CHART OF THE DAY: Practitioners vs Professors


CHART OF THE DAY: Practitioners vs Professors - Chart of the Day

Practitioners vs Professors

“Policy is the name we give to our future mistakes.”

-Henry Wallich


The late Henry Wallich (1988) was an economist, central banker, and Yale professor. He served under Eisenhower and was also a prolific columnist for Newsweek who was well known for his ability to connect with the common American citizen. He was accountable and accessible.


Yale University hosted a “Panel Discussion on the US Economy - How Do We Create More Jobs” last week that caught a lot of us in the ranks of Yale Alumni off guard. It wasn’t so much Yale’s esteemed James Tobin Professor of Economics, John Geanakoplos, suggesting that we “try inflation as a policy” that would have Wallich rolling over in his grave, as it was the glaring amount of partisanship on the panel.


To challenge the Yale Economics Department formally to a debate would be challenging the perceived wisdoms of Big Government Interventions and Keynesian Economics on their merits – so I will.


For those of you who have not already seen this Panel Discussion, here’s he link (  and my notes:


1.   Richard Levin - opens by saying “we did not stimulate enough”…  and goes on to suggest the US government should have acted as boldly as the Chinese did (which is interesting in and of itself, given that’s not a democracy). Levin thinks it’s “simple” - if we spent even more tax payer moneys, we’d have been fine. This is the Paul Krugman school of thought. Period.


2.   William Nordhaus – says the word “occupy” is the wrong word – he thinks it sounds like the “West Bank.” In terms of “substance”, he says “even if they are right”, it won’t work unless they have “well defined policies” (again assuming that all Americans think more policy is the answer to America’s problems, as opposed to less).


Nordhaus, like Levin, thinks Obama is right and we need a “jobs bill times 3” and “need to stop attacking the Federal Reserve.” He states plainly that any other idea is “partisan” (implicating himself as partisan). He addressed trivial points like the Gold Standard saying “give me a break … come on over to econ 122 and we’ll have a discussion.”


3.   Robert Shiller – starts by saying “every crisis is an opportunity… I have written 4 books… and now I have 10 minutes to talk”… “I think we should be improving our financial markets by democratizing and humanizing” (through Dodd-Frank type reforms – i.e. more policy)…


On the Jobs Bill (that was filibustered), I like to focus on “all the good things that were in that bill… building bridges and highways, hiring teachers and policemen, etc… but it seems to have a budgetary problem… in that it would raise the national debt”… “especially in times like this when we are in near depression- we need a balanced budget multiplier” (a Paul Samuelson theory from the 1940s)


4.   Aleh Tsyvinski – clearly the outlier – younger and more globally oriented in his macro thoughts (refreshing). Said what worries him in general is the “short-term focus on today’s crisis” as opposed to focusing on the “longer-term context” of large Keynesian experiments like Japan. “I am afraid we are on the verge of something much bigger and problematic in terms of long-term US economic growth.”


“Part of our employment problem has to do with the failure of policy… the theory of the multiplier effect didn’t work…” Says a lot of what we’re focusing on creating with policy could make the US economy look like Europe – slow growth, higher unemployment. “They put a lot pressure on politicians to act… but the overall objective should be long-term economic growth.”


5.   John Geanakoplos – “the occupy wall st movement will be a prelude to bigger riots”… Yale campus was in riots in 1, “when I was here in 1975, we missed the revolution… but we may have another chance!”


He wants to build bridges and allow for principal forgiveness (mortgages) – but he doesn’t want to just triple the size of the spend – he wants to “plan” for it. “Most economists didn’t predict any of this… the fact is that they got it all wrong…” … “so there’s something wrong… there’s something missing from our macro economics and our federal reserve process because they don’t focus on leverage…”




Levin summarized the panel’s ideas as follows: A) short term problem = full employment B) short term problem = housing C) long-term problem = economic growth. And we can solve for all of these with MORE of what didn’t work! Short-term, focus on infrastructure and “double down.” Short-term, focus on mortgage forgiveness. Long-term we need a balanced budget (which you cannot do if you do A and B) and raise taxes.




