September 25, 2013

September 25, 2013 - dtr



September 25, 2013 - 10yr

September 25, 2013 - spx

September 25, 2013 - ftse

September 25, 2013 - nik

September 25, 2013 - euro

September 25, 2013 - oil



September 25, 2013 - VIX

September 25, 2013 - dxy

September 25, 2013 - yen

September 25, 2013 - natgas
September 25, 2013 - gold

September 25, 2013 - copper


TODAY’S S&P 500 SET-UP – September 25, 2013

As we look at today's setup for the S&P 500, the range is 21 points or 0.85% downside to 1683 and 0.39% upside to 1704.                         













  • YIELD CURVE: 2.30 from 2.33
  • VIX closed at 14.08 1 day percent change of -1.61%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Sept. 20 (prior 11.2%)
  • 8:30am: Durable Goods, Aug., est. -0.2% (prior -7.3%)
  • 10am: New Home Sales, Aug., est. 420k (prior 394k)
  • 10am: Household Change in Net Worth, 2Q (prior $3.003T)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
  • 1pm: U.S. to sell $35b 5Y notes
  • 6pm: Fed’s Dudley gives remarks at “Fed at 100” Exhibit


    • Senate holds cloture vote on continuing resolution to keep government funded as Sen. Ted Cruz, R-Texas, engages in marathon speech against Obamacare
    • 8:45am: Sec. of State John Kerry meets French Foreign Minister Laurent Fabius; 12:40pm: UN Security Council
    • 10:30am: MGM Resorts CEO Jim Murren at media briefing on co.’s plan to develop resort in Prince George’s County, Md.
    • 2pm: Goldman CEO Blankfein at Clinton Global Init. in NYC
    • 2:30pm: Sens. Dianne Feinstein, D-Calif., Chuck Grassley, R-Iowa, attend Senate Caucus on Intl Narcotics Control hearing on dangers of synthetic drugs


  • JPMorgan said in talks to settle U.S. mortgage-bond probe
  • Noble sees splitting in two to focus on deepwater rigs
  • Alibaba IPO talks with Hong Kong said to break down; U.S. listing possible
  • New York Life to buy Dexia Asset Management for $512m
  • ICAP staff may face criminal charges in Libor case, WSJ says
  • Amazon unveils faster, pricier Kindle Fires to take on Apple
  • Federal trial against BofA’s Countrywide unit begins
  • Medical-device makers see EU rules slowing U.S. approvals
  • U.S. probing 16 financial institutions over RMBS, firm says
  • China Beige Book shows slowdown in contrast with data
  • Big banks had $155b Basel capital shortfall at end 2012
  • Royal Caribbean considers Oslo delisting, Finansavisen reports


    • AGF Management (AGF/B CN) 8am, $0.13
    • AutoZone (AZO) 7am, $10.34
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.15 - Preview
    • HB Fuller (FUL) Aft-mkt, $0.67
    • Jabil Circuit (JBL) 4:02pm, $0.54
    • Progress Software (PRGS) 4:15pm, $0.24
    • Synnex (SNX) 4:05pm, $0.94
    • Worthington Industries (WOR) 8:30am, $0.58


  • Rusal Urges LME to Delay Rule Changes on Warehouse Withdrawals
  • Rattlesnake Frontier Answers Brazil’s Land Shortage: Commodities
  • WTI Crude Snaps Four-Day Loss on Forecast U.S. Stockpiles Shrank
  • Copper Rises Before Report Seen Showing Higher U.S. House Sales
  • Soybeans Climb as Midwest Rains Seen Too Late to Improve Crop
  • Indonesia Seen Avoiding Complete Ore Export Ban to Save Jobs
  • Gold Swings as Investors Weigh Stimulus Against Budget Talks
  • Palm Oil Drops to One-Month Low as Production Boosts Stockpiles
  • U.S. Carmakers’ Aluminum Usage Seen by Novelis Outpacing Europe
  • Chinese Metal Demand Rising or Falling? Data Tell Both Stories
  • Thai Gold Buyer Doubles Imports After Bear Slump: Southeast Asia
  • Paris Wheat Seen Falling on Fibonacci Breach: Technical Analysis
  • Iron Ore Seen Supported by Morgan Stanley as Citi Is Bearish
  • Rubber Declines to One-Week Low as Chinese Demand May Weaken


























The Hedgeye Macro Team


















A new Mainland tourism law could result in a 50% drop in the number of tourist groups in October.  According to Max Lau, head of the Macau Travel Agency Association, the new law will steer tourists towards “rational consumption”.  “Prices of tourist groups will increase according to the new law.  Tourists will gradually find that what they paid in the past was not the real cost of the trip.” 


