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Farewell My Blue Pill Friend

Client Talking Points

JAPAN

Smell that? It's the scent of Burning Yens back in the air with the USD stabilizing on Bernanke not being dovish enough and Team Abe and Aso ready to win an election this weekend. Cue the Nikkei, which is on a nice +5 day run. It was up another +1.3% overnight. Japan is up +43.8% year-to-date. It's the best looking (liquid) equity market in the world right now next to the USA.

UK

Slow and steady with some refreshing accelerations ... that’s the UK growth data as of late. The FTSE? She likes it. UK Retail Sales showing #GrowthAccelerating again in June to +2.2% year-over-year from +1.9%. I have the FTSE at #3 "Best Looking" in the deep and liquid Equity market standings next to USA and JAPAN right now.

OIL

The recent Viagra rallies in Gold, Oil and Copper, etc. are over as of Bernanke’s testimony yesterday. Thank God. Now we just need to see this gargantuan net long (futures/options) position in crude wear off and Down Oil would be your next catalyst for SPX 1700. Long-term TAIL risk line for Brent is 107.88/barrel. 

Asset Allocation

CASH 54% US EQUITIES 16%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
WWW

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.

MPEL

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. 

HCA

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

TWEET OF THE DAY

Bernanke didn’t deliver the blue pills yesterday; commodity reflations backing off is a very good thing

@KeithMcCullough

QUOTE OF THE DAY

“I only take Viagra when I am with more than one woman.”

- Jack Nicholson

STAT OF THE DAY

In 2007, there were 500 million internet-connected devices - about 1 for every 20 people on the planet. In 2010, that number grew to 35 billion, or about 5 per person. By 2013, may grow to 1 trillion devices, or 140 devices per person. (PCMag)


July 18, 2013

July 18, 2013 - dtr

 

BULLISH TRENDS

July 18, 2013 - 10yr

July 18, 2013 - spx

July 18, 2013 - ftse

July 18, 2013 - nik

July 18, 2013 - dxy

 July 18, 2013 - oil

BEARISH TRENDS

July 18, 2013 - VIX

July 18, 2013 - euro

July 18, 2013 - yen

July 18, 2013 - natgas
July 18, 2013 - gold

July 18, 2013 - copper


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 18, 2013


As we look at today's setup for the S&P 500, the range is 38 points or 1.07% downside to 1663 and 1.20% upside to 1701.                             

                                                                                                  

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.18 from 2.19
  • VIX closed at 13.78 1 day percent change of -4.44%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init Jobless Claims, July 13, est. 345k (prior 360k)
  • 9:45am: Bloomberg Economic Expectations, July (prior -1)
  • 9:45am: Bloomberg Consumer Comfort, July 14 (prior -27.3)
  • 10am: Fed’s Bernanke delivers semi-annual report to Senate
  • 10am: Philadelphia Fed Index, July, est. 8 (prior 12.5)
  • 10am: Leading Indicators, June, est. 0.3% (prior 0.1%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 1pm: U.S. to sell $15b 10Y TIPS
  • G-20 Finance Ministers’ and Central Bank Governors’ deputies meet in Moscow (through July 19)

GOVERNMENT:

    • Bernanke delivers his semi-annual monetary policy report, known as Humphrey-Hawkins, to Senate Banking Cmte, 10am
    • Obama speaks on health-care law, 11:25am
    • Obama attends ambassador credentialing ceremony
    • Vice President Joe Biden attends CAP event on U.S. policy toward Asia-Pacific region, 1pm
    • House, Senate in session
    • Treasury IG for Tax Admin J. Russell George testifies on probe of IRS political targeting of tax-exempt orgs. at Cmte on Oversight and Govt Reform hearing, 11am
    • House Judiciary Committee panel holds hearing on Voting Rights Act following Supreme Court’s ruling, 11am
    • Senate Banking Cmte votes on Mel Watt to be FHFA director; Jason Furman to be CEA chairman; Kara Stein, Michael Piwowar to be SEC members; Richard Metsger to be a NCUA member; Mary Jo White for SEC chairman, 10:30am
    • House Financial Services Cmte holds hearing on housing finance, 1pm

WHAT TO WATCH         

  • Dell $24.4b buyout plan is a nail-biter as vote looms
  • Icahn “definitely” has a candidate for Dell CEO
  • Almost 30% of Dell shares to vote against deal, WSJ Says
  • Intel rev forecast misses some ests; EBay 3Q view below est
  • IBM raises yr forecast after earnings exceed ests
  • AmEx record profit beats ests as card spending climbs
  • China June new-home prices rise Y/y in 69 cities
  • U.K. retail sales rose for 2nd month in June
  • Gupta ordered to pay $13.9m in SEC insider-trading case
  • PepsiCo said not to plan to acquire Mondelez at Peltz’s urging
  • JPMorgan, FERC near settlement on electricity mkt probe: WSJ
  • Netflix’s “House of Cards” may get Emmy nomination
  • Credit Suisse sued for $350m over marketing resort loans
  • GM delays Chevy Cruze debut by a yr, Reuters says