I think my daily strategy notes for the last 4 years and, more importantly, accurate forecasts in calling the last 2 major Growth Slowdowns (2008 and 2011) serve as ample repudiation of Keynesian Economics. That said, I think the most transparent and accountable way to have a rebuttal to all of the aforementioned academic dogmas gone bad is to have an open public debate.


There are 9 Yale grads on my team who would love an opportunity to explain how some of our undergrad “economics” teachings have failed our country in the real world. We can call the debate “Practitioners versus Professors” and I think anyone who’d like to find room to occupy a bi-partisan debate in their thought process will come out smarter having heard both sides.


My immediate-term support and resistance ranges for the Gold (back above its TREND line this morning), Oil (failing at its TREND line of $89.18), the German DAX, and the SP500 are now $1, $84.18-89.18, 5811-6192, and 1179-1242, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Practitioners vs Professors - Chart of the Day


Practitioners vs Professors - Virtual Portfolio




TODAY’S S&P 500 SET-UP - October 17, 2011


It should be as hard to sell/short this morning as it was to buy/cover on October 4th– every market (countries, currencies, commodities, etc) in Global Macro is now bullish TRADE; bearish TREND, making this a very tough spot not to cover.  Coming out of the G20 meetings this weekend, they loosely set everyone up for a bazooka event being timed for the October 23rdEU Summit meeting (Asia ripped last night on this and it’s been the #1 headline on Bloomberg since), but…


As we look at today’s set up for the S&P 500, the range is 63 points or -3.72% downside to 1179 and 1.42% upside to 1242






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: 2306 (+2703) 
  • VOLUME: NYSE 847.19 (-5.71%)
  • VIX:  28.24 -8.01% YTD PERFORMANCE: +59.10%
  • SPX PUT/CALL RATIO: 1.71 from 1.40 (+22.22%)


  • TED SPREAD: 38.95
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.26 from 2.19     
  • YIELD CURVE: 1.98 from 1.90


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Empire Manufacturing, est. (-4.00)
  • 9:15 a.m.: Industrial production, est. 0.2%
  • 9:15 a.m.: Capacity utilization, est. 77.5%
  • 11:30 a.m.: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 7:30 p.m.: Fed’s Lacker speak on economy in Maryland
  • 8 p.m.: Fed’s Evans speaks in Detroit


  • Kinder Morgan agreed to purchase El Paso in a $21b cash-and- stock deal; watch other natural gas cos.
  • BP reached settlement with Anadarko Petroleum on all claims related to Deepwater Horizon accident in Gulf of Mexico
  • EU Economic and Monetary Affairs Commissioner Olli Rehn said clarity on plan to contain region’s debt crisis will emerge in “coming days”
  • Sales data for Apple’s iPhone 4S possible; note Apple will release quarterly earnings tomorrow


COMMODITY/GROWTH EXPECTATION                                                                    


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • BP Says Anadarko to Pay $4 Billion to Settle Gulf Spill Claims
  • Hedge Funds Add to Wagers in Biggest Rally of 2011: Commodities
  • China Growth May Top 9% as Global Slump Poses ‘Biggest Risk’
  • Rio Tinto to Sell 13 Aluminum Assets in Australia, U.S., Europe
  • Oil Gains After Europe Pledges Debt Strategy; Bullish Bets Rise
  • Hedge Funds Raise Bullish Bets as Oil Rises $10: Energy Markets
  • Gold May Climb for Second Day With Equities on Europe Optimism
  • Copper Rises for Second Day as European Crisis May Be Contained
  • Fortescue Boosts Ore Shipments 21% to Meet Chinese Demand
  • Freeport Shuts Grasberg Mine After Blockade, Fatal Shooting
  • China Steel Prices, at 10-Month Low, May Trigger Output Cuts
  • Oil Trades Near Highest in a Month on Europe Debt Rescue Efforts
  • Gold Gains to 3-Week High on Europe Concern, Commodities Rally
  • Corn, Wheat Rise for Second Day on Stronger U.S. Export Sales
  • Copper Drops in London, Reversing Earlier Gains
  • Palm Oil Advances to Three-Week High as Europe May Avert Crisis
  • Rubber Climbs to Three-Week High After G-20, Thai Flood Concerns
  •  Floods May Damage 3.5 Million Tons of Thai Rice, Group Says



