Hungering For Less

“Always my soul hungered for less than it had.”

-T.E. Lawrence


Suffice it to say, this new book I have been reading (Lawrence in ArabiaWar, Deceit, Imperial Folly and the Making of The Modern Middle East) has provided me both timely and profound context for the times in which we live.


In general, that’s why I read so much history. I believe that leadership starts with having an ability to empathize. If you can’t contextualize where people and/or ideas come from, how can you lead them toward the path you’d like them to take?


And what if the path you thought you should take (like devaluing the purchasing power of your people and establishing a perpetual savings rate of 0%) ends up becoming the wrong path? Only the objective and flexible can change their mind. That’s evolution.


Back to the Global Macro Grind


October is coming. For the US stock and bond markets, that’s not always a good thing. October 1987 is a date that many of you who lead firms today remember. October of 1907 is a date you’ll only respect and remember if you’ve studied economic history.


In October of 1907, a panic on Wall Street sparked a nationwide run on banks and nearly halved the value of the New York Stock Exchange in a matter of days. Among the hardest hit by the panic was the heavily leveraged William Henry Yale, whose enormous fortune was virtually wiped out.” (Lawrence in Arabia, pg 25)


It wasn’t just the Yale family that got crushed. Many “who were born to tremendous advantage… lost it all in the blink of an eye” (pg 24), and that crisis gave birth to a whole new set of growth opportunities. With no job in NYC, William Yale’s son went on to work for Standard Oil in the Middle East (his office was a backpack and a tent). He’s was one of the first Americans on the ground.


How many of your sons or daughters are prepared for a life where you lost it all?


The America that their United States had back then didn’t have hand-holding socializers of risk. In 1907, they didn’t have the Federal Reserve either. Many self made men and women in this country were frugal and, as Nasim Taleb would say, anti-fragile.


How about the President of the United States? What did he stand for then versus now? If you had to pick between Theodore Roosevelt and Bush or Obama, who would you have lead your son or daughter into “the struggle” that Teddy called life?


William Henry Yale’s son didn’t whine and beg for an un-elected bureaucrat called Burns or Bernanke to bail him out. He sucked up his father’s mistakes and made his own path.


That didn’t just happen. Despite having all the money in the world, Yale believed (like Teddy did) that a “true man… was a rugged individualist, physically fit as well as intellectually cultured” (pg 25).


How many of your sons or daughters are well-read individualists who are prepared to take on the tyranny of a centrally planned USA? Too much to think about this morning. I know. But, please, don’t let the government’s groupthink stop you or your kids from thinking. We don’t live in the great depression Bernanke fear-mongers about. We might, if we keep trying to ban the economic cycle.


Moving on, after 5 straight down days for US stocks, here are some USA levels to consider:

  1. US Dollar – US Dollar Index long-term TAIL support = $79.11; intermediate-term TREND resistance = $81.35
  2. US Bonds – US 10yr Treasury Yield intermediate-term TREND support 2.55%; immediate-term TRADE resistance = 2.76%
  3. US Equity Volatility (VIX) – 12.95 immediate-term TRADE support; 18.98 intermediate-term TREND resistance
  4. US Equities (SP500) – 1655 intermediate-term TREND support; 1704 immediate-term TRADE resistance
  5. US Growth Equities (Nasdaq) – 3702 immediate-term TRADE support; 3789 immediate-term TRADE resistance

And here are some risk management questions to consider:

  1. Will the supposed leaders of this country allow an un-elected man to keep devaluing America’s Currency?
  2. Will Ben Bernanke and Janet Yellen be allowed to impose a perpetual depression on American Savers?
  3. Will @FederalReserve’s latest “communication tool” be to drive uncertainty, locking in a YTD VIX low?
  4. Will the all-time high for the US stock market (SPX 1725) be another Bernanke Bubble top?
  5. Will there ever be a bull case America believes in that doesn’t include a #StrongDollar and real growth?

I for one am Hungering For Less government intervention in our currency and bond markets. I’m hungering for a life that doesn’t include having to wake up worrying about what sub-regional-anti-dog-eat-dog-federal-reserve-vice-president says on CNBC next.


I’m hungering for what has always reflected the strength and character of any nation – confidence in both the currency and resolve of its people to be the change born out of crisis.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.57-2.76%


VIX 12.95-14.98

USD 79.99-81.28

Yen 98.02-98.99

Brent 106.98-110.51


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Hungering For Less - Chart of the Day


Hungering For Less - Virtual Portfolio

September 26, 2013

September 26, 2013 - dtr



September 26, 2013 - 10yr

September 26, 2013 - spx

September 26, 2013 - dax

September 26, 2013 - nik

September 26, 2013 - euro

September 26, 2013 - oil



September 26, 2013 - VIX

September 26, 2013 - dxy

September 26, 2013 - yen

September 26, 2013 - natgas
September 26, 2013 - gold

September 26, 2013 - copper


TODAY’S S&P 500 SET-UP – September 26, 2013

As we look at today's setup for the S&P 500, the range is 21 points or 0.58% downside to 1683 and 0.66% upside to 1704.                                         













