Initial jobless claims came in at 381k versus 395k consensus and revised 404k in the week higher.


THE HBM: KNAPP, MCD, YUM, DPZ - initial claims 128





THE HBM: KNAPP, MCD, YUM, DPZ - subsector fbr





MCD: McDonald’s blew the doors off again in November with global comps of +7.4% versus StreetAccount consensus of +5.1%.  The US comps came in at +6.5% versus +4.3% consensus.  Europe’s print was +6.5% versus +4.3% consensus and APMEA posted +8.1% comparable restaurant sales growth versus +6.3% consensus.


MCD:  MCD Japan reported November comps of +8.7%.


YUM: Yum! Brands’ Analyst Day in New York yesterday showcased the impressive progress the company made in 2011.  CEO David Novak said that Yum plans to more than double its restaurants in China by 2020, when it hopes to have 9,000 across the country.


DPZ: Domino’s Pizza CEO Patrick Doyle told CNBC yesterday that the company is beginning a national online sales push.  Doyle also revealed that online orders have eclipsed phone orders.  Commodity prices for the company are also easing.





KNAPP: The Knapp Track casual dining same-store sales index gained +0.2% in November while comparable guest counts decreased -2.2%.


CBRL: Institutional Shareholder Services has recommended that Cracker Barrel shareholder vote for all of the individuals

nominated by the company’s Board of Directors for election to the Board at the company’s 12/20 AGM.  By this action, ISS rejected Biglari Holding’s nomination of Sardar Biglari.


THE HBM: KNAPP, MCD, YUM, DPZ - stocks 128



Howard Penney

Managing Director


Rory Green




TODAY’S S&P 500 SET-UP - December 8, 2011


As we look at today’s set up for the S&P 500, the range is 38 points or -2.30% downside to 1233 and 0.71% upside to 1270. 





THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE:  +172 (+155) 
  • VOLUME: NYSE 968.11 (+20.72%)
  • VIX:  28.67 +1.92% YTD PERFORMANCE: +61.52%
  • SPX PUT/CALL RATIO: 1.17 from 1.40 (-16.37%)



  • TED SPREAD: 53.49
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.02 from 2.08   
  • YIELD CURVE: 1.78 from 1.82


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Jobless claims, est. 395k (prior 402k)
  • 9:45 a.m.: Bloomberg consumer comfort, est. -49.3, (prior -50.2)
  • 10:00 a.m: Wholesale inventories, est. 0.3% (prior -0.1%)
  • 10:00 a.m: Freddie Mac mortgage
  • 10:30 a.m: EIA Natural Gas storage
  • 12:00 p.m: Flow of funds 3Q 



  • Fed Chairman Bernanke is rated favorably by 71% of investors, traders and analysts, according to a Bloomberg poll
  • European Central Bank probably will cut its base rate 25bp to 1%
  • SEC sometimes allows large investors to not play on level field – WSJ
  • SEC sometimes allows large investors to not play on level field - WSJ



  • Oil at $150 Becomes Biggest Options Bet on Iran: Energy Markets
  • Rib-Eye Beef to Tumble as Holiday Demand Peaks: Chart of the Day
  • Wheat Shredded as Near-Record Crop Boosts Reserves: Commodities
  • Japan Expands Rice-Shipment Ban as Contamination Spreads
  • Crude Oil Rises From One-Week Low Before European Debt Summit
  • Japan Gold Export Most Since ’85 as Individuals Sell Jewelry
  • Commodity Index Rebound May Be Almost Over: Technical Analysis
  • Gold May Decline as European Leaders Meet, ETP Holdings Drop
  • Petrobras’s Oil Seen Abundant With Gigantic Helicopters: Freight
  • Sino-Forest May Go Private as Martin Seeks Way Out of ‘Morass’
  • ABN Amro May Expand Commodity Loans Where BNP Sees 30% Drop
  • Policy Shift Shows China Favors Unbalanced Recovery to Slump
  • Barclays See Australian ‘Champions’ Restoring Deal Balance
  • China’s Pork Prices May Have Reached Bottom, New Hope Group Says
  • Stocks Rise Amid Optimism Over Europe Summit; Treasuries Advance
  • Vale Negotiating Price Reductions in Iron-Ore Contracts
  • Shanghai to Add Dry-Bulk, Tanker Indexes in Baltic Challenge
  • Wheat Drops as U.S. May Increase Estimate for Global Stockpiles
  • World Food Prices Fall a Fifth Month, May Be ‘Bottoming Out’

THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance




  • Oil at $150 Becomes Biggest Options Bet on Iran: Energy Markets
  • Dana Gas Drops to Two-Year Low on Debt Concern: Islamic Finance
  • Egypt’s ‘Orderly’ FX Market Is Hostage to IMF, Aid: Arab Credit
  • Dubai Denies Report on Restructuring State Company Debt
  • MIDEAST DAYBOOK: Dubai Debt; Emirates NBD Pulls Sukuk; Agility
  • Abu Dhabi Commercial Files Prospectus for $7.5 Billion Bond Plan
  • Emirates NBD May Need $2.2 Billion Provisions, Goldman Says
  • Saudi Arabia Is in No Rush to Get New OPEC Quota, Naimi Says
  • Bahrain Says Device Found After Flight From U.K. Via Dubai
  • ADIA Names Benjamin Weston as Head of Alternative Investments
  • Gulf International Bank Prices $300 Million Islamic Bond
  • Eni Unconcerned About Possible Iran Sanctions, Scaroni Says
  • Eni Can Meet Refinery Needs Without Iran Oil in Case of Ban
  • Dubai Shares Retreat Ahead of Europe Meet; Dubai Financial Drops
  • Eni Pumping 200,000 Barrels a Day Oil in Libya, CEO Scaroni Says
  • Agility Unit Sues U.S. to Lift Freeze on Military Contracts




The Hedgeye Macro Team

Howard Penney

Managing Director





Salvaging The Wreck

This note was originally published at 8am on December 05, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The world will seek the greatest possible salvage out of the wreck.”

-Irving Fisher, 1918


That’s a famous Irving Fisher quote Silvia Nasar uses to introduce Act II “Fear” in her wonderfully written economic history book – Grand Pursuit.  She starts the Act with a chapter titled “War of the Worlds” where a young John Maynard Keynes obtained a critical WWI post at the British Treasury where he became the “go to-official for inter-Allied (read American) loans.”


“The Treasury’s task was not to only achieve “maximum slaughter for minimum expense” but also to finance the war without debauching the world’s safest currency or jeopardizing Britain’s supremacy as the world’s banker.” (page 198)


This week, as Keynesian bailout politicians attempt to make history through another currency debauchery, I thought I’d use the pre and post WWI period as a reminder of how The People used to think about a currency’s credibility and purchasing power.


After the Treaty of Versaille (1919) when the Germans, Austrians, and Hungarians were saddled with reparations debt, money printing became their only option – a political Policy To Inflate (sound familiar?). The economic stagflation (then hyperinflation) that ensued throughout Europe during the 1920s may rarely be discussed by Ben Bernanke and Tim Geithner, but it will never be forgotten.


As stock market futures hope for European resolve this morning, do not forget what the Germans will never forget. Hope is not a risk management process.


Back to the Global Macro Grind


After the worst Thanksgiving week for stocks since 1932, followed by one of the best weeks for stocks in the last 3 years, this week’s “full employment and price stability” Act III by central planners should be exhilarating.


Here’s how the Global Macro calendar of catalysts looks so far:

  1. Monday: US Federal Reserve President from Chicago, Charles Evans, will speak on his short-term politicking for QE3
  2. Tuesday: my brother Ryan’s birthday
  3. Wednesday: whispers of the ECB Rate Cut decision (Thursday) should be all over the tape, weakening the Euro (again)
  4. Thursday: The Chinese report all of their economic data for November (should be weak, sequentially, across the board)
  5. Thursday/Friday: The EU Summit where central planners will struggle to explain who, precisely, is going to backstop more bailouts

To review hope/expectations: there is hope of a $100-200B bank bailout fund from the IMF that is effectively backstopped by Americans more so than it would be Germans (USA’s IMF quota is 17% and Germany’s 6%). There’s also hope that we see an Italian Job by Super Mario Draghi to backstop the EFSF bailout facility by the ECB.


Hope is not a…


Right, right, Keith. But the futures are up, so how are we supposed to chase and/or beat beta when we don’t know what these European central planners are going to do?


