Moody Markets

This note was originally published at 8am on August 15, 2013 for Hedgeye subscribers.

“How far is it wise to respond to a mood?”

-Frank Oppenheimer


Since yesterday’s Early Look focused on asking ourselves baseline risk management questions, I’ll roll with a good one that particle physicist Frank Oppenheimer asked his older brother in the 1930s. Here’s how Robert Oppenheimer answered it:


“… my own conviction is that one should use moods, but not be greatly deflected by them; thus one should try to use the gay times to do those things one wants to do that require gaiety, and the sober moods for the work one wants, and the low moods for giving oneself hell.” (American Prometheus, pg 95)


I’m a moody guy. So that answer spoke to me. Sober every morning, working. Giving myself hell about all my market mistakes come the afternoon. Sounds about right.


Back to the Global Macro Grind


Markets are moody too. They rarely cooperate with all of your positions. And they don’t care whatsoever about your views. Tough relationship we have with this Mr. Market, I know. That’s why I am lobbying the Fed to call her Mrs.


Early last week I polled you asking whether you thought the latest #EOW (end of the world) correction in US stocks would be on the order of 1, 2, or 5%. Since only one client answered 1%, I figured the probability of that being the correct answer was going up.


If you answered 5%, please don’t go all caps or moody on me. Take a breath. It’s just an opinion. And we all have one or we wouldn’t be playing this game. Currently the correction (from the all-time closing high of 1709 in the SP500) is -1.4%.


Now what? Well, let’s redo the poll with some forward looking information:

  1. Immediate-term TRADE support is 1680 = -1.7% from the all-time high
  2. Intermediate-term TREND support is 1637 = -4.2% from the all-time high
  3. Immediate-term risk range for US Equity Volatility (VIX) = 11.62-13.71

So, what do you think?


A)     1% correction (i.e. the market closes up today and yesterday was it)

B)      2% correction (somewhere between today and early next week, that’s it)

C)      4% correction (re-testing the TREND line, which we haven’t done since late June)


I’m going with B again.


If the market closes up on the day today, that will make me and everyone else (other than anonymous client Mr. X) who answered the poll last week wrong. If that happens, we can all just give ourselves hell.


What would have been really hellish in 2013 is missing this call on US employment #GrowthAccelerating. Again, we don’t care about the line-items in the BLS data; we only care about the slope of the line in the only leading indicator we can find for the bond market: NSA (non-seasonally adjusted) rolling US jobless claims. Most of the monthly payroll data is statistically useless.


We’ll get that weekly US Jobless Claims data point this morning – and if there’s one data point that matters to both the long-end of the US Treasury curve (and the US stock market), that is it. So let’s put this morning’s number in the context of recent history:

  1. Last week’s NSA claims number came in -10.5% year-over-year (slight improvement vs the previous week)
  2. The average for the last 12 weeks is claims falling -8.8% year-over-year
  3. Giving exception to a single anomalous data point 3 weeks ago, avg y/y improvement over 12 weeks = -9.7%

Yes, that’s a lot better than your parroting partisan pundit would lead you to believe. It’s also our definition of not only what matters to the employment vs Fed story, but what Mr. Market trades on – the 10yr US Treasury Yield fits NSA rolling claims like a glove.


Oh, and there’s seasonal headwinds in this jobless claims series that become tailwinds in September (that can run through February). Most (other than Mr. Bond and Stock Market) don’t expect to see the jobs picture improve, so it probably will.


One other way to measure the moodiness of it all is the weekly II Bull/Bear Spread:

  1. Last week, Bulls dropped from 51.6 to 47.4%
  2. Last week, Bears rose from 18.5 to 20.6%
  3. Last week, Bull/Bear Spread re-tested its most bearish level since Q2 at 2680 basis points wide

Yep – everyone says everyone is bullish. But they aren’t. Less than 50% are bullish. That’s really bearish. And the last time we saw a 2600bps handle on the Bull/Bear spread was in the 1st week of July. The SP500 proceeded to move from 1631 (our new TREND support) to 1709 within a month.


So, if you are all beared up (on stocks) this morning, just remember that bullish gaiety can quickly become a mid to late month-end move. The profitable bearish mood is in bonds. We’ll see if this morning’s jobless claims print reiterates that. September is coming.


