TODAY’S S&P 500 SET-UP – February 20, 2014

As we look at today's setup for the S&P 500, the range is 39 points or 1.08% downside to 1809 and 1.05% upside to 1848.                                    










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.41 from 2.43
  • VIX closed at 15.5 1 day percent change of 11.75%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: CPI m/m, Jan., est. 0.1% (prior 0.3%)
  • 8:30am: Init Jobless Claims, Feb. 15, est. 335k (pr 339k)
  • 8:58am: Markit US PMI Preliminary, Feb., est. 53.6
  • 9:45am: Bloomberg Economic Expectations, Feb. (prior -5)
  • Bloomberg Consumer Comfort, Feb. 16 (prior -30.7)
  • 10am: Philadelphia Fed Bus Outlk, Feb., est. 8.0 (pr 9.4)
  • 10am: Leading Econ Indicators, Jan., est. 0.4% (pr 0.1%)
  • 10:00am: Mortgage Delinquencies, 4Q (prior 6.41%)
  • 10am: Freddie Mac Mortgage Rates
  • 10:30am: EIA natural gas
  • 11am: DOE Energy Inventories


    • 8am, USDA begins 2-day 2014 Agricultural Outlook Forum, with remarks from Ag. Sec. Tom Vilsack
    • 2pm, SEC holds closed mtg on enforcement matters


  • Facebook agrees to buy mobile-messaging app WhatsApp for $19b
  • WhatsApp deal seen avoiding U.S. antitrust challenge
  • Sequoia Capital said to make $3.5b backing WhatsApp
  • China manufacturing index slides to lowest level in 7 months
  • Safeway said in talks with firms including CVC, Leonard Green
  • Peltz still seeks PepsiCo split, to lobby shareholders: WSJ
  • Citigroup appoints Mahmud to succeed Prasad as currencies chief
  • Wall Street girds for China bribery probe as share sales beckon
  • Ukraine truce crumbles as fights erupt with talks set to resume
  • BofA said to increase CEO Moynihan’s compensation 17% to $14m
  • Danone earns drop for first time in decade on baby-food scare
  • Sbarro closing 155 North American locations in comeback effort
  • Merck & Co. unit eyed by cos. incl. Bayer, Novartis: Reuters
  • Ardagh Glass may get bids for U.S. unit this week: FT
  • SEC’s Stein calls for short-term lending rules reform: Reuters
  • PBOC drains cash as overnight rate slides to lowest in 10 mos.
  • Japan trade deficit widens to record as import costs jump


    • Actavis (ACT) 7am, $3.05
    • AerCap Holdings (AER) 6:57am, $0.65
    • Altisource Residential (RESI) 7:30am, $0.40
    • CVR Energy (CVI) 8:30am, $0.39
    • Dana Holding (DAN) 7am, $0.44
    • Denbury Resources (DNR) 7:30am, $0.30
    • DirecTV (DTV) 7am, $1.29 - Preview
    • Hormel Foods (HRL) 6:30am, $0.58
    • InterDigital (IDCC) 8:30am, $0.30
    • Lexington Realty Trust (LXP) 7:30am, $0.05
    • Loblaw Cos (L CN) 6am, C$0.55
    • Patterson (PDCO) 7am, $0.57
    • Public Service Enterprise (PEG) 7:30am, $0.45
    • Quanta Services (PWR) 6:07am, $0.43
    • Reliance Steel & Aluminum (RS) 8:50am, $0.98
    • Scana (SCG) 7:30am, $0.78
    • Sonus Networks (SONS) 6am, $0.02
    • Teekay (TK) 8am, $(0.04)
    • Teekay LNG Partners (TGP) 8am, $0.55
    • Teekay Offshore Partners (TOO) 8am, $0.39
    • Teekay Tankers (TNK) 8am, $(0.04)
    • Tim Hortons (THI CN) 7:30am, C$0.76
    • Toro (TTC) 8:30am, $0.37
    • TransAlta (TA CN) 7:45am, C$0.20
    • TransCanada (TRP CN) 8:32am, C$0.60 - Preview
    • Ultra Petroleum (UPL) 8am, $0.38
    • Wal-Mart Stores (WMT) 7am, $1.59 - Preview
    • Walter Energy (WLT) 7:38am, $(0.83)
    • Westlake Chemical (WLK) 6am, $2.23
    • Yandex (YNDX) 6am, $11.38