Good question.


As most of you know, this Globally Interconnected Game of Risk is changing. In Hedge Fund Industry 1.0 some of us could “get the call” on a big market catalyst like this, whereas today Wall Street 2.0 is struggling with a flatter playing field of who gets to know what and when.


Rather than looking for some Orange Jumpsuit Risk, I look to the currency and bond market Correlation Signals before I look to equity markets. Why? Primarily because both FX levels and bond yields have had it right for the better part of 2011.


Effectively, currencies and bond yields have been front-running stocks.

  1. FX: the EUR/USD’s TRADE and TAIL lines of resistance are $1.36 and $1.40, respectively.
  2. BONDS: the UST and European 10-year yield TRADE and TREND lines continue to confirm the same I see in the EUR/USD FX pair.

For US Treasury yields to signal that Growth Slowing is no longer going to be perpetuated by Piling-Debt-Upon-Debt, I’d need to see 10 and 30-year UST yields trade, sustainably, north of 2.12% and 3.22%, respectively.


For European Sovereign Bond yields to signal that we’re all free and clear from European bank insolvency on the order of magnitude that the likes of Lehman have never seen, I’d need to see Italian bond yields trade, sustainably south of 6%.


Salvaging The Wreck is going to take a very long-time. The greatest possible salvation we can all hope for this week is that stock markets don’t run-up too high ahead of another failed expectation on Friday.


My immediate-term support and resistance ranges for Gold, Brent Oil, France (CAC40), Italy (MIB Index), EUR/USD, and the SP500 are now $1743-1769, $109.34-111.89, 3074-3303, 14589-15769, $1.32-1.35, and 1233-1267, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Salvaging The Wreck - Chart of the Day


Salvaging The Wreck - Virtual Portfolio

Incredibly Hobbled

 “I can believe anything, provided it is quite incredible.

-Oscar Wilde 


Heading into tomorrow’s highly anticipated two-day EU Summit, Wilde’s pithy quote reminds us that Eurocrats have a tall order to impress the market with policy that will revert the direction of Europe’s 19 month-old sovereign debt and banking crisis. Below we caution that tomorrow’s results will likely disappoint investors’ expectations. Why?


If we’re right that the focus of tomorrow’s resolutions are largely centered on the topic of a fiscal union, either for the EU’s 27 countries or the Eurozone’s 17, we don’t think that the creation of another (likely bureaucratic) organization to monitor and impose budget restrictions will be the “bazooka” around which markets will see a sustained rally. Over the last decade we’ve seen the utter inefficiency of a somewhat similar program in the EU’s Stability and Growth Pact—a budget agreement issued in 1997 that limited member states to public debt (as a % of GDP) to 60% and deficit to 3%— as the majority of countries (including Germany) breached its mandates. 


Further, beyond how a “hands-on” Fiscal Union 2.0 is going to make up for the shortcomings of the Stability and Growth Pact, it’s unclear how Eurocrats will address the pressing question:  if peripheral European countries can’t grow and can’t fund themselves with rising credit spreads, and therefore can’t balance their budgets no matter how much austerity is delivered; aren’t allowed to default (Greece); and can’t individually adjust monetary policy, 1.) how do weak states get out of this vortex? and 2.) what’s the benefit to weaker states to be bound in the Eurozone?


If we take the view that major Eurocrat actors (including Merkel, Sarkozy, and Draghi) strive to preserve the fabric of the Eurozone, we believe Eurocrats largely have their hands tied as they don’t have the facilities (firepower) to adequately answer the questions above.  We estimate that European banks and the sovereigns need a funding facility to the tune of $2 to 3 Trillion (or $1.25 to 1.75T to recapitalize banks and $0.75 to 1.25T to fund future sovereign deficits) to address bailout and funding assistance needs.


