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Golden Defense

“All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”

-Sun Tzu


That’s most likely a familiar quote to any winner in this world – and it should be. Author John Hamm uses it effectively in his intro to chapter 5 of Unusually Excellent (pg 103) in order to link leadership to processes and plans.


As we like to say here @Hedgeye in terms of positioning for new Global Macro Themes, the plan is that the plan is going to change. That’s because real-time prices and market signals do. Our risk management process doesn’t change so much.


Neither did Team Canada’s in this weekend’s Gold medal hockey win at the Olympics. Sure, offense might win shootouts, but defense wins championships. En route to their second consecutive Olympic win, Team Canada shut out both USA and Sweden. It’s really hard to lose if you don’t get scored on (Canada allowed only 3 goals in 6 tournament games). #GoldenDefense


Golden Defense - 44


Back to the Global Macro Grind


Backcheck, Forecheck, Paycheck. That’s another saying meat-head hockey players like me use when we think about grinding out wins. Note that back-checking comes first. Defense always does.


There are obvious ways to apply this mentality to your risk management strategy. In a US stock market that literally went straight up last year, if all you did was not lose money on the short side, you probably won the season for your investors.


Sure, doing crazy stuff (like trading) may look like “short-term” tactics (primarily because they are) but don’t confuse my tactical back-checking  with a lack of a longer-term strategy to win championships.


What is your long-term strategy?


Mine is don’t lose money. That’s why how you did in 2000, 2001, 2002, 2008 and 2011 matters.  That’s also why most of our Global Macro Themes incorporate what to stay clear of (on both the long and short side) if a big macro theme starts to trend.



  1. During #GrowthAccelerating – don’t short high-short interest, high beta, growth stocks that can beat expectations
  2. During #InflationAccelerating – don’t short commodities, breakevens, etc.
  3. During #InflationAccelerating + #GrowthSlowing – don’t short bonds, utilities, or Gold

If you aren’t in the business of shorting things, substitute the word “short” with SELL! Obviously, the other side of “don’t sell” is buy or hold. And I think anyone who has bought and held commodities for the last 3 months is winning YTD too.


Update on our non-consensus 2014 call for #InflationAccelerating:

  1. US Dollar Index is down again this morning and -1.4% in the last 3 months
  2. CRB Commodities Index was up another +2.8% last week and up again this morning to +7.8% YTD
  3. US Consumer Prices (CPI) hit a 4-month headline high of +1.6% year-over-year last week (JAN report)

I know. I know. The government says there’s no inflation, and since they’ve neutered the inflation report so that the headline number can rarely remain above 4% (or below 1%) for long, academics can argue amongst themselves on that.


Reality is that market expectations trade on the rate of change for both GROWTH and INFLATION expectations. And currently the rate of change on both makes our macro call a very easy one to make:

  1. INFLATION: up from its 3yr low of +0.9% y/y CPI in OCT 2013, CPI is going towards 2%, fast, in February
  2. GROWTH: down from its Q313 sequential peak of +4.12% GDP, you’ll probably see a 2% handle in Friday’s GDP report

So, irrespective of your views on how to play Macro Defense, what if?

  1. Inflation doubles (from 1% to 2%)
  2. Growth gets cut in half (from 4% to 2%)

Market #history fans will recall that when inflation slows growth, stock markets get MULTIPLE COMPRESSION. In other words, with the SP500 trading at 16x this year’s #OldWall projection for “earnings”, all you need is 2 points of multiple compression to get you 1638 (14x) at some point this summer. If the “earnings” (and multiple on them) start to fall, it’ll get gnarly out there, faster.


And while I am sure that the “weather will turn” and that some American consumers are dumb enough to go lever themselves up with a few more houses to flip, that doesn’t change the fact that inflation will A) slow real-consumption-growth and B) have a big impact on reported US GDP via a rising “deflator” (note: the deflator, which is subtracted from GDP, hit a 50yr low last yr and is rising).


With Natural Gas (+17.7% last wk to +46.3% YTD) and Coffee price (+19.1% last wk to +50.1% YTD) #InflationAccelerating to 52-week highs last wk, #GrowthSlowing has both Utilities (XLU) and Gold +7% and +11% YTD, respectively. So don’t be short those. Buying and holding them for the last 3 months has been a #GoldenDefense. Being long the American consumer, not so much.


