January 29, 2014

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Bear Droppings

“Daddy, that looks like bird poop.”

-Jack McCullough


Nah, he wasn’t talking about the complexion of yesterday’s stock market bounce or Obama’s class warfare speech. My son was talking about the risk-on trade my 2.5-week old baby girl placed all over my shirt last night.


Risk happens fast, and slow.


Back to the Global Macro Grind


Given that the Russell 2000 hit an all-time high on January 22nd, I think most of you will agree that the “risk-on” trade in being long of big US equity beta happened pretty fast.


The speed of an information surprise (real-time prices) to the downside can kill both confidence and returns. And I think this is what will keep volatility above @Hedgeye TREND support (VIX TREND = 14.91) for longer than consensus might think.


While consensus isn’t as bullish as it was 4 weeks ago, here’s one way to contextualize sentiment:


  1. The II Bull/Bear Spread (one of my favs) peaked at +4650 basis points wide to the bull side in DEC (all-time high)
  2. This morning’s Bull/Bear Spread is +3780 bps wide (that’s a 16% correction)
  3. The peak in Bulls was 61.7% and this morning it’s down to 53.1% (that’s a 14% correction)


As for the Bears, there still are none that survived all of 2013. By the time it was all over, very few long-only managers were allowed to remind clients they’d been bearish for the last 12 months. Even after last week’s -2.6% drop in the SP500, Bears went from 15.1% to 15.3%. I know, #scary.


Unlike the last three 3-4% US stocks market corrections that we told you to buy, this one has a glaring difference – rather than accelerating both month-to-month and quarter-over-quarter, on the margin, US growth is slowing.


Slowing? Yes. And very evidently so in some of the big stuff that matters:


  1. HOUSING: New Home Sales missed big on Monday and Case/Shiller Home Prices declined m/m (both are new)
  2. CONSUMPTION: from Retail Sales to ISM Services and every company check from my analysts = #GrowthSlowing
  3. ECON CYCLE: yesterday’s New Orders in the DEC Durable Goods report dropped -4.3% m/m (vs +2.6% last)


And sure, people who are in the business of being bullish will give you plenty of excuses (including the weather) as to why slowing is occurring, but few made the call 2-4 weeks ago when the call needed to be made.


Blame Turkey.


No thanks. Did consensus seriously think all these dysfunctional emerging market countries could try what we did (burn their currencies) and not see local inflation rise, consumption growth slow, and social unrest rip?


NEWSFLASH: devaluing the purchasing power of The People is called inflation.


And inflation pays the rich and starves the poor.


Obviously that whole money printing and political power thing (which crushes upward mobility in a society) didn’t make it into last night’s State of The Storytelling. But I digress.


Political digressions, transgressions, and obfuscations aside, what markets cannot seem to get away from is this thing called economic gravity. So let’s try an if/then risk management exercise. If…


A)     #InflationAccelerates

B)      #GrowthSlows


Then… the stock market sees multiple compression. Period.


If stagflation gets really amped up (think 1970s when American socialists perpetuated it through things like currency devaluation, price controls, and government spending), stock market multiples really get whacked.


Sorry Abby (as in Goldman’s Cohen, who says the SP500 is going to 18x EPS = 2088 this year). If inflation continues to ramp and growth continues to slow, you might have to slap a lucky 13 on that super-duper-magic-market-multiple thing you do.


Actually, god just called and told me 13 “feels a little low.” How about 14x the 2014 consensus EPS = 1624? Jack, that would look and feel like bear poop to me.


Our immediate-term Macro Risk Ranges (with bull or bear TREND in brackets) are as follows:


UST 10yr Yield 2.72-2.80% (bearish)

SPX 1 (bullish)

Shanghai Comp 1 (bearish)

VIX 14.91-18.55 (bullish)

USD 80.16-80.79 (bearish)

Pound 1.64-1.66 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bear Droppings - Chart of the Day


Bear Droppings - Virtual Portfolio

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


TODAY’S S&P 500 SET-UP – January 29, 2014

As we look at today's setup for the S&P 500, the range is 48 points or 1.20% downside to 1771 and 1.48% upside to 1819.              










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.39 from 2.41
  • VIX closed at 15.8 1 day percent change of -9.30%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Jan. 24 (prior 4.7%)
  • 7:15am: BoE’s Carney speaks in Edinburgh
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC Rate Decision, Jan. 29, est. 0%-0.25% (pr. 0%-0.25%)


    • President Obama speaks on economy in Md., Penn.
    • 10am: Senate Judiciary Cmte hears from Attorney General Eric Holder at oversight hearing