THE HEDGEYE DAILY OUTLOOK - daily currency view





GERMANY – Schaeuble (Finance Minister of Germany who carries the big stick) just hit the wires saying he doesn’t expect to have a bazooka solution by the 23rd – that’s a big timing problem – and one that I think will be ongoing (can send you replay/podcast if the call we did on this Friday if you need details). Timing matters, big time; especially with TREND lines broken


THE HEDGEYE DAILY OUTLOOK - euro performance





SINGAPORE – stealth number that the manic media hasn’t even mentioned this morning, but Singapore put up a bomb of an export (non-oil) number for SEP at down -4.5% y/y (vs +3.9% in AUG, which was too low to begin with). Singapore is the trusted Chinese advisor and all market signals are saying China’s SEP numbers (tonight) could be bad


THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

Early Look

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The Knapp Track report for September shows a sequential improvement in casual dining trends from August.


Estimated Knapp Track casual dining comparable restaurant sales grew +2.0% in September versus a final accounting period number of +0.4% (versus the prior estimate of +0.1% with negative weather impact of 60 bps) in August and +1.2% in September 2010.  The sequential increase from August to September, in terms of the two-year average trend, was 130 basis points. 


Estimated comparable guest counts were flat in September versus an August number of -1.0% and -1.4% in September 2010.  The sequential increase from August to September, in terms of the two-year average trend, was 110 basis points.


While the September Knapp Track numbers were stronger than we had anticipated, there are a number of factors worth noting.  Firstly, as Malcolm Knapp notes in the text of his report, the accounting number for the month of September will be “a bit lower” than the weekly estimate because, the report states, some concepts will include the last week in August in their September accounting results.  The first week of September benefitted from a rebound in comparable sales following Hurricane Irene as electricity grids were down and homes were flooded. 


One additional factor in September was the decline in gasoline prices.  Clarence Otis, CEO of Darden Restaurants, highlighted elevated gasoline prices as a major headwind for casual dining during DRI’s 4QFY11 earnings call on July 1st.  As the chart below shows, gas prices were extremely high during the second calendar quarter, peaking in May.  We believe that the significant fall-off in gas prices aided casual dining sales in September. 







All in all the Knapp data points are positive for casual dining stocks, on the margin.  We are not positive on casual dining stocks generally as we head through 4Q given the poor jobs outlook and poor consumer confidence levels.  EAT remains our favorite stock in the space.  We are negative on BWLD and TXRH.



Howard Penney

Managing Director


Rory Green



Fragile America

This note was originally published October 14, 2011 at 07:48am ET


“Mickey Mantle forced us to grow up and see the world as it is, not as we wished it to be.”

-Bob Costas


In one of the more personally introspective books I have read in 2011, that’s how Jane Leavy ends it in “The Last BoyMickey Mantle and the End of America’s Childhood.”


After an 18-year hall of fame career with the New York Yankees (playing in 16 All-Star Games and 12 World Series), Mantle became a missing in action father and husband who effectively drank himself to death by the time he was 64 years old. Everyone in his life could see it coming – no one had the spine to stop him from doing it to himself. The can was kicked.


