TODAY’S S&P 500 SET-UP – October 10, 2013

As we look at today's setup for the S&P 500, the range is 28 points or 0.33% downside to 1651 and 1.36% upside to 1679.                          













  • YIELD CURVE: 2.35 from 2.31
  • VIX closed at 19.6 1 day percent change of -3.64%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England seen maintaining 0.50% bank rate
  • 7:45am: BoJ’s Kuroda speaks at Council on Foreign Relations
  • 8:30am: Initial Jobless Claims, Oct. 5, est. 310k (prior 308k)
  • 9:45am: Bloomberg Consumer Comfort, Oct. 6 (prior -29.4)
  • 9:45am: Fed’s Bullard speaks on monetary policy in St. Louis
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $1b-$1.5b TIPS in 2018-2043 sector
  • 12:20pm: ECB’s Draghi speaks in New York
  • 1pm: U.S. to sell $13b 30Y bonds in re-opening
  • 1:45pm: Fed’s Tarullo speaks on regulatory reform in D.C.
  • 2:30pm: Fed’s Williams speaks on economy in Boise, Idaho


    • Sec. of State John Kerry in Bandar Seri Begawan, Brunei, for U.S.-ASEAN Summit and East Asia Summit; leaves for Malaysia to meet officials, attend Global Entrepreneurship Summit
    • 8am: Treasury Sec. Jack Lew testifies at Senate Finance Committee on debt limit
    • 8:45am: World Bank President Jim Yong Kim holds press briefing
    • 9:30am: IMF M.D. Christine Lagarde speaks to press
    • 10am: Senate Banking, Housing and Urban Affairs Committee holds hearing on consequences of default on financial stability, economic growth, with American Bankers Association CEO Frank Keating, Sifma present Kenneth Bentsen Jr.
    • 1pm: House Natural Resources panel holds hearing on EPA and mining jobs


  • Sept. U.S. same-store sales seen slowing from Aug.
  • Debt-limit prospects gain as both sides open to short-term deal
  • Hong Kong raises haircut on U.S. bills for margin cover
  • Samsung set for $1.4b windfall after Seagate stock sale
  • Microsoft’s board said to work on hiring new CEO this year
  • Jarden’s Franklin close to buying MacDermid to add chemicals
  • Blackstone receives first-round bids for La Quinta: WSJ
  • KKR to pay $1b for industrial-products makers Crosby, Acco
  • Manhattan apartment rents fall for the first time in 2 years
  • ECB agrees to bilateral currency swap agreement with PBOC
  • Telecom Italia is said to value Brazil stake at $12b
  • Libyan PM seized from hotel by revolutionary group in Tripoli


    • Angiodynamics (ANGO) 4:01pm, $0.03
    • Bank of the Ozarks (OZRK) 6pm, $0.60
    • Blackhawk Network (HAWK) 9am, $0.05
    • E2Open (EOPN) 4:05pm, $(0.15)
    • iGATE (IGTE) 6:45am, $0.43
    • Lindsay (LNN) 7am, $0.91
    • Marriott Vacations Worldwide (VAC) 8am, $0.39
    • Micron Technology (MU) 4:04pm, $0.23 - Preview
    • Safeway (SWY) Aft-mkt, $0.16 – Preview


  • Brent Crude Rises as Libya Prime Minister Freed From Detention
  • Soybean Reserves Reach Record as Goldman Sees Slump: Commodities
  • Cocoa Reaches 21-Month High on Demand Indications; Robusta Rises
  • Copper Rises on Speculation U.S. Will Avoid Defaulting on Debt
  • Gold Falls as Investors Weigh Prospects for Debt Deal, Tapering
  • Tin Membership Increases at ICDX as Indonesia Targets Benchmark
  • Gold Seen Lower by Morgan Stanley in 2014 as Goldman Says Sell
  • Soybeans Climb on Supply Outlook Before South American Harvests
  • Japan Buys Least Milling Wheat in 3 Months in Regular Tender
  • Refiner Gains in Asia to Rebound as Units Shut: Energy Markets
  • Cold European Winter Could Create Energy Crisis, Cap Gemini Says
  • Costlier CO2 Permits Boost Long-Term EU Gas Demand: Bull Case
  • Apple to Toyota Seen Gaining From Thailand’s Upgrade: Freight
  • Rebar Rises on Bets Chinese Economic Growth to Support Demand


























The Hedgeye Macro Team














Fatal Fear

“Failure is not fatal, but failure to change might be.”

