The Macau Metro Monitor, April 11, 2011




The consortium between Bombardier Transportation and China Road and Bridge Corporation has dropped a lawsuit related to the Macau Light Rail Transit public tender.



Macau CEO Chui said the auction of two land parcels will be postponed.  He reaffirmed the building of 19,000 public housing units by next year and new measures to fight inflation if average 12-mth CPI reaches 5%.

CHART OF THE DAY: Paving Serfdom's Road in Getting More Expensive by the Day



CHART OF THE DAY: Paving Serfdom's Road in Getting More Expensive by the Day -  Chart

Serfdom's Road

“It is seldom that liberty of any kind is lost all at once.”

-David Hume


I shifted reading gears this weekend from Lincoln (“Team of Rivals”) and Bastiat (“The Law”) to Jefferson (“Undaunted Courage”) and Hayek (“The Road To Serfdom”). From a research perspective, I think it’s important to draw on history’s lessons in order to contextualize where we might be going next. While socialist leanings have impregnated our economic policies, liberty has not yet been lost.


Inasmuch as it was critical for investors to consider alternatives to Big Government Intervention strategies of the 1970s, it most certainly is now. If you didn’t know that Debauching Dollars perpetuates The Inflation, now you know.


Before I start digging into some of F.A. Hayek’s thoughts in “The Road To Serfdom”, let’s take our noses out of our text-books and consider some real-time market prices – here are some of the major week-over-week moves in Global Macro from last week:



  1. US Dollar Index = DOWN -1.3% to $74.86, closing on its YTD lows and down for 11 of the last 15 weeks.
  2. Euro = UP +1.4% to $1.44 versus the USD, closing at its YTD high after having its best quarter ever against the USD in Q12011.
  3. Canadian Dollar = UP +1.1% at $0.95 versus the USD, closing at its YTD high and remains a good way to be long Global Inflation.


  1. CRB Commodities Index (19 commodities) = UP +2.2% at 368, registering fresh weekly closing highs for the YTD (+11%)
  2. Crude Oil = UP +4.5% to $112.79/barrel, setting a new 32 month high and a new YTD high of +23.4% in 2011!
  3. Gold = UP +3.2% to $1474/oz, locking in a new all-time high – and, as we like to say at Hedgeye, all-time is a long time!

Countries (Equities)

  1. USA = DOWN -0.3% with the SP500 closing -1.1% off its February 18th, 2011 YTD closing high of 1343.
  2. China = UP +2.1% with the Shanghai Composite locking in a higher-high for 2011 YTD of +7.9%.
  3. Russia = UP +0.7% with the Russian Trading System (RTSI) moving into the #1 spot in Global Equities YTD at +19.9%.

There were obviously many other moves across global asset classes (i.e. global bond yields rising alongside inflation expectations) that mattered as well, but as a Chaos Theorist my job is to deliver you the deep simplicity of the point.


The point is correlation risk to the price of the US Dollar. That’s why I started with Currencies - because that’s where policy lives. The Inflation is an American policy. Whether The Bernank and Timmy Geithner want to be willfully blind to this or not, their monetary and fiscal policies are driving inflation through a US Dollar devaluation.


Not everyone agrees with this assessment. Not everyone likes being held accountable either. But if Americans want to tell the world with a straight face that Serfdom’s Road is the best path to prosperity – the rest of the world is just going to keep walking further and further away.


F.A. Hayek was not a fan of socialism or centrally planned economies. Neither am I. He wrote this many moons ago (1944) about “free markets”, but I think it’s worth re-reading, slowly – “the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and the responsibility of that right.”


Never mind the privilege associated with giving one currency (USD) the “reserve currency” right. Never mind one man (The Bernank) abusing that right. There are risks and responsibilities associated with all that is a “free market” to begin with. Without accepting these risks and responsibilities at face value, President Obama, you are starting to blur the lines between political and economic freedom.


The good news here is that Americans are going to have this debate about Big Government Intervention, debts, and deficits out loud for the entire world to see. If you listen to Harry Reid or John Boehner long enough, you might say that’s really bad news too – but transparency is progress – if only it reveals how ridiculously politicized our economic policies and planning have become.


