• run with the bulls

    get your first month

    of hedgeye free


Exporting Dogma

This note was originally published at 8am on April 23, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Currency devaluation as a path to increased exports is not a simple matter.”
-Jim Rickards, Currency Wars


My week of family vacation would not have been complete without thinking about Keynesians. Sadly, from the gas pumps in Fort Myers, Florida to those in New Haven, CT, centrally planned Policies To Inflate are now part of the cost of everyday American life.


If you didn’t know that the world’s markets are globally interconnected, you might actually believe the Academic Dogma that a “cheap currency” is going to provide you the yellow brick road to Export prosperity. If you’ve analyzed the last 5 years of US Export versus US Consumption growth data, you probably think otherwise. America is a Consumption economy. Period.


Debauching the US Dollar to all-time lows into the Spring of both 2008 and 2011 inspired bouts of global food and energy inflation like the world has never seen. With sovereign debt levels having crossed the Rubicon (structurally impairing long-term growth), Ben Bernanke had no business imposing another inflation policy on January 25th, 2012. Growth started slowing in February.


Back to the Global Macro Grind


Growth Slowing in February? Yes, most major Asian and European stock markets stopped going up in February (Hong Kong, India, Spain, etc). This morning’s abruptly bearish reaction in global equity markets is simply a function of consensus catching up to where we’ve been. This isn’t our first rodeo calling for a sequential slowdown in growth. It won’t be our last.


What would change my view? I’ll give a free tank of natural gas to the first best guess.


Strong Dollar is the only way out. The best way to achieve that is to get these un-elected Keynesian policy makers out of the way.


A Strong Dollar will: 


A)     Deflate The Inflation

B)     Strengthen (inflation adjusted) Consumption Growth


That’s the 71% of the US Economy that matters, not Exports.


Not seeing US Exports work drives the Keynesians right batty. It should - look at the US Export contribution to US GDP for the last 3 quarters:

  1. Q2 2011 = 0.48%
  2. Q3 2011 = 0.64%
  3. Q4 2011 = 0.37%

Oh, and by the way, you have to net out Imports from Exports to get to US GDP (calculating GDP = C + I + G + (EX-IM)), so Exports aren’t doing anything for US Growth where it matters most, on the margin.


The biggest concern that Keynesian politicians from Nixon/Carter to Bush/Obama have had is seeing the stock market go down. During periods of economic stagflation, stock markets get addicted to inflation inasmuch as the politicians do. If you Deflate The Inflation, stocks and commodities fall. So, in the short-term, they’re right.


But what’s right for the long-term prosperity of a country’s economy, attempting to centrally plan stock and commodity prices, or maintain price “stability” and “full” employment?


This is why The People are so upset. This is why US Equities in particular have zero inflows. The People don’t trust this game of gaming policy anymore – and they shouldn’t.


This morning’s Global Macro “news” is laden with stagflation – unless we see WTIC Oil prices snap and stay below $96/barrel, that’s just the way it’s going to be. Global Growth has never NOT slowed with Oil prices at these levels. Never is a long time.


Rather than have some Keynesian Economist who takes car service or a NYC cab to work tell you to put some natty gas in your truck and like it, look at what the rest of the world is reporting this morning:

  1. French Services PMI slows, big time, to 46.4 in April versus 50.1 in March
  2. Italian Consumer Confidence hits an all-time lows (all-time is a long time)
  3. Singapore Consumer Price Inflation for March accelerated to 5.2% versus 4.6% in February

That last data point is stale news now (March), and should start to ease in April/May if we see a continued Deflation of The Inflation. That’s the best news I can tell you this morning. But, like it was during the Q1 to Q3 stock market draw-downs of 2008, 2010, and 2011, this will be a process, not a point. Global Consumption doesn’t turn on a futures broker’s dime.


In the meantime, we’ll be using the same research and risk management process to monitor changes on the margin. While it’s alarming that Old Wall Street has not changed what it is that they do in the last 5 years, we don’t want to interrupt them as they continue to make the same mistakes, confusing short-term stock and commodity market inflations with real growth.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1623-1655, $116.95-119.41, $79.11-79.54, and 1356-1394, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Exporting Dogma - Chart of the Day


Exporting Dogma - Virtual Portfolio


TODAY’S S&P 500 SET-UP – May 7, 2012

As we look at today’s set up for the S&P 500, the range is 25 points or -0.37% downside to 1364 and 1.45% upside to 1389. 