  • Obama income-gap message frames race for control of U.S. Senate
  • Obama seeks trade deals in speech backing U.S. cos.’ goals
  • FOMC rate decision expected at 2pm
  • JPMorgan said near decision on $2b commodities unit sale
  • Yahoo’s Mayer fails to revive growth 18 months into CEO role
  • Deutsche Bank cuts investment banker pay 23% as loss reported
  • AT&T forecasts profit on low end of estimates as rivalry grows
  • Caesars is said to weigh bid for Revel casino in Atlantic City
  • J&J gets $257m Louisiana Risperdal verdict thrown out
  • Lenovo said to agree to higher than usual break fee with IBM
  • Turkey raises rates to end lira fall as Basci defies Erdogan
  • Ukraine president fails to quell protests after ally quits
  • BP continued suspension from new contracts sought by U.S.
  • Biggest banks seen meeting Basel rules 5 yrs ahead of time
  • Goldman Sachs said to lead American Homes 4 Rent bond deal
  • Canon forecast misses analyst estimates amid camera slump
  • Novartis 4Q net drops on franc, emerging markets
  • Fiat 4Q profit misses est, won’t pay div.
  • Boeing’s testing on new tanker may face delays: Reuters


    • Ametek (AME) 7am, $0.54
    • Biogen Idec (BIIB) 7:15am, $2.27 - Preview
    • Boeing (BA) 7:30am, $1.54 - Preview
    • Canadian Pacific Railway (CP CN) 7:30am, C$1.92 - Preview
    • Capitol Federal Financial (CFFN) 9am, $0.13
    • CGI Group (GIB/A CN) 6:30am, C$0.71 - Preview
    • Dow Chemical (DOW) 7am, $0.43 - Preview
    • EMC (EMC) 6:52am, $0.59
    • Energizer Holdings (ENR) 7:30am, $2.13
    • Gentex (GNTX) 8am, $0.43
    • Hess (HES) 7:30am, $1.07 - Preview
    • Hudson City Bancorp (HCBK) 8am, $0.07
    • JetBlue Airways (JBLU) 7:30am, $0.13
    • Marathon Petroleum (MPC) 7:06am, $1.17 - Preview
    • McCormick & Co (MKC) 6:30am, $1.19
    • MeadWestvaco (MWV) 7:25am, $0.24
    • New York Community Bancorp (NYCB) 8am, $0.26
    • Phillips 66 (PSX) 8am, $1.10 - Preview
    • Praxair (PX) 6:02am, $1.55
    • Rockwell Automation (ROK) 7am, $1.39
    • SEI Investments (SEIC) 8:30am, $0.36
    • Southern (SO) 7:30am, $0.45
    • TCF Financial (TCB) 8am, $0.23
    • Tupperware Brands (TUP) 7am, $1.84
    • Valero Energy (VLO) 7:49am, $1.43 - Preview
    • WellPoint (WLP) 6am, $0.87


    • Amdocs (DOX) 4:01pm, $0.75
    • Cadence Design Systems (CDNS) 4:05pm, $0.23
    • Citrix Systems (CTXS) 4:05pm, $0.98
    • Concur Technologies (CNQR) 4:10pm, $0.13
    • Facebook (FB) 4:05pm, $0.27 - Preview
    • Flextronics Intl (FLEX) 4:01pm, $0.23
    • Fortinet (FTNT) 4:15pm, $0.14
    • Fortune Brands (FBHS) 4:01pm, $0.38
    • Hanesbrands (HBI) 4:01pm, $0.90
    • Idex (IEX) 4:35pm, $0.80
    • Intersil (ISIL) 4:05pm, $0.17
    • InvenSense (INVN) 4:05pm, $0.17
    • Lam Research (LRCX) 4:05pm, $1.03
    • Las Vegas Sands (LVS) 4:22pm, $0.84
    • Murphy Oil (MUR) 5:01pm, $1.18
    • Qiagen (QGEN) 4pm, $0.33
    • Qualcomm (QCOM) 4pm, $1.18 - Preview
    • ServiceNow (NOW) 4:01pm, $(0.02)
    • Symantec (SYMC) 4:01pm, $0.43
    • Tractor Supply (TSCO) 4:01pm, $0.65
    • Vertex Pharmaceuticals (VRTX) 4pm, $(0.56) - Preview


  • JPMorgan Said Near Decision on $2 Billion Commodities Unit Sale
  • WTI Slips From Four-Week High Before Supply Data, Fed Decision
  • Branson’s Butanol Heads to U.S. to Replace Ethanol: Commodities
  • Natural Gas Climbs for Second Day as Frigid Weather Sweeps U.S.
  • Copper Snaps 5-Day Drop as Turkey Raises Rates Before Fed Move
  • Cocoa Falls as ICCO Sticks to Shortage Forecast; Coffee Advances
  • Corn Drops First Time in Seven Days as Crop Prospects Improve
  • Gold Erases Decline in London, Following Gains in New York
  • Oilseed Harvest in India Heading for Three-Year High on Monsoon
  • Rebar Rises for First Time in Three Days on Production Cost Gain
  • Turkey Crisis Puts Jailed Millionaire at Heart of Gold Trail
  • Texas Vies With Saudi Arabian Oil in California Supply: Freight
  • Obama Touts Fracking Rule Opposed by Halliburton, Baker Hughes
  • California Farms Going Thirsty as Drought Burns $5 Billion Hole


























The Hedgeye Macro Team














Come To Me

This note was originally published at 8am on January 15, 2014 for Hedgeye subscribers.

