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Dickens' Lead

“Lead on! Lead on! The night is waning fast, and its precious time to me, I know.”



The next 72 hours of our lives in the McCullough household will be some of the most magical of the year. My little girl Callie is old enough now to be aware of Santa. My son Jack, well, he’s probably already peaked at what’s in store for him.


What’s in store for all of us at Christmas time is the wonderful gift of time. Time away from the office. Time away from the screens. Time with the people we love.


When Charles Dickens published A Christmas Carol on December 19th of 1843, it was perceived to be a dark time in Britain. It was a time of hunger. It was a time of class warfare. These are the times we want to avoid.


While the “tale has been viewed by critics like T.A. Jackson and Paul Benjamin Davis as an indictment of 19thcentury industrial capitalism” (Wikipedia), I prefer the context of the economic historian James Henderson as “an attack on Malthus.” (Grand Pursuit, page 6).


Reverend Thomas Robert Malthus is well known for this fear-mongering forecasts about population declines that never came to fruition. He and Thomas Carlyle became the most recognized “political economists” of their time by capitalizing on the Hungry Forties with charlatan lines of storytelling that were not only dark, but backward looking.


Dickens embraced the idea of uncertainty as an opportunity for change. Scrooge was his metaphor for the progressive side of capitalism, illuminating the human heart as the source code for morality.


Today, while Republican and Democrat fear-mongering views about our lives falling over the precipice into the depths of another depression may have captured the headlines of those who are weak enough to believe them, I know you are all stronger than that.


Leadership, principles, and values start in your home. Lead on!


Back to the Global Macro Grind


I think most Americans have figured out this year that what the stock market does on each and every tick is not what this country runs on. It may not run on Dunkin’s stock price either, but it certainly rides into your favorite coffee shop on the purchasing power of a Dollar, every day.


The most bullish Christmas Carol I can sing to this country this weekend is that the US Dollar Index has risen from the dead. After testing a 30-year low in April of 2011, King Dollar’s ascent has already added up to a +10% gain.


Even the crown of a sheepish looking Political Economist in Chief’s head cannot take the shimmer of hope of continued currency strength away from us this weekend. And while hope is not a risk management process, it will most certainly remain the fulcrum of my daily prayers.


Ben Bernanke wants you to believe in fear so that you will accept a 0% return on your hard earned savings. He wants you to believe that the price you pay at the pump doesn’t take away from what you might be able to put in the bucket when that Salvation Army bell rings.


This is not a political attack. This is called leading from the front lines every day with a progressive idea that our political ideologues on the US economy have not had the courage to try.


By simply getting the US Federal Reserve’s Quantitative Easing out of the way and putting a governor on government spending’s slope, consider what’s happened in the last 6-9 months:


  1. US GDP Growth has risen from +0.36% in Q1 of 2011 to +1.8% in Q3
  2. US Unemployment has fallen from 9.2% to 8.6% and weekly jobless claims are now hitting YTD lows
  3. US Consumer Confidence hit a fresh 6-month high yesterday at 69.9 on the University of Michigan survey (vs 67.7 in NOV)

If I have written this 100 times in the last 6 months, I’ve beaten it onto the Wall Street 2.0 Tape (Twitter) with 10,000 tweets:


Strong Dollar = Strong US Consumption = Strong Employment


Lead on, my capitalist friends, lead on!


My immediate-term support and resistance ranges for Gold, Oil (Brent), and the SP500 are now $1, $105.95-108.11, and 1, respectively.


On behalf of my family and firm, Merry Christmas!



Keith R. McCullough
Chief Executive Officer


 Dickens' Lead - EL


Dickens' Lead - vp 12 23

The Machinery

This note was originally published at 8am on December 20, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It is the machinery of banking which makes this imbalance possible.”

-John Maynard Keynes


While I am not sure what machinery Banker of America’s Brian Moynihan uses to make his economic and risk management forecasts, I am certain that he does not use the same machines we do. We use fractal math.


I’m also confident that The Machinery of a globally interconnected marketplace of colliding risk factors is completely misunderstood by the academic source code that drives these Investment Banking Inc. estimates – classical Keynesian economics.


The Machine” is actually what the best Global Macro Risk Manager of the 2007-2011 period (Ray Dalio, who I highlighted in yesterday’s Early Look when asking the question, What’s True?) calls economic “reality” – and sometimes it bites.


It certainly has in December.


At an “Economic Outlook” (scary) conference in Charlotte, NC yesterday, the embattled CEO of BAC channeled Hedgeye by suggesting “2012 will be another year that’s  a grind in the economy.”


Notwithstanding that Moynihan is 12 months late in recognizing economic reality and its impact on Bank Of America’s cash earnings (Net Interest Margins (NIM) collapsing), we still can’t figure out how he comes up with a +2.1% US GDP estimate for 2012.


Neither can his shareholders.


