President Obama’s Reelection Chances

With the Republican National Convention underway, President Obama’s chances of being reelected continue to climb which has been the trend for several weeks now. His odds increased 0.2% to 60%, the highest his odds have been since our readings in late April and fast approaching the all time high of 62.3%, which was achieved back on March 23rd, 2012.


It appears President Obama is on the fast track to another four years in the White House according to the latest results from the Hedgeye Election Indicator (HEI). President Obama’s reelection chances jumped 80 basis points (0.8%) to 59.8% and is fast approaching his peak of 62.3% that occurred back in March. No one knows what the catalyst is, but several weeks of consecutive gains indicate Mitt Romney has his work cut out for him going into September.


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.


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.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama’s Reelection Chances  - HEI

2007 Redo

This note was originally published at 8am on August 14, 2012 for Hedgeye subscribers.

“This book isn’t based on academic theories. It’s based on our experience.”

-David Heinemeir Hansson


What a difference the last 5 years makes. Or did it? The aforementioned quote comes from the introduction of one of my favorite leadership and innovation books. Some of you already have it on your bookshelf. I’ve cited it often since founding the firm – REWORK, by Jason Fried and Victor Heinemeier Hansson.


If you are jammed for time into summer’s end, I read this book in 12 minutes to our team at a workshop meeting – lots of pictures. We like pictures. We’ll show you one of our risk management favorites in today’s Chart of The Day.


Re-work, Re-think, Re-do. Sadly, when it comes to Old Wall Street’s forecasting and risk management processes, there hasn’t been much of that going on in the last 5 years. Instead, broken sources keep re-cycling the same old stuff that sucked people in during Q3 of 2007.


Back to the Global Macro Grind


2007? Pardon? Weren’t we talking about Q308 similarities? Or was it the 1930s? 1987?


Here are 3 Big Macro things that are precisely like 2007:

  1. SALES: GDP Growth led Corporate Revenue Growth Slowing; by Q307, companies were right confused
  2. MARGINS/EARNINGS: stocks were “cheap” if you used peak margins and peak earnings assumptions for 2008
  3. VOLATILITY: US Equity market Volatility got slammed by “rumors” of Bernanke bailouts, rate cuts, etc.

Fast forward to Q3 of 2012:

  1. SALES: Same pattern – but Global GDP growth slowing faster now than it did then (China especially)
  2. MARGINS/EARNINGS: perma-bulls are still using peak margins and prior 2007 all-time high in EPS to justify “cheap”
  3. VOLATILITY: yesterday marked the 1st time since 2007 since the VIX dropped below 14

Since the VIX dropped below 14 eighty nine (89) times throughout 2007, the good news is that you probably have plenty of time to get out of stocks before everyone else has to. There are only 30,000 funds chasing beta at this point.


One question on that: after the shorts have all covered how, precisely, is that going to happen without volume? Probably just a silly risk management question; NYSE volume was only down -42% versus my intermediate-term TREND duration average yesterday. That’s gotta be bullish for someone. Just not Tommy Joyce.


Enough about price, volume, and volatility already – who cares about 3-factor risk when simple 1-factor Fisher Price point and click 50-day moving averages tell us all we need to know in the rear-view mirror?


Let’s deal with my personal baggage instead…


Not that I took it personally, but since I got fired for being “too bearish” in October 2007, I do remember the proceeding birth of my 1st son and the vision for Hedgeye quite vividly. So do the perma-bulls. The SP500 dropped -4.4% in November 2007.


And, that was it.


That was it for the storytelling. That was it for the “world is awash with liquidity” thing. That was it for the academic theory that “shock and awe” rate cuts to zero were going to free we centrally planned beasts from the shackles of our own thoughts.


Where to next?


The only thing I can predict, with 100% certainty, from here is that this is not 2007. This is 2012. And next year will be 2013.


What will get #GrowthSlowing to stop slowing? Will it be a bird or a plane? Or will Keynesian Economics finally provide the long lasting elixir of life that its group-thinkers have so often promised (growth) but never delivered?


I don’t know.


