Today, the ICSC chain store sales index posted its second straight decline, falling 0.5% in the latest week. Year-over-year growth moderated to 3.6%, its lowest level in five weeks.




Small businesses turned more pessimistic in July as the NFIB index fell from 90.8 to 89.9. The index has fallen for five consecutive months by a cumulative 4.7 points and puts the index below 90 for the first time since September 2010.

  • The net percent of small businesses planning to expand employment was 2%, compared with 3% in June and -1% in May.
  • Expectations for the economy to improve weakened, falling from -12% to -15% in July; this follows a sharp decline in June when expectations fell by 6%.



As earnings estimates continue to come in, Full Service continues to underperform.


THE HBM: WEN, MCD, SBUX, YUM, BWLD, TXRH, CAKE - subsectors fbr




  • WEN was reiterated Buy today by Deutsche Bank on improving brand positioning, discounted valuation, and sizeable cash position.
  • MCD was added to the Conviction Buy list at Goldman.
  • SBUX was raised to Outperform at Baird.
  • SBUX stores in New York City, at least the busy ones, have started blocking electrical outlets to discourage laptops users from taking up space for long periods of time.
  • YUM was raised to outperform at Baird.
  • On a relative basis the stock that outperformed yesterday were COSI, KKD, MCD PEET, THI, YUM, JACK and CMG.  MCD, PEET, THI and YUM stand out as being the best relative performers across multiple durations.



  • BWLD was initiated Overweight at Barclays.
  • TXRH was cut to Neutral at Baird.
  • CAKE was cut to Neutral at Baird.
  • On a relative basis the stock that outperformed yesterday were: CEC, KONA, DRI, PFCB and BOBE.  KONA and DRI stand out as being two of the best relative performers across multiple durations.



Howard Penney

Managing Director


Rory Green




The Q was decent but the real story is the outlook. A typically optimistic management team was particularly bullish about the Strip prospects.



If you believe MGM management and its positive outlook is sustainable, MGM looks like it’s going higher.  However, the better play might be BYD.  If history holds, then improving Strip results should result in locals LV growth with a lag.  Someone on the sell side has to make that connection.  The BYD analysts only have room for upgrades, the stock is at a 52 week low and cheap on an absolute and relative basis, and cash flow is accelerating – even without the assumption of a LV locals recovery.


TODAY’S S&P 500 SET-UP - August 9, 2011


Markets around the world are crashing now. We define crash as a 20% peak-to-trough decline in price, but people tend to internalize crashes versus their own expectations. Given what consensus expectations for 2011 were based on, we’re not surprised.


The list of 2011 “CRASHES– from 2011 peak price: Greece = -43.9%, Italy -34.6%, Germany -25.6%, Financials (XLF) = -29.2%, Industrials (XLI) -23.7%... and now you are seeing daily emerging market moves of -8% (Brazil yesterday) to -12% (Romania this morning).


At Hedgeye we feel that waking up begging for Bernanke to arrest gravity is not a risk management process; away from cutting his US GDP growth estimates (again) today, what can he do? Buy bonds? They go up every day!


As we look at today’s set up for the S&P 500, the range is 102 points or -4.42% downside to 1070 and 4.69% upside to 1172.


The Hedgeye models have a 3 standard deviation level of support at 1070 SPX and since 2008, 3 standard deviation moves occur frequently. Covering shorts on the down move, not busting out the gross long guns. At 1070, maybe!






