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Keith bought CCL in the Hedgeye Virtual Portfolio at $32.82.  According to his model, there is TRADE and TREND support at $32.51 and $32.19 respectively.



Carnival came out yesterday with a guarded outlook on 2012 which led to a barrage of analysts lowering estimates and price targets on the stock.  However, we believe Carnival was over-conservative in its 2012 yield forecast as outperformance from the Caribbean and Mexico should support yields in the near-term.  Our most recent Cruisers Price Matrix showed that for Q1 2012, improvements in Caribbean pricing is sustainable and robust pricing in Mexico could drive better than expected results, even in the face of difficult YoY comps.  Continued weak pricing from Southern Europe is well-known but comps ease starting mid-February and any meaningful improvement either in occupancy or pricing during Wave Season would be a positive surprise.  Carnival would also be well-positioned with lower fuel prices ahead, as forecasted by our Hedgeye Macro team.  



Shorting Religion: GLD Trade Update

Earlier this afternoon, Keith shorted the SPDR Gold Shares ETF in our Virtual Portfolio. This is on the heels of us booking a near 2% gain (vs. our Dec 14th cost basis) in the security last week.


The bull case for gold is both well-known and well-understood, as there are a great number of investors – both institutional and retail alike – who religiously believe in and consistently preach the fundamental thesis behind owning the shiny rock that is gold.


Price, however, is set at the margin – not at the absolute levels of supply and demand. To the marginal buyer or seller of this asset, the case for gold as a haven away from world reserve currency debauchery is becoming less supportive. In short, we’ve been saying that Bernake’s Box + Eurocrat Bazooka (or lack thereof in some respects) = a King Dollar breakout.


Statistically speaking, the underlying commodity itself carries an inverse correlation to the U.S. Dollar Index of r² = 0.92% on our immediate-term TRADE duration. Correlations are neither causal nor perpetual; that said, however, r-squareds in this area code do signal to us that a singular trade or set of fundamentals is driving the bulk of the price action. It is our task as risk managers to: a) have a view on the expected duration of that trade, and b) have an outlook for the slope(s) of those fundamentals.


While the long-term story behind owning gold is still very much intact (for now), our research and our multi-factor, multi-duration quantitative analysis suggested to us that the short term price outlook carries asymmetric risk to the downside. Throw in the behavioral aspect of continued investor liquidations into and through year-end and we have ourselves a short idea.


Where could we be wrong? Simple – Bernanke coming out of left field and doing more of what he’s spent his entire life learning to do and defending. As my colleague Kevin Kaiser summarizes in his recent Early Look note, economics itself is soft science that functions as an ideology for central bankers – very much akin to partisan belief system that is behind the gridlock we’ve come to expect out of Capitol Hill. We must never forget the ever-present risk that is ideology-based policy-making and the impact that has on our P&Ls.


In short, QE3 could make us very wrong on King Dollar and gold. Thankfully, we in this industry get paid a lot of money to do the work, Embrace Uncertainty, and make tough decisions every day so that our clients don’t have to.


Darius Dale

Senior Analyst


Shorting Religion: GLD Trade Update - 1

Dear Santa: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY)


So, I’m long now – waiting for Santa like a good boy – and what do I get? Another one of these 1-day rallies? C’mon Man!


Hearing from my contacts in Europe that Santa has been run over by a reindeer…


Not cool.


Across all 3 of my risk management durations, here are the lines that matter: 

  1. TAIL resistance = 1269
  2. TRADE resistance = 1251
  3. TRADE support = 1227 

In other words, 1 is now my range. It’s tighter, primarily because volatility and volume signals have retreated to the Northern Pole of risk management civilization.


Rather than whine about it, I’ll just deal with it – covering shorts down toward 1227, re-shorting rallies back up to 1251.


Dear Santa, will you get me paid if I rinse and repeat?



Keith R. McCullough
Chief Executive Officer


Dear Santa: SP500 Levels, Refreshed - SPX

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