Initial jobless claims came in at 401k vs expectations of 410k and last week’s revised 395k.


THE HBM: CMG, RT, PFCB - initial claims





The continuing decline in corn prices is fueling the outperformance of the food processor stocks.


THE HBM: CMG, RT, PFCB - subsector fbr





CMG: Chipotle Mexican Grill was downgraded to Market Perform by William Blair and also to Sell by Miller Tabek. 





RT: Ruby Tuesday is down 12% premarket after announcing poor 1QFY12 earnings last night.  EPS was in line with expectations at $0.05 but company-operated same-store sales decline -4.1% versus expectations of -2.1%.  The company said it now expects EPS for FY12 earnings to be 60 to 75 cents versus the street at 75 cents.  Management highlighted the “aggressive competitive promotional environment with heavy advertising levels”.   We believe EAT is causing RT some problems.





PFCB: P.F. Chang’s was downgraded to Market Perform by William Blair. 


THE HBM: CMG, RT, PFCB - stocks 106



Howard Penney

Managing Director


Rory Green



The Macau Metro Monitor, October 6, 2011




Angela Leong, Managing Director of SJM Holdings suggested that the Macau government should relax labor controls for service, hotel and retail industries to facilitate the gaming sector to employ more local talents, and to introduce sound labor policies and organize training for locals to support Macau’s future development.  She added that the lift of casino entry age to 21 will forbid some young people from working in casinos, which might be unfair to them.


In response to reports that Stanley Ho has sold all his stakes in SJM Holdings, Angela Leong said she often increased stakes in SJM, reflecting her confidence in the gaming operator and the industry. She revealed that SJM is waiting for the government's approval of its Cotai project and she expects the construction of the project to start next year.



Tourist industry insider says fewer tour groups visited Macau during National Day holiday as compared with last year due to expensive hotel rooms and higher costs of tour groups.  The cost of traveling to Macau has increased.



Over 130,000 mainland tourists border crossing were recorded by the Zhuhai authority at three ports at the Zhuhai‐Macau border on the third day of the National Day holidays.  Over 420,000 mainland tourists were on vacation in Macau in the first three days of the Golden Week holiday. 



Secretary Tam says that the government will use gaming table quota as an incentive to encourage casino operators to add non‐gaming elements. The proportion of non‐gaming elements will be taken into account when deciding the future distribution of gaming tables.


TODAY’S S&P 500 SET-UP - October 4, 2011


As we look at today’s set up for the S&P 500, the range is 73 points or -3.94% downside to 1099 and 2.44% upside to 1172






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: 1427 (633)
  • VOLUME: NYSE 1194.51 (-28%)
  • VIX:  37.81 -7.4% YTD PERFORMANCE: +113.01%
  • SPX PUT/CALL RATIO: 1.76 from 2.00 (-12%)



  • TED SPREAD: 38.36
  • 3-MONTH T-BILL YIELD: 0.00%
  • 10-Year: 1.90 from 1.89     
  • YIELD CURVE: 1.64 from 1.63


MACRO DATA POINTS (Bloomberg Estimates):

  • 8 a.m.: RBC Consumer Outlook Index,
  • 8:30 a.m.: Initial Jobless Claims, est. 410k
  • 9:45 a.m.: Bloomberg Consumer Comfort, est. -52.0
  • 10:30 a.m.: EIA natural gas
  • 11 a.m.: Fed’s Fisher speaks in Fort Worth, Texas
  • 11:30 a.m.: U.S. to sell $10b 5-day cash mgmt bills
  • U.S. announces 3-yr, 10-yr, 30-yr auction sizes



  • Former Apple CEO Steve Jobs passed away; Apple lower in European trading
  • Retailers report monthly sales; Retail Metrics sees 4.9% gain on delayed back-to-school shopping
  • BOE and ECB are both expected to leave their key interest rates unchanged; Jean Trichet presides over his final meeting
  • EC President Jose Barroso said the commission is proposing coordinated action to recapitalize banks
  • Microsoft said to be nowhere close to making a bid for Yahoo!
  • Geithner to tell House Financial Services Committee Europe debt crisis poses risk to global growth
  • HTC reports record profit on emerging markets demand
  • No IPOs expected to price today


COMMODITY/GROWTH EXPECTATION                                                                    


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • World Food Prices Fell for Third Month on Slumping Grains
  • Hermes Fund Sees Biggest Rebound in Gold, Grains: Commodities
  • Copper Advances as European Officials May Contain Debt Crisis
  • Farmland Seen Returning Up to 12% by U.S. Pensions Manager
  • Oil Rises a Second Day After U.S. Stockpile Drop, Jobs Increase
  • Corn Gains for Second Day as Informa Cuts Forecast for U.S. Crop
  • Gold Gains a Second Day as Europe Debt Woes Spur Investor Demand
  • Sugar Climbs as Lower Price May Spur Demand; Coffee Advances
  • Coffee Crop in Vietnam Region to Jump 10% as Quality Gains
  • Thailand’s Rice-Buying Plan Will Spur Economy, Yingluck Says
  • Oil’s Best See No Reversing Worst Run Since 2008: Energy Markets
  • New Hope Proves Exception to Coal Deals Returning Dust: Real M&A
  • Coal Price Signals Opportunity in Stock Plunge: Chart of the Day




THE HEDGEYE DAILY OUTLOOK - daily currency view





DAX – this move higher in German stocks is much more consequential than anything being squeezed in Asia or the US; the immediate-term TRADE line for the DAX that KM has been flagging = 5439; watch that line closely because it gives you plenty of information on what rumor is coming down the pike next. KM would not short Germany if that line holds.


