Today’s European Data by the Charts

Positions in Europe: Short EUR-USD (FXE); Short France (EWQ)

French Risk Rising: Below we update our chart of French 5YR CDS and the spread between France’s 10YR bond yield and bunds. In both cases, we continue to see higher highs since the EUR was introduced. We remain short France via the eft EWQ in the Hedgeye Virtual Portfolio due to:

  • French debt could peak at 92.3% of GDP in 2013 (over the Reinhart &Rogoff 90% level that impedes growth), especially if the state has to take on more of the bank recapitalizations. Rough estimates suggest that France’s four largest banks need to raise over 40 Billion EUR to reach the 9% core tier 1 capital ratio.
  • A lofty schedule of debt maturities (+200 Billion EUR over next 6 months) and higher trending yields will make raising debt more expensive and put upward pressure on debt. France has the largest banking exposures to Italy of any country and has yet to significantly mark down its PIIGS paper.
  • GDP will take a hit, already revised down from 1.75% to 1% for 2012 by President Sarkozy. We think Austerity’s Bite and a prolonged effort by Eurocrats to keep the Eurozone fabric together will create an extended period of downside economic and market performance.  
  • A higher French unemployment rate (nearly 3% above Germany's) and the inability to drive economic growth through exports (like Germany) should prolong weakness in French fundamentals as stagflation takes hold into year end and in 2012.
  • A huge risk remains the downgrade of France’s AAA credit rating, including jeopardizing the EFSF, a facility that is built on its AAA credit rating to raise debt at “cheap” levels, and of which France is the second largest contributor.

Today’s European Data by the Charts - 1. g



German GDP Slowing: Like much of the Europe, we expect German growth to slow over the next 4 quarters. A look at the chart below shows that from a comparative perspective, Germany will have tough comps on a quarter-over-quarter basis for Q4 (bumping against +0.5%) and should have 4 tough quarterly comps on a year-over-year basis (circled in red below in the chart).


Further, readings from ZEW’s Economic Sentiment survey that is 6 months forward looking (yellow line in the second chart below) suggest similar downward pressure, recording a 3-year low of -55.2 in November.


Today’s European Data by the Charts - 2.g


Today’s European Data by the Charts - 3. g



UK’s Sticky Stagflation: As the chart below demonstrates, UK inflationary metrics are running high (most current reading down 20bps vs the previous month at 5.0% in Oct. Y/Y), which will further crimp growth. For the UK, a fall in energy prices could materially depress many of these readings and could be its saving grace.  


Today’s European Data by the Charts - 4. g


Matthew Hedrick

Senior Analyst

Beta's TAIL: SP500 Levels, Refreshed



It’s both impressive and scary that the SP500 is hanging out up here in no man’s land.


Impressive is as impressive does (until it doesn’t). And scary because both volume and volatility signals in my model are signaling things can unwind back down to 1237 in short order (like they did pre-open).


Across our 3 core risk management durations, here are my lines that matter most: 

  1. TAIL (resistance) = 1269
  2. TRADE (resistance) = 1254
  3. TREND (support) = 1237 

On the downside, snapping 1237 would bring on a whole host of different issues. Stay tuned on that. I’ll let the market tell me what to do when/if we get there.


In the meantime, get the US Dollar right, and we think you’ll get most things beta right.



Keith R. McCullough
Chief Executive Officer


Beta's TAIL: SP500 Levels, Refreshed - SPX

Retail Sales v Consumption

We saw a really nice 200bp Retail Sales improvement for the month of August. While there's every reason to be excited about positive signs from the consumer, there's one very important thing to keep in mind...


Over much of the past year, our model suggests that 'discretionary' consumption has been running +4-5%. We define 'discretionary' as everything that is not needed to live day to day. We build up to a personal consumption number, and back out these 'essential' spending levels. Whatever is left is our discretionary spending. 


The interesting call-out is that we're entering a 5-month period where discretionary spending is likely to be down, marking a 500-600bp sequential erosion in spending rates.


The option, of course is for the consumer to take personal savings rate towards zero again -- though leverage levels and declining home prices are likely to nip that one pretty quickly.


We're not preaching gloom and doom here. But simply that it is pretty much useless to use hindsight in forecasting what the consumer will look like six months down the road.