“Come to me, that I may give your flesh to the birds…”



Allegedly, that’s what Goliath said to David, before taking a sling-shot rock to the melon – and dying, epically, in front of his fans circa 1000 BC. It probably felt something like how Captain Top Caller of the US stock market has felt now, for a year. #Boom


I got the quote from reading the 1st fifteen pages of Malcolm Gladwell’s latest pop culture book, David and Goliath. I’m only a third of the way through the book, but it gets pretty underwhelming after that. Malcolm’s bullish momentum has slowed.


“Should I play by the rules or follow my own instincts? Should I persevere or give up? Should I strike back or forgive?” (David and Goliath, pg 5). Irrespective of how the rest of his book goes, Gladwell’s opening questions spoke to me. In the arena that is Wall Street I’m a fighter, not a lover. Failing in front of my growing family and firm is not an option. I need to constantly evolve.


Back to the Global Macro Grind


Are there hard coded rules to risk management? Or should you have none and just trade on your emotions? Should we spend our days striking back at Mr. Macro Market’s real-time signals, or embrace them?


“When he first sees David, his first reaction is to be insulted, when he should be terrified. He seems oblivious of what’s happening around him.” (David and Goliath, pg 13) So, don’t be Goliath (especially if Mr. Macro’s real name is David; he’s everywhere).


I am just Mucker. I don’t tell the market to come to me. The market tells me where to go. And while I can be prickly and moody about it sometimes, I eventually obey.


BREAKING: “SP500 Has Year’s Biggest Gain On Retail Sales, Mergers” –Bloomberg


But, but… yesterday’s headline (the aforementioned one and it are still side by side in the “Most Popular” (most read) of said “SP500 Falls Most Since November Amid Valuation Concern.”


So which one is it? *hint (neither)


Macro markets don’t move that way. That’s because there usually is no single factor model (like “valuation”) that saves you from having to do the real work. That’s what macro is – history, math, and behavioral – and it’s one hell of a grind.


Not to pick on one of the Goliaths of financial market “news”, but US Retail Sales actually slowed, sequentially, to 0.2% in yesterday’s report – and that’s in line with the shift we have been calling for here in the USA as:


1. US Consumption Growth Slows from its Q313 sequential highs

2. US Inflation Expectations Rise from their Q413 sequential lows


Macro is obviously multi-duration and multi-factor, but focusing on the big stuff (Growth and Inflation) matters more than someone’s qualitative view about why someone failed at Brown (Gladwell’s book) or a magic multiple for stocks (Old Wall).


That’s just #history and #math. The more you study both, the more you realize you have to learn. Especially on the Correlation Risk (#math) front, you actually have to re-learn what #history may already be able to contextualize.


From a #behavioral perspective, how many market mavens have tied everything together for you in a baby blue Tiffany box? Our team is constantly searching for clues, correlations, and causalities on human behavior. Like markets, they evolve too.


What do you think matters more to macro markets, A) confidence or B) valuation. I’ll go with A).


Without confidence in:


1. Growth Accelerating (sustainably)

2. Inflation being under control (as opposed to what the government tells you it is)

3. The strength and credibility of a government’s balance sheet, income statement, and currency


You will not have sustainably strong equity market multiple.


That’s why the greatest threat to the US stock market is a reversal of what gave the market its first taste of multiple expansion in half a decade – a #Strengthening US Dollar, #GrowthAccelerating, #DeflatingTheInflation, and #Rates Rising.


Instead of reading the Bloomberg headlines, here’s what actually happened in the last 2 trading days:


1. SP500’s Biggest Down Day since NOV 7, 2013 = Dollar Down, Rates Down, Stocks Down

2. SP500’s Biggest Up Day of 2014 = Dollar Up, Rates Up, Stocks Up


So come to me #StrongDollar, or I will re-allocate capital to countries who don’t play by the rules of the Federal Reserve and a tired Western Keynesian academia. If this time is different, and I fail to evolve my positioning – may my flesh be fed to the birds.


Our immediate-term Macro Risk Ranges are now as follows (all 12 Macro ranges are in our Daily Trading Range product):


UST 10yr Yield 2.79-2.94%

SPX 1820-1848

DAX 9461-9624

Nikkei 15656-15997

VIX 11.84-13.42

USD 80.49-81.24


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Come To Me - Chart of the Day


Come To Me - Virtual Portfolio


In preparation for LVS FQ4 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • We are targeting the late 2015 opening of our latest Integrated Resort



  • We're obviously happy with our win per unit at the margin driver there is the mass table business



  • We're still running 60%-plus margins in the premium mass segment.
  • As you know we're at $4.5 million a day. Our goal is to get to $5 million a day. 
  • So we're buying more rooms from the hotel and that may have an adverse effect, a point or two on the margins.



  • Raised our recurring dividend for the 2014 calendar year to $2 per share, an increase of 42.9% compared to the $1.40 recurring dividend we will have paid this year.
  • With $1.65 billion remaining under the term's stock repurchase authorization and in the future we expect to repurchase at least $75 million of stock per month.


  • For the first time we're getting strong results out of the premium mass segment.