Initial Claims


Initial Jobless Claims came in at 402k versus survey 390k and a revised 396k the week prior.


THE HBM: GMCR, MCD, DIN - initial claims



Notes from CEO Keith McCullough


Yesterday was not a good day for me. You couldn’t have had a good day if you were having a good month.

  1. CHINA – when China started cutting in SEP 2008, they were serious about a serious slowdown in Chinese demand – this morning’s HSBC PMI print for NOV of 47.7 was awful (worst since 09) and Chinese stocks rallied less than they fell prior to the cut.
  2. ITALY – stocks look much different on the MIB index readings than they do on the DAX – so if you need to get paired off do it that way, but Italy failing at its first line of TRADE resistance (15,460) is a big problem. So is the Euro failing at 1.34 – both remain in Bearish Formations and the NOV PMI data across Europe supports the markets intermediate-term view as well
  3. DATA – plenty of it this morning – UK PMI hits 47.6 (lowest since 09), South Korean inflation rises sequentially to +4.2% NOV vs +3.6% OCT, Brazil cuts rates for the 3rd time in a row, etc – bottom line is that all of this remains much more a policy to inflate than it does equate to bare knuckled economic growth – there’s a difference – inflation slows consumption growth at $110/barrel.


Barring another central plan to blow out our industry’s hedges in the next few hours, US stocks should follow up their down NOV with a down DEC open.







THE HBM: GMCR, MCD, DIN - subsector fbr





GMCR: Green Mountain Coffee Roasters is facing a class action lawsuit being filed by purchasers of the company’s publically traded common stock.  The Action alleges that, during the Class period, certain of the defendants systematically manipulated and strategically managed the company’s revenues.


MCD: McDonald’s is running a national discount offer with Living Social.  Living Social is selling a booklet of individual vouchers for five Big Mcas and five French fries worth $26 for $13 on Thursday.  The deal will be capped at one million vouchers.





DIN: Dine Equity’s Applebee’s system-wide comparable restaurant sales were down -0.3% in the most recently reported quarter versus Chili’s company-owned comparable restaurant sales up 1.7%.  Applebee’s is now taking a value-focused approach to driving sales.  We are not confident that offering low prices for beef items will be the optimal strategy in 2012, given the likelihood that beef costs continue higher next year, but the prices are certainly compelling from a value standpoint. Details below:

  • Sizzling Double Barrel Whisky Sirloins: Two 4-ounce steaks flavored with blackened seasoning, garlic and thyme over mashed potatoes topped with red peppers, mushrooms and onions caramelized in bourbon whiskey
  • Sizzling Cajun Steak & Shrimp: A 7-ounce sirloin grilled with blackened seasoning and served over sautéed onions and red peppers, topped with blackened shrimp and Cajun gumbo with okra, with a side of red beans and rice with andouille sausage


The Sizzling line starts at $8.99, a price point company officials say has worked well as the brand strives to combine value and innovation to reverse slumping sales.


THE HBM: GMCR, MCD, DIN - stocks 12 1



Howard Penney

Managing Director


Rory Green




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Initial Claims Rise for the Second Week

The headline initial claims number rose 9k WoW to 402k (up 6k after a 3k upward revision to last week’s data).  Rolling claims rose 0.5k to 396k. On a non-seasonally-adjusted basis, reported claims fell 70k WoW to 371k for the week of Thanksgiving.


We’ve previously identified 375k – 400k as the claims range where unemployment can begin to improve. After coming in within that range for 2 weeks in a row, claims printed slightly above the 400k level. A sustained period below 400k would be meaningful for unemployment.












2-10 Spread

The 2-10 spread widened 15 bps versus last week to 182 bps as of yesterday.  The ten-year bond yield increased 15 bps to 208 bps. 






Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 


WEEKLY JOBLESS CLAIMS REVERSE - subsector performance


Joshua Steiner, CFA


Allison Kaptur



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TGT: Apparel/Grocery bifurcation


FYI, Home and hardlines still steady losers, grocery up +mid-teens on top of +MT ly. First qtr in last eight where apparel did not contribute to aggregate comp at TGT.


TGT: Apparel/Grocery bifurcation - TGT Matrix



GIL: A Hot Mess


We dubbed Gildan’s Q3 results a ‘gong show,’ which puts this mornings’ results in the category of a hot mess. It’s actually more about next year’s outlook than the quarter here. GIL isn’t likely to be the only victim, we expect other ‘cotton plays’ HBI and CRI to also see pressure as the ability to maintain selling prices to retailers comes under question.


GIL is guiding F12 down over 40% below consensus estimates next year to $1.30 from $2.26E – so much for looking cheap. With Q1 expected to come in at an EPS loss ($0.40), the company is effectively guiding Q2-Q4 13% below expectations as well.


Here are a couple other notable callouts out the press release ahead of the call:

  • “the combination of weak end-use demand and distributor destocking is projected to result in an approximate 40% decline in Gildan's unit sales volumes in the screenprint market in the first quarter.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”
  • "Short-term promotional discounting began to increase at the end of the fourth quarter, and has continued to increase in the first quarter of fiscal 2012.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”

Some specifics on projections:

  • “Selling price increases which were recently implemented in the retail market did not reflect the full pass-through of high-cost cotton. Therefore, while gross margins for retail products are continuing to be adversely affected in the first half of fiscal 2012 by the high cost of cotton, it is not currently expected that Gildan's selling prices to retailers will decline when the Company benefits from lower cotton costs in the second half of the fiscal year.”