Article 35 of the new tourism law prohibits China’s domestic travel agencies from “organizing tourism activities and luring tourists with unreasonably low prices, which is estimated to cause the previously under-market package rate to surge instantly.”  Furthermore, Chinese travel agencies shall not “designate specific shopping places, or provide tourism services that require additional payment.” 



According to the Casino Regulatory Authority (CRA) in Singapore, only 7.7% of locals here made more than one visit to the two casinos here in the past three years.  CRA said that the vast majority of the remaining 92.3% did not visit the casinos at all.


The total number of visits to the casinos by Singaporeans and permanent residents has also dropped, in a sign that the novelty factor could be wearing off, said CRA's president Richard Magnus.


They made a daily average of 17,000 visits last year, down from 20,000 visits when the casinos first opened in 2010.  CRA also attributed the drop in the number of casino visits to the effectiveness of its safeguards in deterring vulnerable individuals from problem gambling.


According to the Public Security Police Force (PSP), visitors to Macau during the mid-autumn festival recorded a decrease of 6.74% YoY or 470,000 visitors.  From September 19 to 22, a total of 729,614 arrivals was recorded through seven immigration checkpoints: namely Border Gate, Lotus Bridge, Outer Harbor Ferry Terminal, Inner Harbor Wharf, Macau International Airport, Cross-border Industrial Zone and Taipa Temporary Ferry Terminal.  


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Neutral: SP500 Levels, Refreshed

Takeaway: Why buy a market that was overbought for the wrong reasons (Fed randomly devaluing the Dollar) when it’s not yet oversold?

This note was originally published September 24, 2013 at 10:42 in Macro



I don’t know about you, but ever since Bernanke moved the goal posts again, I have no idea what to do. Whenever that happens, I take down both my gross and net exposure.


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


  1. Immediate-term TRADE overbought = 1725
  2. Immediate-term TRADE support = 1682
  3. Intermediate-term TREND support = 1655


In other words, why buy a market that was overbought for the wrong reasons (Fed randomly devaluing the Dollar) when it’s not yet oversold? You could have bought all your wanted with the SP500 at 1630 in AUG – and we did.


Not here – not now. No thanks, Ben.



Keith R. McCullough
Chief Executive Officer


Neutral: SP500 Levels, Refreshed - muck

Twitter: Are You Following the SEC?

Takeaway: We urge you to follow SEC Investor Education, if only to see how the Commission is positioning itself.

While it continues to not make headlines, the SEC has put out some important alerts over Twitter under Investor Education (@SEC_Investor_Ed).  For reasons we can only speculate on (investor apathy? willingness to be bamboozled?) the Commission’s education twitter handle only has 37,000 followers – far less than the number of individual investors who are routinely harmed by market fraud in the course of a year. 


And since we follow them, and we know most other compliance professionals do as well, we speculate that the number of actual retail investors looking to the Agency for information remains pitifully small.


Twitter: Are You Following the SEC? - twit2


This is a mistake. 


The SEC is coming off a bad patch, to put it mildly.  But it appears to be actually moving towards much more robust action on the behalf of market integrity.  The SEC’s Twitter stream tells you what they are working on right now, tells you what the Commission thinks is important right now. 


Earlier today, the SEC tweeted an alert titled “Federal Regulators Issue Guidance On Reporting Financial Abuse Of Older Adults” saying “recent studies suggest that financial exploitation is the most common form of elder abuse and that only a small fraction of incidents is reported.” 


The most common form of abuse.  That’s pretty striking. 


Let’s not sugar coat this: we have all been lulled into a sense of helplessness by generations of academic economists insisting that People Always Act In Their Own Self Interest.  The big problem with that proposition is that most people have no idea what their actual interests are.  Instead, people generally act on impulse.  Even for those who give some thought to their actions, “planning” usually boils down to “we’ll set up a diversified portfolio… a little of this… a little of that…”  You actually paid someone to do that with your money?  C’mon, America. Time to get serious.


The combination of fear about not having set enough aside for retirement, plus trepidation over being left to one’s own devices – plus, as the Alert points out, “cognitive decline” which leads to poorer than average decision making – makes older folks sitting ducks for scam artists.