EARNINGS:

    • BB&T (BBT) 5:45am, $0.74
    • Huntington Bancshares (HBAN) 5:55am, $0.16
    • UnitedHealth Group (UNH) 6am, $1.25
    • Danaher (DHR) 6am, $0.87
    • AutoNation (AN) 6:15am, $0.73
    • KeyCorp (KEY) 6:17am, $0.20
    • BlackRock (BLK) 6:30am, $3.81
    • Fifth Third (FITB) 6:30am, $0.42
    • Quest Diagnostics (DGX) 6:31am, $1.09 - Preview
    • Hubbell (HUB/B) 6:58am, $1.30
    • Philip Morris International (PM) 7am, $1.41
    • Baxter International (BAX) 7am, $1.13
    • Johnson Controls (JCI) 7am, $0.75
    • Omnicom Group (OMC) 7am, $1.08
    • Dover (DOV) 7am, $1.29
    • AMR (AAMRQ) 7am, $0.80
    • Scholastic (SCHL) 7am, $0.82
    • PPG Industries (PPG) 7:10am, $2.35
    • Morgan Stanley (MS) 7:15am, $0.43 - Preview
    • Verizon Communications (VZ) 7:30am, $0.72 - Preview
    • Sonoco Products (SON) 7:30am, $0.58
    • Fairchild Semiconductor (FCS) 7:30am, $0.08
    • Shoppers Drug Mart (SC CN) 7:45am, C$0.72
    • Union Pacific (UNP) 8am, $2.35
    • Blackstone Group (BX) 8am, $0.48
    • Sherwin-Williams (SHW) 8am, $2.57
    • Amphenol (APH) 8am, $0.94
    • upervalu (SVU) 8am, $0.04
    • Cypress Semiconductor (CY) 8am, $0.07
    • Marriott Vacations Worldwide (VAC) 8am, $0.48
    • Genuine Parts Co (GPC) 8:49am, $1.21
    • Nucor (NUE) 9am, $0.30 - Preview
    • Safeway (SWY) 9am, $0.51
    • Google (GOOG) 4pm, $10.80 - Preview
    • Stryker (SYK) 4pm, $1.03 - Preview
    • Cubist Pharmaceuticals (CBST) 4pm, $0.37
    • Align Technology (ALGN) 4pm, $0.28
    • Microsoft (MSFT) 4:01pm, $0.75
    • Chipotle Mexican Grill (CMG) 4:01pm, $2.81
    • Athenahealth (ATHN) 4:01pm, $0.22
    • People’s United Financial (PBCT) 4:02pm, $0.19
    • Capital One Financial (COF) 4:05pm, $1.73
    • Intuitive Surgical (ISRG) 4:05pm, $4.24
    • Associated Banc-Corp (ASBC) 4:05pm, $0.26
    • Rambus (RMBS) 4:05pm, $0.04
    • Advanced Micro Devices (AMD) 4:15pm, $(0.12)
    • Skyworks Solutions (SWKS) 4:30pm, $0.53
    • Celanese (CE) 5:15pm, $1.16

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Trades Near One-Week High as U.S. Crude Stockpiles Decline
  • Wells Fargo Overtakes JPMorgan as Financing Expands: Commodities
  • Gold Swings Between Gains and Drops Following Bernanke Comments
  • Currency to Oil Rates Targeted for Tougher Rules After Libor
  • Copper Swings in London Trading Following Testimony by Bernanke
  • Jewelers in India to Seek Idle Household Gold to Cut Imports
  • Sugar Climbs to One-Week High on Brazil Real, Rain; Cocoa Rises
  • Siberian Grain Seeds Seen at Weight Risk Following Sowing Delay
  • Dated Brent Oil Price Ascends to 16-Week High: BI Chart
  • Temasek Racing Exxon to Build Biggest LNG Stash: Southeast Asia
  • Rebar Advances for Seventh Day Amid Rally in Iron Ore Prices
  • France’s Rouen Port Grain Exports Fall 79% as U.K. Is Sole Buyer
  • Carbon Supply Crunch Set to Extend Longest Rally: Energy Markets
  • Tanaka’s Quarterly Gold Sales Exceed Buying for 1st Time in Year

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 


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Bernanke's Blue Pills

“I only take Viagra when I am with more than one woman.”

-Jack Nicholson

 

Obviously Jack Nicholson doesn’t trade Oil or Gold futures. All you need to bid up the futures curve of inflation expectations are a few Washington whispers and some dovish Bernanke Blue Pills – and, oh baby, will some of the old boys in Chicago chase!