  • YIELD CURVE: 2.30 from 2.29
  • VIX closed at 14.01 1 day percent change of -0.50%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init. Jobless Claims, Sept. 21, est. 325k (pr 309k)
  • 8:30am: GDP Annualized Q/q, 2Q revised, est. 2.6% (pr 2.5%)
  • 9:30am: Reserve Bank of India’s Rajan speaks in Frankfurt
  • 9:45am: Bloomberg Consumer Comfort, Sept. 22
  • 10am: Pending Home Sales M/m, Aug., est. -1% (pr -1.3%)
  • 10am: Freddie Mac mortgage rates
  • 10:10am: Fed’s Stein speaks in Frankfurt
  • 10:30am: EIA natural-gas storage change
  • 11am: Kansas City Fed Manufacturing, Sept., est. 8 (pr 8)
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 12:15pm: Fed’s Kocherlakota speaks in Houghton, Mich.
  • 12:35pm: Fed’s Pianalto speaks in Cleveland
  • 1pm: U.S. to sell $29b 7Y notes
  • 6:15pm: ECB’s Coeure speaks in New York
  • 9:15pm: Fed’s George speaks in Denver


    • Canadian Minister of Intl Trade Ed Fast meets with Sec. of Commerce Penny Pritzker, U.S. Trade Representative Michael Froman to discuss job creation and trade
    • 8:30am: Atty General Eric Holder delivers remarks at Justice Dept’s Summit on Preventing Youth Violence
    • 10am: Senate Homeland Security Cmte hears testimony on overhauling U.S. Postal Service
    • 10am: Senate Commerce Cmte hears from airline industry, manufacturers on jobs
    • 10am: House Budget Cmte meets on long-term budget outlook
    • 10:55am: President Obama to speak on Affordable Care Act at Prince George’s Community College
    • 2pm: Senate (Select) Intelligence Cmte holds hearing on FISA


  • JPMorgan said to see possible $11b mortgages settlement
  • Citigroup to pay Freddie Mac $395m to end mortgage claims
  • Lacker says expanding Fed assets increases costs of any missteps
  • U.K. prosecutors said to plan more Libor charges in Oct.
  • NYSE, Nasdaq said to weigh plan to collaborate on backups
  • Deutsche Bank said to propose creating bond platform w/ rivals
  • Icahn-backed Ferrous hires Itau to seek $1.5b in funding
  • J.C. Penney seeks to raise $750m-$1b in new equity: Reuters
  • U.S. data providers hit with cyber attack: Reuters
  • Caesars selling 10m shrs in fresh public offering
  • Takeda duped patients, doctors on Actos risks, lawyer says
  • U.K. eco. growth accelerates in 2Q as consumer spending rises
  • H&M gains most in more than 3 yrs after beating estimates
  • Fed monetary policy didn’t leak early, firm’s study finds: FT
  • Apple ordered to pay 330m yen in Japan on iPod patent: Kyodo
  • Cargill, Bunge study bids for Deoleo, Economista says


    • Accenture (ACN) 4:01pm, $1.01
    • Cantel Medical (CMN) 8:30am, $0.23
    • Ferrellgas Partners (FGP) 7am, $(0.31)
    • McCormick (MKC) 6:30am, $0.79
    • Nike (NKE) 4:15pm, $0.78


  • Commodity Constraints Show ‘Super Cycle’ Endures, McKinsey Says
  • U.S. Corn Sales Fall Most Since ’75 as Farmers Reap: Commodities
  • WTI Trades Near 12-Week Low; BofA Sees Iran Diplomacy Limited
  • Wheat Near One-Month High as U.S. Sales, China Demand May Climb
  • Copper Climbs Before Report Seen Showing Stronger U.S. Growth
  • Gold Advances for Third Day in London on U.S. Budget Impasse
  • Cocoa Swings as Ivory Coast Sells Amid Shortages; Coffee Drops
  • Abenomics Peaking for Tocom Volume Means Focus on China, India
  • Rebar Declines to 11-Week Low as China Affirms Property Curbs
  • China Cotton Use Drops in Switch to Synthetics: Chart of the Day
  • China Silver Indicators Lackluster as PC Manufacturing Down 14%
  • Russian Gas Lowest Since 2011 Favors Link to Oil: Energy Markets
  • Aluminum Shipments by Japan Steady in August, Group Says
  • Ivory Coast Offers Cocoa for 2014-15 in a Futures Bull Market


























The Hedgeye Macro Team













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Macau’s casinos face “some limit on the availability of people” unless the government changes a rule that only residents can be employed as croupiers, says LVS President and COO Mike Leven.  Leven told an investor forum in Las Vegas the Macau government would have to think about the bottleneck the rule has created.

Business Daily says the casinos would need up to 10,000 more dealers in Cotai by 2018 if the government approves all of the 3,366 new gaming tables the operators want to put in the eight new casino-resorts there.


Following four months of down Baccarat drop, August was a winner.



We estimate Las Vegas Strip revenues increased 2-5% YoY in August, assuming normal table hold.  Since the month ended on a Saturday, slot hold will be below normal due to State accounting and that is factored into our estimates.  Assuming consistent slot hold in both periods, we estimate YoY gaming revenues increased 5-8%.  We still expect down slot and non-Baccarat table volume, but our research indicates that Baccarat volume was strong.  Remember that Baccarat volumes have fallen 4 straight months – fueling fears of the end of the 5 year Baccarat bull market.  Our Baccarat revenue projection of 30% YoY growth could actually prove conservative if our suspicions of high hold prove true.


State gaming figures should be released early next week.  Here are our full projections.



Sequestration: 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.

This note was originally published September 24, 2013 at 15:49 in Macro

Knowing Is Half The Battle  - G.I. Joe

 Sequestration: What's the Impact Again? - seq2

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: What's the Impact Again? - drake1


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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