Circumference of Darkness

“As our circle of knowledge expands, so does the circumference of darkness surrounding it.”

-Albert Einstein


Yesterday was an interesting day. I woke up, sat in a 4AM traffic jam, then mentioned the word “truth” in my Early Look and proceeded to have dozens of bulls remind me that the “truth” is that the market was up for 2 days in a row and I was on the losing side of that trade. Maybe their circle of knowledge led them to believe yesterday was going to be another up day. Who knows. But after 3PM, I stopped getting their emails…


No worries boys. This is the game we all wake up to play. Every day there are winners and losers. I built this transparency platform during the crash of 2008 with you in mind. Everything I say and do is marked-to-market live on my risk management portal. Everyone knows the truth about every position I take.


For those of you who have friends who forward you our work so that you don’t have to do the right thing when no one is looking, my current short positions in the Dow Jones Industrial and SP500 ETFs are +0.49% and -0.33% for and against me, respectively.


As our circle of knowledge about Washington and Wall Street expands, citizens around the world are not only catching a glimpse under the modern day Roman Empire’s proverbial clothes, they are starting to ask some really good questions. Many of these questions boil down to investment processes – what is it that you do?


We know what conflicted, compromised, and constrained ratings agencies and bankers do. We also know what professional politicians do. But do we really know what asset managers who can’t preserve their client’s hard earned capital do in down markets? You tell me…


The scariest part about the most recent decline in the SP500 (down -10.5% from its April 23rd YTD peak) is not only the lack of respect that the bulls have for US government deficits and debts, but the “circumference of darkness” that surrounds their analysis.


Yesterday, the Obama Administration inched a step closer to telling the truth about this country’s fiscal problems. Washington finally admitted that the 2010 and 2011 estimates for the US budget deficit were too low. As a reminder, the fiscal 2009 US budget deficit was $1.4 TRILLION DOLLARS. The new estimate for 2010 is $1.6 TRILLION Dollars. Or a +14.3% year-over-year increase in debt financed deficit spending.


Importantly, the US government’s 2011 estimate for a deficit cut to $1.3 TRILLION remains tenuous at best. They have no idea what growth in 2011 will be and, as a result, will be adhering to the Buy-And-Hope model that they want America’s creditors to subscribe to when it comes to holding US Treasuries.


We continue to think that Ben Bernanke’s GDP growth forecasts for both the back half of 2010 and all of 2011 remain far too optimistic ( the Administration’s GDP forecast for 2011 is even higher!). The “circumference of darkness” comes into play when the Fiat Fools of US forecasting mismatch expectations like this versus reality.


The reality is that our Creditor (China) doesn’t believe us. You can look it up on the Chinese finance ministry’s website yourself, but upon receipt of the $1.6 TRILLION memo China stated that the US needs to “seriously consider” the structural problems associated with this Fiat Fool model and “stop blaming” others.


Our go-to-move in response to this mess is to mark-US Treasuries to-model as low as we can for as long as we can until the circle of the world’s knowledge about Washington’s Perceived Financial Wisdoms is too obvious. This morning we are seeing US bond yields begin to trade like Japanese Government Bonds, with 3-month US Treasuries yielding 0.06%!


What Bernanke and Geithner may not get is that holding US Treasury rates artificially low for an “extended period of time” actually aids and abets the blowing out of global bond yield spreads (the long ends of marked-to-market curves do just that, get marked higher). Whether you are looking at the TED spread, Levered Loan spread, or High Yield spread this morning you’ll see the same thing – the “circumference of darkness” that began to develop in mid 2008 – spreads widening…


Spain is going to try to issue almost $5 BILLION Dollars worth of 12-month debt today. The yield on that low-quality Fiat Promissory Note is 2.30% - that’s up from yielding 1.59% for the same maturity less than a month ago. Spreads on 10-year Spanish debt versus German Bunds are 209 basis points this morning versus their YTD peak of 215bps on June the 8th.


My moving from bullish to bearish will always change. Until the US addresses this Spanish looking deficit problem head on with some form of austerity measures, the biggest clean-up ahead of the Obama administration won’t be found in the darkness of our waterways – it will remain on our children’s balance sheet.


