of the top 6 times in the last 6 months that you’ve had to re-load on the long side where it’s actually working. Bullish Places are as bullish does.  And, globally, they are getting harder and harder to find.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, VIX, and the SP500 are now $1364-1415, $100.27-105.25, $81.31-82.96, 96.05-99.98, 2.07-2.22%, 13.77-15.87, and 1624-1669, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Bullish Places - Chart of the Day


Bullish Places - Virtual Portfolio

Early Look

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June 24, 2013

June 24, 2013 - DTR



June 24, 2013 - 10yr

June 24, 2013 - VIX

June 24, 2013 - dxy

June 24, 2013 - euro



June 24, 2013 - spx

June 24, 2013 - dax

June 24, 2013 - nik

June 24, 2013 - yen

June 24, 2013 - oil

June 24, 2013 - natgas

June 24, 2013 - gold

June 24, 2013 - copper

Great Failures

“It was not the common people who were to blame for these failures…”

-Jack Weatherford


“Rather, it is the great ones among you who have committed these sins. If you had not committed great sins, God would not have sent a punishment like me upon you.”


Don’t worry, I’m not going to go all religious on you this morning. That’s just what Genghis Kahn told the elite of Bukhara after conquering their centrally planned city. “He then gave each rich man into the control of one of his Mongol warriors who would go with him and collect his treasure.” (Genghis Kahn and The Making of The Modern World, pg 7)


Maybe Bernanke and his central planning ideologues around the world should do a little summer reading on my man Genghis and reflect upon how plundering the purchasing power of free peoples ends…


Back to the Global Macro Grind


And over the #Waterfall bonds go. No matter where you think we were last week, here we are – lots of Global Macro tourists who didn’t respect the VELOCITY + VOLUME of the water approaching our bifurcation point (2.41% = the dam) = soaking wet.


So, to start, Hedgeye Risk Management will, in #OldWall style, “reiterate” the following Global Macro positions:

  1. 0% asset allocation to Commodities
  2. 0% asset allocation to Fixed Income
  3. 0% asset allocation to Emerging Market Debt and Equity

As the US Treasury 10yr Yield rips through our critical intermediate-term breakout line of 2.41% to 2.60% this morning, everything starts to happen a lot faster. The aforementioned 0% asset allocations were already in motion. We affectionately called Commodities, Bonds, and Emerging Markets #BernankeBubbles for a reason. When they pop, there’s no more flow!


If you’ve ever tried suspending yourself in mid-air after living in a bubble that’s popped, it doesn’t end well. Neither does living a centrally planned life where everyone in a so called “free-market” is at the beck and call of an un-elected man named Bernanke.


That’s all history now. If you didn’t know that the anti-gravity “smoothing” experiment using the most debt leverage in world history has another side of the trade (deflating debt, commodities, emerging markets, etc.), now you know.


There are two big potential drivers of asset deflation:

  1. #StrongDollar (US Dollar Index) from her 40yr low (in 2011 when Commodities and Gold peaked)
  2. #RatesRising at an accelerating rate from the 0% bound

No, it’s not the common people who are to blame for deflation. It’s the conflicted and compromised politicians who have been cheered on by those who get paid by Commodity, Fixed Income, and Emerging Market inflations whose bar tab is up.


Deflation? If you inflate a bubble to its max, there will eventually be deflation. And, yes, there will be blood. Deflation is only a bad word if you are long the thing that is deflating.


But can our institutionalized world of short-term price performance chasing handle a stronger currency and rising interest rates? Can we handle this thing call a long-term cycle turning?


And what would more of the same do to our insecure world?

  1. #StrongDollar (+3.2% YTD) = #CommodityDeflation (CRB Index -5.7% YTD), so more of that would be cool #Consumption
  2. #RisingRates (+48% YTD move in UST 10yr Yield) = bad for anything bonds, and good for my hard earned Savings Account
  3. A massively asymmetric shift in the way we have all been paid to invest and allocate capital for the last decade

In chaos theory, we call a big macro cycle turning a Phase Transition. Leading towards this current point of entropy, there were a series of what we call Emergent Properties warning us of a pending phase transition.


Some investors get hurt during phase transitions; some prosper. I have a great deal of respect for Bill Gross and what he has built at @PIMCO, but if you read his last 3 tweets, you can get a sense of who doesn’t win if this keeps happening.


Stop whining.


It’s time to start winning. The USA has never achieved what all these vaunted elites of economics peddle to you as the desired outcome of all this central planning (real inflation-adjusted economic growth) without a #StrongDollar and #RisingRates.


To be clear, there will be pain before we all prosper (that’s why we have been cutting our US Equity exposure for 3 weeks). In the early 1980s and the early 1990s, Great Failures in asset allocation became as readily evident as they are this morning:

  1. Emerging Markets (MSCI EM Index) = -5.6% last week and are now -14.7% YTD
  2. Latin America (LATAM EM Index) = -8.1% last week and is now -20.5% YTD
  3. Silver = -9.1% last week and is now -34.2% YTD

Whether it’s the commodity bubble or the emerging market debt bubble, it’s all the same thing. US Central planners committed the great sin of devaluing the hard earned currency of the American people – and now some have to pay the price for that.  The punishment happens the faster rates rise. And I don’t think The People want to go back to the zero bound all over again.


Our immediate-term Risk Ranges are now (new format!):


UST 10yr Yield 2.41-2.61%


VIX 16.16-20.45

US Dollar Index 81.21-82.69

USD/YEN Yen 96.54-98.76

Oil (Brent) 100.23-103.73

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Great Failures - ww. cd. waterfall


Great Failures - ww. porto

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