Retail Sales v Consumption - 11 15 2011 9 32 04 AM


Retail Sales v Consumption - 11 15 2011 9 31 21 AM

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Retail sales less autos and gas for October came in better-than-expected at +0.7% month-over-month.  Consensus was expecting a +0.2% increase from September.


Soft employment trends among young males are causing QSR chains to rethink their marketing strategies (link).





THE HBM: DNKN, MCD - subsector fbr





DNKN: Dunkin’ Donuts K-Cups did not fare well in a recent review on 


MCD: The McDonald’s PT was raised to $106 from $100 at Sterne Agee.  The firm also reiterates a Buy rating on the stock.


THE HBM: DNKN, MCD - stocks 1115



Howard Penney

Managing Director


Rory Green


DKS: Trumping Expectations


Solid results out of DKS this morning ($0.32 vs. $0.27E) reflect accelerating sales strength we’re seeing in the athletic specialty channel – good for NKE & UA and FL & FINL. Following two quarters in a row where the company came in below its comp guidance it trumped both guidance (+1%-2%) and expectations (+2%) in Q3.


Here a few callouts from Q3:

  • In addition to a reacceleration in sales on both a 1yr and 2yr, the company’s comp (+4.1%) came in above guidance is notable given its missed expectations in each of the last two quarters.
  • The composition of DKS’ comp was also impressive with Golf Galaxy up +2.4% despite others citing weakness in the category and e-commerce up +17% on a +82% comp reflecting solid acceleration in underlying 2yr trend
  • The company has posted a positive sales/inventory spread and operating margin growth for seven consecutive quarters – one of the more stable recent records of note in retail
  • Inventories up +7%, up only 0.1% per sq ft. with 19 stores opened in the qtr reflecting a healthy athletic channel – good for NKE and UA.
  • Gross margins were up +126bps reflecting continued mix improvement and strength in the channel i.e. lack of promotional activity.
  • SG&A up +7.1% was leveraged on higher sales – we expect continued leverage in Q4
  • Company raising Q4 outlook by a penny on comp guidance that looks acheivable.


Call at 10am at


Casey Flavin



DKS: Trumping Expectations - DKS CompGuid


DKS: Trumping Expectations - DKS SIGMA




TODAY’S S&P 500 SET-UP - November 15, 2011


How people get longer w/ Italy and France trading like this defies logic.  As we look at today’s set up for the S&P 500, the range is 36 points or -1.50% downside to 1233 and 1.38% upside to 1269. 




The SP500’s TAIL remains bearish (1269 resistance). With stocks down for both November and 2011 YTD again, this should not surprise anyone. Since 2007, despite the fanfare, the SP500 has been making a series of lower long-term highs as volatility makes a series of higher long-term lows.


That’s the message for long-term investors. In the shorter-term, the best October ever continues to provide a hope that another bottom is in. Our S&P Sector Studies confirm that view (for now), with 7 of 9 Sectors remaining bullish from an intermediate-term TREND perspective.


The 2 of 9 that remain in Bearish Formations (bearish TRADE, TREND, and TAIL) are the two that auger most poorly in our King Dollar Global Macro Theme  - Financials (XLF – down -18.8% YTD) and Basic Materials (XLB – down -9.4% YTD).




THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE: -1585 (-3762) 
  • VOLUME: NYSE 709.97 (-6.86%)
  • VIX:  +31.13 +3.36% YTD PERFORMANCE: +75.38%
  • SPX PUT/CALL RATIO: 1.20 from 1.48 (-19.23%)


  • TED SPREAD: 45.55
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.04 from 2.04    
  • YIELD CURVE: 1.80 from 1.80


MACRO DATA POINTS (Bloomberg Estimates):

  • US ICSC-Goldman Chain Store (12-Nov);
  • US Empire Manufacturing (Nov); consensus (1.8)
  • US PPI (Oct); consensus (0.1%)
  • US PPI ex Food & Energy (Oct); consensus +0.1%
  • US Retail Sales (Oct); consensus +0.4%
  • US Retail Sales ex Autos (Oct); consensus +0.2%
  • US Redbook Chain Store (12-Nov);
  • US Business Inventories (Sep); consensus +0.2%
  • US API Crude Inventories (11-Nov);