On December 31, 2010, BAC’s stock price was $13.34/share. Yesterday it closed at $4.99/share. While that sounds like a weekend special on a slab of flank steak, at down -63% for the YTD,  it’s even “cheaper” than that! A value meal at Mickey D’s is going to have a tough time competing with that price (even if you adjust for a black car service taking you through the drive thru, paying for gas).


As the venerable value investor Marty Whitman reminds us, “A bargain that remains a bargain, is no bargain.”


But what does this collapse of the US money-center banks mean? Isn’t this all Europe’s fault? Or this morning, should we just Blame Canada?


With the SP500 down -3.3% for December (after being down -0.6% in November and down -11.6% from the April 2011 high where the likes of Moynihan said US GDP Growth was going to be up +3-4%), how about we blame ourselves for once?


The Machinery of the globally interconnected marketplace has not changed. Unfortunately, neither has Old Wall St. It’s time we Embrace Uncertainty in our growth and inflation assumptions and stop begging for The Bernank to “smooth” the business cycle for us or our Too Big to Bail banks are going to be sitting right back where they were 23% higher in the S&P (October 2007).


In the meantime, here’s what going on in this morning’s USA Macro Grind:

  1. SP500 is testing its only remaining line of support in our TRADE/TREND/TAIL model (TREND = 1207)
  2. US Equity Volatility continues to hold its long-term bullish TAIL line of 23.11 support
  3. The Range (of risk) in my immediate-term probability model for the SP500 is 72 points wide (manageable)
  4. US Stock Market Volumes are as dead as the trust Americans have in Big Government Intervention markets
  5. Sector Risk: Financials (XLF) led decliners yesterday and remain in a Bearish Formation (crashing -23.2% YTD)
  6. Sector Signals: Consumer Discretionary (XLY) and Consumer Staples (XLP) hold up relatively well with Strong Dollar
  7. Strong Dollar = Strong US Consumption (try it at the pump this weekend, you’ll like it)
  8. US Dollar Index is busting a move into a Bullish Formation with immediate-term upside to 81.24
  9. US Treasury Yields continue to signal that Growth Slowing will be here through Q112 (10yr = 1.85% this morning)
  10. Yield Spread (proxy for growth and US bank earnings) = +161 basis points wide, and compressing

Outside of the USA, the Top 3 Risk Management items to recognize as reality today are:

  1. Eurocrat Bazooka is more like a pepper-gun
  2. China says they are not going to implement a “large stimulus”
  3. Greece is going away

Don’t worry SocGen vacationers, I don’t mean the Greek islands and beaches – I just mean their stock and bond markets. Greece issued 3-month piggy paper at 4.68% this morning and her stock market hit a fresh YTD low at 644 on the Athex Index (down -62.4% from Q111).


I suppose that if we give Keynes a bailout do-over on the quote about The Machinery of banking, he’d have to call the money printing and piling-debt-upon-debt solution to Greece one heck of an “imbalance!”


God Bless America and the opportunity we have here to stop what we are doing. It’s time to Re-think. Re-work. Re-build.


My immediate-term support and resistance ranges for Gold, Oil (Brent), German DAX, French CAC, and the SP500 are now $1568-1614, $101.34-106.28, 5573-5807, 2905-3043, and 1193-1213, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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The Macau Metro Monitor, December 23, 2011




SJM has announced a 5-10% pay raise for next year.  The percentage of the increase is based on salaries, with employees with lower salaries getting higher raises.  All SJM workers are entitled to the salary increase.  “With the implementation of the salary increase, bonus payout, welfare optimization and new rewarding system, we express our gratitude towards our employees and enhance the team spirit and loyalty,” said Louis Ng, SJM’s director and COO.



Macau visitor arrivals totaled 2,417,765 in November 2011, rising 20.1% YoY․  Visitors from Mainland China surged by 33.2% YoY to 1,460,992 in November 2011, with the majority coming from Guangdong Province, Fujian Province and Zhejiang Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 561,070, up by 28.3%.





Singapore CPI rose 5.7% YoY in November - higher than Street estimates of 5.4%.  Excluding accommodation costs, inflation was 4.4% higher YoY.




TODAY’S S&P 500 SET-UP – December 23, 2011


On very lower volume Santa found his way back to getting the SP500 up to +0.6% for December;  US Stocks flat for November/December.  As we look at today’s set up for the S&P 500, the range is 31 points or -2.07% downside to 1228 and 0.40% upside to 1259. 