-John Wooden


As I was walking from one client meeting to another yesterday in Boston, I think I changed my US stock market view at least 3 times. Government sponsored volatility does that to a simple “folk” like me. Isn’t it cool?


What isn’t cool is not changing your mind. Especially when the causal factor that is driving the market’s immediate-term volatility is either Congress or the Fed, the best plan is usually accepting that the plan is going to change.


Does Big Government Intervention in your markets A) shorten economic cycles and B) amplify market volatility? In our Q413 Global Macro Themes call tomorrow at 11AM EST, we’ll show you the trivial data that answers that question. #OldWall media “Fed” story count vs Volatility (VIX) has a positive correlation that will make Bernanke’s “price stability” fans cry.


Back to the Global Macro Grind


There’s no crying in risk management. So strap it on and keep moving out there. After watching this government gong show and changing my mind throughout the day, I ultimately opted to hit the buy/cover buttons into yesterday’s closing bell.


In other words, this is the first morning since Bernanke decided not to taper (September 18th) that I’ll be telling clients to buy-the-damn-dip. Unlike how I used to play this game (emotionally), this is purely a quantitative signal.


Other than salvation sent down to us from our overlords from upon high in D.C. (who will be saving us from themselves again), what’s changing this morning?

  1. US DOLLAR Index just v-bottomed off its long-term TAIL line of @Hedgeye $79.21 support
  2. US Equity Volatility (VIX) can easily snap @Hedgeye TREND support of 18.98
  3. US Equities (SP500) can easily recapture 1663 @Hedgeye TREND support of 1663

Yep, that’s about it. That (and US 10yr Treasury Yield holding @Hedgeye TREND support of 2.58%) is just about all this “ordinary folk” needs to see. Fading the false premise of a US “default” just puts a contrarian cherry on top.


But what shall I do if consensus sells the open and the VIX holds 18.98?

  1. I’ll sell

Nope, it’s not any more complicated than that. Remember, I’m just a paper trader newsletter guy who has to keep it simple as Zero Edge sells you some fear and Gold ads (gold nailed Fading Fear again btw - ZeroBid).


Context is always critical when making both asset allocation and net positioning decisions (I started the week net short). Don’t forget that buying US stocks here comes on the heels of a very basic pattern:


1.       Dollar Down

2.       Rates Down

3.       Stocks Down


Oh, and volatility (VIX) up +70% from its August low.


Government sponsored volatility crushes confidence. US stocks have been down for 11 of the last 15 days on that and the only “UP” days have come on moves like you are seeing this morning:

  1. Dollar Up (+1% in the last 48hrs)
  2. Rates Up (10yr Yield +10bps from the OCT low to 2.69%)
  3. Stocks Up (TBD from the 1-month closing low of 1655 SPY)

Again, “keep it simple stupid.” That’s what my old hockey coach used to tell me when I’d try the howdy doody on a defenseman (I had really bad moves) instead of just driving to the net and firing the puck.


“Again!” –Herb Brooks


I’m definitely not saying “this is it!” Only people that don’t timestamp would say something ridiculous like that. All I am saying is that after a 4% correction from the all-time US stock market high (1725 SP500), the reward in buying stocks is in its highest probability position (versus the risk) in 3 weeks. SP500 has +23 handles of immediate-term upside to 1679 versus 1651 support.


And that’s all I have to say about that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.61-2.71%



VIX 17.65-20.98

USD 79.79-80.81

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fatal Fear - Fed vs. VIX


Fatal Fear - Virtual Portfolio

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Conference Call With CEO of Meritage Hospitality

What's On The Menu For Wendy's Future?

Conference Call With CEO of Meritage Hospitality


Monday, October 14th at 11:00am EDT  

For details please email



The Hedgeye Restaurants Team, led by Howard Penney, will be  will be hosting a call with the CEO of Meritage Hospitality, Bob Schermer, to talk about the current trends in the QSR segment of the restaurant industry and trends in the Wendy's brand. 

The call titled "What's On The Menu For Wendy's Future?" will be held on Monday, October 14th at 11:00am EDT.




  • Image Activation and its Impact on the Wendy's System - Highlighting the good, the bad and the ugly from a franchisee perspective.
  • New Products - The Company has hit a well known home run with the Pretzel Bacon Cheeseburger (and now Pretzel Pub Chicken Sandwich).  But how good is good? And what is next?
  • Breakfast - Why did the Wendy's system have so much trouble launching breakfast?