  • Fed's Evans speaks on dual mandate
  • Fed's Bullard speaks on economic outlook and monetary policy
  • Money may have started disappearing from MF Global customer accounts four days before company filed for bankruptcy - WSJ,




  • Sino-Forest Says Probe Refutes Muddy Waters Allegations
  • Speculators Boost Bullish Bets to Seven-Week High: Commodities
  • Hedge Funds Raise Oil Bets to Highest Since May: Energy Markets
  • Gold Declines for Second Day as Paulson Cuts Bet, Euro Weakens
  • Aussie Resisting Iron Ore Drop to Spur RBA Cut: Chart of the Day
  • China Shuts 90% of Lead-Acid Battery Plants as Prices Drop
  • Oil Falls as Europe Debt Concern Counters Shrinking U.S. Supply
  • Paulson Cuts Holding in SPDR Gold Trust; Soros Fund Has Increase
  • Sumitomo Metal’s Nickel Project in Philippines May See Delay
  • Rusal Says Up to 15% of Global Aluminum Capacity May Be Shut
  • Copper Falls for First Day in Three Amid Europe Debt Concerns
  • MF Global Overseer Has ‘Multiple’ Possible Buyers in LME Shares
  • Crude Trades Near Two-Day Low in New York; Brent Futures Gain
  • Nippon Metal, Nisshin Steel Seek to Merge Within a Year
  • Cameco Raises Hathor Bid to C$625 Million to Trump Rio Offer
  • Copper Falls in London as Traders Get More Negative: LME Preview
  • Andrew Hall’s Astenbeck Buys Uranium, Rare Earth Companies
  • Gold Declines as Dollar’s Gains Curb Demand; Paulson Cuts Bet

THE HEDGEYE DAILY OUTLOOK - daily commodity view




EURO – The only line of support of consequence that remained in our model was 1.37 and now that’s gone. Plenty of weak hands were forced to cover in the last 6 weeks. It’s a better short today than it was yesterday.


THE HEDGEYE DAILY OUTLOOK - daily currency view





FRANCE – I’ll write and say this every day until its headline news – France is a bigger problem (from here) than Italy. French banks have not marked their pig paper yet and that paper (Spain’s 12-month fiat priced at 5.02% this morning vs 3.61% last) is a Lehman-like problem. We remain short French Equities, which remain in a Bearish Formation (bearish TRADE, TREND, and TAIL).


THE HEDGEYE DAILY OUTLOOK - euro performance





INDIA – one of the big places in this world (with a lot of people) that does not cease to exist amidst the European headlines has once again snapped its last line of support (17,169 on the Sensex), leading Asian stocks lower overnight after an awful inflation report (+9.73% OCT).


THE HEDGEYE DAILY OUTLOOK - asia performance









  • Qatar Air CEO Ridicules Airbus After Shelving Aircraft Order
  • Obama Microphone Slip Shows Scary Israel Rift: Jeffrey Goldberg
  • Bahraini Body Endorses Malaysian Derivatives: Islamic Finance
  • Syria Under Pressure After Suspension by Arab League
  • Taqa Third-Quarter Net More Than Doubles on Higher Oil, Gas
  • Union Properties Reports Record Quarterly Loss as Costs Jump
  • Commercial Bank of Qatar Removed From Goldman CEEMEA Focus List
  • Saudi Arabia Said to Boost Indian Oil Exports in 2012 Contracts
  • Oil Above $200 Possible in Event of Iran Conflict, SEB Says
  • Kuwait Finance Says Management Unaware of Rajhi Stake Buy Plan
  • Premier Oil Sells U.K.’s Cladhan to Taqa, Buys Fields From Nexen
  • Gas Exporters Seek Cooperation to Raise Supply, Boost Prices
  • Qatar Shares Decline on Bets Gains Overdone, Europe Debt Concern
  • Israel Behind Deadly Iranian Blast, Source Says: Time Link
  • Airbus Postpones Qatar Accord as Al Baker Leaves Deal Dangling
  • Boeing Wins Order From Qatar Airways for Two 777 Freighters
  • Abu Dhabi Commercial Bank Said to Plan U.S. Dollar Sukuk Sale
  • Iranian Parliament to Investigate Blast at Military Base


The Hedgeye Macro Team

Howard Penney

Managing Director


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