UST 10yr 2.64-2.75%

SPX 1682-1712

VIX 11.62-13.71

USD 80.94-82.02

Yen 97.37-99.45

Brent 108.11-111.49


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Moody Markets - Claims 080813


Moody Markets - Virtual Portfolio

August 29, 2013

August 29, 2013 - dtr



August 29, 2013 - 10 yr

August 29, 2013 - spx

August 29, 2013 - dax

August 29, 2013 - dxy

August 29, 2013 - euro

 August 29, 2013 - oil



August 29, 2013 - eem

August 29, 2013 - vix

August 29, 2013 - yen

August 29, 2013 - nat gas
August 29, 2013 - gold

August 29, 2013 - copper

Textbook Bounce

Client Talking Points


Witness the textbook bounce off our first line of support (immediate-term TRADE support is 2.69%) as the 10-year makes yet another higher-low. Both the US currency and growth side of the US stock market like that this morning. Gold? Not so much. We re-shorted Gold for the first time since July 12th on Tuesday. We also re-shorted TLT there too. The Queen Mary has turned.


One of the biggest risk management questions in my notebook was whether or not the US Dollar Index would hold its higher-lows versus the June lows. It did. And it’s having a good morning again here vs the Yen too (USD/YEN held 96.59 TREND support). If these FX levels hold, some of the recent counter TREND commodity reflation pressure should abate. That would be a good thing for growth.


Finally! A country does what a serial currency debaucher at the Federal Reserve wouldn’t dare – they actually raised rates to protect the purchasing power of their people. Surprise, surprise... both the foreign exchange and equity markets liked that move (as they should). Indonesia gains +1.6% on the news. Bravo to the Indonesian Hawks.

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


GOLD: which we re-shorted for the 1st time since July 12, is in the $; hate mail pending @KeithMcCullough


"When you expect things to happen - strangely enough - they do happen." - J.P. Morgan


Fast food workers in 50 cities across the U.S. are walking off the job today to protest for higher wages. Currently, the median pay for the fast food workers is just over $9 an hour, or about $18,500 a year. (CNN)

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


TODAY’S S&P 500 SET-UP – August 29, 2013

As we look at today's setup for the S&P 500, the range is 37 points or 0.43% downside to 1628 and 1.84% upside to 1665.                                     










  • YIELD CURVE: 2.39 from 2.37
  • VIX  closed at 16.49 1 day percent change of -1.67%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: GDP Annlized Q/q, 2Q revised, est. 2.2% (prior 1.7%)
  • 8:30am: Init. Jobless Claims, Aug. 24, est. 331k (pr 336k)
  • 8:50am: Fed’s Bullard speaks in Memphis
  • 9:45am: Bloomberg Consumer Comfort, Aug. 25, prior -28.8
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to buy $1.25b-$1.75b in 2036-2043 sector
  • 1pm: U.S. to sell $29b 7Y notes
  • 2pm: Fed’s Lacker speaks in Newport News, Va.


    • 9am: Transportation Dept, Federal Railroad Administration hold mtg of Railroad Safety Advisory Cmte to discuss July derailment in Quebec
    • 10am: FDIC Chairman Gruenberg announces 2Q bank, thrift earns
    • Syria showdown widens rift as U.S., U.K. press for action


  • JPMorgan bribery probe said to expand as spreadsheet found
  • Vodafone, Verizon in talks over U.S. wireless stake sale
  • US Airways’ Washington Airport prize hobbles bid for AMR merger
  • Blackstone settles IPO disclosure lawsuit for $85m
  • Seaworld slumps after slashing prices as visitors drop
  • U.S. and Swiss said to agree in offshore tax evasion probe
  • Zurich Chairman Ackermann resigns after CFO’s suicide
  • Brazil raises rate to 9% as real undercuts inflation fight


    • Africa Oil (AOI CN) 5:30pm, $(0.02)
    • Campbell Soup (CPB) 7:30am, $0.42
    • Esterline Technologies (ESL) 4pm, $1.54
    • Golar LNG (GLNG) Bef-mkt, $0.20
    • Golar LNG Partners (GMLP) Bef-mkt, $0.53
    • K12 (LRN) 6am, $0.02
    • Krispy Kreme Doughnuts (KKD) 4:05pm, $0.16
    • Pall (PLL) 7am, $0.89
    • Royal Bank of Canada (RY CN) 6am, C$1.38 - Preview
    • (CRM) 4:05pm, $0.07
    • Signet Jewelers (SIG) 6:30am, $0.83
    • Splunk (SPLK) 4:02pm, $(0.03)
    • Toronto-Dominion (TD CN) 6:30am, C$1.53 - Preview


