Yesterday, the S&P closed down 1% (12% for 2Q) and seven of the last eight days.  Overnight China reported that its June Purchasing Managers Index dropped to 52.1 vs. 53.9 last month; overnight the Chinese market closed down 1% and is now down 27.5% year-to-date.  The Chinese equity market has now declined for seven straight days.


On the MACRO front, the disappointing ADP Employment report is helping to confirm our thesis that the consumer is being DUPE(d).  DUPE(d) is my view of the consumer for 2H10 where trends are starting to roll over with the growing potential for a double dip, unemployment staying high, prices paid by the consumer going up and equity and real estate prices going down.  The June ADP numbers increased 13,000 vs. consensus 65,000 and upwardly revised prior 57,000; the June number is the smallest gain since February.


The MBA weekly Purchase Application Index released yesterday fell 3.3%, bringing June-to-date to 86.1 (versus April at 123.2 and May at 101.0).  With just a few days left in the month, June is tracking to be down 30% versus April.   According to the Hedgeye Financials team “We track Purchase Applications as a leading indicator of home sales activity, and continued lack of improvement in this metric is troubling, as 2010 YTD continues to be in line with a 1997 level of demand.  This abysmal level comes despite the lowest mortgage rates since the inception of the MBA survey.”  


Treasuries were mixed with the long end outperforming.  The dollar index closed at $86.01, trading flat on the day and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.30) and Sell Trade (86.59).  The VIX moved higher by 1% on the day and surged 100% in 2Q10.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (36.66) and Sell Trade (39.90). 


The Euro moved higher by 0.4%, and is rallying in early trading today.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.24).


All nine sectors declined yesterday with the worst performing sectors being Technology (XLK -1.5%), Consumer Discretionary (XLY -1.2%) and Financials (XLF -1.2%)


Despite big issues surrounding the RECOVERY trade the Industrials (XLI) was one of the best performing sectors.  One of the highlights was Ford up 2.0%; Ford announced actions to reduce debt by $4B.  The S&P Airlines Index traded flat on the day. 


In the second quarter, copper declined 17% creating a bearish formation for global growth.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.85) and Sell Trade (2.98).


The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,228) and Sell Trade (1,258). 


Crude oil fell for a fourth day - the longest losing streak in seven weeks - as concern the economic recovery in the U.S. and China will continue to slow.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (75.03) and Sell Trade (77.31).  


As we look at today’s set up for the S&P 500, the range is 61 points or 1.2% (1,018) downside and 4.7% (1,079) upside.   Equity futures are trading below fair value.  Today's MACRO highlights include US Initial Jobless Claims, ISM manufacturing at and Pending Home sales.    


Howard Penney













Seeing What Matters

“It’s not what you look at that matters, it’s what you see.”

-Henry David Thoreau


This is a squirrely business. Anyone who has spent a day working on Wall Street and took the time to observe their surroundings gets that. If you are currently working within the Berlin Walls of Investment Banking Inc. and don’t know what I am talking about – look a little closer; it’s what you see that matters.


No matter how odd (or normal) someone on Wall Street is, there is one thing that can trump all of his or her social behaviors – performance. If you can drive a P&L on a big desk, one day you’ll be called “smart” – and from that day, until you lose money, you’ll have found the elixir of a highly compensated life.


You don’t have to like every person in this business to like the rules of the game. This is America  - a country built on the principles of meritocracy. No matter how screwed up our political aristocracy gets, they’ll eventually be held accountable by the performance gods. Every day that we walk down this transparency path in the modern YouTube world provides the next opportunity to expedite the process of price discovery.


Here was the score for June and Q2 of 2010 in US Equities:


1. June 2010: Dow (3.58%), SP500 (5.39%), Nasdaq (6.55%), Russell2000 (7.88%)

2. Q2 2010: Dow (9.97%), S&P (11.86%), Nasdaq (12.04%), Russell2000 (10.19%)


Whether you’ll be held accountable to the score in a public forum or not, the best part about this business is that you know the score. We all get marked-to-market every day. The most important relationships you’ll ever have in this business are with your teammates – they know the score too.


Today is July 1st, Canada Day and day 1 of keeping score for Q3. As is customary, my team and I will be introducing our Q3 Hedgeye Macro Themes. Unlike the sell side fee and commission chasing units of Investment Banking Inc, we change our investment themes as time and prices do. We aren’t paid to be dogmatic or theoretical. We get paid to get these themes right.


Rather than my giving my own paralysis of how we did with our Q2 Macro Themes, I’ll let our clients decide. Rather than give political lip service to the words “transparency” and “accountability”, every long or short position that we recommend at Hedgeye is marked-to-market, real-time, every day for all of you to see at


We’ll walk through a 35 slide presentation at 11AM EST explaining the following Q3 Macro Themes and how to use them from a risk management perspective:

  1. American Austerity
  2. Housing’s Headwinds
  3. Bear Market Macro

For anyone who puts up with reading my daily rants, these investment themes won’t have many surprises. In sharp contrast with our Sovereign Debt Dichotomy call in Q2, where we called for being short the Euro and Spain in particular, we’ll be zeroing on how the storytelling of deficit and debt problems (as a % of GDP) will find their way to the US. We already shorted the US Dollar (UUP) on June 7th, 2010, so we’ll be explaining that position’s risk/reward.