What I do know is that if you are buying US stocks at lower long-term highs (-10.3% versus October 2007 and -1.1% versus April 2012) at anything < 14 VIX, you either think 1990s growth is coming back and/or that this all ends well.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1601-1624, $110.36-115.42, $81.76-82.59, $1.23-1.24, 6943-7199, and 1393-1406, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


2007 Redo - Chart of the Day


2007 Redo - Virtual Portfolio

CHART OF THE DAY: Correcting All Of This


CHART OF THE DAY: Correcting All Of This - Chart of the Day

Correcting All Of This

“My government, will correct all of this.”

-Stephen W. Kearny


General Stephen Watts Kearny was one of the central figures in mid 19th century Western American history. Albeit for very brief periods of time, he was the Military Governor of both New Mexico (1846) and California (1847).


The aforementioned quote comes from Chapter 12 of the most recent book I’ve been reading on the conquest of the American West, Blood and Thunder, where “On August 14th, 1846, two days after the Navajo raid on Las Vegas, General Kearny marched with his Army of the West into the town’s central plaza…” and proclaimed his mystery of ill-fated central planning faith.


Within 6 months (January of 1847), Kearny’s “government” was nowhere to be found as the dead (scalped) body of the Governor he put in place in New Mexico (Charles Bent) “lay naked on the floor in a congealed pool of blood.” (page 221) The risk management lesson here is one that is never the same, but usually rhymes – beware of short-term government promises.


Back to the Global Macro Grind


Stock and commodity markets appear to have been promised that European and American central planners are once again going to provide them the elixir of a no-volume but “up year-to-date” life in Jackson Hole, Wyoming this weekend.


That’s all good and fine, until it isn’t. Super Mario Draghi just cancelled his trip to the central planning summer play-land of the modern American West, and the Gold price doesn’t seem to be pleased by that turn of events this morning – not one bit.


As a refresher on how the market’s game of front-running both the Fed and ECB works, both political pandering entities are charged with keeping market prices up through money printing, bailout promises, and currency debasement.


Here’s the update on what US Dollar Debauchery has done for this 30-day bull run in stocks and commodities (inverse correlations between USD Dollar Index and the big stuff people are speculating on):

  1. Gold = -0.85
  2. Silver = -0.87
  3. Oil (WTIC) = -0.81
  4. CRB Index = -0.74
  5. CRB Raw Industrials Index = -0.79
  6. SP500 = -0.83

European and Global Equities alike get even more pop on the Fed’s Qe rumoring with 30-day USD inverse correlations for the EuroStoxx600 and MSC World Equity indices currently running at -0.88 and -0.86, respectively.


So, your “governments” are going to “correct all of this” by attempting to convince you that asset price inflation (commodities in particular, because that’s what’s driven the beta of the equity indices) is growth.


*note to real-world consumer self: inflation is not growth.


Maybe that’s why old Chavez is having such a tough time in the Venezuelan national polls, falling behind Radonski for the first time in a long time by a fairly wide margin (47.7% to 45.9%) despite the Venezuelan stock market being up +153% YTD!


Pardon? You mean people aren’t as stupid as politicians think they are? You mean the stock market being “up year-to-date” doesn’t reflect the fully bought and paid-for political messaging of the common man’s economic health?


Venezuela, by the way, devalued its currency in the last year. See Darius Dale’s Chart of the Day for what looks suspiciously Weimar Republic, 1920s style.


Maybe I have this wrong. Maybe Americans are truly as dumb as the politicians who are making these short-term broken promises of “price stability, full employment, and economic growth”…


Maybe I don’t.


Now that 2 of the world’s Top 4 economies (China and Japan) have guided down their GDP growth expectations this month (Japan did last night), maybe someone sane out there is starting to figure this out too. The US Treasury Bond market certainly just did.


Looking at what’s happened to market prices in the last week isn’t the end of this story, but it’s certainly instructive:

  1. US Treasury Yields have dropped -13% in basically a straight line (from 1.89% to 1.64% on the 10yr this morning)
  2. US Stocks (the SP500 and Russell2000) have fallen from their mid-August highs to make lower-highs versus March
  3. US Equity Volatility (VIX) = +22% “off the lows” (in a week), bouncing hard off our 14-15 TAIL risk zone
  4. Asian Equities: China made a fresh YTD low yesterday (-16.5% since May); Japan = -12% since the March top
  5. European Equities: DAX, CAC, IBEX – pick your index have all made lower-highs on lower and lower volumes
  6. US Dollar Index = down -3% in August, from its top to bottom

I know, I know. This whole Currency Correlation thing doesn’t fit the Bernanke/Geithner narrative because someone in their group-thinking Keynesian business schools told them “correlation is not causality.”


