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Keith McCullough: the Larry Kudlow Show

Keith McCullough, CEO at Hedgeye Risk Management, discusses the dollar and the global economy.



Keith is managing the immediate-term TRADE risk around one of our favorite shorts across all three durations covering BBBY in the Hedgeye Virtual Portfolio.

There is no change to our fundamental outlook.


Bullish TAIL: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Long Utilities (XLU), Short Russell2000 (IWM)


This melt-up scores very differently versus the ones we’d short on strength in 2011. This one is backed by our Fundamental Macro Modeling process (Growth, Inflation, Policy), with all 3 factors working in bullish favor of stocks (bearish for bonds).


As Growth Expectations rise, so will multiples people pay for US Equities. Growth Expectations should also pressure Ben Bernanke to be less dovish. Imagine the man ends up talking rate hike by Q3?


Don’t choke on your water bottle – no one else thinks he’d do that either – which is why we are thinking about it.


Across all 3 of my risk management durations, here are the lines that matter most to me right now: 

  1. Immediate-term TRADE resistance = 1325
  2. Immediate-term TRADE support = 1302
  3. Long-term TAIL support = 1267 

I’ve been saying this since the beginning of the year and I’ll say it again – the US stock market now has a Bullish TAIL.



Keith R. McCullough
Chief Executive Officer


Bullish TAIL: SP500 Levels, Refreshed - SPX

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European Banking Monitor

Positions in Europe: Short EUR-USD (FXE)


Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"


If you'd like to receive the work of the Financials team or request a trial please email .


* The Euribor/OIS Spread, our preferred measure of systemic risk in the banking industry, tightened 5 bps last week. This is a strong bullish signal in our model.  A similar trend has emerged in the TED spread, which fell by 3 basis points to 52 bps last week. Upward momentum in the TED spread is now definitively reversing. These trends are strongly positive for banking stocks as they reflate the existing European crisis discount. 


* Bank CDS in Europe saw CDS fall 20% or more.  The ECB Liquidity Recourse to the Deposit Facility made a cycle low on Wednesday at a much higher level than typical cycle lows before beginning to rise again. And the Securities Market Program bought €2.243 Billion in the week ended 1/20.



Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 5 bps to 82 bps.


European Banking Monitor - 22. OIS



ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding. The series made a higher low on Wednesday of last week but rose again to end the week at €492 Billion.  


European Banking Monitor - 222. ECB



European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 39 of the 40 reference entities. The average tightening was 9.1% and the median tightening was 16.8%.


European Banking Monitor - 22. banks



Securities Market Program – The ECB's secondary sovereign bond purchasing program bought €2.243 Billion in the week ended 1/20 versus €3.766 Billion in the week ended 1/12 to take the total program to €219.0 Billion.


European Banking Monitor - 22. smp



Matthew Hedrick

Senior Analyst


The Knapp Track numbers for December were sequentially stronger than November.


Estimated Knapp Track casual dining comparable restaurant sales grew +2.9% in December versus a final accounting period number of 0.6% (versus the prior estimate of 0.2%) in November.  The sequential change from November to December, in terms of the two-year average trend, was +50 bps.


Estimated Knapp Track casual dining comparable guest counts were 0.4% in December versus a final accounting period number of -1.6% (versus the prior estimate of -2.2%) in November.  The sequential change from November to December, in terms of the two-year average trend, was +90 bps.


While the numbers are impressive, it is important to note that there were weather- and calendar-related issues that impacted the print.  Despite that, we see this improvement in casual dining sales as somewhat expected given the improvement in employment data recently. 


Brinker is reporting before the market open tomorrow.  We remain positive on the TRADE (3 weeks or less), TREND (3 months or more) and TAIL (3 years or less) durations.



Howard Penney

Managing Director


Rory Green







Comments from CEO Keith McCullough

Paying closer attention to better than expected Global Growth in 2012 is paying off here as European crisis-mongering = rear-view:

  1. TREASURIES – the most important line left in my interconnected Global Macro model = the intermediate-term TREND line of 2.02% for 10yr US Treasury yields. The market closed right at that level on Friday and is holding it again this morning as Treasuries have their worst January start since 2003 (not a Bullish on Growth period you wanted to be short in EM or US Equities).
  2. SPREADS – whether it’s the critical ones to counterparty risk (Euribor/OIS or TED) or the Yield Spread in Treasuries, the message is the same = bullish on the margin. And it’s what happens on the margin that matters to me most. Euribor/OIS down to 82bps wide this morn = 2.5 mth low. Yield Spread (10s minus 2s) +179bps wide; 3 month high (bullish for the Financials).
  3. GOLD – wandering on up into no man’s land here (my intermediate-term TREND resistance = $1684). I have no short position, but I likely will again soon. All of the aforementioned will be very bearish for Gold (Growth + Rising 10yr rates). I need to get the Heli-Ben’s FOMC mtg out of the way Wednesday though…


SP500’s refreshed immediate-term range = 1. I still have a bullish bias on Global Equities (buy red on a correction toward 1297).





THE HBM: PNRA, YUM, KNAPP, TXRH - subsector fbr





PNRA: Panera Bread was downgraded to Market Perform from Outperform by Raymond James.


YUM: Yum Brands’ Taco Bell is rolling several new menu items including “First Meal” breakfast lineup as well as tests of healthier items to compete with more upscale competitors.





KNAPP: The Knapp Track Casual Dining Index for December came in at +2.9%.  This was the best reading from Knapp this year, and for several years, but the weather impact on last year’s December number means that the “real trend” is lower than where the reading came in for December 2011.


TXRH: Texas Roadhouse was downgraded from Outperform to Sector Perform at RBC.




RT: Ruby Tuesday is up 8.2% over the last week.





Howard Penney

Managing Director


Rory Green



the macro show

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