TODAY’S S&P 500 SET-UP – December 5, 2014

As we look at today's setup for the S&P 500, the range is 42 points or 1.69% downside to 2037 and 0.34% upside to 2079.                                                                                                                             













  • YIELD CURVE: 1.71 from 1.70
  • VIX closed at 12.38 1 day percent change of -0.72%


MACRO DATA POINTS (Bloomberg Estimates):


  • 8:30am: Change in Nonfarm Payrolls, Nov., est. 230k (pr 214k)
  • Unemployment Rate, Nov., est. 5.8% (prior 5.8%)
  • 8:30am: Trade Balance, Oct., est. -$41.2b (prior -$43b)
  • 8:45am: Fed’s Mester speaks in Washington
  • 10am: Factory Orders, Oct., est. -0.0% (prior -0.6%)
  • 2:45pm: Fed’s Fischer speaks via video to IMF event
  • 3pm: Consumer Credit, Oct., est. $16.5b (prior $15.924b)



    • House, Senate out of session
    • Obama to nominate his pick for next Defense Secretary; Bloomberg, other news outlets report fmr Deputy Defense Secretary Ashton Carter as choice



  • JOBS-DAY GUIDE: Payrolls Seen Climbing Median 230k Workers
  • JPMorgan Said to Put Mortgage-Bond Trader on Leave
  • Starz Said to Consider New Options as No Buyer Found
  • CBS Stays on Dish Satellite TV While Parties Negotiate
  • Apple IPod Judge Says Trial Threatened by Lack of Plaintiff
  • Elliott Said to Bet on Caesars Default Amid Bankruptcy Talks
  • Hartford Unit Faces Racketeering Suit on Sandy Claim Denials
  • Bundesbank Sees Weaker German Eco as Euro Area Struggles
  • China Home Prices to Rebound Amid Strong Demand: Jones Lang
  • China Auto Sales Slow in Nov. as Dealer Inventories Rise
  • President Obama to announce defense sec. nominee Carter
  • Grammy nominations to be announced throughout day
  • Retail Sales, Congress Deadline, Japan GDP: Wk Ahead Dec. 6-13



    • Bank of Nova Scotia (BNS CN) 6am, C$1.40 - Preview
    • Big Lots (BIG) 6am, ($0.05)
    • National Bank of Canada (NA CN) 7:30am, C$1.15 - Preview



  • Brent Heads for 5-Year Low as Saudi Discounts Spur Competition
  • Billionaire Widjaja Family to Cut Stake in Indonesia Bourse
  • Deepest Saudi Oil Discount Intensifies Fight for Asia Market
  • Ending U.S. Oil Export Ban Argument Bolstered by Price Collapse
  • Super Typhoon Bearing Down on Philippines as Gusts Hit 250 Kph
  • Nickel Trades Near 10-Week High as Copper Heads for Weekly Gain
  • Wheat Declines as Black Sea Concerns Ease, Canada Outlook Raised
  • Steel Rebar Declines on Sluggish Spot Demand to Trim Weekly Gain
  • Ethanol Joins U.S. Fuels Dominating Global Export Market: Energy
  • Gold Drops a Second Day as Dollar Strengthens Before Jobs Data
  • Soybean Traders Bearish for 17th Week on Ample World Supplies
  • EU Gas Traders Divided 2nd Week Amid Cooler Weather, Oil Drop
  • Kingsman Cuts Estimate for Sugar Deficit by 60% to 600K Tons
  • Era of Lower Oil Masks Challenges for Southeast Asian Titans
  • Winter Bomb Watch Begins From New York to Ireland as Storms Brew


























The Hedgeye Macro Team




















Ali Baba and the 40 Thieves

This note was originally published at 8am on November 21, 2014 for Hedgeye subscribers.

“We hang the petty thieves and appoint the great ones to office.”



Ali Baba and the 40 Thieves is one of the most famous of the “Arabian Nights” folk tales.  It tells the story of a poor son of a merchant, Ali Baba, who over hears a pack of thieves (40 to be exact) who are visiting their treasure store at a cave in the forest.


After hearing their password, “Open Sesame” (akin to using 1,2,3,4 to unlocking your iPhone no doubt), Ali Baba waits until the thieves are gone and uses the password himself to enter the cave and steal some of their gold.  Ali Baba’s brother, Cassim, realizes the secret of the cave and goes back to the cave with a donkey to try and take as much gold as possible.


Largely because of his greed, and lack of planning, Cassim is locked in the cave and when found by the thieves on their return is subsequently killed and quartered into four pieces.  The thieves then do their best to find Ali Baba, to little avail, and eventually the thieves meet their demise and Ali Baba is the only one left knowing the secret of the cave.


The one obvious parallel between the Ali Baba folk tale and the company Alibaba (BABA) is the name.  If you go deeper than that, it is also clear that for a long time the Chairman and Founder, Jack Ma, was perhaps one of a small group who knew the secret of the treasure cave.  Now that BABA is public, though, we all have the opportunity to understand the secrets of the monolithic BABA.


To be fair, we aren’t suggesting that Jack Ma or his colleagues are thieves, although the corporate structure of BABA and transfer of Alipay’s ownership might be construed as thievery by some, but rather that just like the Ali Baba of folklore, the modern Alibaba has limitations on the amount of “gold” it can take.


