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Client Talking Points


So, China’s Finance Minister says they “won’t use large scale stimulus.” Take his word for it. Shanghai Composite led losers down -1% in Asia overnight. Meawhile, Singapore put up a nasty (ex-Oil) Export print of -8.8% year-over-year in June. What that says is ex-Japan Asia #GrowthSlowing.


Everyone and their brother are trying to front-run Ben Bernanke breathing appointments at this point. It's sad, but that’s the reality. CRB Index up +0.6% yesterday with Gold, Oil, etc chasing higher on a -0.7% US Dollar day. Will Bernanke be dovish enough? We shall see. But this is a certified central planning expectations circus; EUR/USD TAIL risk line is 1.31. That could go either way.


Copper down -1.1% on the China reality-check (short CAT again on that too). But Brent is still pinning her hopes on Benny. $109.40 last is above our long-term TAIL line of $107.86. That's important. The net long position in futures/options for everything crude oil has gone hog wild; over 325,000 net longs! (biggest long lean of the year).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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. 


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road


Goldman upgrades $LINE $LNCO to Buy. We reiterate Sell.



"We keep kicking the can down the road. But maybe now we're at the point where the can is kicking back"

- Jim Chanos


$487.9 Million: The total amount in fines and penalties Barclays and four former traders must pay in an order tied to an investigation of alleged manipulation of energy markets. (Bloomberg)

Heaven and Power

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

I am quite unable to see why Heaven or any other Power should object to our telling the Moslem what he ought to think.”

-Arthur Balfour


It’s no wonder why history remembers Lloyd George’s decision making process in Paris in 1919 as so politically conflicted and morally confused. Balfour (British Foreign Secretary 1916-191) and Henry Wilson (George’s chief of the British Imperial Staff) would almost come to blows on big imperialist planning topics (like what to do in Turkey).


Also overlooked were the Turks themselves. Almost everyone in Paris assumed that they would simply do as they were told. When Edwin Montagu, the British Secretary of State for India cried, “Let us not for Heaven’s sake, tell the Moslem what he ought to think, let us recognize what they do think.” (Paris 1919, Six Months That Changed The World, pg 380)


Does getting a bunch of pompous politicians in a room in Paris solve or perpetuate the world’s long-term risks? Post WWI, the answer to that was a disaster. There’s no reason to believe that trying to centrally plan the Egyptians or Portuguese this morning is going to be a success story either. Our centrally planned world is long of political arrogance and short of human empathy.


Back to the Global Macro Grind


From a globally interconnected risk perspective, this morning is one of the uglier ones I’ve seen in the last few months. It’s not just Egypt jamming oil prices up and Portuguese bond yields blasting higher either. Here’s what’s going on:


1.   ASIA – Indonesian stocks (-3%) and the Hang Seng (-2.5%) led a broad based ex-Japan meltdown in Asian Equities overnight. China printed another miss on the Services PMI front (53.9 vs 54.3) in June and it has become clear that Asian #GrowthSlowing is a reality. Every single Asian Equity market other than Japan is now bearish TREND @Hedgeye.


2.   EUROPE – Greek stocks continue to crash this morning (-30% since May 17th); Portugal’s stock market is down -5.7% (10yr bond yield in Portugal tested 8% for the 1st time since November); and the rest of European major Equity markets are trading straight down (Spain -3%, Germany -1.8%, etc); every European Equity market remains bearish TREND @Hedgeye.


3.   CURRENCIES/COMMODITIES – Dollar down small so far, and that’s not a good thing for US Equities (6mth correlation between SPY and USD = +0.76); Brent Oil is testing a breakout back above its $104.95 TREND line @Hedgeye this morning – any sustained close above that price could impose a sequential tax on global consumption in July-August.


Then of course you have Snowden banging around in Bolivia with Morales (or will they be dining in Vienna this evening?) as Obama fans try to put out multiple fires, including another delay on Obamacare.


What on earth could possibly go wrong?


They begged for (and obtained) a mandate for global central planning and now we’re going to have to deal with their mess. How much longer this can continue is anyone’s guess. All the while, there’s one mother-load of their sovereign debts we can short while we wait.


Under our new Global Macro Theme (that was born out of a Q2 one #EmergingOutflows) we are going to roll with emerging #DebtDeflation here in Q312. Yesterday we re-shorted the iShares USD Emerging Market Debt Bond Fund (EMB) and we’re looking forward to introducing a whole new bag full of short ideas in our upcoming Q3 Hedgeye Macro Themes Call. Basically, short politicians.