Our immediate-term Macro Risk Ranges are now as follows:


UST 10yr Yield 2.66-2.78%

VIX 13.44-16.69
USD 79.81-80.41

Brent Oil 108.54-110.69  

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Golden Defense - Chart of the Day


Golden Defense - Virtual Portfolio






MGM China wants to develop its own customers to help manage risks, said Bowie, the company’s CEO.  “The junket model is a very successful model in terms of efficiency but we need to diversify,” he said. “No organization should limit themselves to one geographic market or one business strength. It’s too high risk...Direct VIPs give us considerably higher profit margins.”


Meanwhile, LVS is trying to bypass the middlemen by putting its fleet of private jets and limousines at high-rollers’ disposal, night and day, and comps their stays in suites that run to 8,000 square feet and come with on-call concierges.


Junket operators, led by Suncity Group and Jimei Group, have a steady grip on the industry.  Still, some are feeling the pressure.  “We are being squeezed (by direct VIPs),” said Yu Yio Hung, who operates a single VIP room at Altira casino.  SJM relies entirely on junkets to bring in their VIPs and currently has no plan to change its full reliance.  “SJM is comfortable with our junket relationships and with the junket system, which operates legally in Macau,” CEO Ambrose So said.  


As the Lunar New Year falls on January this year, visitor arrivals totaled 2,503,609, up by 8% YoY, attributable to an increase in visitors from Mainland China.  Mainland visitors totaled 1,689,277, with 832,381 (49% of total) traveling to Macao under the Individual Visit Scheme.  The average length of stay of visitors stood at 1.0 day.





"We will spend whatever it takes," said LVS CEO Sheldon Adelson. "Would I put in $10 billion? Yes."  Asked whether he would team up with Japanese companies, Adelson said he would be "willing to embrace Japanese partners" if they can hold up their share of the work and adopt a risk-taking mentality.  He said he would be interested in opening a resort in either Tokyo or the western Japanese city of Osaka, and that his company would be hiring people in Tokyo to expand its presence.


Proponents of gaming hope Japan will start licensing casinos in 2016 and have at least one in operation before the 2020 Summer Olympics in Tokyo.

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 – February 24, 2014

As we look at today's setup for the S&P 500, the range is 45 points or 1.81% downside to 1803 and 0.64% upside to 1848.                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.42 from 2.42
  • VIX closed at 14.68 1 day percent change of -0.74%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Natl Act. Index, Jan. est. -0.2
  • 10:30am: Dallas Fed Mfg Index, Feb. est. 3.4 (prior 3.8)
  • 11am: Fed to purchase $2.5b-$3b in 2019-2021 sector
  • 11:30am: U.S. to sell $50b 3M bills, $25b 6M bills


    • House, Senate in session
    • 8am: Congressional Budget Office Director Douglas Elmendorf speaks on fiscal policy at National Assn of Business Economics annual policy conf.
    • 10:30am: Obama holds formal business, legislative meeting with National Governors Assn.
    • Obama administration goes before Supreme Court, which will decide whether EPA misused authority from climate-change rules by imposing permit requirements on power plants, factories
    • Bloomberg Link Energy 2020 event, “States and Businesses Leading Innovation,” with remarks from GE CEO Jeffrey Immelt, Govs. Jack Dalrymple, R-N.D., John Hickenlooper, D-Colo.


  • Chesapeake considering sale or spinoff of oilfield service unit
  • UBS said to seek immunity in EU, U.S. currency-rig probes
  • Mobile World Congress begins amid new breed of mobile ads
  • Microsoft targets global Internet growth w/ cheaper phones
  • Nokia unveils handsets for first-time Internet users
  • Nokia seeks broader Juniper sales alliance, smaller deals
  • JPMorgan holds investor day, often source of shr volatility
  • Netflix said to agree to pay Comcast for broadband access
  • Cerberus said to be lead Safeway bidder after mos. of talks
  • Ford said to drop Microsoft for BlackBerry QNX in sync units
  • WhatsApp apologizes for server outage on Saturday
  • Qualcomm unveils new phone chips to fend off INTC, BRCM
  • Facebook, Instagram may ban social-media gun sales: Forbes
  • Cinven said near deal to buy Medpace from CCMP for $900m
  • China minimizes dangers as Zhou sees 7% to 8% growth
  • China Communists said to demand data in yuan
  • Ukraine sees $35b aid need as Yanukovych warrant issued
  • Venezuela opposition agrees to talks as unrest rocks Caracas
  • HSBC’s full-year profit misses estimates on cost reductions
  • Euro-area Jan. consumer prices rise more than first estimated
  • German business confidence climbs to 2 1/2-yr high
  • Las Vegas Sands ready to invest $10b in Japan casino
  • IBM boosts investment in new cloud services


