Dollar Debauchery

“The current international currency system is the product of the past.”

-Chinese President Hu Jintao, January 2011


If Ben S. Bernanke thinks that he can continue to debauch the US Dollar and the rest of the world is going to say nothing this time, that will be different.


In James Rickards chapter titled “Prewar” of Currency Wars, he uses the aforementioned Chinese quote. It’s a year old now, but the East versus West policy waters are starting to boil. Since Commodity Inflation Slows Global Growth, many sharp minds are figuring this out.


Whether it’s the Reinhart & Rogoff Op-ed for Bloomberg this morning that tells the Fed to “stop moving the goal posts”, or it’s China’s Central Bank Governor Zhou telling the Fed it has a “responsibility to consider the global effects” of devaluing the world’s reserve currency, the battle lines are being drawn. Bernanke’s War is on.


Back to the Global Macro Grind


It’s really easy for US centric stock market investors to not see what’s going on across the rest of the world right now. It requires a repeatable and globally interconnected Macro process to absorb all of the world’s real-time data. Few on the Old Wall have one. Even fewer Washington “economists” and “strategists” even know what that means.


Got un-awareness? In Currency Wars, Rickards hammers my point home in telling his story about a war games exercise he took part in that was sponsored by the Department of Defense: “I noticed the absence of representatives with any actual capital markets experience… we needed people who, in the immortal words of John Gutfreund, were “ready to bite the ass off of a bear”…” (page 9)


To be clear, I’d much rather dance with a bear than bite one.


Altogether though this is a very serious point that needs to be crystal clear in the minds of any American Patriot who regards the credibility of his or her currency as something worth fighting for. Cheering on a market that moves like it did yesterday (Down Dollar = Up Oil and Energy stocks) is effectively asking for $5 bucks at the pump come Memorial Day weekend.


Taking a step back to Bernanke’s Dollar Debauchery Decision of 2012 (January 25th when, despite running 3% US GDP growth in Q4, he pushed the 0% rate of return on American Savings accounts to 2014), here are the 60-day correlations to the US Dollar Index:

  1. SP500 = -0.47
  2. EuroStoxx600 = -0.70
  3. MSCI EM Index = -0.72
  4. CRB Commodities Index = -0.47
  5. CRB Raw Industrials Index = -0.74
  6. CRB Food Index = -0.41

In other words, no matter what you think about correlation versus causality (I think the relationship between a country’s monetary policy and currency valuation is very causal), these are highly correlated moves.


Now, Bernanke or his banker buddy at the NY Fed, Bill Dudley (who also takes car service to work), might tell you to go eat an iPad or stick some natural gas in your tank – and like it. But the rest of the world doesn’t get paid that way.


The people who get paid are the few of us who have figured out that this Policy To Inflate is something to be long, until that very moment when it becomes obvious to everyone else that commodity inflation is slowing growth, again.




If Inflation from these food and energy price levels doesn’t slow growth – then why:

  1. Didn’t yesterday’s no-volume rally in US Stocks equate to higher bond yields? Treasury yields are down -3bps day/day
  2. Didn’t the rest of the world’s Equity markets open with a boom this morning? Italy chasing Spain lower now
  3. Didn’t Commodities continue to rock to the upside? Most of them are down this morning because the US Dollar isn’t

A: because world markets know (just as well as Bernanke should) that the US Dollar is being held, artificially, like a ball under-water.


How much longer can he hold the ball under water? How close does he have it to his face? What happens when that thing rips out of the water (like it has multiple times since he took over at the Fed), and deflates every asset price he’s trying to inflate?


I fear, my friends, that gravity is going to catch up with us when the least amount of us are positioned for it. Whether I am right on this or Reinhart, Rogoff, and the Chinese are doesn’t matter – it’s the when that will determine Bernanke’s legacy.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $121.94-126.12, $78.62-79.21, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dollar Debauchery - Chart of the Day


Dollar Debauchery - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 3, 2012

As we look at today’s set up for the S&P 500, the range is 16 points or -0.92% downside to 1406 and 0.21% upside to 1422. 











