Beach Time?

This note was originally published at 8am on June 11, 2013 for Hedgeye subscribers.

“I’m going to lie on the sand and watch the world go to hell.”

-William Bullitt Jr.


That’s not a very nice thing to say now is it? Young Yale men can get pretty emotional when they go out into the real world and get told they are wrong. In 1913, William Bullitt was voted the “most brilliant” man at Yale. I am not sure what that means, but trying to do a deal with Lenin probably changed his classmates’ minds on that, eventually.


Brilliant is as brilliant does. Yesterday may have been one of the best days to sell everything and go to the beach for the rest of the summer. I doubt it, but we’ll see. Every morning we reserve the right to change our mind. That’s the upside to not working for the government. Poor Bullitt (he was a rich kid from Philadelphia actually) didn’t share our self-deterministic luxury.


In 1919, “Bullitt and Steffens spent a wonderful week in Moscow: accommodation in a confiscated palace, piles of caviar, nights at the opera…” etc. Life was indeed #brilliant, until he came back to Paris and Wilson bagged his idea to appease the Bolsheviks. Lenin later recalled that the young American diplomats were “useful idiots” (pages 78-81, Paris 1919 by Margaret Macmillan).


Back to the Global Macro Grind


I don’t do beach. At least not now. I have work to do, a family to feed, and a firm to build. It’s mid-June and its really only the 2nd day in the last 6 months where I woke up thinking, wow – the world might actually start going to hell again.


When I say I “think”, I mean the Global Macro market’s interconnected signals are making me think. When I was Bullitt’s age (28 years old at the Paris Peace Conference) I wasn’t yet married and I thought in very different ways!


I was a lot more bullish on US Consumption oriented Equities < 1601 in the SP500 last week than I was 50 handles higher yesterday. At 11:02 AM EST I wrote a note titled “Sell Some: SP500 Levels, Refreshed.” The research view didn’t change; my risk signals did.


To review the what on that (which is usually more important than the why):

  1. SP500 signaled it’s 1st lower-high in my model in months (1662 resistance vs YTD closing high of 1669)
  2. US Equity Volatility (front month VIX) signaled a higher-low at 13.77
  3. US Dollar signaled immediate-term TRADE overbought on the open versus the Japanese Yen

Get the Dollar right, and you’ll get other things right. You don’t have to be brilliant to embrace the uncertainties associated with that. When I make big moves in either Real-Time Alerts or the Hedgeye Asset Allocation Model, it almost always starts with a USD signal.


Since we’ve already beached our asset allocations to both Fixed Income and Commodities (0% on both), our only risk management exercise this summer is deciding how big we get (and when) on this US Consumption LONG versus Commodities SHORT position.


For now, the intermediate-term TREND ranges for US Equities and volatility are as follows:

  1. SP500 = 1583-1662
  2. VIX = 13.77-18.98

Again, you’ll note that what’s new in that 2 factor model is:


A)     Lower-highs for US stocks

B)      Higher-lows for US equity volatility


Plenty will quibble with how my models work, and that’s perfectly fine with me. I don’t have time to do anything other than what we are already doing here at the firm. So my own risk is going to be doing more of that.


The beauty of operating from the opposite perspective as brilliant central planners who promise you certainty (Obama just called his freshly minted Keynesian, 42 year old Harvard boy, Jason Furman, “one of the most brilliant minds of his generation”) is Embracing Uncertainty. We have no idea what tomorrow is going to tell our model.


Here’s all I am certain about as of this morning (this could change by tomorrow, but probably not):

  1. Japan’s Weimar Nikkei is now bearish TREND (resistance = 13,849)
  2. Japanese Yen (vs USD) remains bearish TREND (resistance = 96.05)
  3. US Dollar Index remains bullish TREND ($81.21 = support)
  4. South Korea’s KOSPI is back to bearish TREND (resistance = 1968)
  5. Hong Kong’s Hang Seng is bearish TREND (resistance = 22,438)
  6. India’s BSE Sensex is bearish TREND (resistance = 19,692)
  7. Germany’s DAX is bullish TREND (support = 8112)
  8. UK’s FTSE is bullish TREND (support = 6281)
  9. Spain’s IBEX is bearish TREND (resistance = 8361)
  10. Russia’s RTSI is bearish TREND (resistance = 1472)
  11. Brazil’s Bovespa is bearish TREND (resistance = 56,191)
  12. Commodities (CRB Index) remain bearish TREND (resistance = 296)
  13. Gold remains bearish TREND (resistance = 1581)
  14. Old (Brent) remains bearish TREND (resistance = 108.31)
  15. Copper remains bearish TREND (resistance = 3.51)
  16. Japanese Government Bond yield (10yr) is bullish TREND (0.79% support)
  17. US Treasury Bond yield (10yr) remain bullish TREND (1.83% support)