My immediate term support and resistance level for the SP500 are now 1082 and 1101, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Circumference of Darkness - DEF


Another day of being confidently mixed - the S&P 500 finished mixed and little changed on a quiet Monday. The major indices opened up strong, but ended up closing near their lows on the day.  Moody’s downgrade of Greece sovereign debt to junk was key driver of lower prices.   There was some positive news out of Europe in the form of a better than expected industrial production number.


The BP oil spill situation and Obama continued to provide the bulk of the headlines. BP closed down 10%.  The dollar and gold were weaker on the day; oil and other commodities were stronger (though the commodity equities were weaker).


The best performing sectors were Utilities (XLU +0.6%), Consumer Staples (XLP +0.6%) and Consumer Discretionary (XLY +0.3%).  The Hedgeye Risk Management models still have Energy (XLE) and Utilities (XLU) positive on TRADE; there are no companies positive on TREND.  The three worst performing sectors yesterday were Materials (XLB - 1.0%), Energy (XLE - 0.5%), Financials (XLF - 0.4%).


Precious metals/miners underperformed, with the XAU down 1.5%.  Stocks contributing to the underperformance were; CF (5.0%), DOW (3.1%) and MON (2.4%).


The DXY declined 1.1% on Monday and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (86.42) and Sell Trade (88.51).  The VIX declined only 0.7%, but is down 21.8% over the past week. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (26.21) and Sell Trade (33.05).  The TED spread has expanded further to 0.46 as investors look to T-Bills for security.


In early trading, the EURO is trading higher by 0.4%, after rising 1.1% yesterday.   The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.18) and Sell Trade (1.23).


On the MACRO front, there was some positive economic data out of the Europe, with continued sovereign debt issues mixed in.  Eurozone April Industrial Production grew 9.5% year-over-year vs. consensus +8.7% and prior revised +7.7% (+0.8% m/m vs. consensus +0.5% and prior revised +1.5%).  Spanish officials did admit that a freeze up in interbank lending was affecting Spanish banks and Greece was downgraded midday by Moody’s to Ba1 from A3.


The Financials (XLF) also underperformed, with the BKX lower by 0.8% on continued reporting of possible regulation, especially as related to swaps trading desks. It was also reported that Senator Lincoln was considering compromise on her provision.


The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (73.57) and Sell Trade (76.97).


In early trading, Copper fell in London, ending the longest rally in more than five months, as the dollar strengthened after Greece’s credit rating was cut to junk, reviving concern about Europe’s sovereign debt crisis.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.88) and Sell Trade (3.05). 


Gold futures may extend their previous day's losses on Tuesday tracking a higher dollar.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,216) and Sell Trade (1,244).   


As we look at today’s set up for the S&P 500, the range is 19 points or 0.7% (1,082) downside and 1.0% (1,101) upside.  Equity futures are trading above fair value after equity markets gave up a triple digit gain near the end of Monday's session due to Moody's downgrading of Greece's sovereign rating to junk.


Howard Penney














We've got the mid-month numbers and they look good, especially for Wynn.



The following table details the table-only Macau June revenues through the 13th in HK dollars.  Assuming slots at about HK$650m, Macau is tracking close to HK$14bn for June, up 74% YoY.  This would be another very strong month, particularly for Wynn.




In terms of table revenue market share, Wynn looks like the biggest gainer sequentially, from 15.7% in May to 18.3% in June.  LVS also gained share from May but down slightly from beginning of June.  SJM, MPEL, and MGM all lost share but there is still a half month to go.


Anna and I are in Singapore and Macau this week so we should have more color.

Early Look

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Help Hedgeye Save A Life

Dear Hedgeye Faithful,


Please take a moment to read the information below to find out how you can help a member of the Hedgeye extended family.  Mandi Schwartz is a Yale women's hockey player who is now in desperate need of cord blood to save her life.  Share this with any and all and perhaps we can all be Mandi's hero!




The Hedgeye Risk Management Macro Team


Efforts Expand to Find Life-Saving Donor for Mandi Schwartz


Bulldog Forward Battling Leukemia, in Urgent Need of Marrow or Cord Blood Donor


NEW HAVEN, Conn. – As Yale women’s ice hockey player Mandi Schwartz continues to battle leukemia, efforts to find her a matching marrow or cord blood donor have intensified. With help from some former Bulldogs, those efforts have expanded to include everything from hockey tournaments in Canada to the World’s Largest Baby Shower in Atlanta. For details on how you can help find a life-saving donor, read on.