  • ADVANCE/DECLINE LINE: 1516 (1043) 
  • VOLUME: NYSE 763.39 (-21.01%)
  • VIX:  15.64 -0.90% YTD PERFORMANCE: -33.16%
  • SPX PUT/CALL RATIO: 1.86 from 2.63 (-29.28%) 


INFLATION – inflation slows growth. Yesterday’s US Equity move was led by Basic Material and Energy stocks + the CRB Index was up 2x what the SP500 was. The Bond market agrees. The 10yr and the Yield Spread (10s – 2s) wouldn’t be down 3bps for the wk to date if US growth was still 2.5-3%). 

  • TED SPREAD: 40.72
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.17 from 2.18
  • YIELD CURVE: 1.84 from 1.86

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 9:45am: ISM New York, Mar., (prior 63.1)
  • 10am: Factory Orders, Feb., est. 1.5% (prior -1.0%)
  • 11:30am, U.S. to sell 4-week, $26b 52-week bills
  • 2pm: Minutes of FOMC March 13 meeting released
  • 4:05pm: Fed’s Williams participates in university symposium simulating FOMC meeting in San Diego
  • 4:30pm: API weekly inventories 


    • Republicans hold presidential primaries in Wisconsin, Maryland, Washington, D.C.
    • EIA Acting administrator Howard Gruenspecht speaks about gasoline supplies. 9:15am
    • President Obama addresses Associated Press’s annual convention. Noon
    • Treasury Secretary Timothy Geithner presides over FSOC mtg, vote on final rule regulating non-bank financial firms. 2:30pm
    • Vice President Joe Biden answers questions via Twitter on college affordability. 3:45pm
    • House, Senate not in session      


  • U.S. auto sales released today; March light-vehicle sales may have climbed to 14.5m seasonally adjusted annual rate; analysts
  • Carl Icahn’s tender offer to acquire CVR Energy expired yday; Icahn said he wouldn’t extend unless 36% shrs tendered
  • U.S. factory orders may have risen 1.5% in Feb., rebounding from a drop
  • China eco. may have expanded ~8.4% in 1Q, the least since 1H of 2009, according to an est. given by an official 10 days before the data are due
  • European producer prices rose 3.6% in yr, ahead of est. 3.5%
  • Royal Bank of Canada sued by U.S. regulators over claims engaged in illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities
  • Coty said to flip from seller to Avon buyer; yesterday went public with $10b offer that was rejected
  • Cablevision accused NY Daily News publisher Mort Zuckerman of “a campaign of intimidation and extortion” to bring about a merger with Cablevision’s Newsday
  • U.S. sales of repossessed properties probably will rise 25% this yr from 1m in 2011: Moody’s Analytics
  • Olympus said it received capital alliance offers from Sony, Fujifilm Holdings and Terumo, may decide by next month
  • IATA says outlook “fragile,” raises concerns about business travel growth
  • Analyst says Roche to hold meeting this morning in New York after Illumina rejects offer
  • is testing a service that lets tablet users make purchases through mobile applications
  • SecondMarket said to hold its final auction of Facebook shares 


    • International Speedway (ISCA) 7am, $0.39
    • Comverse Technology (CMVT) 7:30am, $0.17 


  • Arabica Premium Seen Higher on Robusta Supply Surge: Commodities
  • Copper Retreats 0.6% to $8,590 a Ton on London Metal Exchange
  • Copper May Drop as Higher Inventories Undermine Demand Outlook
  • Oil Drops After Biggest Gain in Six Weeks on Outlook for Supply
  • Palm Oil Rallies to One-Year High on Soybean Planting Concerns
  • Gold May Fall in London on Concern Physical Buying Is Slowing
  • Wheat Drops as Global Crop Prospects Improve; Corn Increases
  • Sugar Falls in London for Second Day on Surplus; Cocoa Declines
  • Australia LNG Boom Threatened by U.S. Shale Exporters: Energy
  • India May Remain a Net Sugar Exporter for Third Year
  • Fortescue’s Power Says China Steel Demand Will Be ‘Very Strong’
  • Rusal Would Study Norilsk Sale at Right Price, New Chairman Says
  • Pakistan Exchange to Begin Foreign-Currency Futures by June
  • Tanker Rates Seen Reversing Rally as Oil Glut Expands: Freight
  • Oil Drops After Biggest Gain in Six Weeks
  • Oil Supplies Rise to Seven-Month High in Survey: Energy Markets
  • Jewelers in India Extend Strike for 18th Day Over Higher Taxes 










ITALY – joins Spain this morning as the 2nd major Global Macro Equity market to snap its intermediate-term TREND line (15,961 was TREND support for the MIB Index). On a no volume rally in US Equities (down -17% vs my intermediate-term TREND avg yesterday), do not forget how bad those European PMI prints for March were yesterday.






