Fair or Foul?

This note was originally published at 8am on August 15, 2012 for Hedgeye subscribers.

“Fair is foul, and foul is fair.”

-Witches, Act 1, scene i


Today in 1057, Macbeth died. This global stock market, meanwhile, is quietly channeling its inner Shakespeare. Tragedy.


How else can you explain markets that are being cheered on to whoever will listen to the complete opposite of what the bull case was for stocks in March? What does it mean when markets go up for 6 straight weeks on no volume, and no one cares?


Fair economic news is now seen as a headwind for stocks and commodities, because the real bull case from here is foul.


Back to the Global Macro Grind


Foul? Indeed. If the bull case for America is more debt, inflated food/energy prices, and bailouts from policies that perpetuate #GrowthSlowing, that’s got a nasty short-term smell to it. It reeks of one of the darkest tragedies in US economic history - the inability of American leaders to learn, change, and evolve our policy making process.


Headline: “Romney/Ryan See Fed QE As Inflation Risk”


Really? C’mon now white boys – stop scaring the gold bugs. You may as well throw granny off her wheel chair while you are at it. There hasn’t been a Republican or Democrat ticket that has explained the relationship between a country’s currency and its People’s Purchasing Power since Margaret Thatcher taught us how to wear the conservative economic leadership pants.


Upward and onward with your centrally planned day…


The SP500 hasn’t gone up for 2 days, primarily because the US Dollar stopped going down for the last 2 days. China didn’t provide begged-for stimuli, Eurocrats are on vaca, and USA is about to have a real economic debate.


Is that Fair or Foul? And, for who?

  1. It’s foul for anything that’s highly correlated to what the US Dollar does in the immediate-term
  2. It’s fair for those of us who still believe in a free market’s ability to price all of our emotional baggage

Can the US stock market handle another 1% down day? How about another 10% draw-down like we saw from the March top to the June lows? All I can tell you is that yesterday’s -0.25% move “off the highs” felt like 1 ton of dog doo in a 10lb bag.


That’s what happens to a market that’s pinned up on short covering, has zero inflows, and is plainly hoping for another plan out of central casting. Once the shorts have all covered, short-term political tragedy is back in play.


If you don’t think Draghi, Rajoy, and Obama have some serious skin in the “but the market is up game” you are, at a bare minimum, unaware of what’s really going on backstage in this world’s political market theater. If you do, you’re probably like me – expecting the foulest of foul political moves to keep markets propped up.


“Fortune, on his damned quarrel smiling,

Showed like a rebel’s whore.”

-Captain, Act I, scene ii


In other news: 

  1. Chinese stocks dropped another -1.1% overnight and are down -2% for the wk as growth continues to slow
  2. Spanish stocks are down this morning after making lower-highs versus their August 7-8 short squeeze top
  3. Russian stocks are down -1.3% this morning as Oil struggles to make new highs (US Dollar up)
  4. CRB Commodities Index failed to overcome long-term TAIL risk resistance (307)
  5. Dr. Copper continues to be a card carrying Chinese growth slowing party member (Bearish Formation)
  6. US Treasury Bond Yields are debating the growth bulls as to whether or not this time is really different

For central planners attempting to “smooth” economic gravity, to grow, or not to grow – remains the question.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and SP500 are now $1597-1611, $110.98-115.33, $81.88-82.98, $1.22-1.24, 791-803, and 1396-1406, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fair or Foul? - Chart of the Day


Fair or Foul? - Virtual Portfolio


The Macau Metro Monitor, August 29, 2012




Universal Entertainment said that it is seeking damages for harm caused to its share price and business due to Wynn's decision to remove Okada as a board member and reclaim the $2.77 billion of shares in the company owned by Universal Entertainment.  The lawsuit filed in Tokyo this week is demanding 11 billion yen ($140 million) in damages.  



Permira Advisers has sold 278.8 million shares at HK$21 (US$2.7) each, which represented 6.7% of the share capital of Galaxy Entertainment and close to 53% of Permira’s stake.  The source added that the shares were sold to a small number of investors, including existing Galaxy Entertainment shareholders and new investors, as well as long-only funds and hedge funds.  The deal raised an estimated HK$5.85 billion.

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Weak Dollar Crowd

“The fact that this policy failed spectacularly in 1973 did not deter the weak-dollar crowd.”

-Jim Rickards


If my sell-side competition thinks I am going to back down on how Dollar Debauchery has perpetuated the US and Global Economic slowdown via commodity inflation in 2012, they better think again.


The Weak Dollar Crowd’s case for “strong exports” and an “up market” (on no volume or fund flows) is weakening. The Strong Dollar, Strong America solution I introduced in December 2011 (when I was bullish on US growth and stocks) is strengthening.


Make no mistake, I am at war with the Keynesians – it’s what Jim Rickards has coined the Currency War, “The Making of The Next Global Crisis.” Jim will be doing a conference call with our Global Macro Team today at 11AM EST (email for access).


Back to the Global Macro Grind


With a Navajo chant, shots were fired from New Haven on August 16th, 2012. That’s when we said sell stocks and buy bonds. If the Weak Dollar Crowd bought stocks at 1426 SPX and sold bonds with the 10yr US Treasury yield at 1.89%, they should feel shame.