    • Armstrong World (AWI) 7am, $0.41
    • El Paso Electric (EE) 7am, $0.11
    • Kosmos Energy (KOS) 7:30am, $0.02
    • Palo Alto Networks (PANW), TBD, $0.09
    • Scorpio Tankers (STNG) 7:56am, $0.02


    • Allied Nevada (ANV CN) 4:35pm, $0.04
    • Approach Resources (AREX) 5:05pm, $0.17
    • Chemtura (CHMT) 4:43pm, $0.11
    • Digital Realty Trust (DLR) 5:15pm, $1.14
    • EOG Resources (EOG) 5:11pm, $1.93
    • Ferro (FOE) 4:35pm, $0.06
    • Frontier Communications (FTR) 4:01pm, $0.06
    • GT Advanced Technologies (GTAT) 4:15pm, $(0.35)
    • Live Nation Entertainment (LYV) 4:03pm, $(0.39)
    • Natl Bank of Canada (NA CN) 6pm, C$1.05 - Preview
    • Oneok (OKE) 4:05pm, $0.53
    • Rosetta Resources (ROSE) 4:15pm, $0.78
    • Sina (SINA) 4:41pm, $0.46
    • SolarCity (SCTY) 4:02pm, $(0.55)
    • Stone Energy (SGY) 4:03pm, $0.56
    • Tenet Healthcare (THC) 5:10pm, $0.32
    • Texas Roadhouse (TXRH) 4pm, $0.24
    • Vivus (VVUS) 4pm, $(0.33)
    • Volcano (VOLC) 4:05pm, $(0.24)
    • Vornado Realty Trust (VNO) 4:52pm, $(0.29)
    • XPO Logistics (XPO) 4:06pm, $(0.31)
    • Zulily (ZU) After-Mkt, $0.04


  • WTI, Brent Crudes Erase Gains on Emerging Market Demand Concern
  • Ecom Suspended by Ivorian Cocoa-Coffee Regulator in Auctions
  • Gold to Coffee Drive Bullish Bets to 17-Month High: Commodities
  • Copper Falls Most in a Month on China Real-Estate Lending Curb
  • Corn Extends Decline as Record U.S. Harvest Seen Boosting Supply
  • Gold Climbs to 16-Week High as U.S. Data Adds to Haven Demand
  • Natural Gas Futures Jump to 5-Year High on Outlook for More Cold
  • Dry Bulk Capacity Absorbed by Australia, Brazil Iron Ore Exports
  • Palm Oil Declines as Prices at 17-Month High Encourage Selling
  • Pilots Do Texas Chicken as Houston Channel Chokes on Oil Traffic
  • Tokyo Rubber Follows Shanghai Lower Amid China Property Concerns
  • Hedge Fund Natural Gas Wagers Jump on Tumbling Supplies: Energy
  • Sugar Bonds at 13 Cents Draw in Bargain Hunters: Brazil Credit
  • Polar Vortex to Bring More Snow on Return to U.S. This Week


























The Hedgeye Macro Team














This Is Not 2013

This note was originally published at 8am on February 10, 2014 for Hedgeye subscribers.

“Everything is the same, until it is not.”

-Dr. Ellen Langer


Love that quote in chapter 3, “Variability”, in Langer’s #behavioral beauty, Counterclockwise. “People aren’t all that observant, although we think we are. We see what we expect to see, even to the point that we don’t notice things that others clearly do” (pg 33).


Growth investors want to see growth, Gold Bond investors want to see slow-growth, and I want to see Canada win medals at the Olympics. It is what it is – it’s called confirmation bias. And, on some level, most of us have it in us.