The aforementioned thought Bob Costas delivered during Mantle’s eulogy was as honest as it was sad. He called Mantle a “fragile hero” (page 382). If that isn’t a metaphor for America’s stock market on this morning in October of 2011, I don’t know what is…


Occupying Old Wall Street


So far, I’ve left Hedgeye’s coverage of this generational protest to my defense partner, Daryl Jones, who is downtown surveying the NYC occupiers this morning. In Mantle’s 1960’s playing days, they called them protesters.


Earlier this week, after strapping on his jeans and mingling with the occupiers in Boston, Hedgeye’s Todd Jordan said the protesters ran the gamut from “end the bailouts” to far left hot points:  environment, war, Che Guevara, etc…


That’s a lot.


I’m not a big fan of judging people and their protests unless I spend enough time to fully understand them. My Dad was a Fire Chief; my Mom a French school principal; and I’m supposed to be whatever people want to call me today. But I’m not an expert on humanity.


I don’t support losers. What I support is progressive change. And no matter how leaderless or hippie these protesters appear on the surface, I think there’s an American Zeitgeist here that’s playing out far away from anything you’ll see today on TV – in silence.


Abraham Lincoln wasn’t a member of PETA, but this is what he said about leadership:


“To sin by silence when they should protest makes cowards of men.”


And, forgetting all of what you think about who is a nut-bar, always remember that someone probably thinks you have a few screws loose too. I think starting my firm is an explicit protest against the opacity and self handed dealings of Old Wall Street. I don’t need to analyze someone who is sleeping on a cardboard box with dreads to tell me what I think about that.


I have no confidence that Occupy Wall Street will find a leader today, but I have even less confidence that Old Wall Street will. That’s pathetic and sad.


At 910AM, our profession will be waiting with baited breath on Timmy Geithner telling us what he’s been groomed to do for 47% of his born life in US Government - bailout banks.


That’s not leadership. The Bailout Bazooka only quenches America’s stock market thirst for another stiff drink. We have a problem – a very big one. And, sadly, it might take another crash to correct it once and for all.


Back to the Global Macro Grind


Yesterday, an up and coming Fed President in Minnesota by the name of Kocherlakota said that “the public will begin to doubt the Fed’s claims about its goals.”


Ya think?


That’s what we should be protesting in this country. The US Federal Reserve and its Keynesian ideologies have failed America on its 2 Congressional mandates – full employment and price stability.


I’ll be going through what I think the solution to this mess is on our Q4 Macro Themes conference call at 11AM EST today (email if you’d like to participate).


Fundamentally, I believe in what both Reagan and Clinton had fits and starts of realizing – a strong US Dollar strengthens American confidence, buying power, and employment.


I don’t believe that because some global warming quack is occupying this morning. I believe that because the data proves that – in the Hedgeye Chart of The Day today a picture tells a thousand words (US Dollar overlay with US Employment back to 1971 when Nixon abandoned the Gold Standard).


Americans aren’t as stupid as our monetary and fiscal policies have been during both Bush and Obama administrations. Like Nixon and Carter, the one thing that Bush Republicans and Obama Democrats have in common is a Keynesian running the US Federal Reserve.


There’s a reason why the name Arthur Burns isn’t remembered by history well. He was the modern day Ben Bernanke throughout the 1970s (minus the Princeton Depression Fear-Mongering thing). Burns and Bernanke are the only Fed heads to A) monetize the US Debt and B) devalue the currency, at the same time.


If Romney or Obama want to win the election, here’s the Hedgeye Political Strategy one-liner – “It’s The Policy, Stupid.”


As the Eurocrats are encouraged by Geithner and his cronies at Investment Banking Inc. to print the biggest bailout in world history this weekend in Paris, it’s no longer time to get hammered on Keynesian Kool-Aid and keep binging on our debt addictions.


It’s time to see the world as it is, not the way the conflicted and compromised are begging for it to be.


My immediate-term support and resistance ranges for Gold, Oil, the German DAX, and the SP500 are now $1657-1689, $84.29-89.10, 5733-6218, and 1170-1225, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fragile America - 11


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