Someone better tell that to the entire market that’s keying off the causality that is the latest rumor about what Bernanke does next then, because US Dollar bets (CFTC contracts) just went from +311,000 on the bull side in June to -132,000 on the bear side pre Jackson Hole.


Correcting All of This will be abrupt. What started as a localized grievance against money printing (late 2007) and bank bailouts (2008-2009) now moves to a national debate about the stability of your hard earned currency and long-term (inflation adjusted) economic health.


Our immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr Treasury Yields, and the SP500 are now $1, $112.28-114.26, $81.11-82.01, $1.23-1.25, 1.63-1.76%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Correcting All Of This - Chart of the Day


Correcting All Of This - Virtual Portfolio


TODAY’S S&P 500 SET-UP – August 28, 2012

As we look at today’s set up for the S&P 500, the range is 18 points or -0.67% downside to 1401 and 0.61% upside to 1419. 











  • ADVANCE/DECLINE LINE: on 08/27 NYSE -149
    • Decrease versus the prior day’s trading of 855
  • VOLUME: on 08/27 NYSE 504.30
    • Decrease versus prior day’s trading of -2.13%
  • VIX:  as of 08/27 was at 16.35
    • Increase versus most recent day’s trading of 7.71%
    • Year-to-date decrease of -30.13%
  • SPX PUT/CALL RATIO: as of 08/27 closed at 1.80
    • Down from the day prior at 2.23 


BONDS – sell stocks and buy bonds? at 1.89% in the 10yr, we did – now we’re staring down the pipe of a 1.64% 10yr yield this morning and a Yield Spread that’s pancaked in the last week back down to 137bps wide. Commodity inflation is not growth. It slows real growth. 

  • TED SPREAD: as of this morning 33.35
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.64%
    • Decrease from prior day’s trading of 1.65%
  • YIELD CURVE: as of this morning 1.37
    • Down from prior day’s trading 1.39

MACRO DATA POINTS (Bloomberg Estimates)

  • 7:30am/8:45am: ICSC/Redbook weekly sales
  • 9am: S&P/CS 20 City Home Price Index M/m, June, est. 0.4% (prior 0.91%)
  • 9am: S&P/CS U.S. Home Price Index Y/y, 2Q (prior -1.92%)
  • 9am: S&P/CS Home Price Index, June (prior 138.96)
  • 10am: Conference Board Consumer Confidence, Aug., est. 66.0 (prior 65.9)
  • 10am: Richmond Fed Manuf. Index, Aug., est. -10 (prior -17)
  • 11am: Fed to purchase $4.5b-$5.5b notes 11/15/2020-8/15/2022
  • 11:30am: U.S. to sell $40b 4-wk. bills
  • 1pm: U.S. to sell $35b 2-yr. notes
  • 4:30pm: API inventories


    • Republican National Convention in Tampa, Day 2: Prime-time speakers include Ann Romney; Rick Santorum; Va. Gov. Bob McDonnell; N.J. Gov. Chris Christie
    • House, Senate not in session
    • Arizona primaries: Rep. Ron Barber vs State Rep. Matt Heinz in Democratic primary; in Senate race, Rep. Jeff Flake vs Wil Cardon in Republican primary, polls close 9pm
    • Biotechnology Industry Organization hosts conference call on “Renewable Fuel Standard and the Drought,” focusing on governors of several states petitioning EPA to waive requirements of federal renewable fuel standard, 2pm
    • Acting FDIC Chairman Martin Gruenberg discusses Quarterly Banking Profile, 10am
    • Center for Strategic and International Studies holds logistics conference on “Creating a 21st Century Supply Chain,” with HPQ’s Tony Prophet, World Bank’s Bernard Hoekman, 2pm