Key factors that will continue to challenge issuing a “bazooka”:

1.)    The ECB, unlike the Fed, cannot print money to leverage/expand the EFSF

2.)    Merkel and ECB stand against the issuance of Eurobonds

3.)    We don’t see it in China’s interest to run in with a blank check to “save” Europe

4.)    The current EFSF has a mere €250 Billion left to address sovereign and banking concerns

5.)    The IMF only has €385 Billion in lending capabilities

6.)    Fiscal Union 2.0 will require treaty changes and a united voices across at least 17 countries


Should we not get any positive discussion on points 1-3 on Friday, which we think is highly likely, we do not expect capital markets or the EUR-USD to lift into a sustained rally (see chart below of our EUR-USD levels; we’d short any rally around $1.36 and don’t see a next material line of support until the previous low of $1.19).  It’s more probable that the ECB reiterates its ardent position that its sole mandate is price stability; Merkel says she is unwilling to see German funding costs rise; and the “value” of assets on the chopping block for the Chinese is unclear.


Under such a scenario, particularly in which there’s no talk or action specific to ECB backstop involvement or the issuance of Eurobonds, we’d expect the ECB’s secondary bond purchasing program, the Securities Market Program (SMP), to take on a larger role to fill waning demand for PIIGS paper. For context, last week the SMP bought €3.7 Billion versus €8.6 Billion in the previous week to take its total since May 2010 to €207 Billion.


Ultimately, we think this leaves the region in a tenuous position. First, the SMP is intended to only be a “temporary” program. Second, it will force the SMP to take on a much larger role to meet the demand of PIIGS issuance, or put an artificial bid that alone may not drive down sovereign yields.


More Risks on the Horizon Without ECB Support

While we view the actions of ratings agencies as lagging indicators, Monday’s move by Standard & Poor’s to place the ratings of 15 Eurozone nations on CreditWatch negative and Tuesday’s announcement that the EFSF’s AAA rating is being placed on CreditWatch negative adds one more bee in the Eurocrats’ bonnet ahead of Friday.  S&P said that ratings could be cut up to one notch for Austria, Belgium, Finland, Germany, Netherlands, Luxembourg – and by up to two notches for everyone else (France, Italy, Spain, Portugal, Ireland, Slovakia, Slovenia, Estonia, and Malta.)  (Note: Greece was spared, and Cyprus remains on negative watch.)


While S&P said it would review the ratings following the Summit, the warning portends negatively for the EFSF, a facility that is built around its AAA status. Should downgrades come to Germany and France, its main contributors at 28% and 22%, respectively, we’d expect funding costs to rise, which negates the very purpose of this facility, and once again (negatively) refocuses the eye on the undercapitalized programs to fund imbalanced sovereigns and banks. 


Expect insolvent banks in this environment to struggle to raise money on the secondary market. This will elevate risk as sovereigns are now less capable to back their struggling banks, and the EFSF is far undercapitalized. Here we think French and German banks will be critical to watch. Along those lines, the European Banking Authority will publish updated stress tests at 12pm EST today to review how much capital lenders should raise to absorb losses from Eurozone bonds. We’ll reiterate that if countries truly mark their sovereign holdings to market, we think the capital raise will need to be substantially larger than the Q2 published result of €106 Billion to reach a 9% core Tier 1 capital by mid-2012.


German Chancellor Angela Merkel said to her Parliament on Dec. 2, 2011: "Resolving the sovereign debt crisis is a process, and this process will take years." If Europe’s currency union is here to stay, beware of the lofty expectation that Friday will bring quick-fixes to years of fiscal and banking imbalances and excesses, as well as cultural differences that divert priorities as Europe will once again need to find a united voice on fiscal union.


Unfortunately, should Friday’s Summit come up short of expectations, there’s nothing currently on the calendar in terms of summits or major catalysts into year-end around which markets could get behind.  


Hobble on.


Matthew Hedrick

Senior Analyst


Incredibly Hobbled - EL EUR


Incredibly Hobbled - VP 12.8


The Macau Metro Monitor, December 8, 2011




Effective today, buyers who are not Singapore citizens or permanent residents will have to pay an additional 10% stamp duty when they buy a home, on top of the existing 1-3% in stamp duties.  Permanent residents who already own a Singapore home are now required to pay an additional stamp duty of 3% when they buy second and subsequent properties.  Citizens who purchase a third and subsequent homes will pay 3%.  "We have always had open markets and must keep them that way. However, the reality is that investment flows into our property market are now larger than before, and unlikely to recede as long as interest rates remain low," said Deputy Prime Minister and Minister of Finance Tharman Shanmugaratnam.  "The additional buyer's stamp duty should help cool investment demand, and avoid the prospect of a major, destabilising correction further down the road," he added.  

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%