Hedgeye Retail: Bad now, could be even worse later if prices come down as we expect, this is NOT a conservative assumption.


GIL: A Hot Mess - GIL S


Casey Flavin




The Macau Metro Monitor, December 1, 2011




Macau November gross gaming revenue totaled MOP23.058 BN (HK22.385BN, US2.88BN), up 32.9% YoY.



Average home prices in 100 Chinese cities slipped 0.3% MoM in November, the third month of a modest pullback in the face of government measures to curb an exuberant housing market.  Average home prices eased 0.2% in October and 0.03% in September on a monthly basis.

Dynamic Risk Management

This note was originally published at 8am on November 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Schumpeter’s ambition was to replace static with dynamic economic theory.”

-Sylvia Nasar


Chapter V of Nasar’s “Grand Pursuit”, Creative Destruction: Schumpeter and Economic Evolution, was my favorite. While I am not sure if it’s politically correct to say that I like to creatively destruct things, I’m not sure I care. I’m not exactly a politically correct kind of a guy.


While Joseph Schumpeter ended up becoming a compromised man of government later in life, his early days of collegiate thinking were some of the most formative in all of modern economic theory.


Shakespeare wrote that youth is ‘ambition’s ladder.’ Being left to the devices of his own commoner’s experiences (“born in a small factory town” in the Czech Republic, page 171), Schumpeter defined “creative destruction” using common sense.


Back to the Global Macro Grind


First, in order to contextualize this morning’s sharp squeeze higher across Global Equities, we need to take a step back and remind ourselves of what pricing of risk that we are bouncing from:

  1. US Dollar Index was up another +2.1% to close the week at a fresh Q4 high of $79.69 (up +9.2% from the April low)
  2. EUR/USD was down -2.2% to our immediate-term TRADE oversold line of $1.32
  3. US Stocks (SP500) were down another -4.7% week-over-week to close at a higher-YTD-low of 1158
  4. Italian, German, and French stocks were down -8.3%, -5.3%, and -4.7%, respectively (all crashing and in Bearish Formations)
  5. Asian stocks were down across the board again (Taiwan -6.2%, Australia -4.5%, Hong Kong -4.3%)
  6. CRB Commodities Index (19 commodities) was down another -2.2%
  7. Gold was down another -2.1% (in-line with the weekly US Dollar move up)
  8. Volatility (US Equities) was up another +11% to 34.47 (taking the cumulative rip in Bernanke’s “price stability” since April to +130%!)
  9. Long-term US Treasuries rose again as 10-year yields dropped to 1.96%
  10. Yield Spread (10s minus 2s) compressed by another 4 basis points week-over-week to 169bps wide

Dead cats bounce.


That would be a polite way of putting it actually. Last week was the worst week for US stocks during a Thanksgiving week since 1932 (not a good historical reference point, fyi).


In a world dominated by Keynesian policy makers perpetuating immediate to intermediate-term price moves in their respective fiat currencies, what we have left is called Correlation Risk.


The Correlation Crash (one of our 3 Global Macro Themes for Q4 alongside King Dollar and Eurocrat Bazooka) is born out of what the world’s fiat reserve currency (US Dollar) does relative to everything else.


If you get the US Dollar right, you’ll likely get mostly everything else right.


To be clear, correlations, like political careers, are not perpetual. So don’t expect this to stay with you for the rest of your born life. Just expect to have to deal with its implications in your portfolio again today.


Today’s immediate-term TRADE inverse-correlations to the US Dollar Index are as follows:

  1. US Stocks (SP500) = -0.94%
  2. European Stocks (EuroStoxx) = -0.94%
  3. Commodities (CRB Index) = -0.87%
  4. Bond Yields (UST 10yr) = -0.81%

Now if you are still using a static Marshallian or Keynesian economic model to manage risk, you’re probably not too happy with your 2011. What you should have done in the last 4 years is use this tremendous learning opportunity to evolve your risk management process into a dynamic one – a process that embraces the uncertainty associated with a Globally Interconnected Market’s last price.


Today’s uncertainty leads me toward one question – can this EUR/USD bounce extend itself this week so that the following immediate-term TRADE and TREND lines of resistance are overcome:

  1. SP500 1203 (TREND)
  2. Germany’s DAX 5893 (TREND)
  3. France’s CAC 3089 (TRADE)
  4. Italy’s MIB 15135 (TRADE)
  5. Hang Seng 19443 (TREND)
  6. Shanghai Composite 2449 (TRADE)
  7. Japan’s Nikkei 8601 (TRADE)
  8. Brent Oil $110.61 (TREND)
  9. Gold $1726 (TRADE)
  10. Copper $3.45 (TRADE)
  11. UST 10-year yield 2.12% (TRADE)
  12. EUR/USD $1.37 (TRADE)

I know. Those are a lot of lines and a lot of durations. But that’s the point about Dynamic Risk Management – its construction needs to be multi-factor and multi-duration. And its principles need to adhere to one of the greatest mathematical discoveries since relativity (Chaos Theory).


“… just as Darwin had swept aside traditional with evolutionary biology” (Grand Pursuit, page 177), I’m very comfortable climbing Schumpeter’s ladder of creative destruction on Old Wall Street this morning. Change is good.


My immediate-term support and resistance ranges for Gold, Brent Oil, France’s CAC40, and the SP500 are now $1656-1726, 104.65-109.39, 2755-3071, and 1143-1195, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dynamic Risk Management - Chart of the Day


Dynamic Risk Management - Virtual Portfolio

Daily Trading Ranges

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