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November 12, 2014

November 12, 2014 - HE DTR 11 12 14



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TODAY’S S&P 500 SET-UP – November 12, 2014

As we look at today's setup for the S&P 500, the range is 84 points or 3.66% downside to 1965 and 0.46% upside to 2049.                             













  • YIELD CURVE: 1.81 from 1.83
  • VIX closed at 12.92 1 day percent change of 1.97%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 7 (prior -2.6%)
  • 10am: Wholesale Inventories, Sept., est. 0.2% (prior 0.7%)
  • 11:30am: U.S. to sell $25b 52W bills, TBA 4W bills
  • 12pm: Fed’s Kocherlakota speaks in Eau Claire, Wis.
  • 1pm: U.S. to sell $24b 10Y notes
  • 4:30pm: API weekly oil inventories
  • 4:30pm: Treasury Sec. Lew at World Affairs Council in Seattle



    • 10am: Supreme Court hears arguments in Alabama Legislative Black Caucus vs. Alabama case
    • 10am: Attorney General Eric Holder delivers remarks at 20th anniversary of Community Oriented Policing Services Office
    • 2pm: Senate Appropriations Cmte hearing on White House anti-Ebola funding request



  • Five Banks to Pay $3.3b in First FX-Rigging Settlements
  • Barclays Says Not Ready to Settle Global FX-Rigging Probe
  • OCC seen announcing more fines later today
  • Yahoo to Acquire Video-Ad Service BrightRoll for $640m
  • Wal-Mart to Stretch Black Friday Over 5 Days to Lure Shoppers
  • Ackman’s Pershing Square Takes Stake in Drugmaker Zoetis
  • Fossil Rises After 3Q Results Top Analysts’ Estimates
  • U.S., China Agree on New Carbon Cuts to Fight Climate Change
  • China to Overtake U.S. as World’s Biggest Oil Consumer, IEA Says
  • Republican Sullivan Finally Wins Alaska Sen. Race Vs Begich
  • Comcast Deal Disclosure Spurs Bid to Keep Contract Terms Secret
  • Apax Joins Bain to Bid $8.8 Billion for Oi Portugal Assets
  • U.K. Unemployment Stays at 6% as Wage Growth Accelerates
  • Chinese Buyer of Waldorf Astoria Said to Plan $2b IPO
  • Two Yahoo Shareholders Said to Ask AOL to Mull Merger: Reuters
  • FCC May Move Away From Obama on Future of the Internet: WPT



    • ADT (ADT) 7am, $0.48
    • CAE (CAE CN) 8:30am, C$0.16
    • Canadian Solar (CSIQ) 7:20am, $1.16
    • Encana (ECA CN) 6am, $0.43 - Preview
    • Energizer (ENR) 7am, $1.61
    • EZchip Semiconductor (EZCH) 8am, $0.25
    • First Majestic Silver (FR CN) 7am, ($0.02)
    • Loblaw Cos (L CN) 6:30am, C$0.86
    • Macy’s (M) 8am, $0.50 - Preview
    • Meritor (MTOR) 7:30am, $0.15
    • Pinnacle Foods (PF) 8:30am, $0.41
    • Plug Power (PLUG) 7am, ($0.03)
    • Rice Energy (RICE) Bef-mkt, ($0.04) - Preview
    • Rockwell Automation (ROK) 7am, $1.83
    • SeaWorld Entertainment (SEAS) 7:30am, $1.13


    • Aimia (AIM CN) 6:15pm, C$0.20
    • AmeriGas Partners (APU) 7pm, ($0.54)
    • Cisco Systems (CSCO) 4:05pm, $0.53 - Preview
    • Iamgold (IMG CN) 5pm, $0.04
    • J.C. Penney (JCP) 4pm, ($0.80) - Preview
    • NetApp (NTAP) 4:01pm, $0.69
    • NetEase (NTES) 7pm, $1.49
    • Silver Wheaton (SLW CN) 5pm, $0.20
    • Tetra Tech (TTEK) 4:41pm, $0.35
    • WGL (WGL) 5pm, ($0.26)
    • WuXi PharmaTech Cayman (WX) 4:30pm, $0.50