EURO – interestingly, but not surprisingly, the Euro is up this morning on Barosso’s Bazooka comments (read them); problem there is timing (there is no timing!) and it will be very interesting to see if the Euro can get above a short-term line of 1.34 resistance if the Dutch vote down an expansion of the bazooka later on today.


THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director



Limiting That Risk

This note was originally published at 8am on October 03, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I spend more time discussing risk and how to limit it than how to achieve investment returns.”

-Howard Marks


At the end of 2010, Howard Marks’ Oaktree Capital Management was running $82.4B in assets under management (Wikipedia). In May of 2011, he published an excellent risk management book titled “The Most Important ThingUncommon Sense for the Thoughtful Investor.” The aforementioned quote comes from the Introduction of his book.


I haven’t finished reviewing his book, but what I can tell you about it so far is that many of Marks’ thoughts will resonate with hardcore Risk Managers. Hope is not a risk management process. Neither is targeting returns. Mr. Macro Market doesn’t owe us anything.


Those who try to simplify investing do their audience a great disservice… successful investing involved thoughtful attention to many areas simultaneously… unfortunately the limitations of language force me to take one topic at a time.” (Marks, Introduction).


At Hedgeye, we call this being:


A)     Multi-factor (Countries, Currencies, Commodities, Companies, etc.)

B)      Multi-duration (TRADE, TREND, and TAIL)


This process, as Marks would undoubtedly support, is “my own approach.” And the only way to prove it out is by executing it out loud, every day, in front of you. “Experience is what you got when you didn’t get what you wanted.” (Marks, Introduction)


Back to the Global Macro Grind


When I can, I like to start the week off with where prices and my positioning ended in the week prior. In the Hedgeye Portfolio (LONGS minus SHORTS) we are still positioned net short (8 LONGS, 9 SHORTS). In the Hedgeye Asset Allocation Model (different risk management product than the LONG/SHORT Portfolio), we maintain very low gross exposure to most things inversely correlated to US Dollars:

  1. Cash = 73% (up from 70% at the start of last week)
  2. Fixed Income = 15% (US Treasury Flattener and Corporate Bonds – FLAT and LQD)
  3. International Currencies = 12% (US Dollar – UUP)
  4. US Equities = 0%
  5. International Equities = 0%
  6. Commodities = 0%

In other words, with markets around the world making new lows, we raised Cash last week – we didn’t “invest” it. That’s what we call limiting proactively predictable risk. From a Risk Factoring perspective, if our model across Countries, Currencies, Commodities, Companies, etc. told us to do otherwise, we would have.


From a Duration Risk perspective, Global Equity and Commodity markets are virtually all broken across all 3 of our core risk management durations (TRADE, TREND, and TAIL). That’s just not good. And we don’t buy things on “valuation” until price, volume, and volatility signals confirm that the valuation we are considering implies numbers that are within the stratosphere of reasonable expectations.


Do the 3 positions we’ve allocated assets to (UUP, FLAT, and LQD) uphold reasonable expectations?

  1. US Dollar (UUP) – Yes. The US Dollar was up a monster +6% for the month of September, outperforming pretty much everything Global Macro by pretty much a country mile (US Treasuries were up +1.5-2% for the month). The USD is now in a Bullish Formation (bullish TRADE, TREND, and TAIL) and what’s bad for Greek storytelling this morning is good for US Dollars.
  2. US Treasury Flattener (FLAT) – Is the Growth Slowing trade still one of the best calls of 2011? Yep. We’ve been long a Flattener since February 2011 as a means of expressing this view and that the Yield Curve would continue to compress as the long-end of the curve chased growth expectations lower. Bernanke’s Twist only perpetuates this compression.
  3. Corporate Bonds (LQD) – American corporate cash balances are cyclically high. Agreed. But, if growth continues to slow, and FX benefits (weak USD) become headwinds (strong USD), they’ll need that cash to buy back stock (Berkshire Hathaway). So… we ladies and gentlemen of Hedgeye would prefer to own corporate bonds than stocks at these prices (unless it’s our own stock).

At a price, will Global Equities be attractive? Obviously yes. But bottoms are processes, not points. And if the most recent month, quarter, and year-to-date in 2011 have anything to say about where to next, the leading of leading indicators (US Stocks) have not started to bottom out yet:

  1. September: SP500 and Russell2000 down -7.2% and -11.4%, respectively.
  2. Q3 2011 (A): SP500 and Russell2000 down -14.3% and -22.1%, respectively.
  3. Year-to-date (2011): SP500 and Russell2000 down -10.0% and -17.8%, respectively.