  • Gold Snaps Five-Day Rally as Data May Increase Case for Tapering
  • Cotton Glut Expands to Record as Hanes Profit Gains: Commodities
  • WTI Oil Falls From Two-Year High as Syria Intervention Debated
  • Robusta Coffee Falls to 2-Month Low on Bear Trend; Cocoa Slides
  • Copper Trades Near Two-Week Low on Concern About Syria Unrest
  • Noble Wins Order to Liquidate Ebullio Commodity Master Fund
  • Wheat Exports From India Seen Climbing on Record Plunge in Rupee
  • New Billionaire Profits From Vietnam-China Cotton Cost Gap
  • Soybeans, Corn Decline on Improving Outlook for Midwest Weather
  • China Galvanized Steel Slowdown May Cool Zinc Use After 1H Boost
  • Gas Price Jump Seen in Record Europe Stockpiling: Energy Markets
  • Capital One Hires JPMorgan, Barclays Bankers to Expand in Energy
  • South Africa Gold Companies Considering Locking Out Workers
  • Oil May Fall as Retaliation for Syria Strike Unlikely: Citigroup


























The Hedgeye Macro Team













Sin's Knowledge

“The physicists have known sin; and this is a knowledge which they cannot lose.”

-Robert Oppenheimer


Got introspective accountability? After he (quickly) realized the capacity of the nuclear weapons he helped create, Robert Oppenheimer became very unpopular with the State – primarily because he held both himself and the government to account.


Can you imagine a central planner of the Bernanke epoch holding themselves accountable to the highest levels of food, energy, education, etc. inflation in world history? Nah. That would require un-spinning the truth.


And the truth is that American political scientists who engaged in devaluing the purchasing power of the American people to 40 year lows in Q2 of 2011 know that sin. This is a market knowledge that history will not lose.


Back to the Global Macro Grind


If you’ve sat across the table from me and my macro research team in the last few years, you’ll know that I refuse to have a debate about mean reversion risks without contextualizing the post Nixon low in the world’s reserve currency (see chart):

  1. Got Causality? Of course, when a country cuts rates to zero then whispers to everyone front-running their next move that zero really isn’t zero (for Bernanke 0 = 0 minus 1, 2, 3, 4? QE5?), its currency goes down, hard
  2. Post Nixon (i.e. post his devaluing the Dollar by abandoning the Gold Standard in 1971, purely for political gain), the US Dollar Index has never seen a lower-low versus the 2011 low; that’s also when Gold hit its all-time high

Since most global commodities settle in Dollars, why there’s been raging inverse correlation (Dollar Down = Commodities Inflation Up) alongside causality in this relationship is trivial to everyone other than the people who should be held responsible for it.


What is less trivial is all of the unintended consequences associated with the ultimate central planning sin (an un-elected overlord confiscating the purchasing power of The People). Here are some of the big ones:

  1. Commodity Bubble
  2. Bond Bubble
  3. Emerging Market Bubble

Yep, that’s going to be a lot for Bernanke’s children (and their children) to noodle over for the next century. That is, of course, unless the next guy or gal running the un-elected agency does what no modern Federal Reserve Chairman has ever not done – raise rates.

For the last 6-12 months, I’ve spent a lot of time ranting about these Global Macro Themes:

  1. #CommodityDeflation
  2. #RatesRising
  3. #EmergingOutflows

These are relatively easy long-term TAIL risk calls to make because all 3 of them are basically about unwinding all 3 of the aforementioned bubbles. Once prices stop making all-time highs (commodities, bonds, or currencies), there’s this big little risk management critter Bernanke has never mentioned under oath called asymmetry.


So, alongside an English major who has never traded a macro market in his life being the chief Keynesian access “economist” @CNBC, at this stage of the cycle this is what you get:

  1. US Dollar making a series of intermediate-term TREND higher-lows (off her all-time lows in 2011)
  2. US Interest Rates making a series of intermediate-term TREND higher-lows (off their all-time lows in 2012)
  3. Gold and food prices making a series of intermediate-term TREND lower-highs (off their all-time highs of 2011-2012)

All the while, what we still get from the consensus TV circus that is government #AccessMedia is a bunch of uninformed people begging for more of the drugs that the political scientists got rich selling us.


If I am not clear on my long-term policy view, let me state it plainly – stop devaluing the Dollar and trying to smooth economic gravity. If you ever want to see US growth expectations come back, you have to let the US Dollar come back (and let rates rise alongside her).


Why am I going off on this today? Well America, we’re at The Crossroad. Unwinding the sin embedded in Bernanke’s post 2012 Jackson Hole policy is what markets have been doing for 10 months.


Collectively, we either have the responsibility within all of us to rise up against the tyranny of easy money and currency debauchery, or we do not. At this point, I can only hope the people who voted for this government hold it to account.


Our immediate-term Risk Ranges across 6 Big Macros are now as follows:


UST 10yr Yield 2.72-2.93%


VIX 15.26-17.04

USD 80.91-81.69

Brent 111.63-115.98

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Sin's Knowledge - CHART

Sin's Knowledge - vp

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.