  • UBS Precious Metals Misconduct Found by Finma in FX Probe
  • Gold Stable as Investors Weigh Falling Oil, Dollar’s Strength
  • Brent Oil Near 4-Year Low on Signs OPEC Will Resist Output Cuts
  • Palm Oil Output in Indonesia to Rise Over Next 5-10 Yrs: Wilmar
  • Oil Slide Echoes ’08 Peg Pressure for Nigeria, Saudi: Currencies
  • Abu Dhabi’s Taqa Cuts Spending for 2014 After Oil Prices Decline
  • CRU Group Says Bearish Copper Trend Will Extend Through 2016
  • Nickel’s Waning Price Boom Leaves BHP With Unwanted Mines
  • Standard Chartered Global Agriculture Sales Head Pepper Leaves
  • Gold to Find Solace From Negative Lending Rate: Chart of the Day
  • Shanghai Steel Rebar Swings Amid Post-APEC Production Restarts
  • S. Africa Nat. Resources Bill Examination May End Soon: Minister
  • Corn Price Seen Rebounding Next Year by Hightower on Less Acres
  • Singapore Ship-Fuel Sellers Tighten Credit After OW’s Bankruptcy
  • China to Overtake U.S. as World’s Biggest Oil Consumer, IEA Says


























The Hedgeye Macro Team



















Double Double Top

This note was originally published at 8am on October 29, 2014 for Hedgeye subscribers.

“Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.”

-Charles Mingus


Canadians are somewhat simple people.  As a Canadian, I think I can get away with saying that, even if most of you can’t.  But let’s be honest, after hockey, beavers, and Tim Horton’s coffee, what else is there?


Certainly, there is also the vast beauty of the majestic country.  Keith and I took a few of our colleagues to an offsite to Lake Nipigon, which is the largest freshwater lake solely in the province of Ontario, early this year. There is a picture from our trip in the middle graphic below and we experienced this beauty first hand.

Double Double Top - z. lake


There is also the kind soul of the nation.  A soul that was very much on display after the recent tragic terrorist attack in Ottawa.   Sir Winston Churchill may have said it best when he stated:


“There are no limits to the majestic future which lies before the mighty expanse of Canada with its virile, aspiring, cultured and generous-hearted people.”


That is likely as true today as it was back then, even if falling oil prices throw a curve ball to the Canadian economy in the short term.


But, back to coffee and simplicity for a second, when Canadians order coffee they keep it simple.  The typical Canadian strolls into Tim Horton’s, usually at some ungodly hour, and simply orders a Double Double, which is Canadian speak for coffee with two sugars and two creams.


Last night before our men’s league hockey (we are Canadians remember!), Keith and I were chatting about the market and it dawned on us that, “Double Double Top”, may actually be the most apropos description of the current stock market action.


Back to the Global Macro Grind


The most recent top can appropriately be called the Alibaba ($BABA) top as the top of the U.S. stock market, not unsurprisingly, coincided very closely with the IPO of the Chinese internet juggernaut.   In fact, Alibaba (or whatever you want to call the Cayman Islands entity that U.S. investors own an interest in) started trading on Friday, September 19th and the SP500’s recent top was, you guessed it, also on Friday September 19th.  


On some level, it should be no surprise that the biggest IPO in history signaled the market top.   It is obviously an event that signals “things” can’t get much better from “here”.    The question of course is what will signal the end of the most recent rally?  Perhaps the social media bubble popping?


Our Internet and Media Analyst Hesham Shaaban has been admittedly vocal on the headwinds facing some of the social media business models.  In fact, for a long time he was the lone bear on both Twitter ($TWTR) and Yelp ($YELP) and was recently validated by recent results from both companies.   He has been less vocal on Facebook ($FB) and somewhat rightfully so as the company has performed admirably, well until last night’s earnings report . . .


Certainly, Facebook’s numbers weren’t terrible.  The company has 864 million daily users and is growing revenue at 40%+ y-o-y.  But even the stalwart of the social media group has to at some point show a path to real profitability and with total GAAP costs expected to increase between 50 – 70% in 2015, outpacing revenue growth by a wide margin, meaningful profitability is unlikely to happen anytime soon.


So is this then the Facebook top?  Due to a dearth in crystal balls in the Hedgeye office this morning, I’m not sure I can definitively say it, but to the extent that social media stocks were leading some of the recent market froth, that ship has now sailed.


As well, there is no doubt that many consensus investors have gone from selling the recent bottom to leaning very long again.   According to the most recent U.S Investor’s Intelligence poll, bullish sentiment shifted to 47.0% from 35.2%, bearish sentiment decreased to 16.3% from 18.2%, and those expecting a market correct decreased to 36.7% from 46.5%.   So, if you are getting long at the Facebook top, just be forewarned that isn’t a contrarian call!


