NKE: Farewell, Olympic Trade

For 9 out of 10 of the past Olympic sessions, there has been the infamous “Nike trade.” Essentially, this involved NKE stock outperforming the S&P 500 by several percentage points in the run up to and during the Olympics. The streak continues into a six month span after the end of the Olympics as well.


But now, it appears that the trade has been discovered by the masses and the spread has eroded completely. NKE now UNDERPERFORMS the S&P 500 by 200 basis points (+3% versus +5%).  Throughout history, NKE outperformed the S&P 500 by an average of about 18% in 9 out of the 10 recent Olympic event years we mentioned. This is now a thing of a past.



NKE: Farewell, Olympic Trade - NKE Olympics

HedgeyeRetail Visual: NKE Olympic Trade Not Consensus After All?

We all know about the Nike ‘Olympic Trade.’ Furthermore, we think that once ‘seasonal trade’ gets to a point where it is so widely known, it should probably cease to exist. But the reality is that it still tends to come and go like clockwork.


That is, until this year. As of today, NKE underperformed the S&P YTD by 2 points (NKE +3%, SP500 +5%). But looking through history, NKE outperformed the S&P500 by an average of ~18% in 9 out of the 10 recent Olympic event years. The only time the trade did not work was in Nagano, Japan, showing how much more important this trend is for Summer Olympics vs. Winter.


Most interesting to us is that the opportunity continues for 6-months after the event as well. Over the past three Summer Games, we’re looking at about a ~13% move vs. the S&P during the window following the event.


After going through this analysis, it suggests to us that ‘The Nike Olympic Trade’ is far less consensus than we’d otherwise have thought. 


HedgeyeRetail Visual: NKE Olympic Trade Not Consensus After All? - NKE tables


HedgeyeRetail Visual: NKE Olympic Trade Not Consensus After All? - NKE chart


  • A continuing recovery in the replacement market, coupled with a growing number of new openings and expansions should create a favorable fundamental backdrop for the slot manufacturers for the next few years
  • We estimate that slot shipments to North America will grow to 90k in 2012 and surpass 105k in 2013- representing a material increase over the past 3 years where slot shipments have teetered in the 62-71k range
  • Mid-to-high single digit replacement growth should be supported by aging slot floors and a more competitive environment driven by new openings.  Growth in new and expansion units will be propelled by Canadian RFP's, new casinos/slot tracks opening up in Ohio, and VLTs in IL 


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Bearish Breakdown: SP500 Levels, Refreshed

POSITIONS: Short Industrials (XLI)


Our Growth Slowing call has been consistent since March (we shorted XLI on March 12th). Our beta down-shift call from last week (100% Cash) into the Fed event was explicit.


We are in no hurry to buy stocks. That’s primarily because our immediate-term TRADE line of 1318 just snapped. That’s new as of this morning.


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

  1. Intermediate-term TREND resistance = 1365
  2. Immediate-term TRADE resistance = 1318
  3. Immediate-term TRADE support = 1305

In other words, there’s no rush to jump out and “buy on valuation” because valuation is not a catalyst in a macro driven tape with Growth Slowing.


They sold this market on a good New Home Sales print this morning, which makes me feel all the more patient here.


Waiting and watching,



Keith R. McCullough
Chief Executive Officer


Bearish Breakdown: SP500 Levels, Refreshed - SPX

European Banking Monitor: RISK COOLING OFF FOR NOW

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:


* US/European bank swaps were broadly tighter last week on the heels of favorable Greek elections and Moody's downgrades being less bad than feared. We'd remind investors that (a) even if Greek austerity terms are eased, the rate of contraction in the Greek economy will make compliance nearly impossible, setting the stage for another showdown, and (b) Moody's downgrades have costs. While we saw lots of commentary about funding costs not being affected by the downgrades, the more salient takeaway is that institutions that moved to triple-B should see derivatives flow move away, on the margin.   


* Risk took a breather last week as large declines in high yield, MCDX and higher leveraged loan prices were indications that the temporary calm in Europe was enough for a broad-based rally. Interestingly, the one measure you'd have expected to contract actually expanded: Euribor-OIS.


 If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst




European Financials CDS Monitor – 31 of the 39 European financial reference entities we track saw spreads tighten last week. The median tightening was 7.4% and the mean tightening was 1.8%. It's notable that the Spanish banks were the worst performers of the group.


European Banking Monitor: RISK COOLING OFF FOR NOW - dd. banks


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 has been moving higher of late for the first time in a long time. It ended the week at 43 bps.