CHINA – explicit comments from Chinese central bank head Zhou this morning telling the Fed that Bernanke has a “responsibility to consider global effects” of its dollar debauchery policy. We called this Bernanke’s War last week and from a Global Macro perspective, it’s on. Japan just printed its lowest money supply number in 3yrs. Japanese Liquidity drying up.










The Hedgeye Macro Team


President Obama's Reelection Chance Stands at 62% -- Hedgeye Election Indicator



President Obama's Reelection Chance Stands at 62% -- Hedgeye Election Indicator  - Screen Shot 2012 04 03 at 6.01.26 AM



With Mitt Romney's nomination as the Republican presidential candidate nearly secure, the former governor of Massachusetts and Bain Capital CEO would stand little chance of beating President Obama if the US presidential election were held today, according to the Hedgeye Election Indicator (HEI). President Obama would have a 62% chance of winning reelection, according to the HEI, down slightly from last week's record level of 62.3%.



President Obama's Reelection Chance Stands at 62% -- Hedgeye Election Indicator  - HEI


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment. One of those factors, the timing of the performance of key equities in the US stock market including stocks in the financial sector, is keeping President Obama's reelection chances strong.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.   


Hedgeye will releases the HEI every Tuesday at 7 a.m. ET, all the way until election day Tuesday November 6.




Follow us on twitter @hedgeye

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Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much

Conclusion: Even if it will not be finalized until he gets all 1,144 delegates, Romney’s nomination as the Republican candidate for President is looking increasingly certain. His road to unseating President Obama is much less certain.

According to InTrade, the electronic predictive market, Mitt Romney is now at a greater than 94% probability of winning the nomination. We’ve posted the chart below previously, but this is the highest probability he’s ever held on InTrade. Currently, based on the delegates that have been awarded, Romney has 566 delegates, Santorum has 263 delegates, Gingrich has 140 delegates, and Paul has 67 delegates. In aggregate, Romney has 163 more delegates than all of his competitors combined.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart1



Interestingly from a popular vote perspective, Romney has been struggling more broadly against the field than either InTrade or the delegate count would suggest. According to the most recent tally, Romney has received 4.1 million popular votes, Santorum has 2.9 million, Gingrich has 2.2 million, and Paul has 1.1 million. Even from a mathematical perspective the road to the nomination simply based on delegate votes for any other candidate is incredibly challenging, the popular vote shares however, do on some level, support the other candidates staying in the race.

Collectively, Romney has only received 39% of the popular votes in the nominating process, which shows that more than 60% of Republican voters have voted for someone other than Romney. The spoiler, so far, has probably been Newt Gingrich who by staying in the race has denied some key votes from the right wing of the Republican Party for Rick Santorum.


This weekend on Meet the Press, Santorum was very clear about his intention to stay in the race when he stated the following:


“If Gov. Romney gets that required number, then without a doubt, if he’s at that number, we’ll step aside. Right now, he’s not there. He’s not even close to it.”


Although there appears to be an ultimate inevitability to the Romney nomination, Santorum is also correct in his assessment as Romney is more than 500 delegates away from the magic number of 1,144 that he will need to clinch the nomination. As noted, Romney’s challenge has been in galvanizing the more conservative components of the Republican Party. Interestingly, we looked at the actual chart of which states he has won and, as the map below shows, Romney has won in the traditionally liberal parts of the country on the coasts, while Santorum has dominated in the middle.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart2



Ultimately, the need for Romney to shift more to the right could come back and haunt him in the main race against Obama. One of the most telling signs of Obama’s momentum against Romney is in recent data from the battleground states. USA Today did a poll of key battleground states from March 22nd to March 26th. The results of the poll show Obama with a statistical significant advantage over Romney at 51%-42% of registered voters. Just a month ago, Obama trailed Romney by two percentage points.