 

With time, trading losses, and substance abuse, I’ve seen some men in this business get dumber, faster. Yesterday, one of my Senior Analysts on the Hedgeye Macro Team, Christian Drake, reminded me why: “Keith, neuro-plasticity and de Novo brain cell creation are generally fixed by the time you enter adulthood… except for one notable exception:”

 

“The hormonal milieu present in pregnant women works to create new neural circuitry and further develop parts of the brain responsible for reasoning and problem solving. So, if you’re a female and need a cerebral kick-start, get pregnant.  If you’re gender deficient (i.e. male) you have to resort to more nuanced methods of warding off cognitive deflation.” 

 

Back to the Global Macro Grind

 

“Cognitive Deflation”. Bro, that’s what I’m talking about. I love that stuff!

On Twitter, I affectionately call some of the people I do not know, “bro.” If I’m really in a good mood, I might call one of these beauties something like “princess.” But that’s a special name that usually calls for very special circumstances.

 

When it comes to fading consensus, you need to pay attention to where the bros are at all times. If Bernanke understood how markets trade, he’d pick up on this pretty quickly.

 

Toning down the raging net long position of over +325,000 contracts in Oil futures and options contracts (and giving Americans a long awaited Tax Cut at the pump), would be easy. Just have Obama tell the bros that Bernanke is out of pills.

 

A version of that happened yesterday. Since the last thing Bernanke actually wants is for Gold Bond bulls to crash again, the shift in expectations was at first very subtle – then it happened all at once.

 

Viagra really should be sponsoring C-SPANs Congressional testimony coverage at this point. Here was the play-by-play:

  1. Bernanke’s testimony said nothing new (he wasn’t incrementally more dovish than when he spoke last time)
  2. The US Dollar Index immediately went from red to green
  3. And both Gold and Oil futures went from green to red

Both Gold and these bastardly looking Gold Miners (GDX) then started going really red – and my contra-stream of bros on Twitter were quick to say “buy the dip, he’s going to say something else.”

 

He didn’t.  Then there was more red, the bros turned into crickets, and the blue pill rally was over.

 

I know. It’s so anti-climactic at this point that it could make you cry. But why should it? Why do we need the entire world to wake-up every morning with the hope of a false dawn? Why has this game turned into purely front-running the Fed?

 

As Melvin Udall (Jack Nicholson in As Good As It Gets) said to his dog Verdell, “Don’t be like me. Don’t you be like me!” And since we aging men don’t have much upside left, we need to switch it up from time to time anyway.

 

The upside to the Hedgeye plan for Cognitive Deflation (i.e. getting it through the thick skulls of the bros that Bernanke is done and Oil could go to $65), would be the most exciting bull market catalyst for US stocks of the year – sustainable growth!

 

Think it through. Both Reagan and Clinton did:

  1. Average Price of Oil 1 = $22.16/barrel
  2. Average Price of Oil 1 = $18.63/barrel

Both Presidents signed off on massive #StrongDollar Tax Cuts that drove US Consumption growth through the roof:

  1. Average US GDP Growth 1 = +4.31%
  2. Average US GDP Growth 1 = +3.84%

So what say you to leader of the bros, President Obama?

 

I say it’s time to get rid of this un-elected academic. The bros can handle it. They are big boys who can always find something else to chase. Buying into any gold rally lasting for more than 4 hours requires medical attention anyway.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr yield 2.46.-2.75%

SPX 1

VIX 13.25-15.01

USD 81.96-83.59

Brent 106.99-108.95

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bernanke's Blue Pills - Blue Pills

 

Bernanke's Blue Pills - vp 7 18


Bullish: SP500 Levels, Refreshed

This note was originally published July 17, 2013 at 12:24 in Macro

(Editor's note: To learn more about how you can subscribe to Hedgeye's world-class research, please click here)

Best news of the day is that Bernanke wasn’t dovish enough to satisfy the begging from Gold Bond bulls. #StrongDollar is holding support, and that, ultimately, is a good thing for what’s been working for 6 months – long US Growth.

 

Across our core risk management durations that matter, here are the lines that matter to me most:

  1. Immediate-term TRADE resistance = 1701
  2. Immediate-term TRADE support = 1661
  3. Intermediate-term TREND support = 1602

Higher-lows of support and higher-all-time-highs of resistance will continue to be bullish until they are not.

  1. We want to be buying growth on red days (bought TSLA and NKE on red yesterday)
  2. We want to be shorting bounces in bearish growth trades (Gold, Bonds, etc) on green days

Staying with our 2013 process because it’s still working,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish: SP500 Levels, Refreshed  - keithchart


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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