At 11am today, our Internet and Media Analyst Hesham Shaaban is going to be hosting a call titled: “Baba: Risks & Timing, What Others Aren’t Telling You”.  The bear case call will be focused on the following:

  • China Can't Grow Fast Enough: Top-down analysis of the key factors driving E-Commerce in China.
  • Growth Will Come at a Price: How the China growth story will pressure BABA's Business Model.
  • Timing the Short: Model Projections and the Key Metrics we're tracking to monitor our thesis.

Email if you’d like to learn how to get access to the call.


Ali Baba and the 40 Thieves - z DJ EL


Back to the Global Macro Grind

Perhaps we are being a bit too harsh on BABA.  It is after all a veritable monopoly with very high returns on capital, but at a valuation that is also priced in.  More importantly as we think of thievery and the global markets, it is probably more apropos to think of the extreme policies perpetuated by the world’s major central banks as thievery. 


On a basic level, the average consumer is being robbed of his return on his savings, and punished with  monetary inflation.  Recently, of course, the inflation has started to deflate, which may be beneficial eventually, but also brings about its own set of challenges and unfortunately also gives central bankers the carte blanche to manipulate monetary policy even further.


The mystical ECB head Mario Draghi once again opened the treasure cave of policy in a speech at a banking conference earlier today when he said:


“We will continue to meet our responsibility—we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.  If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.”


That’s a pretty direct comment, especially for a European.


The Chinese central bankers took it one step further and actually walked the walk with a 25 basis point cut of the deposit rate and a 40 basis point cut of the lending rate over night.  On some level, this of course epitomizes the new currency war.  The Europeans used rhetoric, but the Chinese answer back with some monetary artillery fire.


Of course nothing truly compares to the shock and awe that the Japanese are capable of when it comes to monetary policy, or as my colleague Darius Dale called it “getting crazier”.  In an update note on Japan Wednesday, Dale summarized the outlook for Japanese policy moves adroitly:


“Japanese consumption be damned, we now know that the BoJ is completely comfortable with going “full Weimar [Republic]” with Japanese monetary policy, as most recently highlighted by today’s 8-1 vote in leaving monetary policy unchanged; recall that the board was split 5-4 when Governor Haruhiko Kuroda opted for additional easing last month.


What we found even more surprising is the fact that Kuroda reiterated his “upbeat” assessment of the economy. Yes, the same Japanese economy that is mired in recession and contracting -1.2% on a YoY basis!


What this tells us is that he is likely leaving room for a downside surprise to his targets, which would afford him scope to expand QQE sooner, rather than later. Per Bloomberg, sellside consensus expects a further expansion of QQE by June. Kuroda surprised us once; he won’t catch us off guard again!”


In summary there is an increasing case for Japan to ease more aggressively than consensus believes and with a negative correlation of -0.94 between the SP500 and JPY/USD, that is one really important reason for U.S. equity investors to keep Japan and its monetary policy front and center!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.29-2.38% 

SPX 2008-2056 

RUT 1152-1187 

USD 86.99-88.06 

EUR/USD 1.23-1.25 

Gold 1135-1208 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Ali Baba and the 40 Thieves - JAPAN

Cartoon of the Day: Cannell Crushes Cramer

Cartoon of the Day: Cannell Crushes Cramer - cramer

CNBC host and founder Jim Cramer is being taken to the woodshed by activist investor Cannell Capital. For good reason.


Click here to read the entire letter sent by founder Carlo Cannell.

Early Look

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Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. These levels were originally published December 04, 2014 at 08:19.  Click here to learn more and subscribe.


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McCullough on Fox Business: Activist Investor Rebuked CNBC Host Jim Cramer For Good Reason

Hedgeye Risk Management CEO Keith McCullough discusses activist investor Cannell Capital's highly publicized rebuke of CNBC host Jim Cramer's role at on Fox Business "Opening Bell."

Draghi Didn’t Deliver the “Drugs”!

Expectations were high, but our call was right that Mario Draghi and the ECB’s governing council would remain in “assessment” mode today (no rate cut or QE announcement); our “counter-TREND” call proved correct with the EUR/USD bouncing higher and equities falling on Draghi’s decision.


Below are key take-aways from today’s press conference:

  • Draghi pushes out prospect of sovereign QE until Q1 2015 after an  assessment of concurrent programs (ABS, covered Bond, TLTRO) and economic outlook
  • Draghi gave much importance to the impact of oil on the deflationary trend in Eurozone CPI. He all but explicitly said should oil prices remain subdued, it will be necessary for the ECB to act in a big way #Sovereign QE
  • No Surprise: Eurozone economic and inflation outlook revised downward by ECB #EuropeSlowing
  • ECB cuts GDP forecasts to 0.8% in 2014 (vs 0.9% projection in September), 1.0% in 2015 (vs 1.6%) and 1.5% in 2016 (vs 1.9%)
  • ECB cuts inflation forecasts to 0.5% this year (vs 0.6%), 0.7% next year (vs 1.1%), and 1.3% in 2016 (vs 1.4%)
  • Draghi says "We don't need unanimity to proceed with QE"
  • Draghi says QE has been shown to be effective in the US and in the UK; in Japan it's more complicated #TheEurozoneIsComplicated
  • On push back from Germany on QE... Draghi says the ECB will comply with its mandate for price stability #NoAnswer


Our read through remains that Draghi is effectively telling us that everything he's tried so far hasn't worked, including his explicit Policy To Inflate that is only resulting in more #deflation. We’ll continue to stick to our playbook #EuropeSlowing, and manage risk (and price levels) created by the heavy hand of central bank intervention.


Matthew Hedrick



Draghi Didn’t Deliver the “Drugs”! - vv.  eur uuussd

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