(Can you see both women in the picture below?)

This Is Not 2013 - oldyoung


So how do we become more objectively observant? How do we force ourselves to see what we don’t want to see? Since I’m talking about markets, I think you know where I wash out on this. Mr. Macro Market usually shows us the way.


Back to the Global Macro Grind


If you were looking to rekindle 2013’s bull market in US stocks, all you’d have to have done is look at the Dow on Friday. It was +165 points (+1.1%) on the second straight jobs report miss. Everything is the same as last year, right?


Nope. Including Friday’s low-volume rally (the Top 5 Volume days of 2014 have been down days), the Dow and SP500 are down -4.7% and -2.8%, respectively. And they’ll probably be down again today.


This is not 2013 (when inflation was falling and US consumption and employment growth were accelerating). This is 2014 and with #InflationAccelerating again last week, US consumption growth is slowing, faster.


Got Hedgeye Macro Theme #1 for Q114?

  1. US Dollar down -0.8% last week and back below @Hedgeye TREND support of $81.12
  2. CRB Commodities Index (19 commodities) +2.3% last wk to +3.4% YTD
  3. CRB Foodstuffs Index up another +1.1% last wk to +4.5% YTD

In other words, as the US economic data slows, Mr. Macro Market is starting to front-run proactively predictable behavior that Janet Yellen will back off on the tapering and/or change the goal posts again on the Fed’s dual mandate.


Everything that matters in macro happens on the margin, so don’t forget that last year the Fed got incrementally tighter – anything less would be dovish on the margin, including Yellen moving toward what print-money-forever PhDs call “forward rate guidance.”


Not to be confused with something that will work in getting early 2011-style #InflationAccelerating off the US consumer’s back, “forward rate guidance” is basically what Japan did decades ago in telling the world its rates would never go up.


Guess what, they didn’t.


With the 10yr yield on Japanese Government Bonds at 0.60% this morning, the US Treasury 10yr yield of 2.66% has a long way to go; if the USA wants to let an un-elected-central-planning-bureaucrat at the Fed make it like Japan, that is…


Who gets paid on Down Dollar, Down Rates, and #InflationAccelerating again?

  1. Gold and Silver Bulls (+1.9% and +4.3%, respectively last wk to +5% and +2.9% YTD)
  2. Real Estate Bulls (MSCI REIT Index up another +0.8% last wk to +4.9% YTD)
  3. Oil Bulls? Yep, that trade ripped on the jobs miss too – Brent Oil +3% last wk, most of it coming on Friday

Forget the lessons of 2011. In response to inflation expectations rising, we need the Fed to tell us we “need more inflation”… so that we can slow real-inflation-adjusted-growth more!


There’s “inequality” in America, so we definitely need to ramp up those prices at the grocery store and at the pump again. Definitely. No question. We need to re-ramp some asset prices and pulverize the purchasing power of the poor.


Captain Keynesian textbook will be quick to read this and say:

  1. But inflation is low, CPI is only 1.2%
  2. And if inflation rises, bond yields will rise …
  3. Because, the government says so



After deflating a small part of the mother of all inflations (Global Inflation’s all-time highs of 2011-2012), anyone who thinks there’s A) no inflation and B) no problem with inflation doubling sequentially from 1% to 2% needs their head examined.


If inflation expectations rise, commodities, wages, household debt levels, and breakevens rise (US 5yr Breakevens up another +4bps last wk to 1.93%); the 10yr bond yield won’t.


Why? Because the Fed has 0% credibility in fighting real world INFLATION. That’s why over 80% of the movement in the long-end of the yield curve can be explained by rising and falling GROWTH expectations.


In other news this morning:

  1. Dollar Down
  2. Rates Down
  3. US Equity Futures Down

No I didn’t buy the bounce last week (the Russell2000 actually didn’t bounce, it was down another -1.3% to -4% YTD – another growth slowing on the margin signal). Sorry, this is not 2013. Everything is the same until it isn’t.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1735-1810

VIX 14.74-20.41

USD 80.41-81.03
Brent 107.61-109.92

Gold 1248-1274


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


This Is Not 2013 - Chart of the Day


This Is Not 2013 - Virtual Portfolio


The Economic Data calendar for the week of the 24th of February through the 28th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.



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