  • Tropical storm Isaac on verge of becoming hurricane today
  • Isaac seen making U.S. release from SPR more likely
  • GM said to plan halt of Chevrolet Volt production for 4 wks
  • Apple seeks ban on sales of 8 Samsung phones in U.S.
  • Forest Laboratories adopts shareholder-rights plan
  • U.S. farm income seen up as drought prices overtake lower yields
  • ECB to urge weaker Basel liquidity rule on crisis concern
  • Spain sells $4.5b of bills exceeding target
  • Standard Chartered faces U.S. fine over Iran: N.Y. Post
  • Japan cuts economic assessment as BNP says contraction looms
  • Canada’s Bank of Montreal, Bank of Novia Scotia report earns
  • Toyota offers $2b to buy 70% of CFAO to expand in Africa
  • Knight Capital to name 3 new directors today: WSJ


    • Sanderson Farms (SAFM) 6:30am, $1.07
    • Brown Shoe (BWS) 7am, $0.03
    • Cyberonics (CYBX) 7am, $0.36
    • Bank of Montreal (BMO CN) 7:26am, C$1.34
    • Bank of Nova Scotia (BNS CN) 7:30am, C$1.19
    • Movado (MOV) 7:30am, $0.26
    • Ship Finance (SFL) Pre-mkt, $0.42



GOLD – bailout bulls did not like the headline this morning that Draghi isn’t going to Jackson Hole. The Dallas Fed (Fisher) put the heat on Bernanke yesterday again too (don’t underestimate the GOP convention launching w/ a ticking debt clock in the background today either); Romney picking up some momentum this week could be Dollar bullish; gold bearish, on the margin, from lower-highs.

  • Robusta Coffee Beats Arabica as Folgers Cut Prices: Commodities
  • Barclays Gutted in Energy Trade as Bonus Limits Spark Exodus
  • Isaac Seen Making U.S. Release From Oil Stockpiles More Likely
  • China May Sell Cotton From Stockpile, Release Import Quota
  • Oil Advances on U.S. Supply Forecast, Venezuela Refinery Blaze
  • Corn Declines as Rains May Ease Dry Conditions in Southern U.S.
  • Copper Nears One-Week Low on Signs of Slowing Asian Economies
  • Gold Set to Gain in London on Demand for Protection of Wealth
  • ICCO Reduces Global Cocoa Shortage Forecast by 56% This Year
  • Iron Ore Poised to Drop as Slowing Growth in China Cuts Demand
  • Louisiana Preps for Oil Dredged From the Gulf by Isaac’s Power
  • Tanker Trackers Turn Bearish as IEA Trims Oil Forecast: Freight
  • Olam Fourth-Quarter Profit Falls 14% on Industrial Raw Materials
  • Crude Supplies Fall to Five-Month Low in Survey: Energy Markets
  • Storm Isaac May Reach Hurricane Strength
  • Sugar Nears Two Year-Low as Brazil Crop Speeds Up; Coffee Rises
  • U.S. Farm Income Seen Up as Drought’s Prices Trump Lower Yields















JAPAN – could Japanese GDP growth go negative sequentially? They do have to adjust real growth for imported energy inflation (unless they make up the number like Spain does); and the Nikkei continues to make lower-highs (down -12% from its March top)









The Hedgeye Macro Team


The Macau Metro Monitor, August 28, 2012




Macau’s casinos don’t have enough manpower and the situation will only get worse next year, as the government increases the cap on the number of live gaming tables, warns Macau Gaming Industry Employees Association, João Bosco Cheang Hong Lok.  “Next year, the number of gaming tables will increase by 3%. I believe many casinos will increase the number of their gaming tables and by then, staff shortages in the gaming industry will be even tighter,” Cheang said.  Cheang also noted that starting November 1, all those below 21 years of age would be banned from working inside the city’s casinos.



The number of imported workers in Macau reached a new all-time high in July.  According to official data from the police released yesterday, Macau had a total of 104,938 imported workers by July-end, 60% of whom came from the mainland.  That is above the previous peak, recorded in September 2008, when Macau’s imported labour workforce reached a total of 104,281 people.  Hotels and restaurants are the number one employer for imported workers, giving work to 30% of the total.



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