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November 15, 2013

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TODAY’S S&P 500 SET-UP – November 15, 2013

As we look at today's setup for the S&P 500, the range is 24 points or 1.15% downside to 1770 and 0.19% upside to 1794.       










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.43 from 2.40
  • VIX  closed at 12.37 1 day percent change of -1.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Import Price Index m/m, Oct., est. -0.5% (prior 0.2%)
  • 8:30am: Empire Manufacturing, Nov., est. 5.00 (prior 1.52)
  • 9:15am: Industrial Production m/m, Oct., est. 0.2% (prior 0.6%)
  • 10am: Wholesale Inventories m/m, Sept., est. 0.4% (prior 0.5%)
  • 11am: Fed buys $0.75b-$1b in 2024-2031 sector
  • 1pm: Baker Hughes rig count


    • 9am: House to consider H.R.3350, “Keep Your Health Plan Act of 2013;” last votes no later than 3pm
    • 9:30am: U.S. Chief Negotiator Dan Mullaney, EU Chief Negotiator Ignacio Garcia Bercero hold press conf. in Brussels following EU-U.S. trade talks
    • 10am: Janet Woodcock, dir., FDA’s Center for Drug Evaluation and Research, testifies at House Energy and Commerce hearing on implementation of FDA Safety and Innovation Act


  • Moody’s downgrades 4 U.S. banks on federal support review
  • Kimberly-Clark plans to spin off $1.6b health-care unit
  • Google win in copyright suit may bolster web search dominance
  • Berkshire adds $3.7b Exxon stake in biggest bet since IBM
  • Paulson sticks with gold wager as Soros buys mining companies
  • Soros joins Ubben in taking Microsoft stake as dividend raised
  • Icahn discloses holdings in Apple, Nuance
  • Credit card cos. report Oct. charge-offs, delinquencies
  • Wall Street bid on cross-border swaps quashed by U.S. regulator
  • AMR bid for merger suit deal said to turn on meeting U.S. number
  • Morgan Stanley said to seek broker dual status in mortgage push
  • AstraZeneca, generic drugmakers face class action on Nexium
  • N.Y. Fed seeks dismissal of examiner’s suit over Goldman Sachs
  • Barrick, Goldcorp said to seek sale of Marigold mine in Nevada
  • Comcast said to plan to sell movies through its cable service
  • Zulily raises $253m, pricing IPO above increased range
  • China to release Plenum details in next wk: Morgan Stanley
  • UBS, Sumitomo Mitsui had talks on investment bank venture: WSJ
  • U.S. investigates major banks’ currency trading: NYT
  • Eli Lilly CEO sees no rev. gain for at least a yr: Le Temps


    • Maximus (MMS) 6:30am, $0.49


  • Billionaire Paulson Sticks With Gold Wager as Prices Rebound
  • Gold Analysts More Bullish on Fed Stimulus Outlook: Commodities
  • Rice Plan Signals End of Era as New World Farmers Beat Old Japan
  • WTI Oil May Gain on Signs Fed to Maintain Stimulus, Survey Shows
  • Wheat Rises on Import Demand Gain as Egypt Buys French Supply
  • Gold Swings in London as Investors Weigh Fed Stimulus Outlook
  • India’s Vegetable Oil Imports Rise 4.8% to Record in 2012-2013
  • Copper Declines on China Demand Concern as Power Spending Slows
  • U.K. Gas Climbs to 7-Mos. High as Cooler Weather to Boost Demand
  • Rebar Has Weekly Loss With China Leaders Silent on Policy Detail
  • Gasoline Profit Plunge Pressures Europe Refiners: Energy Markets
  • Shale Revolution Spreads With Record Wells Outside U.S.: Energy
  • Yellen Says Review of Bank Commodity Activity Could Bring Limits
  • WTI Set for Longest Run of Weekly Losses Since 1998 on Supplies

























The Hedgeye Macro Team














Ambition and Avarice

This note was originally published at 8am on November 01, 2013 for Hedgeye subscribers.

“Sir, there are two passions which have a powerful influence on the affairs of men.”

-Benjamin Franklin


And, in case you wondered whether or not your central planning overlords in Washington have yet to eliminate those two passions, they have only amplified them: “These ambitions are ambition and avarice; the love of power and the love of money.”