  • ADVANCE/DECLINE LINE: on 5/04 NYSE -1545
    • Down from the prior day’s trading of -1194
  • VOLUME: on 5/04 NYSE 825.24
    • Decrease versus prior day’s trading of -2.24%
  • VIX:  as of 5/04 was at 19.16
    • Increase versus most recent day’s trading of 9.11%
    • Year-to-date decrease of -18.12%
  • SPX PUT/CALL RATIO: as of 05/04 closed at 1.42
    • Down from the day prior at 1.57 


  • TED SPREAD: as of this morning 40
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.85
    • Decrease from prior day’s trading at 1.88
  • YIELD CURVE: as of this morning 1.60
    • Down from prior day’s trading of 1.63 

MACRO DATA POINTS (Bloomberg Estimates):

  • 11:30am: U.S. to sell $30b 3-mo, $28b 6-mo bills
  • 3pm: Consumer Credit, Mar., est. $9.75b (prior $8.735b)
  • 7:15pm: Fed’s Lacker speaks in Greensboro, North Carolina 


  • President Obama officially started his re-election bid yesterday in the swing states of Ohio and Virginia
  • Presidential nominee Mitt Romney campaigns in Cleveland
  • House, Senate in session:
    • House Budget Committee holds markup of sequester legislation. 2 p.m.     


  • Treasury Department to sell $5b of AIG stock at $30.5-shr
  • Yahoo under pressure from Third Point to dismiss CEO
  • Facebook gets first buy recommendation from Wedbush Securities
  • Microsoft to claim Motorola is unfairly demanding $4b/year in patent royalties in federal court in Seattle today
  • Avengers has record $200.3m in opening-wknd ticket sales
  • Voters in France, Greece challenge austerity plans
  • Falcone’s LightSquared gets another week from creditors
  • Micron to invest 300b yen in Japan’s Elpida, Nikkei says
  • Buffett says he’s focusing more on Asia to boost sales
  • MLM blocked for 4 months from making hostile bid for rival Vulcan by judge ruling
  • Preview of week’s U.S. economic reports 


    • Cognizant Technology Solutions (CTSH) 6 a.m., $0.79
    • Dish Network (DISH) 6 a.m., $0.70
    • EchoStar (SATS) 6 a.m., $0.02
    • Towers Watson & Co (TW) 6 a.m., $1.35
    • Cinemark Holdings (CNK) 6:36 a.m., $0.35
    • Frontier Communications (FTR) 7 a.m., $0.06
    • HollyFrontier (HFC) 7 a.m., $1.21
    • Tyson Foods (TSN) 7:30 a.m., $0.39
    • Louisiana-Pacific (LPX) 8 a.m., $(0.15)
    • Sysco (SYY) 8 a.m., $0.43
    • Coeur d’Alene Mines (CDE) 8 a.m., $0.43
    • Dendreon (DNDN) 4 p.m., $(0.64)
    • Rackspace Hosting (RAX) 4 p.m., $0.17
    • Wesco Aircraft Holdings (WAIR) 4 p.m., $0.26
    • Electronic Arts (EA) 4:01 p.m., $0.16
    • Pitney Bowes (PBI) 4:01 p.m., $0.50
    • Vivus (VVUS) 4:01 p.m., $(0.13)
    • Clean Energy Fuels (CLNE) 4:05 p.m., $(0.18)
    • ProAssurance (PRA) 4:05 p.m., $1.41
    • Wynn Resorts (WYNN) 4:05 p.m., $1.41
    • Plains All American Pipeline (PAA) 4:06 p.m., $1.51
    • Dun & Bradstreet /The (DNB) 4:14 p.m., $1.32
    • Avis Budget Group (CAR) 4:15 p.m., $(0.01)
    • Hillenbrand (HI) 4:20 p.m., $0.50
    • Federal Realty Investment Trust (FRT) 4:30 p.m., $1.02
    • Vornado Realty Trust (VNO) 4:55 p.m., $1.77
    • Uranium One (UUU CN) 5:01 p.m., $0.02  