THE HEDGEYE DAILY OUTLOOK - global performance


THE HEDGEYE DAILY OUTLOOK - daily sector view




  • ADVANCE/DECLINE LINE: -3608 (-1565)  
  • VOLUME: NYSE 2543.62 (+12.85%)
  • VIX:  48.00 +50.00% YTD PERFORMANCE: +170.42%
  • SPX PUT/CALL RATIO: 2.04 from 2.59 (-20.99%)


  • TED SPREAD: 23.92
  • 3-MONTH T-BILL YIELD: 0.05% +0.04%
  • 10-Year: 2.40 from 2.58    
  • YIELD CURVE: 2.13 from 2.30


  • 7:30 a.m.: NFIB Small Business, est. 89.9, prior 90.8
  • 7:45 a.m./8:55 a.m.: ICSC/Redbook weekly retail sales
  • 8:30 a.m.: Non-farm productivity, est. (-0.9%), prior 1.8%
  • 11:30 a.m. U.S. to sell $35b in 4-wk bills
  • Noon: DoE short-term energy outlook
  • 1 p.m.: U.S. to sell $32b in 3-yr notes
  • 2:15 p.m.: FOMC Rate Decision
  • 4:30 p.m.: API inventories


  • S&P cuts the AAA ratings of thousands of municipal bonds tied to the government, including housing securities and debt backed by leases
  • U.S. home values had their smallest decline in more than 4 years in 2Q, as the share of borrowers with negative equity shrunk, Zillow says
  • China’s inflation climbs 6.5% in July, the fastest pace in 3 years



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Gold Advances to Record as Equity Rout Stokes Investor Demand
  • Crude Falls to 10-Month Low in New York; Brent Dips Below $100
  • Hay Sent to China Cheaper Roiling U.S. Dairies: Freight Markets
  • Oil Supply Rises in Survey on Reserves, Imports: Energy Markets
  • Copper, Aluminum, Lead Climb on Intervention Hope After Slump
  • Commodities Slump to Eight-Month Low as Slowdown Erodes Demand
  • Rice Futures in Tokyo Jump by Daily Maximum on Radiation Fears
  • Aquila CEO Says ‘Dozens’ Are Studying Coal Acquisition
  • Copper Output in China Advances to Record as Aluminum Drops
  • Palm Oil Drops to 9-Month Low as Slowdown May Reduce Demand
  • Gold Rises to Record as U.S. Rating Cut Spurs ‘Heavy’ Buying
  • Texas Dust-Bowl Redux Spurs Record U.S. Cotton Loss, Farm Claims
  • Corn Drops to One-Week Low as ‘Gloomy Economy’ May Lower Demand



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: looking on the bright side, provided you aren't long Romania (down -12% this morning)

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: KOSPI down the most of the majors (ex HK), down -3.6% and -19.2% since MAY, proving once again that governments should just get out of way
  • China stopped going down last night - that’s as critical an indicator of support as there is in Asia; Australia stocks followed that higher
  • CHINA – the data was fine with JULY inflation data (CPI) all but assured to be the high for 2011 YTD; Chinese stocks stopped going down last night on that news and that’s the 1stmarket we buy in global equities; not Germany or USA

 THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director

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Old Men

This note was originally published at 8am on August 04, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“By 1918 everyone under the age of forty was in a bad temper with his elder…there was among the young, a curious hatred of “old men”.  The dominance of “old men” was held to be responsible for every evil known to humanity”

-George Orwell


The easiest path for an individual to take when faced with a suboptimal set of circumstances is to shift the blame, or burden, to another party.  For anyone that has been part of a team, be it a sports team or any group of people striving towards an individual goal, what sets a good team apart from a bad team is that the individuals therein do not shirk from responsibility or duty – they seek it and thrive as a result. 


Lately Keith has been constantly highlighting the (wit and) wisdom one of the great American winners of recent times – Vince Lombardi.  During a time of political and economic turmoil, the philosophies of leaders like Lombardi are far more likely to lead us out of the situation we face than those currently holding court in Washington D.C. 


“Old men” being hated in 1918 sounds quite similar to “old men” being hated in 2011.  The hatred of 2011, in my imagination, is not aimed solely at men of a certain age – I hope to become an old man one day – rather, it is aimed at men, typically old, that are stuck in old methodologies that have failed time and again. 