In principle, our investment themes are designed to be pragmatic. Everyone knows that they are late if they get to work at this firm after 530AM. Getting in early isn’t about face time. It’s not about what our analysts are looking at on their screens at that hour either – it’s all about synthesizing what everyone else is looking at and seeing what matters.


What matters this morning is what mattered 6 months ago when we introduced our Chinese Ox In A Box theme for Q1. If you didn’t see the Chinese forcing a slowdown in their own economic growth coming, you certainly see it happening now.


In our Q1 Macro Theme presentation we showed a slide with Chinese PMI growth putting in an intermediate term top in the 57-58 range. This morning’s Chinese PMI report for the month of June came in at 52.1 versus 53.9 in May, another sequential month-over-month slowdown. Chinese stocks closed down for the 7th day in a row, making a lower-YTD-low at -27.6%, second only to Greece in the world stock market league standings for last place.


The point of this morning’s missive isn’t to take a victory lap on China. It’s about seeing this business for what matters – it’s all about being right. Do you have a repeatable top-down global macro process to augment your stock picking and asset allocation or not? Did your risk management process work during the bear market moves of 2008? Is it working now? Who’s “smart” enough to change their positioning as prices do?


Our immediate term downside target for the SP500 remains 1018. Let the battle of Q3 2010 performance begin.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Seeing What Matters - tiger


The Macau Metro Monitor, July 1st, 2010



Many governing officials in Japan have expressed interest in building a casino as talks of a potential bill to legalize casinos this fall rev up. For example, earlier this year, the Osaka governor visited casinos in South Korea and Singapore as part of his campaign to build one in Osaka.  Also, the Chiba governor has proposed building a casino next to Narita International Airport.


There are concerns that legalizing casinos would hamper a Meiji way of life--healthy work ethic. But Katsuaki Ishii, a manager promoting the airport-area casino told Japan Real Time that the casino would only be open to foreigners so “it won’t affect Japanese.”

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.


Tomorrow, July 1, 2010.

5-10 minutes prior to the 11 AM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 328477#

To access the presentation materials, please click here.


The Hedgeye Macro Team, led by CEO Keith McCullough and Daryl Jones, will be hosting our Q3 Key Macro Themes conference call on Thursday.  As risk managers, we have helped our clients protect capital and stay ahead of global market moves across all asset classes.  


The Q3 Themes are:

  • American Austerity - As austerity measures are implemented around the world, the emerging debt and deficit issues in the U.S. will require an imminent and comparable policy response. 
  • Housing Headwinds - The domestic housing market is faced with another leg down due to a supply and demand imbalance, which will begin to play out in Q3. 
  • Bear Market Macro - Globally, there are a number of key markets that are in bearish quantitative set ups heading into Q3, which will position our tactical asset allocation.

To submit questions for the Q&A, please email .

Hedgeye Macro Team
Hedgeye Risk Management, LLC


McCarran Airport released May passenger traffic down 1.6% YoY. Taking into account an expected low slot and table hold %, we project a 5% decline in Strip.



Today, McCarran Airport in Las Vegas announced that the number of enplaned/deplaned passengers decreased 1.6% in May from last year.  We expect total Strip gaming revenue to fall around 5% on a year over year basis.  Last May, gaming revenue fell only 6.4% which was one of the better months of 2009.  In addition to the tougher (but not exactly difficult) comparison, we have heard anecdotally that MGM may have held pretty low on the tables during the month.  Moreover, slot hold percentage will look low since the last day of May fell on a holiday which means the final day's slot revenue will not have been counted which artificially lowers hold since volume is included.  This also means June will be a catch up month and show a higher than normal slot hold percentage.  In terms of volumes, we think table drop will increase 3-4% and slot handle will fall 7-8%, following the recent monthly trends.


The Strip needs to do better to justify the valuation multiple awarded MGM which seems to price in a V-shaped recovery.  At least from a revenue perspective, we don't think June will be the start of better things to come.  Despite undoubtedly higher slot hold percentage, revenues will look weak.  We do not think MGM held very well in tables in June either.


Here are the projections and McCarran trends presented in convenient and easy-to-read charts:





Bear Market: SP500 Levels, Refreshed...

The intermediate term bear market in US Equities is as bear market does – this morning’s “bounce” can’t be inspiring the bulls.


As is usually the case, the reflexive nature of the US stock market perpetuates the direction of price momentum. Across all 3 of our core Hedgeye Risk Management durations (TRADE, TREND, and TAIL), the SP500 remains broken. 

  1. TREND resistance = 1144
  2. TAIL resistance = 1091
  3. TRADE resistance = 1080 

Confirming this bearish quantitative view are bearish fundamental economic data points. This morning we had 3 that were glaringly bearish in our macro model: 

  1. MBA Mortgage Applications down another -3.3% wk/wk, bringing June to date down to the 172 level (lowest monthly levels since 1997)
  2. ADP’s June Employment report came in way light (13k versus 57k in May)
  3. II’s Bullish to Bearish Survey had no change in the bulls wk/wk and Bears only climbed to 33% from 31% last wk 

Bearish Enough, this market isn’t yet…


That’s probably why our quantitative studies are revealing another lower-low of support (1029) as of 11AM EST.


Keith R. McCullough
Chief Executive Officer


Bear Market: SP500 Levels, Refreshed...  - S P

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