    • Agrium (AGU CN) 5:30pm, $0.85
    • Allscripts Healthcare Solution (MDRX) 4:01pm, $0.08
    • Aruba Networks (ARUN) 4:05pm, $0.17
    • Bill Barrett (BBG) 4pm, $(0.03)
    • Cabot Oil & Gas (COG) 5:01pm, $0.17
    • Capstone Mining (CS CN) 5:37pm, $0.07
    • Exelixis (EXEL) 4:12pm, $(0.38)
    • Express Scripts Holding (ESRX) 4:01pm, $1.12 - Preview
    • First Quantum Minerals (FM CN) 5pm, $0.22
    • Groupon (GRPN) 4pm, $0.02
    • Hewlett-Packard (HPQ) 4:04pm, $0.84 - Preview
    • Intuit (INTU) 4pm, $0.02
    • Lundin Mining (LUN CN) 5:56pm, $0.07
    • Marvell Technology Group (MRVL) 4:03pm, $0.25
    • Mohawk Industries (MHK) 4:01pm, $1.75
    • MRC Global (MRC) 4:05pm, $0.42
    • Newmont Mining (NEM) 4:15pm, $0.44
    • Nordstrom (JWN) 4:04pm, $1.34 - Preview
    • Pharmacyclics (PCYC) 4:01pm, $0.88
    • (PCLN) 4:01pm, $8.30 - Preview
    • Qlik Technologies (QLIK) 4:05pm, $0.30
    • Tile Shop Holdings (TTS) 4:01pm, $0.04
    • WebMD Health (WBMD) 4pm, $0.24


  • Gold Losing Stigma for UBS as Tully Increases Forecasts for 2014
  • WTI Oil Falls From Four-Month High as China Manufacturing Slows
  • Coffee Exports From Indonesia to Drop on World Cup; Prices Jump
  • Rarest of Rare Iridium Gains as Growth Spurs Demand: Commodities
  • Gold Advances as Investors Weigh Fed Outlook Against U.S. Data
  • Ivorian Cocoa Crop Seen by Ecobank Rising to Highest in 3 Years
  • Soybean Futures Climb as Drought in Brazil May Cut Production
  • Cocoa Rebounds on Slowing Ivory Coast Deliveries Before Mid-Crop
  • China Iron Ore Mining Decline May Be Global Producer Bonanza
  • Switzerland Sent 80% of Bullion Exports to Asia in January
  • Shale Gas Halted in U.K. by Six-Month Wait for Permits: Energy
  • U.S. Aluminum Premiums Falling as Metal Released From Financings
  • Key Potash Demand Driver at Risk as India Mulls Subsidy Freeze
  • Palm Oil Advances to 17-Month High as Malaysian Exports Expand


























The Hedgeye Macro Team














Price-Fixing Crisis

“Government policy is the primary cause of the financial crisis.”

-John Allison


That’s “fundamental theme” #1 in one of the most important post 2008 market crisis books – Chairman (and former longstanding CEO of BB&T Bank), John Allison’s The Financial Crisis and The Free Market Cure.


As I was taking a few pseudo vaca days with my kids (if you own a small business in America, there are no bailouts – no real vacations either – and real capitalists like that), I was struck by the simplicity of what hasn’t changed in this country – government price fixing.


Price-Fixing Crisis - go2


Yep, that’s what Allison and anyone who has studied economic #history calls it too (plenty of big time capitalists like Charles Koch agree). That’s what “forward rate guidance” by the Fed really is; it’s also what Presidential executive orders on minimum wage hikes and Policies to Inflate via currency devaluation are. Inflation is an un-elected tax that politicians aren’t accountable to. That’s why they cheer it on.


Back to the Global Macro Grind


Who needs to cheer for Latvia’s hockey team when you can wake up in America watching the Treasury Secretary (Jack Lew) whine about taxes (consumer price inflation) on European consumers being “too low.” Heck, the descendent of Geithner and Wesley Mouch is egging on the Japanese to burn its currency at the stake too.