Hayek’s spite for central planning was born out of watching the Germans debauch and devalue their way to hyperinflation (1920s) and new left-leaning ideas coming out of Britain in the 1930s (Keynes).


“Hayek cited the new enthusiasm for socialist planning in Britain as an example of such misguided ideas. The economists who had paved the way for these errors were members of the German Historical School, advisors to Bismarck in the last decades of the 19th century.” (Hayek, “The Road To Serfdom, page 4)


I’m not a Keynesian. I’m not an Austrian. I am Canadian American. And I am looking forward to engaging in this generational economic debate. Is America going to entrench herself in a Hamiltonian posture of federal controls? Or is America going to revive her individual freedoms embedded in a Jeffersonian resolve?


I don’t know the answers to these questions. But I do know the risk management that will be required in taking either of these paths. The path to the dollar devaluation of the Keynesian Kingdom leads to Serfdom’s Road. And while I doubt I’ll feel that personally, the 44 million Americans on food stamps who are out there fighting The Inflation policy every day, sadly, will…


My immediate-term support and resistance lines for the SP500 are now 1320 and 1339, respectively. On a week-over-week basis I drew down the Cash position in the Hedgeye Asset Allocation Model last week to 40% versus 43% in the week prior. My allocation to US Equities is now 6%.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Serfdom's Road - Chart of the Day


Serfdom's Road - Virtual Portfolio

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.

Patriot Pigs

This note was originally published at 8am on April 06, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Lincoln’s ability to retain his emotional balance in such difficult situations was rooted in an acute self awareness.”

-Doris Kearns Goodwin, Team Of Rivals


I’m still grinding through this American classic, “Team of Rivals – The Political Genius of Abraham Lincoln.” The aforementioned quote from Kearns Goodwin comes from Chapter 23 which is titled, “There’s a Man In It”, which dissects the subtleties of leadership qualities that were uniquely possessed by both Lincoln and Ulysses S. Grant.


It’s an outstanding chapter in American history to reflect upon not only because of its constitutional gravity – “give me liberty or give me death” – but because it reminds us that this country is built on the backs of American character and resolve. What you are seeing from the said-leaders of US Government today looks nothing like it. These pretending patriots remind me more of pigs at a trough than Leaders At The Front.


If Timmy Geithner wants to go moral-compass on me for writing that, bring it. My definition of leadership on the ice, at my firm, and in the community is a heck of a lot different than his, and I’ll stand up and say that to his face. YouTube the man. Watch him mimic the hand gestures of Larry Summers. Geithner doesn’t have a sense of self awareness. He is a bureaucrat - not the leader America needs on the front lines of this US Debt-Ceiling Debate.


As we predicted, the US Government Shutdown and Debt-Ceiling Debate has replaced Japan and the Middle East as top headline news. This “news” is real-time – and the entire world is watching. If we think that we can call Europeans “pigs”, point fingers at other countries for The Bernank’s inflation, and come out of this generational debate about deficits and debts smelling like a rose, think again.


So let’s rethink…


One of Bloomberg’s top headlines this morning = “Geithner Says Failure To Raise Debt Limit Would Trigger a Financial Crisis.” And, expanding upon his leadership thoughts, this is what our squirrel hunting bureaucrat had to add to the global risk management conversation:


“You will shake the basic foundations of the entire global financial system… I’m totally confident that Congress will act to avoid that… It will be inconceivable that lawmakers will not act in time…”


Well Mr. Unaware, conceive reality – this government could (and should) shutdown. During both Bush and Obama’s administrations (you advised both), you worked tirelessly at putting America’s balance sheet in this position. Shame on you for reverting to your go-to move of fear-mongering so that we can do more of what got us into this colossal disaster of fiscal sense. Shame on you Geithner. Shame on you.