So if you can’t buy Sovereign Storyteller’s Debt – and you can’t buy Asian or European Equities, what’s left?

  1. US Dollars
  2. US Equities
  3. Beer, Wine, etc.

It’s a good thing US Equity markets close early today. You can get an early start on allocating some of your hard earned 2013 US Equity gains to option #3.


Since we have 26% of the Hedgeye Asset Allocation in US Dollars this morning and only 14% in US Equities (60% is in Cash, which means 0% allocations to International Equities, Fixed Income, and Commodities), we don’t feel like we’ll look entirely naked if the tide rolls out on our 1592 intermediate-term TREND line of support for the SP500 either (5 LONGS, 4 SHORTS @Hedgeye).


Buying anything US Equities is no way to live. Utilities (XLU) versus Consumer Discretionary (XLY) already has a +215 basis point performance spread for Q312 to-date (Utilities -1.28% vs Consumer Discretionary +0.87%). Don’t forget that #StrongDollar and #RisingRates punishes Yield Chasers, people investing in MLPs that can’t pay their dividend (LINE), etc.


As for Heaven and Power, and for the Moslem and Canadian out there that some American central planner wants to pass personal judgment on next, well – on this 4th of July, I’ll be betting on the men and women who will fight for their freedoms, all day long.


Our immediate-term Risk Ranges are now:


UST 10yr 2.41-2.63%

SPX 1599-1627

DAX 7686-8061

VIX 15.31-17.97

USD 82.78-84.04

Oil 100.22-104.95


Happy 4th of July, and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Heaven and Power - Bond Price Deflation


Heaven and Power - vp 7 3

July 17, 2013

July 17, 2013 - dtr



July 17, 2013 - 10yr

July 17, 2013 - spx

July 17, 2013 - dax

July 17, 2013 - dxy

July 17, 2013 - oil



July 17, 2013 - SHCOMP

July 17, 2013 - VIX

July 17, 2013 - yen

July 17, 2013 - natgas

July 17, 2013 - gold
July 17, 2013 - copper


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.

Pain's Delusion

“The greatest obstacle to pleasure is not pain; it is delusion.”



When I read that in The Swerve (pg 196) I couldn’t stop drawing the analogy between the 14-16th century Vatican and the US Federal Reserve. That might sound a little out there for you this morning, but Bernanke’s fear-mongering dogma is way out there too. Hopefully you can find some balance in between our opposing definitions of economic freedom. I am, if you care, Catholic.


If you stop studying the history of your beliefs, you’ll have issues. At the end of the 4th century, “historian Ammianus Marcellinus complained that Romans had virtually abandoned serious reading.” (pg 93) Getting people to just take the church’s word for it without thinking was a process (no books). “It had taken a thousand years to win the struggle and secure the triumph of pain seeking.” (pg 107)


Mixing politics, religion, and perceived wisdoms – that’s bringing it on thick. But it’s the only way I can remind you that the pattern of changing human beliefs are not new this morning. It’s called education. The delusion that a country needs to be perpetually punished by a weak currency and a 0% return on her hard earned savings is one of the greatest obstacles to free-market pleasures.


Back to the Global Macro Grind


Many are paid to think Bernanke is right. They believe that the US Dollar needs to be beat and whipped whenever it rises from the deadness of it all. Many think bond yields should stay at the 0% bound in perpetuity too. Just don’t forget why – they run Bond funds.


This morning we’re seeing a sharp contrast between American and Chinese economic policies:

  1. In the USA, people who are long Gold, Bonds, and Crude Oil futures continue to beg for Bernanke to talk down tapering
  2. In China, they’re reminding you that the entire world doesn’t sign off on short-term (reactive) Keynesian policy making

In a strikingly simple statement overnight, China’s Finance Minister said that they “won’t use large scale stimulus.” Markets took their word for it. The Shanghai Composite backed off in a hurry and closed down another 1%.


So who wouldn’t like a statement like that? Who will be in pain if, god forbid, Bernanke isn’t dovish in today’s testimony?


1.   Copper – hopefully you aren’t long that bubble. It took the Chinese “news” (in line with Darius Dale’s view that China wasn’t going to stimulate you) seriously and Copper futures fell over -1% immediately. Don’t forget that when China was spending its brains out on “infrastructure” over 3 years ago, it represented almost 2/3 of incremental global copper demand.