Franklin went on to add that, “separately each of these has great force in prompting men to action; but when united in view of the same object, they have in many minds the most violent effects. Place before the eyes of such men, a post of honour that shall be at the same time a place of profit, and they will move heaven and earth to obtain it.” (The Liberty Amendments, pg 23)


That’s why we all have no choice other than to Embrace Uncertainty in macro markets. There is nothing normal about a man from an un-elected US post moving your entire risk exposures with a whisper to the Wall Street Journal. Therefore you should not invest “normally.” Either #GetActive and do real-time macro or, as Dan Och recently said, “macro will do you.”


Back to the Global Macro Grind


BREAKING: Budget Deficit In US Narrows To 5 Year Low on Record Revenues –Bloomberg News


Not to be confused with the fear-mongering headlines Bloomberg/CNBC were running about how a US debt “default” could spell the 6th #EOW (end of the world) event of 2013, the fine folks in NYC’s groupthink tank finally nailed it.


Eleven months ago, we got ragingly bullish on the US Dollar because the only 2 factors in the (P) part of (POLICY) in our GIP (Growth, Inflation, Policy) Model @Hedgeye were Dollar Bullish:


1. FISCAL FACTOR: US Deficit/GDP was going to get cut in half to 4% (it was just reported at -4.1%, so we were off by a bit) because A) sequestration is good (spending down) and B) US #GrowthAccelerating would drive the denominator (GDP) up

2. MONETARY FACTOR: US #GrowthAccelerating would surprise those anchoring on last year’s Q412 GDP report of 0.14%, the Fed would fall behind the curve, #RatesRising would surprise to the upside, and tapering expectations would take hold


So easy a hockey head can do it. Then, sadly, the Fed gave into the mega Bond Bull Lobby on September 18th, 2013, smoked the Dollar, took rates back down, and the MONETARY FACTOR for USD Bulls was lost (again).


But the FISCAL FACTOR (which can only be obfuscated by the Fed as opposed to arrested like Bernanke did with USD and Bond Yields) continued along its path of least resistance and US Government Revenues were +15.2% year-over-year in September (not a typo)!


Oh, and the SP500 ripped the front-teeth out of all those #OldMedia mouth-pieces who shorted the October 2013 fear-mongered low about a US default when the US credit position was in its best position in half a decade. #NewAllTimeSPYHighs


And so it begins, after all-time SP500 and Russell2000 highs in October (SPY = +4.5% OCT 2013), it’s November. What in god’s good name are we supposed to do next?


To answer the question in any country, I always go back to the playbook:


  1. USA: FISCAL = hawkish (bullish USD); MONETARY = dovish (bearish USD)
  2. EUROPE: FISCAL = hawkish (bullish Euro); MONETARY = hawkish (bullish Euro)
  3. UK: FISCAL = hawkish (bullish Pound); MONETARY = hawkish (bullish Pound)


And to be clear, when I say hawkish or dovish, I mean what’s happening from a 2nd derivative perspective (i.e. what’s happening on the margin relative to the last 3-6 months).


This is why we’re #EuroBulls (see our Q413 Global Macro Theme deck) relative to being as bullish as we were, literally up until September 18th (shame on you Bernanke), on US growth. Same playbook; different relative pick.


Everything in macro is relative. Every asset allocator has a choice. And when push comes to shove in the coming 3-6 months, what will it be, German stocks or US stocks?


While the Russell2000 dropped -1.9% from its all-time performance chasing high in the last 2-days, German stocks hit a fresh all-time high. Fortunately, Mr. Market keeps score; not you or me. He gets it.


Since I’ve been bearish on Commodities and Fixed Income relative to Equities for the better part of a year now, I consider this shift to European Equities vs US Equities within an asset class that I like. If the Fed leans on the long-end of the curve, you can still be long US Equities, just not the Equities that worked best in 2013. The Growth Style Factor gets repressed by Bernanke’s intervention.


Having had an asset allocation to Commodities of 0% all year (CRB Commodities Index is 19 Commodities and it’s -6.1% YTD, on its YTD lows), getting long Gold for the 1st time in a long time gets interesting here too. I haven’t pulled the trigger yet, but front-running the next Hilsenrath article is a compelling catalyst.