This brief Alert says “employees of financial institutions may be able to spot irregular transactions or behavior that signals financial abuse,” and that these employees “can play a key role in preventing and detecting elder financial exploitation by reporting suspicious activities.”  We think this could be a significant opening wedge for the Commission to start holding financial firms responsible for elder fraud committed by third parties.


Fraudsters don’t always register with the financial authorities.  But stockbrokers and advisers do.  The umbrella regulatory organization for the financial services industry, FINRA, issued guidance for its members in 2010.  If you are concerned that you, or someone you know, may be vulnerable, you may want to start by seeing what FINRA wants its members to do by way of guarding against elder fraud. 


FINRA’s head of investor education testified last year before the Senate Special Committee on Aging that the Authority considers protection of elderly investors a high priority.  In light of today’s Alert, we wouldn’t be surprised to see a new FINRA release in the coming months reminding members of their duty to provide special care in their dealings with the elderly.


But how can this help you – or your aging parents? 


FINRA has the authority to hold a broker responsible for activity in an investment account, even if the broker doesn’t manage the account.  Brokerage firms have a duty to ensure that transactions are Suitable for the individual customer, and investors who manage their own money have been able to recover losses if the firm was deemed not to have exercised due care by permitting them to trade excessively or to make unsuitable investments. 


One common form of fraud is for stock promoters to induce gullible investors to buy large blocks of worthless stocks.  These transactions are done as “unsolicited trades” in the victim’s brokerage account.  If they are unsuitable (almost always a sure bet), FINRA has the power to hold the brokerage firm liable, even if they had nothing to do with promoting the stock.


Consumer advocates have long complained that the deck is stacked overwhelmingly against the individual investor.  But note that today’s Twitter release represents regulatory guidance on behalf of seven federal agencies.  One of them is the new Consumer Financial Protection Bureau.  And at least two of the others – the SEC and the Comptroller of the Currency – have failed miserably in recent years and need to make headlines going forward.


Twitter: Are You Following the SEC? - twit1


We urge you to follow SEC Investor Education, if only to see how the Commission is positioning itself.  Many of us have a cynical view of the Commission.  But you get nothin’ for nothin’.  If you think your concerns are important, you need to make your voice heard.  The SEC routinely opens up new rule proposals for public comment, yet rules that have the potential to affect millions of private investors are often commented on overwhelmingly by major financial institutions – whose interests are often better served by the status quo than by proposed regulatory changes. 


The Commission can only respond to your concerns if it hears them.  Get with the program. 


By Moshe Silver


Moshe Silver is a Managing Director at Hedgeye Risk Management and author of Fixing a Broken Wall Street.

Sequestration 2014: What's the Impact Again?

Takeaway: The real economic impact of sequestration in 2014 will likely be equivocal. Positive growth will resume for the balance of the decade.

Knowing Is Half The Battle  - G.I. Joe


It’s been more than two years since the Budget Control Act (BCA 2011) was passed as a first step towards reigning in federal fiscal profligacy.  Subsequent legislation, principally the American Tax Payer Relief Act (ATRA 2012), modified the original provisions and adjusted the caps on discretionary budget authority.  


With the new fiscal year here and congressional cantankery again in crescendo, we thought it worthwhile to provide a cliff note review of the 2014 budget setup, with a focus on the projected impacts of sequestration specifically.   Unless you’ve followed the legislation closely, the details are probably fuzzy at this point and a superficial read of the headlines can be misleading in regards to both the magnitude and real economic impact of the legislated cuts.   


Garnering a clean read on what a fiscal policy actually proposes, how it’s being measured and scored and the mechanics of its implementation is probably more than half the battle in analyzing fiscal policy measures.  Below we offer a summary refresh on the details of sequestration and some clarity on the main points of confusion. 


TWO SETS OF CAPS:  There are currently two discrete sets of caps on discretionary spending in place that are independent of one another.  The Budget Control Act of 2011 placed a first set of caps on discretionary budgetary authority (see top set of numbers in table below).  Cuts legislated under sequestration are incremental to the BCA caps and work to further lower the total discretionary budget authority in each year through 2021 (middle set of numbers in CBO table below).


THE BUDGET CONTROL ACT:   The Budget Control Act (BCA), enacted in August 2011, put a cap on total federal discretionary spending with separate sub-caps on Defense and Non-Defense discretionary programs.  The caps were put in place for the fiscal years 2013-2021 with the goal of reducing projected deficit spending by $1.5T over that period (more on that in “Scoring Sequestration” below).