Mandi, 22, was first diagnosed with acute myeloid leukemia in December of 2008, just days after helping the Yale women’s hockey team to a 4-1 win over Brown. She returned home to Wilcox, Sask., and underwent multiple rounds of chemotherapy. She was in remission by the spring of 2009, and returned to Yale in January of 2010 to complete her junior year. But less than four months later tests revealed the cancer had returned. She is once again home in Canada, undergoing chemotherapy.


This summer Mandi will need to have a stem cell transplant, which requires locating either a bone marrow or a cord blood donor. The Yale Athletics Department’s efforts to help started with bone marrow donor testing drives each of the last two springs, resulting in more than 1,600 people getting their cheeks swabbed to be added to the National Marrow Donor Program’s “Be The Match” registry. Matches were found for other patients in need, but not for Mandi. To date, the only bone marrow donor match for her is a “9 out of 10”, not a “10 out of 10”. Partially matched bone marrow cell transplants frequently result in a life-ending graft versus host response.


To increase the chances of finding a perfect match, Mandi’s family has begun working with Dr. Tedd Collins, founder of Become My Hero, an organization that works to find donors for hard-to-match patients. Because of her ancestry, Mandi is most likely to find a match from someone of German, Russian or Ukrainian heritage. A “Become Mandi’s Hero” Facebook group has been established to help look for donors and support Mandi as she battles her way back to having a normal life ( There is also a twitter account at that anyone can follow.   


Become Mandi’s Hero is focused on finding potential cord blood donors in addition to bone marrow donors. Cord blood has the same life-saving stem cells as bone marrow, except that partially matched cord blood stem cells rarely cause life-ending consequences. Dr. Collins believes that collecting cord blood from 100-200 babies with any combination of German, Russian or Ukrainian heritage will result in a realistic chance of finding donors that will be able to save Mandi’s life. This must be done within the next two months. The web page at explains the details of the three-step cord blood donation process.


To find cord blood donors, Become Mandi’s Hero is reaching out to the general public in an effort to send or give brochures to hundreds of expectant couples who are having babies that may match Mandi's German, Russian or Ukrainian ancestry. Become Mandi’s Hero will test any mother and father who may match, then collect cord blood from those that the test shows have a high probability of matching.


The efforts to reach out to expectant couples have ranged far and wide, including an assist from one of Mandi’s former Yale teammates. Jenna Spring ’07 volunteered to distribute information about Mandi and the need for cord blood donors at the “World’s Largest Baby Shower” last weekend in Georgia. The event reached the exact audience that is critical to the success of the efforts to find a donor: expectant couples.


There is also still the possibility of finding Schwartz a perfect “10 out of 10” match from a bone marrow donor. Along those lines, a former Yale men’s hockey player is finding ways to connect those who share Schwartz’ passion for hockey with her need for a donor. Brennan Turner ‘09, who attended the same high school as Schwartz (Athol Murray College of Notre Dame) has been lining up a series of bone marrow donor testing drives in Canada in conjunction with CBC's Play On! 4on4 street hockey tournament.  Billed as Canada’s largest sports festival, the tournament takes place in various Canadian cities throughout the summer. A list of those cities where there will be marrow donor testing drives is below.


Mandi’s story has received coverage throughout Canada and in the New Haven area. She also has connections in the Heartland and out West that have helped spread the word. Her younger brother Jaden was the USHL Forward of the Year with the Tri-City (Nebraska) Storm last season and is ranked No. 28 among North American skaters by NHL Central Scouting. That makes him a potential first-round pick in the upcoming NHL Draft, which takes place June 25-26 in Los Angeles. He is committed to attend Colorado College this fall and will play alongside his and Mandi’s brother, Rylan, who recently completed his freshman season at the school. 


Below is a partial list of ways that anyone can help Mandi. 


Read more about Mandi and what is being done to help her:

 E-mail  if you have any questions


 Use Facebook to learn more about the need for bone marrow and cord blood donors, and help spread the word:

Join the bone marrow donor registry:

 Help contact expectant couples who are potential cord blood donors:

Hedgeye Risk Management

World Cup Chart Of The Day: Italy

The intermediate term TREND line for the Italy Titan 30 remains broken at 2311.


World Cup Chart Of The Day: Italy - Italy Titans 30

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