How would that work? On a Friday, Bernanke’s boys float a headline to the WSJ that there won’t be a December taper, the Dollar gets slammed, Rates fall, and Gold rips. Oh yes, ambition and avarice matters in the land of the conflicted and compromised. And we aren’t yet dumb enough to not front-run proactively predictable behavior.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.48-2.60%

SPX 1740-1771

DAX 8971-9061

USD 79.21-80.35

Euro 1.35-1.37

Gold 1314-1341


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Ambition and Avarice - Chart of the Day


Ambition and Avarice - Virtual Portfolio

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.


Following MCD's investor day yesterday, we will be hosting a call titled "MCD REVEALS COFFEE STRATEGY FOR 2014" today, November 15th at 11:00am EST.


As we suggested during our call on Tuesday, McDonald’s has announced an initiative to go after the coffee consumer in 2014.  We recently conducted a proprietary survey on the coffee marketplace and determined the key demand drivers that are needed to capture incremental market share in the coffee category.


We will be revisiting our survey in the context of the strategy MCD revealed yesterday during its investor meeting.




  • What are the key demand drivers in the coffee category?
  • Will MCD be able to capture incremental market share in the coffee category and, if so, how?
  • How will MCD’s aggressive coffee strategy impact other parts of the business?
  • How will this affect the other key players in the coffee category segment?
  • Overall take away from the MCD analyst day.



  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 195856#
  • Materials: CLICK HERE




Howard Penney

Managing Director


#Yellen: Tools, Crickets & Crack


Hedgeye CEO Keith McCullough weighs in on the Fed's newest purveyor of monetary crack and how to trade the market you have, not the one you want.

Staying Long the British Pound!

Long GBP/USD (via the etf FXB)


Our bullish call on the British Pound remains, an anchor of our Q4 2013 Macro theme of #EuroBulls presented on 10/11/13.  (Click here for our previous note “Get Long the Pound”)


We’re buyers of the cross above our TREND support line of $1.58 and long term TAIL support line of $1.56.  We could see the cross heading to the $1.65 - $1.70 range over the intermediate term. 


Staying Long the British Pound! - vv. pound


In short, we expect currency wars to devalue the USD and EUR, and expect the British Pound to be the relative winner across both crosses. Here are some updated developments since the ECB unexpectedly decided last Thursday (11/7) to cut the main interest rate by 25bps to 0.25% that we think will boost our #PoundBullish call:

  • Continued signs that Bernanke/Yellen will burn the Greenback via delaying the call to taper (likely pushed out to March 2014); a very dovish Q&A from Yellen today (11/14) before the Senate Banking Committee suggesting the call to taper pushed further out.
  • Members of the ECB governing council suggesting further policy easing measures (since the cut):
    • ECB Executive Board member Peter Praet said negative interest rates could be adopted or assets purchased from banks if needed.
    • ECB Executive Board member Joerg Asmussen said that depending on how inflation develops, the central bank has not reached the lower bound on interest rates. He added that while he is wary of such a move, the ECB could also push the deposit rate into negative territory.
    • ECB Executive Board member Benoît Cœuré said that the central bank can further cut interest rates and provide the banking system with additional liquidity.
    • Austria’s Central Bank head and Governing Council member Ewald Nowotny said that the central bank's main concern is stagnation, not inflation. He added that unlike the Fed, the ECB had not yet reached the lower zero bound on interest rates.


In contrast, we expect sober hawkish policy from the BOE.  The UK was the first to issue austerity, which we think will continue to boost its growth profile above most of its European peers.  Improving economic data (more below) continues to confirm this position.  On policy, we expect interest rates to be on hold over the medium term, with expectation for a hike over the longer term, and the asset purchase program target (QE) to remain unchanged.  Both positions should strengthen the GBP/USD and GBP/EUR. 



Improving UK Data This Week:

BOE’s  Inflation Report-

  • brought forward the likelihood of 7% unemployment rate to Q3 of 2015
  • raised 2014 GDP forecast to 2.8% from 2.7%

High Frequency Data-

  • UK Retail Sales 1.8% OCT Y/Y vs 2% SEPT
  • UK ILO Unemployment Rate 7.6% SEPT vs 7.7% AUG
  • UK Jobless Claims Change -41.7K OCT vs -44.7K September
  • UK PPI Input -0.3% OCT Y/Y (exp. 0.1%) vs 0.9% SEPT
  • UK CPI 2.2% OCT Y/Y (Exp. 2.5%) vs 2.7% September.  We expect this move downward in inflation to aid consumer spending. 

Staying Long the British Pound! - vv. inflation new