And it goes on and on and on …


Multi-factor, multi-duration. That’s how we roll. And as you’ll quickly note, there are plenty of places to be bearish in this world. The problem with consensus US stock market bears in 2013 is that they weren’t bearish enough on many of these things – primarily because they weren’t bullish enough on US #GrowthAccelerating.


Gold and Sovereign Credits (Japan and USA) loathe growth. And while the Japanese won’t get real (inflation adjusted) economic growth in the end anyway, at least their Keynesian duo of Abe/Aso will get plenty of beach time. We can only pray that they lose their jobs fast. Never mind the beach, dealing with their and Furman’s “brilliance” every morning might just drive me to the bottle.


Our immediate-term Risk Ranges Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Nikkei, and the SP500 are now $1354-1413, $100.21-105.04, $81.21-82.42, 96.05-99.55, 2.14-2.26%, 14.07-17.69, 12440-13849, and 1624-1662, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Beach Time? - Chart of the Day


Beach Time? - Virtual Portfolio

Macro Tourists

“As they have come, so shall they go.”



In one of the more interesting chapters (Chapter 26: The End of The Ottomans) of Paris 1919 – Six Months That Changed The World, I found that prescient Middle Eastern history quote by Mustafa Kemal (Ataturk).


“In 1919, few foreigners had ever heard of him; four years later he had humbled Britain and France and brought into existence the new nation-state of Turkey.” (Paris 1919, page 369)


Ultimately, Ataturk’s vision for a more stable state was based on a simple belief that people are more apt to trust what they know. As confidence falls, foreigners are often the first to flee. That’s no different for most Macro Tourists investing in Emerging Markets.


Back to the Global Macro Grind


I think Kyle Bass coined the term Macro Tourist. It’s cute. I think he was alluding to people chasing Japanese Equities. It’s a clever term – it also annoys a lot of people who actually are what the term suggests.


Bass is a thoughtful guy, but since he only started investing on the buy-side in 2006, he’s hardly in a position to anoint himself the authority on all things Global Macro. So you can imagine why the prickly types like Dan Loeb felt pricked.


All personalities (including my own) aside, what Bass and Loeb are really calling attention to here is that we are all Global Macro Risk Managers now. If you believe in things like gravity, beta, and interconnectedness, that is…


The way we do Global Macro is A) as a team and B) from a math/theme perspective. At the top of every risk management morning, I’ll send the Top 3 Global Macro Risks that are trending in our model with some quant levels and thoughts.


Today’s Top 3 were China, FTSE, and Gold (I send this out at 6AM EST, every day):


1.   CHINA – down hard, then rumor, then bounce – Bernanke/Draghi type playbook for the Chinese as the entire world attempts to watch what we cannot see; Shanghai Comp closes -0.2%, #oversold, but crashing – bouncing on rhetoric doesn’t solve the long-term issues; TREND resistance = 2192


2.   FTSE – I learn the most during the bounces; this bounce in European Equities hasn’t seen 1 major index recapture any of my intermediate-term TREND lines; FTSE +0.8% to 6075, well below 6398 TREND resistance; DAX TREND line = 8014


3.   GOLD – bear market bounce of +0.14%; that’s not going to get anyone excited; neither will a 10yr UST Yield of 2.5% and a US Dollar recapturing $81.21 TREND support. Gold is turning into a good proxy for deflation – deflating Bernanke Bubbles, that is


I do this to help our Institutional clients contextualize immediate-term market moves within intermediate-term TRENDs. Consider them headlights. Some clients trade futures on them. Some provide immediate feedback/thoughts. Some probably just #delete.