Not to be outdone, the Congressional Budget Office is now analyzing what Obama thinks is his only way out of the tax he and Bush had the Bernanke impose on America’s poor (Down Dollar, Food/Energy Inflation) – wage inflation. My brother runs a McDonald’s franchise – ask him how many new stores he’ll be interested in opening if food costs rip and his “poor” employees cost him 10-20% more…


In other central planning news, Venezuela is “expelling” US diplomats this morning for “undermining the government.” Evidently some of these Americans aren’t yet socialist enough. Argentina and Venezuela are realizing the other side of currency devaluation, debt-rising, and #InflationAccelerating this morning – it’s called social unrest.


#InflationAccelerating? Who the heck does this Canadian think he is making that call without the government’s approval?

  1. US Dollar is down again this morning = down for 3 consecutive weeks, and now negative for 2014 YTD
  2. CRB Commodities Index (19 commodities) was up another +1.1% yesterday to a fresh 52-wk high of 302 (+7.9% YTD)
  3. Natural Gas is up (again!) this morning to $6.20 = +46.7% YTD (they don’t have heat or air conditioning in Washington)

I know, I know. It’s all the weather. Wages, Rents, Schooling – Facebook paying $16B for “WhatsApp”, Candy Crush going public – all of it!


But, but, the US stock market (SP500) is only down -1.1% YTD. And:

  1. Slow-growth Gold is +9.3% YTD
  2. Slow-growth-yield-chasing Utilities (XLU) are +5.9% YTD
  3. Lever-yourself-up-long Real Estate (REITS) are +7.5% YTD

Yep. As #InflationAccelerates, 71% of the US economy (consumption) gets A) taxed and B) slows:

  1. US Consumer Discretionary Stocks (XLY) are -3.2% YTD
  2. Consumer Staples Stocks (XLP) are -3.4% YTD
  3. Financials (XLF) are -2.2% YTD

But, don’t worry about it – when the weather improves, it’s all coming back – all of it.


Wait a minute. Will the spring in the Northeast change US monetary and fiscal policy? Or, as the economy slows, will Lew and Yellen quintuple down on the Down Dollar, Down Rates, House Flipping American Dream?


How’s that working out for Barney Frank and Ben Bernanke btw? US Mortgage Purchase Applications were down another -6% last week (after being down -5% in the week prior), testing post 2008 crisis lows. Imagine that, as the purchasing power of Americans falls alongside interest and savings rates, there are less lemmings this time who are going to join Than Merrill’s “Flip This House!”


John Allison’s book is a Top-10 on my shelf because he explains the basics of economics that we attempt to articulate each and every risk management morning. Two more of his “Fundamental Themes” are:

  1. “Government policy created a bubble in residential real estate”
  2. “Almost every government action taken since the crisis started (even those that may help in the short-term) will reduce the standard of living in the long-term”



And sometimes the short-term morphs into the long-term a lot faster than consensus government policy apologists think…


Our immediate-term Macro Risk Ranges are now:



Nikkei 14083-14992

VIX 12.76-16.99

USD 79.82-80.51

Natural Gas 5.34-6.22

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Price-Fixing Crisis - Chart of the Day


Price-Fixing Crisis - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%

February 20, 2014

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Fighting Growth Bulls

This note was originally published at 8am on February 06, 2014 for Hedgeye subscribers.

“After the fight is over the winning animal emerges with even higher levels of testosterone.”

-John Coates


The thing about fighting bulls are those damn horns. No matter what the math, data, or weather, the perma ones are really stubborn too. They’ll just sit there sometimes and stare at you. So, when you’re a bear, it’s better to attack them from behind.


The aforementioned quote comes from a chapter in The Hour Between Dog and Wolf that John Coates calls The Fuel of Exuberance. “Biologists studying animals in the field had noticed that an animal winning a fight or a competition for turf was more likely to win its next fight” (pg 166).


Fighting Growth Bulls - bulls


Sounds like trending bullish and bearish price momentum to me. All our back-tests show the most powerful ramps in market emotion (fear and greed) occur when there is a reversal from bearish to bullish (or bullish to bearish) on our intermediate-term TREND duration. In other words, bear vs. bull fights matter; especially at the big TREND turns.


Back to the Global Macro Grind


From a #behavioral market strategy perspective, does the “Winner Effect” (Coates) matter? Big time. Why? It especially matters in modern markets because, newsflash: machines chase price.


What are the most interesting bullish-to-bearish reversals in the @Hedgeye quant model right now?

  1. Nikkei reversing to bearish TREND
  2. SP500 reversing to bearish TREND
  3. 10yr US Treasury Yield reversing to bearish TREND

How about the most interesting bearish-to-bullish reversals in TREND?