2.   Caterpillar – for the last year (as the Mining Capex Bubble began to pop) its CEO, Doug Oberhelman, has sounded like he should be running for political office in the south of France. He wants bailouts and government stimuli in his Chinese order book, baby! Do you blame him? I do. Hope is not an investment process.


Copper and CAT perma-bulls are just two of the many constituencies who lobby The Ben Bernank to whisper sweet-nothings of dovishness in the ears of the WSJ Hilsy (yes, the Jon Hilsenrath) as the Rest of Us just try our best to front-run it all.


If you don’t think that’s what’s really behind the pain-seeking messaging of the Fed, you are delusional. I have never seen the US government spend so much time talking down the one thing all these central plans were supposed to produce – growth.


And I mean real (inflation adjusted) economic growth. In the USA at least, sustained growth has always been married to 2 major (and coincident) leading pro-growth indicators:


1.       #StrongDollar

2.       #RisingRates


So, if you don’t want to step on anyone at the Fed Vatican’s toes – and if you never want to question any of these money-printing pontiffs publicly, you would have probably been cool with taking The Borgias word for it in the 15th and 16th centuries too.


In other news, the US stock market finally had a down day yesterday. That was its 1st down day in the last 9 as the SP500 and Russell2000 backed off their all-time highs of +18% and +23% YTD, respectively.


Immediate-term TRADE overbought is as overbought does, so we’ll see if we can re-load the long book on a correction to a reasonable line of immediate-term TRADE support (for SPY that’s now 1656).


The #1 thing that will stop me from getting really long again is Bernanke Burning The Buck (toning down tapering expectations). Every one of the aforementioned constituencies disagrees with me on that – but I’m betting 99% of The People in this country would call my #StrongDollar America the pleasure they seek.


Now, if only the US government explained it to them like we do, without all the conflicts of interest…


Our immediate-term Risk Ranges are now:


UST10yr 2.49-2.75%


Shanghai Comp 1

USD 82.12-83.61 (bullish)

Brent Oil 107.61-110.13

Copper 3.05-3.19


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Pain's Delusion - COPPER vs CAT


Pain's Delusion - vp 7 17


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

As we look at today's setup for the S&P 500, the range is 45 points or 1.21% downside to 1656 and 1.48% upside to 1701.                                 










  • YIELD CURVE: 2.23 from 2.21
  • VIX  closed at 14.42 1 day percent change of 4.57%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, July 12 (prior -4%)
  • 8:30am: Housing Starts, June, est. 960k (prior 914k)
  • 8:30am: Building Permits, June, est. 1m (pr. revised 985k)
  • 8:30am: Fed’s Bernanke written testimony for semi-annual report to U.S. House to be released
  • 10am: Bernanke begins testifying
  • 10:30am: DOE Energy Inventories
  • 12pm: Fed’s Stein delivers remarks at Fed conf. in D.C.
  • 1pm: Fed’s Raskin speaks to Exchequer Club in Washington
  • 1pm: U.S. to sell $15b 10Y TIPS
  • 2pm: Fed releases Beige Book


    • 10am: Senate Appropriations panel hearing on FY2014 budget estimates for Missile Defense Agency
    • 10am: House Armed Svcs Cmte hearing on security in Syria, implications for U.S. natl security, policy options
    • 10am: Senate Banking, Housing and Urban Affairs Cmte panel hearing on the consumer debt industry
    • 10am: Senate Commerce, Science and Transportation Cmte panel hearing on expansion of Internet gambling
    • 2:30pm: Senate Agriculture panel hearing on “Reauthorization of Commodity Futures Trading Commission”
    • 3pm: Republican Study Committee’s Energy Task Force meeting on repealing the renewable fuel standard

WHAT TO WATCH         

  • Bernanke seeks to divorce QE tapering from Fed rate outlook
  • Ally said to weigh raising $1b to pass Fed stress tests
  • Yahoo forecast trails ests. as Mayer builds products first
  • BOE votes 9-0 to hold bond program at GBP375b
  • Google said to discuss own Web TV service with media executives
  • Barclays, traders fined $488m amid U.S. energy probe
  • S&P loses final ruling on bid to dismiss U.S. fraud lawsuit
  • Apple said developing ad-skipping as part of TV strategy
  • Ford offers software fix as hybrids comes up short of promise
  • Prudential said to win support from DeMarco to avoid risk label
  • China won’t have large stimulus this yr, finance minister says
  • U.K. jobless claims fall most in 3 yrs
  • Novartis raises full-yr forecasts on lack of Diovan rival
  • Chevron signs $1.24b shale accord With Argentina’s YPF