  • ADVANCE/DECLINE LINE:  1540 (+845) 
  • VOLUME: NYSE 774.60 (-6.03%)
  • VIX:  21.16 -1.26% YTD PERFORMANCE: +19.21%
  • SPX PUT/CALL RATIO: 3.06 from2.53 (+21.06%)




  • TED SPREAD: 56.87
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.97 from 1.98   
  • YIELD CURVE: 1.69 from 1.70


GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am, Durable Goods, Nov., est. 2.2% (prior -0.5% (revised))
  • 8:30am, Personal Income, Nov., est. 0.2% (prior 0.4%)
  • 8:30am, Personal Spending, Nov., est. 0.3% (prior 0.1%)
  • 10:00am, New Home Sales, Nov., est. 315k, up 2.4%, from 307k
  • France Q3 GDP +0.3% q/q vs prior +0.4%
  • France Nov producer prices +0.4% m/m vs consensus +0.1%, prior +0.5%
  • UK Nov mortgage approvals for home purchase 34,738 up +16% y/y and vs 35,196 in Oct


  • House Speaker John Boehner agreed to 2-month extension of payroll tax cut
  • NY Post names assets rumored to be in deal for Yahoo!'s Asian holdings
  • Regulators to extend deadline for comments on Volcker rule - Bloomberg
  • Unified financial market regulation in Canada may be years away - Globe and Mail
  • Motor Thailand expects normal operations to resume in mid-January - The Nation




COMMODITIES – both the CRB Index and all of its key components w/ highly inverse correlations to the USD have rallied right back up to where they should be shorted. Short Gold, Oil, Coal – take your pick. I think the Correlation Crash in commodities comes back in a hurry next week.


  • Yanzhou Coal Agrees to Buy Gloucester in A$2.1 Billion Deal
  • Fair Trade Proving Anything But to Farmers in $6 Billion Market
  • Copper Traders Most Bullish Since October on Demand: Commodities
  • Sundance Seen Doubling Money on Takeover Betting Today: Real M&A
  • China, India Rate Cuts Seen Faster Than Korea: Chart of the Day
  • India Group Seeks $7.8 Billion State Funding for Afghan Mine
  • Putin’s Oil Wins Record Premium at Europe’s Cost: Energy Markets
  • Oil Heads for Biggest Weekly Gain in Two Months on U.S. Economy
  • Mongolia Spending Glut Risks Bust on Commodity Outlook, IMF Says
  • Stocks in U.S., Europe Gain as 10-Year Treasuries, Oil Advance
  • Gold Advances as Signs of U.S. Recovery Reduce Dollar Demand
  • Barclays Metal Losses May Be Accounted For, Mediobanca Says
  • China May Buy Corn If Price Falls to $5 a Bushel, Yigu Says
  • Oil May Rise on Middle East Geopolitical Tension, Survey Shows
  • Copper Rallies for Fourth Day on Stockpiles, U.S. Jobless Data
  • Soybeans, Corn Drop as Rains May Ease South America’s Dry Spell
  • Palm Oil Set for Biggest Weekly Advance in One Year on Weather
  • Gold Drops as Jobless Claims Slow, Investors Reduce ETF Holdings
  • Yanzhou to Buy Gloucester Coal for A$700 Million, Stake in Unit
  • Gold Rebounds in London as Dollar’s Decline May Support Demand





EURO – flat on the week at 1.30 is just not good considering half a TRILLION of leverage lathered onto insolvent banks. King Dollar’s reign is fortified as the US Dollar Index holds all 3 consequential levels of support (TRADE, TREND, TAIL lines in our model), w/ the most immediate-term line of support = $79.54.












INDIA – coal in the stocking for most Asian Equity investors this week but a better than bad session overnight (it was the 1st day of the wk that China didn’t go down) with India’s Sensex flashing the negative regional divergence, closing down another -0.52% to -23.2% YTD. Fitch cuts their Asian GDP forecast – thanks for coming out, only about 6 months late. That said, Asian Growth Slowing remains reality.







  • Israel Didn’t Know High-Tech Gear Was Sent to Iran Via Denmark
  • Putin’s Oil Wins Record Premium at Europe’s Cost: Energy Markets
  • Malaysia Sukuk Rally on Jump in Banking Assets: Islamic Finance
  • Baghdad Bombings Kill at Least 57 Amid Shiite-Sunni Tensions
  • Ex-Marine’s Afghan Tour Included Rescuing Dogs Forced to Fight
  • Quiet Iraq Exit Won’t Have a Replay in Afghanistan: Noah Feldman
  • Iraq Oil Output Has Reached a 20-Year High, Shahristani Says
  • Oil to Set Record in 2012 as U.S. Dodges Slump: Energy Markets
  • Iran-Ban Threat Pushes Tanker Hiring to Record: Chart of the Day
  • Coromandel International Gains in Mumbai After Qatar Deal
  • Haaretz: Report: Israeli company sold surveillance equipment to Iran
  • EU Banks’ Retreat Creates Gap for Gulf Borrowers: Arab Credit
  • Dana Gas Slumps to Lowest on Record on Egypt Delay Report
  • Exxon Spars With Iraq Over Lack of Payment



The Hedgeye Macro Team

Howard Penney

Managing Director

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