TODAY’S S&P 500 SET-UP - July 6, 2011


As we look at today’s set up for the S&P 500, the range is 35 points or -1.71% downside to 1315 and 0.91% upside to 1350.





THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -39 (-2012)  
  • VOLUME: NYSE 906.95 (+4.84%)
  • VIX:  16.06 +4.84% YTD PERFORMANCE: -9.52%
  • SPX PUT/CALL RATIO: 1.87 from 1.30 (+43.98%)



  • TED SPREAD: 23.56
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 3.16 from 3.22
  • YIELD CURVE: 2.72 from 2.72 



  • 7 a.m.: MBA Mortgage, prior (-2.7%)
  • 7:30 a.m.: Challenger job cuts, prior (-4.3%)
  • 7:45 a.m./8:55 a.m.: ICSC/Redbook Weekly Sales
  • 10 a.m.: ISM non-manufacturing: est. 53.7, prior 54.6
  • 11:30 a.m.: U.S. to sell $28b 4-wk bills
  • 4:30 p.m.: API inventories  


  • President Obama will take questions today in what White House officials are calling his first Twitter town hall
  • IMF Managing Director Lagarde to hold news conference in Washington at 9:30 a.m.
  • Greek banks are willing to roll over their government bonds as part of a European Union aid plan, Finance Minister Evangelos Venizelos said; debt-holders meet in Paris today
  • Allen & Co. conference continues in Sun Valley; watch for developments on Hulu talks
  • Facebook to make announcement; reports from TechCrunch, others have indicated it’s a video-chat partnership with Skype




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Rice Futures May Help Tokyo Grain Exchange Break Even After Run of Losses
  • Crude Oil Declines as Portuguese Debt Downgrade Sparks Demand Concern
  • Wheat Drops as Warmer Weather May Aid Spring Crop Prospects; Rice Gains
  • Coffee Falls for a Fourth Day as Frost Concern Eases; Sugar Prices Slide
  • Cotton Poised for Further Declines on Fibonacci Levels: Technical Analysis
  • Copper May Drop, Risking Longest Winning Streak of 2011, on Debt Crisis
  • Gold May Climb for Third Day as European Debt-Crisis Concern Spurs Demand
  • U.S. Farmland Boom May Peak in 2011 After Five-Year Surge, Rabobank Says
  • Oil Supply Falls Fifth Week in Survey on Refining, Imports: Energy Markets
  • Kodak Default Odds Reach 74% After License Suit Delays: Corporate Finance
  • BASF Said to Consider Ending Genetically Modified Crop Research in Germany
  • Coal of Africa Climbs Most Since 2008 in Johannesburg on Project Approval
  • Australia Ends Month-Long Suspension of Live Cattle Shipments to Indonesia
  • Oil Tanker Rentals Seen Sinking to the Lowest Since 1997: Freight Markets




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: markets fall after 7 days of gains.
  • Moody’s downgraded Portugal’s credit rating to junk on Tuesday
  • Spain and Italy this morn -both markets down hard and broken TRENDs, while Germany continues to look great.
  • Germany May industrial orders +1.8% m/m vs consensus (0.5%) and prior revised +2.9% from +2.8%
  • UK June Halifax house prices +1.2% m/m vs consensus +0.0% and prior +0.1%





  • ASIA: looks better and better by the day with both the KOSPI and Sensex breaking out above Hedgeye’s immediate-term TRADE lines

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director


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Macro Consumer

“I have often, this past decade, wished that there was a formal and well-established discipline called macro-consumer.”

-Rama Bijapurkar


That quote is from the author of a book that one of our sharpest Global Macro clients sent me recently titled “We Are Like That OnlyUnderstanding The Logic of Consumer India.” That’s what I’m reading this week. It’s an excellent perspective on the real-time global economy.


What is the real-time Global Macro economy? Is it different than the traditional Bachelor of Arts view of the US economy? What is Keynesian economics? And what, if anything, have central planners of Fiat Fool Kingdoms learned about how their short-term decisions impact currencies, commodities, and the Macro Consumer since Rama Bijapurkar made the aforementioned wish in 2007?


These are critical questions concerning both Global Macro-Economic Context and Causality. Instead of a few days of vacation, I could probably take off for a few years and write a book of my own considering the answers. Unfortunately, I don’t have the time to do that, yet.


What I do have time for this morning is throwing some of these questions right back to President Obama. Today, Obama’s economic group-thinkers are going to be huddled in the conference room fielding questions in a wanna be “town hall” on Twitter @ #AskObama. So if you want to know if he calls Geithner his pet Squirrel Hunter in Chief, here’s your chance.


Back to the Global Macro Grind

  1. Global Equity markets like Deflating The Inflation (China, Germany, and USA all holding TREND line support)
  2. The Macro Consumer likes Deflating The Inflation (MBA mortgage applications UP finally this week, +4.8% w/w in the US)
  3.  If President Obama wants to Deflate The Inflation, he’s going to have to do a lot more than tap the SPR

He’s going to have to get out of the way.