  1. Commodities (CRB Commodities Index) reversing to bullish TREND
  2. Utilities (XLU) reversing to bullish TREND
  3. Fear (VIX) reversing to bullish TREND

From a Global Macro Theme perspective it’s easy to explain why all 6 of these intermediate-term TREND reversals rhyme: with #InflationAccelerating, growth expectations in Japan and the US are slowing.


These same risk management signals started to manifest in Q1 of 2008 (that’s why we got so bearish on the US consumer back then), but they also started to coagulate again in Q1 of 2011.


2011 was a very interesting year in that while US stocks (SP500) closed flat on the year:

  1. Fear (VIX) ripped from 15 to 24 in Q1 of 2011
  2. Utilities (XLU) and Treasuries (TLT) marched steadily higher (relative and absolute) throughout 2011
  3. Commodities (CRB Index) had a monster Q1 of 2011

Fast forward to mid-Q1 of 2014 and here’s the score:

  1. Nikkei -13.1% YTD
  2. SP500 -5.2% YTD
  3. US Treasuries (TLT) +5.2% YTD
  4. CRB Commodities Index +2.5% YTD
  5. Utilities (XLU) +1.1% YTD
  6. Fear (VIX) +45.4% YTD

Just saying.


Oh, and there was that “financial innovation” thing (a Policy to Inflate asset prices; especially Bonds and Commodities) that eventually caused the all-time highs in commodities like Gold in Q3 of 2011 called the quantitative easing…


So, play it forward – what do you think the Mother of All Doves (Yellen) is going to do if US growth continues to slow? Bernanke didn’t go to Jackson Hole last year, but I’m betting that she’ll strap on the cowboy pants and start printing again.


I know, Hilsenrath hasn’t leaked that probability memo to the bulls or bears yet. But Mr. Macro Market has. So keep your head on a swivel out there as these currency devaluation and money printing animals at the Federal Reserve still think they’re winning.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1737-1774

Nikkei 13825-14482

VIX 15.81-20.41

USD 80.93-81.46

NatGas 5.05-5.51

Gold 1242-1274


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fighting Growth Bulls - drake1


Even on a luck-adjusted basis, results missed expectations.  Less optimistic on VIP market than last Q.




  • Korea:  Jeju opportunity will meet IRR goal.  Has good database of customers.
    • Will start construction in 3Q 2014
    • According to Jeju law, have to invest US$300MM, then can apply for gaming license.  Some risk involved but it should be just a formality.
      • Genting Singapore did not get gaming license until one week before they opened
    • May invest more $$$ once they have more clarity on Korean market; possibly 1-2 more deals
    • Jeju capex:  will not provide that # at this time; need govt approval  
    • Why 5% stake in LIDL?  Business gesture.
    • CRA does have oversight over all GENT investments
    • Will have real estate in the Jeju project 
  • Japan:  believe 1st gaming bill may be passed some time in June 2014.  There will be a 2nd gaming bill.
    • Does not see any construction until 2017
    • Tokyo/Osaka being talked about
  • Adjusted EBITDA hold impact:  $60-70MM
  • VIP win rate:  2.5%
  • GGR share:  50%
  • VIP RC share:  53%
  • Mass volume share:  43%
  • Slot volume share:  44%
  • VIP revenue as a % of net revenue:  36%
  • VIP revenue as a % of gross revenue:  57%
  • Mass table hold is about 22%. 
  • Trade receivable impairment going up:  because RC volume went up
  • Combined mass market in Singapore:  flat growth; regional currency has depreciated vs S'pore $ - affecting casino and non-gaming.  
  • 4Q higher cost structure:  more prudent in provisions impacted margins; everything else has been consistent with past Q.  Cost structure different from MBS - payroll costs higher, operating expenses also different
  • May see some growth in the mass market in 2014
  • 'Cautiously optimistic' on the VIP market - many uncertain things going on in China
  • RMB will be appreciating against S'pore $.  RMB won't have any effect on VIP business. However, all Southeastern currencies have depreciated against S'pore $ - mostly affect very low end and very high end segments.  
  • 20,000 daily visitors (11,700 are to USS, rest from aquarium), average spend for USS: $83, average spend for aquarium is $30;  
  • VIP volume will not be impacted by currency; cautiously optimistic on volume

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