European Banking Monitor: RISK COOLING OFF FOR NOW - dd. 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. This data shows through Thursday.  


European Banking Monitor: RISK COOLING OFF FOR NOW - dd. facility


Security Market Program – For the fifteenth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 6/22, to take the total program to €210.5 Billion.


European Banking Monitor: RISK COOLING OFF FOR NOW - dd. smp

Teaspoon Bailout

This note was originally published at 8am on June 11, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I could as easily bail out the Potomac River with a teaspoon as attend to all the details of the army.”

-Abraham Lincoln


So, in the last 3 trading days, you’ve had begging for Bernanke, a Chinese rate cut, and now another European bank bailout. Nice. Sounds like this must have been the bull case all along. Losers win.


To Lincoln’s point, these people have issues. Bigger issues than a 9 handle pre-market rally in the S&P Futures are going to solve (it was 16 handles on the “news” last night). Piling more debt-upon-debt-upon-debt is the last thing that global consumers need.


As a reminder, short-term Big Government Interventions (money printing and debt leverage) stoke commodity (oil) price inflations. Policies To Inflate then slow global economic growth. They also eradicate whatever is left of investor trust.


Back to the Global Macro Grind


Without credible markets, you don’t solve the #1 issue people have with Global Macro markets right now – trust. Without trust, conflicted and compromised politicians will do just about anything to attempt to save their short-term political career risk. That’s no long-term economic plan for prosperity.


This Teaspoon Bailout strategy is not new obviously. You only have to go back to 2008 when ex-Goldman CEO (and credit derivatives market leader), Hank Paulson, brought out the US Bank Bailout Bazooka. The market rallied into the event (inside information), then rallied for about a nanosecond on the “news” to lower-highs, then resumed its decline.


Then, the former Dartmouth football player (Hank) was seen puking in his garbage can…


Have no fear however, Timmy is still here. There is no question in my mind that central planning pool boy in Chief, Tim Geithner, advised the Europeans to do the same thing he advised America’s politically compromised back then. Having never worked a day outside of Washington’s political elite in his born life, this is what Geithner was sent by his god on this earth to do – bailout banks.


This concentration of conflicted political power gets scarier when you think about how close Geithner is to both the President of the United States and the Washington based (and US tax payer backed) IMF. Geithner is fighting for his short-term political life. And, in the long-run, my grand-children are not yet dead.


As a reminder, Big Government Interventions in what were our free-markets:

  1. Shorten Economic Cycles (through short-term asset price inflations)
  2. Amplify Market Volatility (through made-up bailouts and rules mid-game)

That’s just a bit off versus the Fed’s Congressional mandate for:

  1. Full Employment
  2. Price Stability

Regardless, in exchange for a 9 handle pop in the US futures and Spanish stocks going from down -31% from their YTD peak to -24% (i.e. still crashing), global consumers get themselves a nice pop in taxes, back up to $100/barrel Brent oil.


Dollar down, Euro up, Oil up. Nice.


Just when I was starting to get bullish, from a price (1283 long-term TAIL support), the #1 factor that made for our #GrowthSlowing call in February-March, gets put back on the table via Bernanke begging and Europe bailing. There is nothing that slows real (inflation adjusted) growth faster than food/energy prices rising.


Now if you are in the March 2012 bull market camp that “this time is different” and the world is “de-coupling”, that’s perfectly fine. That’s what makes a market. Piling more debt-upon-debt in Europe is only going to make this structurally low-growth and no-trust market environment worse.


Into and out of the Bernanke Begging last week, we cut our US Equity asset allocation back down to 0%. After starting the week at 12% US Equity allocation, that made for a good week. That puts our current Hedgeye Asset Allocation Model in the following pre-game position:

  1. Cash = 76% (down from 82% last Monday)
  2. International Currency = 12% (all US Dollar, all the time = UUP)
  3. Fixed Income = 12% (US Treasuries and German Bunds = TLT and BUNL)
  4. US Equities = 0%
  5. International Equities = 0%
  6. Commodities = 0%

In other words, we’re already losing today. And we expect to be held accountable for those losses.


While I could say what I would have done if I had this Spanish inside information on Friday afternoon, I won’t. I won’t say that if some conflicted and compromised politician in Washington called me with a look-see that I’d pick up the phone either.


Last I checked, in most parts of the country, cheating and bailing out banks is still un-American.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, and EUR/USD, and the SP500 are now $1542-1602, $95.61-100.91, $80.02-82.63, $1.24-1.27, and 1305-1344, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Teaspoon Bailout - Chart of the Day


Teaspoon Bailout - Virtual Portfolio

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