Now clearly this is but one poll, but it does highlight a troubling trend for Romney in these key states versus Obama. The internals are even more disconcerting as they highlight that women, in particular, are moving away from Romney to Obama. In women under 50, Romney is only at 30% support and Obama has almost 2x the support in this demographic based on this battleground state poll. Clearly, this appears to be some backlash against Romney’s shift to the right, in particular related to recent comments to defund Planned Parenthood and his endorsement of an amendment that would allow employers to refuse to cover contraception in health care plans.

A recent poll from Quinnipiac University released late last week provided further validation of Obama’s strength in key swing states. Obama leads Romney 49 to 42 in Florida. In Ohio, Obama beats Romney 47 percent to 41 percent, and he beats Santorum 47 percent to 40 percent. In Pennsylvania, Obama and Romney are locked in a closer race, but Obama still edges Romney 45 percent to 42 percent.

On a head-to-head national poll basis, the story is much the same in Romney versus Obama as in the USA Today Battleground poll. Based on the Real Clear Politics poll aggregate, Obama is at +4.4 spread versus Romney. Further, Romney has only outpolled Obama in 2 of 30 major polls taken since the start of February.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart3



Certainly, a lot can happen between now and the general election, especially with President Obama’s approval rating being mired south of 50 and the price of gasoline escalating across the country. At the same time, Romney is clearly going to have to chart back to the middle so as to not totally lose important demographics like woman under 50. As well, which may be even more critical, he will need to increase his personal likeability, which according to a Washington Post poll shows Romney’s unfavorable rating has soared to an all-time high, leaving him 16 points underwater in the personal approval department.




Daryl G. Jones

Director of Research


European Banking Monitor: Italian and Spanish Swaps Widen

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 .


Key Takeaways:

* Italian and Spanish sovereign swaps widened along with European Bank swaps over the week, underscoring increasing risk in the Eurozone.



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 2 bps to 41 bps.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. Euribor


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. Banks deposited €778.7 billion in the latest reading. 


European Banking Monitor: Italian and Spanish Swaps Widen - 11. ECB facility


European Financials CDS Monitor – Bank swaps were wider in Europe last week for 35 of the 40 reference entities. The average widening was 3.4% and the median widening was 7.8%.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. Banks


Security Market Program – The ECB's secondary sovereign bond purchasing program purchased no sovereign paper in the week ended 3/30, for a third straight week of zero buying. February-to-date the Bank has purchased a mere €210 Million versus €2.2 BILLION in the week ended 1/20 and €3.8 BILLION in the week 1/12. When questioned on the lack of buying over recent weeks, ECB President Draghi has only answered that the SMP is a non-standard measure that is “neither eternal nor infinite.” Clearly, with the some €1 Trillion injection of liquidity across the LTROs, the Bank is paring back buying and watching the results of sovereign bond auctions. We are far from the opinion that the lack of buying from the ECB’s SMP is a signal that sovereign risk is off the table in Europe.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. SMP


Matthew Hedrick

Senior Analyst


Including slots, Macau gaming revenues came in around HK$24.3 billion, up 24% YoY.



Average daily table revenues (ADTR) for the last week in March increased to HK$749 million, bringing the March average up to HK$745 million.  ADTR was HK$776 million in February.  As a reminder, March 2011 was the lowest hold month of year at just 2.66% (adjusting for direct play volume of ~6.6% or HK$4.5BN), so the comparisons are tougher the rest of the year.  While Sands Cotai Central (SCC) should grow the market, 2011 also had the opening of Galaxy Macau, so the stimulation from new supply could be similar.  We have seen a YoY deceleration play out throughout the last 3 weeks where YoY growth fell from +51% for the week ending 3/11 to +24%, +17%,  and flat for the week ending 3/18, 3/25, and 3/31, respectively.




With the exception of Wynn, market shares were little changed from last week.  Wynn apparently got clocked on hold this past week as full month market share dropped 90bps in only one week.  Relative to the 3 month trend, Wynn and LVS were the losers while Galaxy was the clear winner with MPEL also gaining.  We expect Wynn to continue to lose share while LVS will clearly rebound with the opening of SCC. 



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