SEQUESTRATION:  The BCA created and charged the Joint Select Committee on Deficit Reduction (i.e. the “Supercommittee”) with finding deficit savings incremental to those achieved under the discretionary caps set forth in the BCA.  Specifically, it called for $984B in additional budget cuts, divided equally over the nine years spanning 2013-2021 ($109.4B per year, divided equally between Defense and Non-defense Discretionary).   Sequestration was the fall-back provision that automatically cut funding should the Supercommittee fail to reach agreement on an alternative source of deficit reduction.  The committee failed to reach an accord, thus triggering the Sequestration provision. 


BUDGET AUTHORITY vs. OUTLAYS:  The statutory caps on discretionary spending target Budget Authority.  Budget Authority represents the allocation of funds in a given year that an agency can use to make financial commitments.  Budget Authority, however, does not necessarily equal spending.  If an agency has excess funds or appropriations from prior years it can still spend those dollars – the effect being that total outlays could exceed total budget authority in a given year. 


SCORING THE SEQUESTRATION CUTS:  This point is simple but a key one to remember when evaluating the real economic impact of the “cuts”.  The often cited “Cuts” for a given year do not refer to incremental, year-over-year reductions in spending.  The cuts, as they are quantified and quoted, are relative to total projected spending under the 2010 funding path. 


To clarify, when congress was debating the Budget Control Act and the Simpson-Bowles deficit reduction committee was actively evaluating deficit reduction options, the latest available data was the official discretionary funding level for 2010 and the CBO’s forecast for discretionary spending over the 2012-2022 period.  In their baseline scenario, the CBO’s took the 2010 funding level for discretionary spending and inflation adjusted it to arrive at projected spending over the subsequent decade. 


To illustrate using 2014 as an example - the scheduled cut (as scored by the CBO/OMB and quoted in the press) for fiscal year 2014 is $109B.   This does not mean that discretionay outlays will be $109B less than last year – it means budget authority for 2014 will be $109B less than the CBO projected it would be back in 2010 based on the 2010 inflation adjusted spending path. 


EXTRA APPROPRIATIONS: Overseas Contingency Operations (i.e. war funding), Disaster relief, Emergency Designations and Program Integrity Funding all, despite being discretionary in nature, fall outside of the purview of the caps legislated under BCA.  Spending for these programs totaled $152.6B in fiscal 2013 according to the CBO (Here).  Total spending on these ‘adjustment’ items represents the chief means by which total spending could deviate from that legislated under the tight controls in place under the discretionary spending caps.  In fact, adjustments in 2013 increased total discretionary budget authority over the 2012 level. 


SEQUESTRATION MODIFICATIONS:   The American Tax Payer Relief Act (ATRA 2012), which served as the resolution to the fiscal cliff issue, modified the sequestration cuts for fiscal 2013 and 2014 legislated by BCA.  Specifically, it lowered the legislated cut for 2013 by $24B from $109B to $85B.  As an offset, ATRA lowered the 2014 cap by $8B (split evenly between defense and nondefense).  


It's worth noting that while the total cut was reduced for 2013, the final decision came in March, 5 months into the fiscal year - which, on an annualized basis, equates to ~$140B in cuts.  For any agency that hadn't already adjusted budget expectations, any adjustments had to be concentrated in order to stay below sequestration defined levels over the balance of the year.     


ABSOLUTE FUNDING WILL DECLINE IN 2014 BUT RISE THEREAFTER:  Total Discretionary Budget Authority is scheduled to decline $76B to $967B in fiscal 2014 from $1043B in FY2014.   From FY2015 to 2021, funding is scheduled to grow approx +2.5% per year.   


Sequestration 2014:  What's the Impact Again? - budget authority


So, unless congress reaches an accord on an alternate path to deficit reduction, total discretionary budget authority will decline by ~$76B in absolute term in 2014.  However, depending on the level of extra appropriations and the difference between actual outlays vs authorized funding, that negative difference could narrow or even turn positive. 


All-in, the real economic impact of sequestration in 2014 will probably be equivocal.  For the second half of the decade, discretionary budget authority (and presumably actual spending by extension) will resume positive growth. 


Christian B. Drake

Senior Analyst 




OMB Sequestration Preview Report for FY 2014 >> HERE

CBO Sequestration update Report (Aug 2013) >> HERE

CBPP – Sequestration, Clearing Up misunderstandings >> HERE

(BCA 2011) Budget Control Act of 2011 >> HERE

(ATRA 2012) America Taxpayer Relief Act of 2012 >> HERE


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