If anything, the accelerating feature of these prices (on the downside) in the face of accelerating volatility (on the upside) on both the TRADE (3 weeks or less) and TREND (3 months or more) durations only heightens the risk of the US stock market maintaining its already broken long-term TAIL (1266 resistance).


Remember, “the most important thing” about Big Government Intervention in your lives is that it A) shortens economic cycles and B) amplifies market volatility. You definitely want to be focused on Limiting That Risk.


My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1538-1680, $77.47-82.19, 5098-5439, and 1113-1157, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Limiting That Risk - Chart of the Day


Limiting That Risk - Virtual Portfolio

Barroso's Bazooka

“I don’t have to be careful, I’ve got a gun.”

-Matt Groening


It’s only a matter of time before the likes of Jon Stewart and Matt Groening (creator of The Simpsons) start mocking this European Gong Show for what it has become – a gong show.


Groening made his debut in Wet Magazine in 1978 with a cartoon called “Life in Hell.” That might be a better way to describe how a money manager feels about dealing with La Bernank et Le Trichet’s concepts of Keynesian “price stability.” Today’s game of Globally Interconnected Risk is being driven by rumors of Barroso’s Bazooka.


Does Jose Manuel Barroso (President of the European Commission) have a bazooka? What’s the timing on its deployment? Who supports it? Oh the drama…


What we do know is that the IMF, ECB, EU, and Timmy Geithner are working on it, feverishly. These are the said leaders of our lives who are going to centrally plan our way to long-term prosperity. What would we do without them?


On the topic of the bazooka, this is what Geithner had to say yesterday:


Europe needs a more powerful financial backstop.”


This, of course, comes on the heels of Christine Madeleine Odette Lagarde saying she (or the 187 countries she now represents on behalf of France and The DSK at the IMF) has ze “infinite resources” to print ze ammo for Le Bazooka.


Or is it La Bazooka?


Maman, pardon mon francais, but this is what a Yale education has reduced me to. I’m now just a man with a keyboard and a tweet machine fighting the Socialists of the world who are putting another bailout gun to capitalism’s head.


Back to the Global Macro Grind


With the SP500 up +4.1% from its Monday closing low of 1099, the pain being felt in the hedge fund community is much greater than that.


You see, if you shorted the immediate-term TRADE oversold bottom (Tuesday morning) of 1078, and you’re staring down the crosshairs of the S&P Futures indicated up another 10 handles this morning, you are feeling the bazooka of the Pain Trade yourself.


Obviously whoever shorted the low instead of seeing it for what it was – a Short Covering Opportunity – does not Occupy Hedgeye as part of their risk management process. Shorting low and covering high isn’t cool.


So what do we do now?


The thing about this Barroso Bazooka is that it’s real. Weeks ago we did a 52-slide presentation outlining what the size of the bazooka could be and we’ll go over this again for clients on our Q4 Macro Themes Call next Friday (email sales@hedgeye if you want in), but here’s our headline math (slide 42): 

  1. 1.25-1.75 TRILLION Euros to Recapitalize European Banks
  2. 0.75-1.25 TRILLION Euros to Fund Future Deficits
  3. = 2-3 TRILLION Euro-TARP Bazooka 

Now, to be clear, as our Director of Research, Big Alberta, often reminds me – size matters. But there are still some other things about this bazooka to consider: 

  1. Timing – there is no timing. That’s a problem.
  2. Coordination – to deploy a bazooka that big, herding politicians of the world will be like herding cats.
  3. Markets – remain real-time. Tick tock. 

So… on with our risk management day.


Instead of sending our Senior European analyst, Matt Hedrick, back to France to pose as one of two-eggs-side-by-each on Lagarde’s breakfast meeting plate, the best we can do is let Mr. Macro Market tell us what to do.


The German DAX is breaking out above our immediate-term TRADE line of resistance (5439) again this morning. So the 1stthing we do is don’t short European Equities. Wait and watch.


The 2ndthing we do is watch the Euro/USD currency pair. If the Euro can close above $1.34, then the short squeeze in almost everything inversely-correlated to the US Dollar can continue (EUR/USD drives USD Index). If the Dutch come out intraday and vote down the size of Barosso’s Bazooka (and the Euro fails again at $1.34), there is no support all the way back down to its 2011 lows of $1.29-1.30.


In the end, like you are seeing with US money-center banks post the 2008 Geithner/Paulson TARP1 Bazooka, there will be an end … and piling more short-term debt-upon-debt on insolvent banks and their incompetent political advisors will end badly. Very badly.


But, back to the immediate-term, if you’re not the one with the gun – things can end badly for the pig-headed short seller too.


My immediate-term support and resistance ranged for Gold, Oil, the German DAX, and the SP500 are now $1, $75.86-84.59, 5, and 1099-1172, respectively. On Tuesday morning, I cut our Cash position from 73% down to 67%, taking our asset allocation to US Equities up to 6% (versus 0% at this time last week).


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Barroso's Bazooka - Chart of the Day


Barroso's Bazooka - Virtual Portfolio

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