Shorting EUR-USD

Position in Europe: Short EUR-USD (FXE)

Keith shorted the EUR-USD currency pair via the eft FXE in the Hedgeye Virtual Portfolio today with the pair trading towards the top side of our immediate term TRADE range of $1.34 - $1.39 and broken across our intermediate term TREND level of $1.39 (see chart below).


In the last two weeks the pair has seen significant swings based on the political rhetoric of Eurocrats – from those suggesting the imminent default of Greece to those stating that additional funding assistance will be provide to prevent a default. Yesterday’s news that the ECB is coordinating with the Fed, BOE, BOJ, and SNB to extend 3M dollar loans to Eurozone banks in an effort to ensure they have enough cash for the rest of the year has buoyed the pair, yet we’ll fade the news for a TRADE as we think it is but another near term filler in Europe’s sovereign and banking debt contagion "crisis". 


We’re waiting to hear if any major decisions are reached at the European Finance Ministers meeting in Poland today, including whispers of IMF chief Christine Lagarde’s Euro-TARP proposal. Trichet is due to give a speech at 8pm. We think Germany’s EFSF vote on September 29th is the main catalyst to keep front and center as it is the lynchpin for future policy decisions.


Next Thursday, on September 22nd, 2011, the Hedgeye Macro Team will be hosting a conference call to discuss the future of the Eurozone and the implications for global markets. The call will focus specifically on three topics:

  1. Review of the history and structure of the Eurozone
  2. Assessment of the current situation and imminent risks and opportunities
  3. Analysis of potential and realistic scenarios to solve the crisis in Europe

Please contact  if you do not currently subscribe to our Macro vertical and would like to attend this conference and receive the materials. 


Matthew Hedrick

Senior Analyst


Shorting EUR-USD - 1. heut




Notable macro data points, news items, and price action pertaining to the restaurant space.






Food processing stocks have been performing well over the last week, primarily due to strong price gains in PPC, which is the worst performing stock in the subsector on a one-year, year-to-date, six month, and three month duration. 


THE HBM: PPC, MCD, MSSR, DRI - subsectors




  • MCD is planning to open 25 new restaurants per year in South Africa while doubling revenue over the next four years, according to BusinessDay.



  • MSSR was rated “New Buy” at Capstone, the price target is $9.
  • DRI was on the receiving end of some high praise from Michelle Obama.  The First Lady called the company’s commitment to cut calories and sodium in its meals by 20% over a decade “a breakthrough moment in the restaurant industry”.

THE HBM: PPC, MCD, MSSR, DRI - stocks 916



Howard Penney

Managing Director



Rory Green



Food inflation is far worse in grocery stores than restaurants

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TODAY’S S&P 500 SET-UP - September 16, 2011


As we look at today’s set up for the S&P 500, the range is 34 points or -2.57% downside to 1178 and 0.24% upside to 1212.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: 1586 (1430)
  • VOLUME: NYSE 964.01 (-11.2%)
  • VIX:  31.97 -7.6% YTD PERFORMANCE: +80.11%
  • SPX PUT/CALL RATIO: 1.28 from 1.45



  • TED SPREAD: 35.02
  • 3-MONTH T-BILL YIELD: 0.0000
  • 10-Year: 2.0828 from 2.0820
  • YIELD CURVE: 1.894 form 1.893


MACRO DATA POINTS (Bloomberg Estimates):

  • 9 a.m.: Long-term TIC flows, est. $30.0b, prior $3.7b
  • 9:55 a.m.: UMichigan Confidence, est. 57.9, prior 55.7
  • Noon: Flow of funds
  • 1 p.m.: Baker Hughes rig count



  • Treasury Secretary Geithner in Poland to participate in a meeting of European government finance officials
  • Jefferson County, Ala., votes on JPMorgan settlement; if it’s rejected, county may declare what would be biggest municipal U.S. bankruptcy
  • Air France-KLM plans to order $12b worth of Boeing 787’s
  • UBS has credit rating put under review by Moody’s, citing “ongoing weaknesses in the group’s risk management and controls”
  • FDA holds meeting to get feedback on recommendations for changes to 510(k) approval process for medical devices
  • Apollo Management is likely soon to bid $22-$24 a share for 99 Cents Only, the New York Post said
  • KKR has raised more than $1b for its first fund to originate debt for takeovers
  • ITC said it will review a judge’s finding that HTC infringed two Apple patents
  • Blackstone agreed to buy Mint Hotels group for $947m
  • Goldman said it’s shutting Global Alpha fund
  • No IPOs are expected




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Crude Oil Heads for Fifth Weekly Gain in London on Europe Plan
  • Copper Rises for Second Day on Reduced European Crisis Concern
  • Corn Rises, Cutting Weekly Drop, as Lower Prices May Spur Demand
  • Freeport’s Indonesia Strike May Cut Output by 230,000 Tons
  • Sugar Declines Amid Weakening Demand; Arabica Coffee Advances
  • Gold May Fall as ECB Coordinates With Fed to Lend Banks Dollars
  • Rice Imports by Bangladesh May Miss Forecast on Output
  • Palm Oil to Climb on Soybean Oil Supply Cut, Demand, Mistry Says
  • California’s Carbon Commanding ‘Real Prices’: Energy Markets
  • Commodities May Dip to Lowest Since November: Technical Analysis
  • Rio Cuts Debt Costs Amid Record-Low Yields: Australia Credit
  • Miner’s Body Found by Emergency Workers at Flooded Welsh Pit
  • De Beers to Move Diamond Trading to Botswana From London
  • Gold May Gain on Physical Buying, Europe Concern, Survey Shows
  • BP Wins U.S. Dismissal of Some Investors’ Derivative Spill Suits
  • Silver May Drop to $38 by End of September: Technical Analysis
  • BHP, Vale, Rio ‘Cheap’ on Catastrophic Fears: Chart of the Day




THE HEDGEYE DAILY OUTLOOK - daily curreny view





THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director



Great Misunderstandings

This note was originally published at 8am on September 13, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“To be great is to be misunderstood.”