  • Hedge Funds Bet Wrong Before Biggest Slump in 2012: Commodities
  • Copper Declines on French Election Outcome, U.S. Payroll Figures
  • Malaysian Palm-Oil Output Probably Rose Most in Seven Months
  • Commodities Close to Erasing 2012’s Gains on Europe, U.S. Data
  • Corn Buying by China Seen Rising 35% on Chicken, Pork Demand
  • Soybeans Decline on Forecast U.S. Farmers May Expand Planting
  • Gold Imports by China From Hong Kong Post Increase in March
  • China Needs U.S. Corn to Meet Rising Shortage, Shanghai JC Says
  • Dalian Commodity Exchange Starts Options Trading Simulation
  • Gold Declines as French, Greek Election Results Weaken the Euro
  • Record Gas Use by U.S. Utilities Fails to Drive Up Price: Energy
  • Oil Slumps to Four-Month Low on European Elections, U.S. Jobs
  • NYSE Euronext Said Willing to Maintain LME Ring in Takeover Bid
  • UN Sees Risk of Unrest From Food Costs Above 10-Year Average
  • Malaysia Seen Countering Indonesia’s Palm-Oil Export Tax Reform
  • South African Gold Mine Deaths Fall to a Record Low in April





US DOLLAR – get the USD and the slope of US Growth (slowing) right, and you’ll get a lot of other things right. USD up for the 4th consecutive day on Friday and the SP500 fell for its 3rd consecutive day. The immediate-term Correlation Risk to Strong Dollar vs SPX remains north of -0.8, so that has left a mark. Ultimately its take down oil prices, which is bullish for Consumers, globally.






FRANCE – no need for a consensus check here; France down another -1.3% this morning isn’t as much the story as the CAC being down -13% now from its YTD high on March 16th. Mean reversion matters, and now you’re seeing Spain, France, and Greece drag German stocks down with them (DAX down -10% from the same March 16th high; Spain and Greece crashing, again).






JAPAN – Japanese stocks continue to get rocked, down hard last night (-2.8%) and down for the 16th trading day out of the last 21. The interconnected risk associated with Japan’s fiscal/debt crisis remains well under the consensus radar.










The Hedgeye Macro Team



In preparation for WYNN's FQ1 2012 earnings release Monday afternoon, we’ve put together the recent pertinent forward looking company commentary.



Feb 21 - Okada Business Update

  • "The company has lawfully executed redemption at fair value and the 24.5MM shares are no longer outstanding. The impact on the balance sheet is as follows: debt increases by $1.9BN...at the Wynn Resorts level, and shareholder equity will be reduced by that same amount."
  • "If you're asking if there's any further action required on the company's part in order to effect this redemption,
    the answer is no."

Feb 2 - Q4 Conference Call

  • "There is plenty of business in Chinese New Year, both over there and here. The levels in Las Vegas were a little less than they were last year, but that's because, I think, partially a reflection of the calendar"
  • [Wynn Macau hold] "We held a little higher in VIP at 3.18% instead of the typical 2.95% to 3.0%. And then in our mass market, if you actually looked since Encore opened, every quarter we held, I think it was, 29%, 28%, and then this quarter was 30%."
  • "Encore is new, but the Wynn's 600 rooms will be re-done shortly, in a manner consistent with what we did in Las Vegas, which was quite a nice upgrade and very well received, as you could tell by our rates."
  • "We have the most conservative policy out there. And year-over-year, which you'll see on our balance sheet when it comes out, you'll find that our bad debt reserve as a percentage of our receivables is flat. And so we have not seen anything to date that has caused any alarm in Macau or here in Las Vegas as it relates to receivables."
  • "We see 2012 to be on a similar level, in terms of convention channel revenue. I know some of our competitors have talked about they're even seeing wider increases. We are seeing the first quarter being pretty much flat. So January last year was great. This year, February is great. You add them together, they're equal. We're getting a little more rate in the convention channel. But we are very cautious about July and August. Every year, July and August are tough years to book in Las Vegas. We anticipate that there could be some deep discounting in the market."
  • "We're going to be pushing on transient. Transient's an important channel to us and we are continuing to grow that. We grew it quite a bit last year."
  • "On the [2012] tax rate, I think it'll bear somewhere between 2010 and 2011."
  • "The general view out here is, steady as she goes. There is a desire in China to maintain momentum and there is a regime change at the end of the year. So I think there is a desire to keep everything focused and steady."
  • "The growth levels in Macau won't be as significant as last year, clearly."
  • "We've come to the conclusion that there is very little likelihood that, considering the political environment in America, the business opportunities, that we're going to see any robust development across the street on the other side [West] of the Strip."
  • "We're thinking of some changes at Encore [Las Vegas] that would be very exciting and would work to our advantage, so pretty much,We're going to reconfigure – you saw the lobby in the new high-limit slot area is performing extremely well for us where Blush was. As we strengthen the south end of Wynn with the new lobby and the new gaming area that opened up on Christmas, we're also considering an exciting new development for the space that was occupied by Alex's restaurant."