Also, some bulls may still be holding out for the Pollyanna-ish view of U.S. GDP growth of 3% in perpetuity, but as my colleague Darius Dale noted yesterday:


“Unfortunately, the data is becoming increasingly unsupportive of that narrative. Specifically, the two drivers of any U.S. economic expansion (i.e. household consumption and CapEx) appear to have lost considerable amount of steam of late. 


Let’s ignore the horrible SEP Retail Sales print (falling gas prices, anyone?) and focus specifically on today’s SEP Durable Goods and OCT Conference Board Consumer Confidence numbers.


Brutal Durable Goods and CapEx Demand
Core Capital Goods dropped the most in 8M (-1.7% MoM) and Durables ex-Defense & Aircraft – i.e. the stuff the average household purchases – was down for a second consecutive month at -0.3% MoM; this was the 1st such instance of back-to-back contraction since the weather-induced weakness we saw in the first quarter.


MAJOR Consumer Confidence Head-Fake
At face value, the OCT Consumer Confidence print was a huge win for anyone who doesn’t really do macro. Specifically, the headline figure inflated to 94.5, which was the highest reading since a 95.2 reading back in OCT ’07.”


Take it from a simpleton Canadian, buying U.S. equities at the peak in Consumer Confidence is a recipe for underperformance. 


Now of course with that all said, perhaps the FOMC will provide a boost to the markets with the rate announcement today at 2pm. In our Chart of the Day below, which is appropriately a cartoon created in house, I provide a summary of our thoughts on that . . .


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.14-2.33%

SPX 1856-2007

RUT 1067-1151

VIX 12.61-25.56

USD 84.89-86.12

WTI Oil 79.91-83.67


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Double Double Top - z. cartoon

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Takeaway: Q3 was another bad quarter for Singapore. Analysts expecting growth from this market may need to temper their enthusiasm

An analysis of the Q3 performance by the Singapore Integrated Resorts



Please see our note:  http://docs.hedgeye.com/HE_SING_3Q.pdf

EXCERPT | Are Global Central Banks Running Out Of Bullets? A Call with John B. Taylor


This is an excerpt from the Q&A portion of the Hedgeye Macro Team's conference call with Stanford University Professor John B. Taylor.

Contact sales@hedgeye.com for access to the full call. 

**BABA: Singles-Day Takeaways (Fixed Link)

Takeaway: Singles Day was a big success, but we can't glean too much for F3Q15. Mobile continues to surge, which will be a growing headwind for BABA


  • TOTAL GMV: As of midnight in China, BABA reported total transactions with a GMV (Gross Merchandise Value) of RMB 57.1B for the 24-hr Singles Day event, which translates to y/y growth of 57%.  If that growth holds through the quarter, it would mark a considerable acceleration in y/y GMV growth from the 51% growth reported last quarter (F2Q15).  However, we don’t know how much of F3Q15 GMV will be concentrated into Singles Day.  Jack Ma suggested on CNBC that there was a slowdown in GMV in anticipation of Singles Day, so we can’t glean too much for F3Q15 from the Single Day GMV report.
  • MOBILE GMV %: We want to reiterate that Mobile is a headwind to its marketing business since vendors aren't wiling to pay comparable ad rates for mobile ad clicks and BABA isn't delivering a comparable ad load on mobile devices.  BABA reported that 42.6% of GMV occurred on mobile devices, which would mark a 7 percentage-point acceleration from its prior quarter.  If that percentage holds for the quarter, it would be produce a y/y acceleration of 23 percentage points, which would be the largest y/y increase in Mobile GMV % in its reported history.  
  • THE BIGGER QUESTION: How much of BABA's GMV came from Tmall, which is where it collects commissions.  The ongoing shift in GMV towards Tmall remains its largest driver of Commission revenue growth.  The key question: What is the ultimate ceiling for Tmall GMV mix? This will be the key metric that we'll be monitoring moving forward,  because once the Tmall GMV % sputters, the runway for Commission revenue growth will sputter with it.  That would expose the growing weakness that we’re expecting for BABA’s core marketing segment (~60 of revenue).


For more detail on our bearish long-term thesis, see link below.  Let us know if you have any questions, or would like to discuss in more detail.


BABA: Leaning Short, But...

10/21/14 07:02 AM EDT




Hesham Shaaban, CFA



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 80.46%
  • SHORT SIGNALS 78.35%