-Ralph Waldo Emerson


Great short sellers in this game have one thing in common – they know when to cover.


I was taught how to sell short by doing. That’s not to say I’m the greatest short seller since the Count of Monte Cristo either. That’s simply to say that since 1999 I have had a lot of reps.


Like in any other profession, the more you do of something the more you have an opportunity to make mistakes. It’s your mistakes that make you evolve as a Risk Manager – that’s if you choose to let them teach you.


There have been plenty of opportunities for people in this game to evolve since 2008. Evidently, some have chosen not to. According to S&P data, only 167 of over 19,000 “recommendations” by Old Wall Street’s analysts this year have been “sell.” Professionally embarrassing.


We don’t want to embarrass the competition inasmuch as we want to challenge them. We wake up early every morning with fire in our bellies and a passion to be the change we want to see in this business.


Obviously on Washington’s Wall Street there hasn’t been a lot of that going on for the last 9 months – that’s why we do what we do. We want America to start winning again. Every losing streak ends with a win. It’s time to embrace winners.


Back to Short Covering


I’ve written 2 intraday notes in Q3 of 2011 titled “Short Covering Opportunity” (one on August 8th and one yesterday). Yesterday’s call to cover shorts generated as much questioning and feedback as any time I think I have ever made a call to cover shorts since the thralls of early 2009. This is an important sentiment indicator.


Sentiment is one of the hardest things in this game to quantify. I was on multiple client calls yesterday where, ultimately, what very astute investors wanted to know was what I was “hearing” from other clients. My answer to that question is that there is no answer that is of quantifiable relevance. What any of us are “feeling” or “hearing” about markets subjects our performance to Great Misunderstandings.


As I wrote in yesterday’s Early Look, stock market fund “outflows” and “sentiment” will be the final stage for the 2011 Equities bears to navigate. What I meant by that is those who have been too bullish in 2011 will have redemptions (outflows) and forced to sell at immediate-term bottoms. All the while, quantifiable sentiment indicators will show signals of immediate-term TRADE capitulation.


Here are 3 of those:

  1. II Sentiment Survey Spread (Bulls Minus Bears) = dropped to almost a dead heat in the last week (39% Bulls, 38% Bears) and could easily move to the bearish side (more institutional investors admitting they are bearish at the bottom than bullish – it’s called career risk management into year-end) this week and next.
  2. Volatility (VIX) = immediate-term TRADE overbought yesterday at 43 and is now making a lower-high versus the August 8th Short Covering Opportunity high of VIX 48. Unless you think 2008 starts happening this week (it could!), lower-highs are what they are (bearish on the margin for volatility) and I shorted fear yesterday via a short position in the  VXX.
  3. US Stocks vs US Treasury Bonds = flagged one of their widest performance chasing divergences of the year yesterday (stocks down, bonds up) and, critically, both the UST 10-year yield hit my immediate-term downside target of 1.87% intraday at the same time that the US stock market (SP500) tested lower-lows (then stocks recovered to close at a significantly higher-low).

“Significant” is as significant does. If you are using the wrong models and/or sources to help you navigate this beast of Keynesian Economics gone bad, we’d agree that most bulge bracket sell-side desks aren’t going to be helpful at this stage of the game (unless they are making calls to fade their economist/strategist calls as they “cut estimates” at the bottom).


Remember, bottoms are processes, not points. So you need a rigorous and repeatable Global Macro risk management model that has worked in both 2008 and 2011 to know when to cover. Making the turns “off the lows” matters.


Lastly, after you take advantage of Short Covering Opportunities, you need to quickly, but patiently, get yourself back into position on defense. There are no rules against re-shorting things that you covered lower. Neither are there any Keynesian laws (yet) that prevent you from thinking quickly as you patiently pick your spots.


In Steven Pressfield’s “Gates Of FireAn Epic Novel of The Battle of Thermopylae” (I read it on the beach last week to get me fired up for Q4’s Global Macro battle), Pressfield explains the “role of an officer” in Spartan war as follows:


“He was just a man doing his job. A job whose primary attribute was self-restraint and self-composure, not for his own sake, but for those whom he led by his example.” (“Gates Of Fire, page 112)


To be great in this globally interconnected game takes passion, patience, and time. The greatest of misunderstandings is how quickly we need to evolve the risk management process before it becomes our Waterloo.


My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1801-1849, $86.03-90.51, 4890-5314, and 1141-1174, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Great Misunderstandings - Chart of the Day


Great Misunderstandings - Virtual Portfolio

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