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.


“For they have sown the wind, and they shall reap the whirlwind.”

-Hosea 8:7


It’s windy out there this morning. But, then again, if you look back at where Global Stock and Commodity markets all peaked in 2012, it’s been windy since March. Today is not a day to freak-out. It’s just another day to price in what’s been happening.


The tail ends of this morning’s Global Macro meltdown will have a lot more to do with Global Growth Slowing and hedge funds caught off-sides long oil than it does France. Friday’s US Employment report was a mess.


The aforementioned quote came from Seth Klarman’s year-end 2011 letter ($22B hedge fund, The Baupost Group). We were obviously not alone in realizing that crossing the Rubicon of sovereign deficit and debt ratios would structurally impair Global Growth. Klarman, Einhorn, Dalio – these are the new leaders of Wall Street 2.0 – they all nailed Growth Slowing too.


Back to the Global Macro Grind


If you weren’t long US stocks or commodities last week, you probably had a very good week. Everything is relative while you are watching the whirlwind, I suppose. Our allocation to Commodities in the Hedgeye Asset Allocation Model remains 0%.


As Growth Slows and hopes for an iQe4 upgrade abate, we think the US Dollar stops going down and that, in turn, will provide a much needed break for American and Global Consumers of food and energy alike. We call it Deflating The Inflation.


Now, to be clear, this was only the 2ndweek of the last 8 where the US Dollar didn’t drop. And, as long as we have Ben Bernanke promising Qe as the elixir of a centrally planned life, America’s currency will continue to have headwinds. That all said, bullish is as bullish does, and the US Dollar has been up for 4 consecutive days. That’s a good thing.


Dollar up (in the immediate-term) means most things stocks and commodities go down. We call it the Correlation Risk. It’s what most perma-bulls got addicted to at the Q1 tops of 2008, 2010, 2011, and now, evidently, 2012. When the Dollar Debauchery stops, beta chasing anything inflation stops. Inflation and Growth are not the same thing.


Lets score that statement in real-time. With the US Dollar Index up +1.0% last week, here’s what everything else did:

  1. US STOCKS: SP500 -2.4%, Nasdaq -3.7%, Russell2000 -4.1%
  2. COMMODITIES: CRB Index -2.6, WTIC Oil -6.1%, Copper -2.6%
  3. BONDS: both German Bunds and US Treasuries hit YTD highs last week (UST 10yr = 1.83% today)

Another way to look at how perverse Old Wall Street has become when begging for Bernanke’s Policies To Inflate is that the US Dollar Index has developed an immediate-term positive correlation to US Equity Volatility of +0.93.


Think about that.


A credible currency costs this market a lot more than central planners think. With the USD up +1% last week, US Equity Volatility (VIX) spiked +17.8% week-over-week. That’s not “price stability”, Mr. Bernanke. That’s not good.


Volatility kills returns. Ask anyone who has successfully not lost money versus their 2007 high-water marks how hard it’s been to generate absolute returns and you’ll get the point.


One of the best strategies to not lose money has been not getting picked off ahead of any of these major stock and commodity market draw-downs (Q1 to Q3 SP500 draw-downs of -15-30% in 2008, 2010, 2011).


That’s why we’re so focused on the slope of growth as opposed to the level. As growth slows, “cheap” stocks get cheaper.


Valuation is not a catalyst until growth either slows at a slower rate or you have some sort of “event” whereby a cheap asset gets something like a management change or a takeout bid.


The best news I can give you this morning is that Deflating The Inflation at the pump has the highest probability of giving the US Consumer in particular a much needed tax break for Memorial Day Weekend.


I’m not suggesting our Growth Slowing call stops right here, right now. I’m just reminding you how our globally interconnected economic growth and inflation model works. Unlike most models that have failed you, ours goes both ways.


Long and short. All great teams play this game both ways (even when it’s windy).


Immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, French Stocks (CAC40), and the SP500 are now $1, $112.45-118.18, $79.34-79.81, 3107-3279, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Windy - Chart of the Day


Windy - Virtual Portfolio

Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition

Conclusion: When analyzed with rigor, as well as in the context of presidential cycles, this employment report doesn’t bode well for the incumbent’s odds of winning reelection. Additionally, we continue to view the general election debate as supportive of USD strength from a rhetorical perspective.