Rather than stopping, rethinking, reworking, and evolving, “old men” in 2011 simply press replay all the while expecting a new outcome.  Political and economic dogma is what is drawing ire among voters and market participants. 


Yesterday rumors that the most recent of the “old men” to head up the Federal Reserve in this country, Ben Bernanke, will start a fresh round of stimulus may have prevented the longest slump in performance of the Dow average since 1978; the Dow had fallen for eight consecutive days on the back of growing concern that the U.S. economy may slow further and that the $1.07 trillion in lost market value from American equities over the eight-day slump could begin to negatively impact consumer spending. 


History shows that “Old Men” in the financial industry have generally been put out to pasture by fresher, more original and adaptive players.   It is Hedgeye’s view that dogma and opacity will be exposed, real-time, in the finance world of tomorrow.  Whether it is via Twitter or another medium, the hatred of “Old Men”, and the conventions of their era, is driving the debate into the open.  In the research world, that is where Hedgeye is positioning itself.


The hedge fund industry is also changing.  It always has.  The book “More Money Than God”, by Sebastian Mallaby chronicles the history of a small group of people that shaped the hedge fund industry.  From the creator of “hedged” funds, Alfred Winslow Jones, to George Soros, the professional longevity of each character was largely defined by his ability to stop and rethink.  Jones did not adapt and so his protégés abandoned his firm upon realizing that the fund’s successes were down to them and not Jones. 


Soros, having studied the philosophy of Karl Popper at LSE in the middle of the twentieth century, held firm the belief that humans simply cannot know the truth.  He then developed this own idea of how markets work, building off the thoughts of Popper, called the Theory of Reflexivity.  The development of this theory enabled Soros to retire as a hedge fund manager with his abilities as an investor almost never questioned, nor deemed out of date, by his peers.  In terms of managing money, specifically, Soros may now be a man of a certain age but he never allowed himself to be one of the “Old Men”.


What’s clear at this point is that the bad team of “Old Men” in Washington is spending the majority of its time apportioning blame and jostling for media limelight.  The signs of Americans’ hatred for these “Old Men” are everywhere to see: consumer confidence, the stock market, 45.75 million people on food stamps (no double-dip for these folks, just one long downturn).  The number of people receiving food stamps increased 12%, year-over-year, in May 2011.  Alabama is the state that saw the largest increase at 120%.


Our troubles are causing the “Old Men” abroad to respond because it is starting to hurt other economies too.  Japan is following Switzerland in intervening in the currency markets as the currencies’ “safe haven” status could hurt their respective economies.   Europe is constantly on edge, fearful of contagion, and ready at a moment’s notice to extend further bailouts to periphery nations.


Blaming “Old Men” won’t fix any problems in the financial system, nor will it fix any problems in Washington D.C.  Leaders stepping forward to enact change for the better have to have the courage to do so. 


That is what Hedgeye is attempting to do in our small part of the world and our clients, critics, and supporters help us sustain our efforts.  Globally, governments are being overrun by dogmatic “Old Men” eager to get, and stay, in office. 


Irrespective of the performance of the S&P 500, the fortunes of Main Street America have not been improved over the past two years; some new ideas are needed.


Function in disaster; finish in style


Howard Penney

Managing Director


Old Men - foodstamps may 2011


Old Men - Virtual Portfolio

Water Crashes

“Empty your mind, be formless, shapeless – like water.”

-Bruce Lee


With stock and commodity markets around the world crashing, let’s review the two things that Fiat Fools who fundamentally believe that they can arrest economic gravity do to markets:


1.       They shorten economic cycles

2.       They amplify market volatility


So, let’s fire up La Bernank this morning and do some more of that!


C’mon. Really? Europe has its own issues to deal with, but is America that dumb? Americans didn’t stand for Fed Head Arthur Burns and President Jimmy Carter perpetuating economic stagflation in the mid 1970s, and I don’t think they will now.


Wall Street/Washington is not America.