Tourist or Global Macro pro, the market doesn’t care what you are. Mr. Market is going to correlate and frustrate; and he is usually working on a way to impose the most amount of pain, on the most amount of people, at the most inopportune time. #consensus


That’s why we Embrace Uncertainty each and every Global Macro morning. After the market issues its signals, it’s a lot easier to make risk adjusted decisions within a multi-factor, multi-duration, framework than it is to space out and watch consensus TV.


Global Macro TRENDs matter, because they tend to trend. Here are 3 new ones trending now:

  1. US Equity Volatility (VIX) is bullish TREND for the 1st time since October 2012 (new TREND support = 18.98)
  2. US Equity (SP500) intermediate-term TREND support of 1592 is broken
  3. Japan’s #WeimarNikkei has snapped her intermediate-term TREND line of 13,619

Will US Equities recover TREND support? Will front-month volatility break down through 18.98 VIX again? Will she stay or will she go? Oh, and what will be the catalyst? In the US, both Durable Goods and New Home Sales “expectations” look a tad high this morning.


Gold, Treasuries, and Emerging Markets blowing up aren’t the new TRENDs @Hedgeye to worry about. These are the ones that we proactively positioned you for. The real pin action is in signaling the new stuff.


Since we hockey players aren’t that bright to begin with, what we do is hire football players. My left-tackle is Darius Dale, and he and I tend to keep it pretty simple. We try our best to front-run shifts in the slope of growth and inflation lines.


Here’s what I mean by that:

  1. Local inflation is rising in some countries (Japan, Venezuela, etc.) whose currency is being debauched
  2. Gold and Emerging Market Debt are deflating via #StrongDollar and #RisingRates

In other words, some of the older Global Macro TRENDs are bumping into the new ones now. Correlation Risk is starting to whip around and volatility is starting to breakout. Macro Tourist or not, this makes getting the day-to-day tougher out there. So our advice this morning is still what it’s been for the last 3-4 weeks. Sell on strength.


Our immediate-term TRADE Risk Ranges are now (TREND bullish or bearish in brackets):


UST 10yr Yield 2.31-2.61% (bullish)

SPX 1 (bearish)

Nikkei 12,408-13,619 (bearish)

VIX 17.98-20.97 (bullish)

USD 82.19-82.98 (bullish)

Yen 96.05-97.91 (bearish)

Oil (Brent) 100.02-103.64 (bearish)

Gold 1 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Macro Tourists - Chart of the Day


Macro Tourists - Virtual Portfolio

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June 25, 2013

June 25, 2013 - DTR



June 25, 2013 - 10yr

June 25, 2013 - VIX

June 25, 2013 - dxy

June 25, 2013 - euro



June 25, 2013 - spx

June 25, 2013 - dax

June 25, 2013 - nik

June 25, 2013 - yen

June 25, 2013 - oil

June 25, 2013 - natgas

June 25, 2013 - gold

June 25, 2013 - copper


Vegas will likely post a double-digit gain in May gaming revenues.



Owing to an easy comparison and solid airport traffic, we estimate Strip gaming revenues may have climbed 14-18% YoY.  Of course, we are assuming normal hold for slots and tables.  Last May, the Strip held high on slots and low on tables. 


In addition to the easy table hold comparison, slot volumes were surprisingly low in May of 2012, down 6.7%.  Baccarat drop was also low, down 22% last year.  We expect to see that volumes were strong YoY in May, benefiting from those easy comparisons. 


Nevertheless, we would expect the Street to view the Vegas numbers favorably when they are released by the Nevada Gaming Commission in a couple of weeks.  Improving LV results over the near-term and the strong Macau performance of MGM Macau has us liking MGM on the long side of a trade.  Longer-term, we remained concerned with the demographics of fewer slot players domestically and the headwind that trend should provide.


Here are our projections for May on the Las Vegas Strip:



Trade of the Day: NSM

Takeaway: We sold Nationstar (NSM) at 2:55 PM at $36.65.

We bought NSM near the low of the day at 11:46 AM ($35.52) so that we can risk manage this idea proactively. Selling it for a 3% gain. We'll be back on the next buy signal.  Hedgeye Financial Sector Head Josh Steiner continues to be bullish on the longer-term idea, from a price.


Trade of the Day: NSM - NSM


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