A lot of people whine that critics of US Congress “don’t have a solution.” That’s a crock. There is a very simple solution to this Macro Consumer mess:


A)     Strengthen the US Dollar with a credibility bid to get government out of the business of trying to make things happen

B)      Then just let it ride


Ride on the back of the biggest Global Macro Consumption Engine created in the history of mankind – the American Consumer… ride Cowboy Obama, ride!


Tapping the SPR only taps on peoples’ nerves that Big Government Intervention is here to stay. Getting someone like Stan Druckenmiller or Michael Bloomberg to run the US Treasury instead of The Squirrely One would have the opposite effect. The last thing Americans want is Geithner’s smug smirk whispering about the 14th Amendment powers of The President. What they want is change.


Change starts with stopping what isn’t working. Change in Global Macro markets is marked-to-market - not to some cochamamy Keynesian concept that’s attempting not to die in a Princeton textbook.


Just look at what Deflating The Inflation (a 21% peak-to-trough decline in oil prices from late April to the end of June) has done for Global Equities and Global Consumption. It stopped both from going down!


The last 48 hours of Global Macro data has been percolating on this score - and bullishly so:

  1. German Service PMI for the month of June was up sequentially to 56.7 versus 56.1 in May
  2. India’s Services PMI for the month of June was up sequentially to 56.1 versus 55.0 in May
  3. Indonesia’s Consumer Confidence for the month of June was up sequentially to 91.8 versus 90.6 in May

But, again, these are June numbers – and in June, the US Dollar arrested its decline and oil prices were falling. Today is July the 6th, and it’s not clear, yet, if there is a political spine to strengthen the US Dollar sustainably. The Chinese raising interest rates one last time should help.


We shorted oil for the first time in a long time yesterday in the Hedgeye Portfolio. So that means there is an interconnected chance here folks. There really is a chance that the US Dollar Index continues to make a series of higher-lows and busts a bigger move to the upside in the coming months.


If that happens, you will see:

  1. A continued selloff in Oil’s price down to its long-term TAIL of support ($90.51/barrel, or -7% downside from here)
  2. A continued short squeeze in Global Equities from China to Indiana
  3. A continued deleveraging of the Global Hedge Fund community’s carry trading of Geithner’s Down Dollar policies

“We are like that only” in America, Canada, and Germany too. We like to buy gas and food when they are on sale.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $90.51-97.11, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Macro Consumer - Chart of the Day


Macro Consumer - Virtual Portfolio


Hotel transaction market continues to chug along at a good pace.



Market M&A Trends for Q2

  • Q2 US hotel transaction volume neared $4BN, lower than the ~$5BN seen in 1Q but enough to surpass all of 2010’s total volume.
    • Q2 US Upper Upscale Hotel Volume declined 30% QoQ but the number of transactions doubled and Average Price per Key grew 12% QoQ in Q2.
  • No surprise, REITs continued to dominate the M&A market in Q2; however, we did see a handful of transactions by Hyatt and Starwood.
  • There were more portfolio deals relative to Q1.
  • Hotel delinquencies have stabilized. The latest data from Fitch showed Q2, as of May, hotel delinquencies hit 13.9%, a little better than Q1’s 14.3%.
    • CMBS loans are seeing 60-70% LTV with 5-year terms of between 5.5% and 6.5%.
    • Rates on three- to five-year, fixed-rate deals, with 50% to 65% LTV, are in the 5% range. 
    • Lenders were more likely to fund longer-term (10-year) deals.

Luxury Segment

  • Average Price per Key
    • Q2 2011 Global average: $546,628
      • US average: $611,871 (5 transactions)
    • Q1 2011 Global average: $279,697
      • US average:  $289,733 (4 transactions)

Upper Upscale Segment

  • Average Price per Key
    • Q2 2011 Global average:  $320,937
      • US average: $327,187 (13 transactions)
    • Q1 2011 Global average: $257,295
      • US average: $291,945 (7 transactions)
Q2 HOTEL TRANSACTIONS UPDATE - hotel transaction1


The Macau Metro Monitor, July 6, 2011



The People's Bank of China said it will raise its benchmark deposit and lending rates by 0.25% point to 6.56% and 3.5% respectively.  This is the third rate increase this year and its fifth rate increase in the latest round of tightening.  The move comes after the PBOC announced increases in its benchmark lending and deposit rates on April 5 and February 8 this year.  The PBOC also raised banks' reserve requirement ratio six times in 2010 and six times so far in 2011.



According to a preliminary estimate, new loans in China for June reached CNY500 Billion, which implies CNY4 Trillion loans for the 1st half of 2011.  Using a 3:3:2:2 ratio for quarterly lending,  this would imply CNY6.67 Trillion for 2011, below the widely reported but never officially announced target of CNY 7-7.5 Trillion.




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