Some asset managers may very well think that’s America. Some are already begging for Bernanke’s bazooka this morning. But they should remember a very important factor in the business of money management – they are managing other people’s money.


Like it did when they were begging for “shock and awe” rate cuts in 2008, other people’s money is crashing, again. So let’s review: 


1.   EUROPE:


A)     Greece is gone – crashed (down -43.9% since FEB 2011)

B)     Italy, crashing - MIB Index down -34.6% since FEB 2011

C)     Germany, crashing – DAX down -25.6% since May 2nd(and that’s the healthiest European economy!)


2.   USA:


A)     Financials (XLF) – crashed (down 29.2% since FEB 2011)

B)     Industrials (XLI) – crashed (down -23.7% since APR 2011)

C)     Basic Materials (XLB) – crashed (down -22.2% since APR 2011)


Now what does the end of April and early May 2011 have in common with both German and most US stocks putting in lower long-term highs versus the 2007 bubble peaks?


Ah, oui, oui, mes amis – c’est La Bernank!


Let’s not forget that April 2011 was the date whereby Ben Bernanke one-upped his own record setting precedent pace, debauched the US Dollar to all-time lows (post Nixon 1971, post Gold Standard), and held the Fed’s 1stever Global Press Conference On Money Printing.


Nice Trade… until it blew everyone up who was chasing yield.


What about the long-term TAIL risk associated with the gargantuan Fiat Fool Experiment that Bernanke’s Princeton buddy Paul Krugman encouraged the Japanese to engage in before locking themselves in the Keynesian death grip of GROWTH SLOWING?


Since 1992, Japan’s average annual GDP Growth has been 0.85%. And while that’s actually better than what Bernanke produced in Q1 of 2011 (0.36% US GDP Growth), that’s still not good.


On top of its debt and deficit problems… America, now we have a GROWTH problem. And if we think we are going to solve it by printing moneys and begging for La Bernank, we deserve to keep crashing.


Back to the Global Macro Grind


Whether we are going to thank them for making up their numbers like we do in this country or just thank them for not completely imploding their economy overnight, China – Thank you.


Last night’s Chinese economic data for July was as follows:

  1. INFLATION: CPI only up 10 bps in July to 6.5% y/y (vs. 6.4% in June)
  2. GROWTH: Industrial Production growth slowed sequentially in July to 14% y/y (vs. 15.1% in June)
  3. INVESTMENT: Fixed Assets Investment YTD growth slowed marginally in July to 25.4% y/y (vs. 25.6% in June)

I put inflation at the top of this 3-factor model because that’s really what China needs to solve for in Q3/Q4 of 2011. If they do (and we think they will), Chinese inflation growth should slow towards +5% year-over-year with GDP Growth running closer to 8%.


Chinese economic growth has been slowing for 15 months as inflation accelerated. Commodity inflation in China was perpetuated by the US Federal Reserve printing money (Global Commodities trade in US Dollars). Now we are seeing what Hedgeye has called for (a Deflating The Inflation) – and that’s a very good thing for China.


Deflating The Inflation is also a very good thing for you, The Consumer. And, in the end, instead of money printing I think 95% of Americans would take a 30% off sale at the pump than another call by Goldman to buy oil at $112/barrel (where Hedgeye said short oil – not that we keep a time stamp on these things or anything).


When it comes to calling this Globally Interconnected Market, “empty your mind, be formless, shapeless – like water.” Money printing may have very well flowed from the gushers of Academia’s Keynesian Dogma for the last few years but, as Bruce Lee reminds us: “Now water can flow or it can crash.”


“Be water, my friend.”


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $78.54-91.66, and 1070-1172, respectively. Our asset allocation in the Hedgeye Asset Allocation Model maintains a 0% position in US and European Equities and a 67% position in Cash. In the Hedgeye Portfolio, I covered shorts yesterday and will look to re-short strength today.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Water Crashes - Chart of the Day


Water Crashes - Virtual Portfolio


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