I’m neither a Republican nor a Democrat. So instead of looking for an angle on me Timmy, why don’t you take a good and hard long look at what Mr. Macro Market is telling you about your Patriot Pig commentary:

  1. Dollar DOWN: Trading down for the 11th out of the last 15 weeks (and down -15% since Geithner became the head of the US Government office that is supposed to be protecting it) the US Dollar Debauchery continues to stoke The Inflation to new economic-cycle and YTD highs (CRB Commodities Index, Food, and Oil both hitting fresh highs this morning).
  2. Euro UP: After registering its best quarterly performance versus the US Dollar since the Euro’s inception in 1999, it’s hitting new YTD highs at $1.43 this morning and smoking all Patriotic Pig name callers in the US out of their holes – reminding Americans that our fiscal issues are worse than Europe’s. And that’s saying something…
  3. Short Term US Treasuries DOWN: Not that the Secretary of the US Treasury should hold himself accountable to massive percentage moves in the prices of US Treasuries, but into and out of Geithner’s fear-mongering comments, 2-year UST yields are ripping higher (up +39% since March 21st, 2011) as  US government shutdown default premiums rise alongside inflation expectations.

Of course it takes two to tango in Burning The Buck  - both a fiscal and a monetary policy central planner. Tag, Bernank and Timmy, you’re it – and either your boss (who has read Lincoln quite closely from what I hear) has “an acute self awareness” of what the American people think about finding fiscal “change we can believe in”, or he doesn’t.


As for the rest of us, Yes We Can.


The most obvious way to make money on this in 2011 has been to be long of The Inflation Policy of the US Government (short the US Dollar, and short US Treasury Bonds). But, Dear Americans and Canadians alike, please don’t confuse our profits with patriotism. There are 44,000,000 Americans on food stamps (all-time high). While a small some of us are getting paid, most of us are getting plugged.


But be careful out there levered-long traders of the risk management gridiron - being long The Inflation Policy isn’t a new idea. Hedge Fund net long exposure to commodities recently backed off its YTD high, but that was an all-time high (which is saying something given how much our industry was chasing commodity inflation in 2007-2008 as The Bernank’s “shock and awe” interest rate cuts delivered us $150/oil). All-time, is a long time…


Interestingly, but not surprisingly, that inflationary period of 2007-2008 also gave birth to the first time that US Import Prices from China were UP on a year-over-year basis. That is, the first time until now – and Americans are going to take this in more places than the pump.


For these reasons, fully loaded with the long-term causality associated with creating them (burning our currency and credibility at the stake), Mr. Geithner it’s you who may very well “trigger a financial crisis.” And, perversely, most modern day politicians of the 112th Congress are longing for more of that.


My immediate-term support and resistance lines for oil are now $106.22 and $109.78, respectively. My immediate-term support and resistance lines for the SP500 are now 1322 and 1341, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Patriot Pigs - Chart of the Day


Patriot Pigs - Virtual Portfolio


TODAY’S S&P 500 SET-UP - April 11, 2011


Over night the best performing markets are in the Middle East; Qatar and Kuwait up 1.03% and 0.88%, respectively.  The IMF is coming around to the Hedgeye view and has lowered its forecasts for economic growth in the U.S.  As we look at today’s set up for the S&P 500, the range is 19 points or -0.62% downside to 1320 and 0.82% upside to 1339.




We are on day 6 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    


THE HEDGEYE DAILY OUTLOOK - daily sector view







  • ADVANCE/DECLINE LINE: -966 (-208)  
  • VOLUME: NYSE 815.79 (-10.06%)
  • VIX:  17.87 +4.44% YTD PERFORMANCE: +0.68%
  • SPX PUT/CALL RATIO: 1.73 from 1.93 (-10.43%)




Treasuries fall as economists estimate that U.S. data will show inflation quickened and Pimco’s Bill Gross set a bet against govt. debt. 

  • TED SPREAD: 24.73 -0.250 (-1.001%)
  • 3-MONTH T-BILL YIELD: 0.04%
  • 10-Year: 3.59 from 3.58
  • YIELD CURVE: 2.76 from 2.77 



  • 11 a.m.: Export inspections (corn, soybeans, wheat)
  • 11:30 a.m.: U.S. to sell $32b 3-mo. bills, $30b 6-mo. bills
  • 12:15 p.m.: Fed’s Yellen to speak to Economic Club of New York (text, Q&A)
  • 4 p.m.: Crop progress (winter wheat, corn, cotton)