Meritage is playing a meaningful role in helping to reshape the Wendy's system.  Currently, the Wendy's restaurant system is entering a once-in-a-generation transition as many of the original "legacy franchisees," now at an average age of 62 years old, are beginning to retire from the system. Wendy's management calls this process "system optimization." The net result of "system optimization" will be fewer franchisees, operating larger restaurant portfolios at higher levels of sophistication.


Meritage has made commitments to complete Wendy's Tier II and Tier III "image activation" restaurants in 2013.  As a result, Meritage has an "in the trenches" understanding of the image activation construction cost variables to measure the incremental return on investment.




Please email or call to learn more about the event. Attendance is limited. Please note if you are not a current client of our Restaurants research there will be a fee associated with this call.




Howard Penney

Managing Director



Takeaway: This whole mess likely gets resolved with a whimper rather than a bang.

Editor's note: In the interview below, Hedgeye Global Macro Head Daryl Jones clarifies much of the nonsense, half-baked truths and distortion surrounding fears that the United States is on the cusp of a catastrophic default.Click here to watch a brief default discussion between Jones and Hedgeye CEO Keith McCullough on HedgeyeTV.




Is the United States going to default on its debt?


The U.S. government bond market is signaling explicitly that the United States is not going to default.  Specifically, the credit default swap (CDS) market, while slightly elevated over the last couple weeks, remains well below a level that would indicate a credit event is imminent. 


Further, even if Congress did not extend the debt ceiling, both the Treasury Department and President have options to continue servicing U.S. debt.  Ironically, the deficit-to-GDP has narrowed from more than 10% to just under 4% in the last three years, which implies that U.S. is getting more, not less, creditworthy.


So why has the Obama Administration been peddling this “catastrophe” narrative?


The Obama administration wants to portray the Republicans in Congress as reckless in order to win the day on the Affordable Care Act.  The best way to do this is via fear mongering and scaring the voting public into believing that Republicans are willing to risk the economy in order to win an ideological argument. 


What is your thought on media coverage of this whole saga?


The media coverage, no surprise, is lacking in any context or analytics.  As a result, according to a recent poll from Rasmussen, more than 62% of Americans think the U.S. is likely to default on its debt.  The media coverage is shameful in that it is perpetuating a very, very unlikely scenario and thus scaring participants in the real economy and, frankly, hurting consumer confidence.


What’s your best guess on how this whole thing gets resolved?


This whole mess likely gets resolved with a whimper rather than a bang. 


Both parties realize that risking a default is not a practical negotiating tactic, so therefore will come to the table and negotiate a compromise.  It is likely that Obamacare remains largely intact and that the Republicans get some reduction in spending and/or tax reform to further bolster fiscal responsibility.  

RH: Our $8 EPS Thesis. Does The Consumer Agree?

Takeaway: Please join us on Wed, 10/16 at 11 am to review our new Black Book on our $8 EPS thesis, and our detailed consumer survey on RH & the space

RH: Our $8 EPS Thesis. Does The Consumer Agree? - RHdialin 10 16 13


Please join us on Wednesday, October 16th at 11:00 am EST to review our new Black Book on 1) our $8 EPS thesis, and 2) our detailed consumer survey on RH & the space


In addition we'll present the results of our comprehensive consumer survey on the Home Furnishings space, and where RH faces the biggest opportunities and challenges.  While the focus will be on RH, we will also dig into BBBY, WSM, PIR, Design Within Reach, Ethan Allen, and Department Stores.


Some key questions of the 40+ that we asked include…

1. Nailing down the demographic characteristics of RH shoppers vs their competitors.

2. Consumers propensity to try out new categories such as Kitchen, Tablewear, Leather, Artwork, Antiques, Flooring, and Apparel (RH Atelier).

3. If consumers try out new RH categories, which retailers are likely to lose share?

4. What consumers think about smaller Legacy Stores vs. larger Design Galleries, and how will it impact their spending. In other words, as the company moves from 8,000 square feet, to 25,000, to 50,000, should sales per square foot go up? Or just sales per store?

5. What are consumers' attitudes towards the RH Catalogues? How many actually act upon it vs buying product online through RH's promotional emails?

6. Will spending be impacted by the elimination of the Fall source book?

7. What do Consumers think about RH Music? Will it do more harm than good? Or do people understand that it’s a brand-builder? Do they care?



  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 779954#
  • Materials: CLICK HERE


Please email  for further details.


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