    • First Cash Financial Services (FCFS) 6am, $0.56
    • Mattel (MAT) 6am, $0.32 - Preview
    • PNC Financial Services (PNC) 6:24am, $1.63
    • Bank of New York Mellon (BK) 6:30am, $0.57
    • US Bancorp (USB) 6:45am, $0.76
    • Bank of America (BAC) 7am, $0.26 - Preview
    • First Republic Bank (FRC) 7am, $0.72
    • iGATE (IGTE) 7am, $0.34
    • Northern Trust (NTRS) 7:30am, $0.83
    • St Jude Medical (STJ) 7:30am, $0.94 - Preview
    • Textron (TXT) 7:30am, $0.38
    • Abbott Laboratories (ABT) 7:44am, $0.44 - Preview
    • WW Grainger (GWW) 8am, $2.96
    • M&T Bank (MTB) 8:01am, $2.11
    • Platinum Underwriters Holdings (PTP) 4pm, $0.69
    • RLI (RLI) 4pm, $1.09
    • Plexus (PLXS) 4pm, $0.58
    • Covanta Holding (CVA) 4:01pm, $0.01
    • Greenhill (GHL) 4:01pm, $0.53
    • Intel (INTC) 4:01pm, $0.39 - Preview
    • Select Comfort (SCSS) 4:01pm, $0.24
    • Albemarle (ALB) 4:03pm, $0.98
    • American Express (AXP) 4:04pm, $1.22
    • LaSalle Hotel Properties (LHO) 4:04pm, $0.72
    • CYS Investments (CYS) 4:05pm, $0.29
    • El Paso Pipeline (EPB) 4:05pm, $0.47
    • International Business Machines (IBM) 4:05pm, $3.78 -Preview
    • Kinder Morgan (KMI) 4:05pm, $0.32
    • SanDisk (SNDK) 4:05pm, $0.93
    • Umpqua Holdings (UMPQ) 4:05pm, $0.22
    • Kinder Morgan Energy (KMP) 4:06pm, $0.60
    • Core Laboratories (CLB) 4:06pm, $1.32
    • eBay (EBAY) 4:15pm, $0.63 - Preview
    • SLM (SLM) 4:15pm, $1.00
    • Xilinx (XLNX) 4:20pm, $0.47
    • Astoria Financial (AF) 4:30pm, $0.12
    • Cathay General Bancorp (CATY) 4:30pm, $0.35
    • Cohen & Steers (CNS) 4:30pm, $0.43
    • CVB Financial (CVBF) 4:30pm, $0.21
    • East West Bancorp (EWBC) 4:45pm, $0.51
    • Noble (NE) 5pm, $0.56
    • Crown Holdings (CCK) 5:01pm, $0.93
    • West Fraser Timber (WFT CN) 5:01pm, C$1.79
    • HNI (HNI) 5:12pm, $0.25
    • Valmont Industries (VMI) 5:30pm, $2.92
    • Steel Dynamics (STLD) 6pm, $0.14
    • Kinder Morgan Management LLC (KMR) Aft-mkt, $0.67


  • Tin Shipments From Indonesia Seen Advancing 33% as Rules Eased
  • Gold Slump Revives Hedges Scrapped During Bull Run: Commodities
  • Copper Slides as Higher Production Fuels Concern About Surplus
  • Gold Declines for Third Day in Four as Investors Await Bernanke
  • WTI Crude Declines for a Second Day Before Bernanke Testimony
  • Wheat Rises on Speculation That Chinese Demand Will Increase
  • Rebar Climbs for Sixth Day on Iron Ore Rally, China Optimism
  • Robusta Coffee Gains as Indonesian Deliveries Drop; Cocoa Gains
  • China’s Iron-Ore Shift Helps Cargill at Ports: Chart of the Day
  • Barclays With Ex-Traders Fined $488 Million in U.S. Energy Probe
  • U.S. Gulf Oil Profits Lure $16 Billion More Rigs by 2015: Energy
  • LNG Price-Swing Risk Seen as Threat to Futures: Energy Markets
  • European Gasoline Prices Climb to Highest in 20 Weeks: BI Chart
  • Commodities Daybook: Gold Price Tumble Revives Hedging Prospects
  • Gold Imports by India Seen Shrinking as Curbs Increase Costs


























The Hedgeye Macro Team












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