  • President Obama to deliver major speech regarding deficit reduction this week - Politico
  • NYSE Euronext board unanimously rejects NDAQ/ICE offer; reaffirms commitment to Deutsche Boerse combination
  • YouTube announces the the initial roll out of YouTube Live, which provides live streaming capablity



THE HEDGEYE DAILY OUTLOOK - daily commodity view



  • China Meat Binge Fuels Iowa-Sized Soybean Imports to Feed 689 Million Pigs
  • Copper Erases Gain as Chinese Imports Stoke Speculation Demand May Weaken
  • Gold May Slide on Sales After Rally to Record; Silver Reaches 31-Year High
  • China Copper Imports Decline 33% on Year as Demand Ebbs, Stockpiles Climb
  • Corn Advances to Highest Since June 2008 on Forecast for Shrinking Supply
  • Cocoa Climbs on Ivory Coast Fighting; Coffee Declines, Sugar Prices Gain
  • Hedge Funds Boost Bullish Bets on Grain, Soy Prices on Increased Demand
  • Nickel Demand in China Set to Grow Fastest Among Metals, Antaike's Xu Says
  • Alcoa Net May Triple as Aluminum Demand Outweighs ‘Monstrous’ Stockpiles
  • Copper Set to Climb 13% to Record, Aluminum to Advance: Technical Analysis
  • India May End Wheat, Rice Export Bans on Record Harvests, Citigroup Says
  • Milk Shipments Resume From Japan’s Ibaraki as Radiation Levels Decline
  • BHP Billiton Douses Speculation of $48.6 Billion Woodside Takeover Offer


THE HEDGEYE DAILY OUTLOOK - daily currency view



  • Europe markets are mixed on inflation concerns and the beginning of earnings season.
  • German Finance Minister Wolfgang Schaeuble said after a’meeting with EU counterparts at the weekend that it’s unclear whether Greece will need another cut in its bailout rate or a further extension of repayment terms.
  • French Industrial Production 0.4% M/m, est. +0.5% (prior +1.0%)
  • French Industrial Production 5.6% Y/y, est. +5.2% (prior +5.4%)
  • French Manufacturing Production 0.7% M/m, est. +0.7% (prior +1.8%)
  • French Manufacturing Production 7.2% Y/y, est. +6.4% (prior +6.8%)
  • Italian Industrial Production (sa) 1.4% M/m, est. +1.7% M/m (prior +1.5%)
  • Italian Industrial Production (wsa) 2.3% Y/y, est. +3.4% Y/y (prior +0.6%)
  • Italian Industrial Production (nsa) 2.3% Y/y, est. +3.9% Y/y (prior +3.8%)






  • China falls for the first time in 5 days
  • Most Asian stocks decline as oil reaches 30-month high and a 6.6-magnitude quake hits in Japan.
  • Major markets were closed before the 7.1 earthquake in Japan.
  • Japan February core machinery orders (2.3%) m/m vs cons (1.1%).
  • China Q1 trade balance ($1.02B) vs year-ago $13.91B.










Keith bought PNK in Hedgeye virtual portfolio since it hit his quantitative hurdles and we like the near term earnings outlook.



I was down in Houston for the Final Four (Huskies!) and took a trip out to Lake Charles to visit L’Auberge and the GM of the property.  L’Auberge is PNK’s largest property.  Our conclusion is that the property may be tracking well ahead of Street’s expectations in Q1 and the outlook for this year is quite promising.  L’Auberge should contribute to an estimate-beating quarter for PNK.  We'll have a full earnings preview out shortly.


We are currently at $25 million in Q1 EBITDA for the property but that number probably needs to go higher by another $2 million.  L'Auberge's Q1 should be a record quarter.  While March gaming revenues will be flattish to last year, profitability will be up handsomely due to better cost controls and lower promotional allowances.  The current GM replaced the Dan Lee hired GM and has been on the job for only 6 months.  From my visit, I’m fairly certain that we are in the early innings of significant improvement at this property. 


PNK has gained or maintained market share on a 12-month rolling basis in each property since Q4 2010.  In addition, of the regional states that have reported revenues, March has been above expectations.  We continue to like PNK and most of the regionals as we head into the Q1 earnings season.



Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.