As it relates to our intermediate-term outlook for US growth, there isn’t much analysis we can add to this morning’s Jobs Report beyond what has been signaled via the red on your screens today. In short, we continue to anticipate slowing economic growth domestically over the intermediate term.


It’s an election year, so we’d be lying if we said that we didn’t think the various government data collection agencies were incentivized to make the headline numbers appear shiner than they perhaps otherwise would. That said, however, we’re not in the business of making bold claims; rather, we prefer to apply analytical rigor to our hypotheses and draw educated conclusions from there.


Looking at the MoM payroll gains, the headline Non-Farm Payrolls number came in at +115k MoM on a seasonally-adjusted basis. This, does, however account for increasingly scrutinized seasonal adjustment factors, as well as the infamous NSA Birth/Death Adjustment, which generated +206k “jobs” – the highest number since MAY ’11 (interestingly, this sets MAY ’12 up for a potential acceleration, given that the headline APR # is likely to be revised down).


In order to net out these two effects, we subtracted the NSA B/D Adjustment from the NSA MoM NFP number and then took the YoY delta from that. This process resulted in a YoY decline of -317k jobs in APR – the slowest month since MAY ’11 and third-consecutive month of sequential slowing. Interestingly, employment gains on this metric peaked in JAN – right alongside the peak in our bullish Strong Dollar = Strong America thesis.


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 1


Looking at the Unemployment Rate SA, the headline number came in at 8.1%. By our math, which accounts for dramatic shifts in the size of the Labor Force by using a 10yr average Labor Force Participation Rate (which just ticked down to a 30yr low of 63.6%), the APR Unemployment Rate came in at 11.3%. At -322bps, this is the widest delta between our number and the government’s headline number in nearly 30yrs.


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 2


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 3


While an 8.1% headline Unemployment Rate is great ammo for the incumbent president to hit the campaign trail with this MAY, we hardly think the average American voter is stupid enough to believe this number at face value. Rather, we think masking the dismal state of the US labor market might actually upset those among us who are either educated enough to see through any “cosmetic enhancements” or unfortunate enough to bear the brunt of what is being enhanced. Still, it always helps to back such claims up with numbers, so we present the following six charts as evidence of what we feel the real state of the US labor market is – Quantifying the Zeitgeist, so to speak.


Each chart below features two recent Strong Dollar administrations and two Weak Dollar administrations – one from each party in both samples. The labels highlight where each figure was in OCT ahead of the general election (latest figure for Obama) and at the end of each president’s second term.


On a headline basis, Obama is trending quite nicely on the Unemployment Rate scorecard:


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 4


On an adjusted basis, however, Obama continues to trend sideways as the underlying state of the US labor market remains stuck in the mud:


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 5


Looking at unemployment through another lens (unemployed persons/working-age population), Obama continues to trend sideways here as well:


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 6


One plot that isn’t moving sideways is the percentage of working-age Americans who have left the Labor Force – now at new highs for the Obama presidency:


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 7


Turning to the US Dollar, the market price of America’s currency remains the #1 factor in our dynamic, 27-factor Global Macro model as it relates to predicting the slope of both growth and inflation expectations on an intermediate-term TREND basis. It’s no secret we favor Strong Dollar policies, given the historical correlation between expectations of USD strength backed by sound fiscal and monetary policy and the state of the US labor market. On this metric, Obama remains well shy of both Bush and Clinton heading into the NOV general election.


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 8


Given the Weak Dollar policy perpetuated by the Obama administration and his appointed central planners, it’s no surprise to see that the cumulative number of net job gains since the start of his presidency is a mere +152k. This trails Reagan (+16M), Clinton (+22.5M) and even Bush (+1M) – Obama’s Weak Dollar presidential counterpart.


Analyzing the Jobs Report Through the Lens of the General Election: April 2012 Edition - 9


All told, we continue to view the general election debate as supportive of USD strength from a rhetorical perspective. Using the grandest of all stages to expose the last two administrations’ critical failures in fiscal and monetary policy – specifically as it relates to the US labor market – is a strategy we expect the Republican opposition candidate (i.e. Mitt Romney) to develop and pursue over time. If implemented, this strategy would likely force both Obama (limited scope to make fiscally expansionary campaign promises) and Bernanke (gas prices?) into an increasingly smaller box over the intermediate term.


Have a great weekend with your respective families,


Darius Dale

Senior Analyst

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.