But they don’t. In fact, some of these strategists and economists from the Old Wall are shameless. That’s not being rude – that’s the truth. How else should I describe their March 2012 consensus US and Global GDP estimates being off by 45-70%?


Oh, but “stocks are up” for the YTD, so you don’t have to get anything fundamental right about growth or how money printing infects it to take a half-baked victory lap in this business at short-term tops, right?


That’s ending folks. The People don’t trust broken sources. Market volumes speak louder than their words.


Got data to support the Weak Dollar Crowd weakening?

  1. GROWTH: this morning you’ll get Q2 2012 US GDP growth reported down at least 60% from where it was in Q4 2011 (4.10%)
  2. INFLATION: real-time inflation that drives down real (inflation adjusted) Consumption Growth is ripping, sequentially, in August
  3. CONFIDENCE: yesterday’s US Consumer Confidence number for August was down -8% month-over-month vs July’s 65.9 reading

That’s right “stocks are up” fans, the US stock market is up over +2% for August… and the American People don’t care. That’s because of the math – when Growth Slows and Inflation Accelerates, real consumers get squeezed.


Pardon? What happened? Why didn’t people forget about needing to be up +13% (from here in the SP500) to get their 401k super stock market allocations back to break-even? Didn’t they make a 100% equity allocation to the AAPL ETF?


This isn’t funny anymore. Neither were the 1970s.


In the 1970s you had a less politicized version of Ben Bernanke (Fed Chief Arthur Burns, who didn’t do the TV and print thing) work towards Dollar Debauchery and Debt Monetization under both a Republican and Democrat boss (Nixon and Carter).


Today, it’s worse – and not because Bernanke did the same for Bush/Obama – more so because the Europeans have their own currency this time and are trying to do precisely what the Japanese did.


Overlay those conflicted and compromised political policy “plans” driving the Dollar, Yen, and Euro with what #BailoutBeggars are asking the Chinese to do next (“PRINT LOTS OF MONEY” – Paul Krugman to Japan 1997), and the weakness of the weak is looking weaker.


It’s not different this time. Currency Wars have always been global. Rickards will expand on that with us today.


In other news this morning:

  1. Chinese stocks fell another -1% last night, right back down to their YTD lows (-16.5% since May)
  2. Indian and Indonesian stocks both snapped their immediate-term TRADE lines of support, down -0.6% and -1.4%, respectively
  3. EuroStoxx50 finally broke its immediate-term TRADE (squeeze) line of 2466
  4. Germany’s DAX and Spain’s IBEX sliced through their respective TRADE lines of 7016 and 7416 as well
  5. Russian stocks lead decliners, down -1% this morning (down -19% from the March #GrowthSlowing top), with Oil down
  6. Spain’s 5yr CDS just peeked its head back over the 500 line (1st time since August 13th)
  7. Gold failed at its long-term TAIL risk line of 1679 resistance, again, and continues to make lower-highs
  8. 10yr US Treasury Yields have effectively collapsed (-14% in less than 2wks) back down to 1.62%
  9. US Treasury Yield Spread (10yr – 2yr) is down 18bps since our call on August 16th to buy bonds (that’s a lot)
  10. Draghi wrote an Op-Ed about something I can’t understand

This globally interconnected gong show of central planning rumors still looks Too Big To Bail to me. Weak (failed) policy makers are looking weaker. Strong real-time risk management processes are getting stronger.


My immediate-term risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, 10yr UST yield, and the SP500 are now $1, $111.54-113.98, $81.11-81.96, $1.24-1.26, 1.58-1.65%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Weak Dollar Crowd - Chart of the Day


Weak Dollar Crowd - Virtual Portfolio


TODAY’S S&P 500 SET-UP – August 29, 2012

As we look at today’s set up for the S&P 500, the range is 17 points or -0.52% downside to 1402 and 0.69% upside to 1419. 











    • Increase versus the prior day’s trading of -149
  • VOLUME: on 08/28 NYSE 516.47
    • Increase versus prior day’s trading of 2.41%
  • VIX:  as of 08/28 was at 16.49
    • Increase versus most recent day’s trading of 0.86%
    • Year-to-date decrease of -29.53%
  • SPX PUT/CALL RATIO: as of 08/28 closed at 1.49
    • Down from the day prior at 1.80


BONDS – hoowah! what a move in the US Treasury market – the 10yr yield looks like the Chinese synchro diving team here, dropping straight back down to 1.62%, snapping TRADE support of 1.65% like a knife through water – today’s US GDP report will remind the March 2012 “growth is back” bulls that stocks may have rallied for 6wks, but not for the growth reasons they called for back then.

  • TED SPREAD: as of this morning 32.65
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.64%
    • Increase from prior day’s trading of 1.63%
  • YIELD CURVE: as of this morning 1.37
    • Unchanged from prior day’s trading

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Aug. 24 (prior -7.4%)
  • 8:30am: GDP Q/q (Annualized), 2Q, est. 1.7% (prior 1.5%)
  • 8:30am: Personal Consumption, 2Q, est. 1.5% (prior 1.5%)
  • 8:30am: GDP Price Index, 2Q, est. 1.6% (prior 1.60%)
  • 8:30am: Core PCE Q/q, 2Q, est. 1.8% (prior 1.8%)
  • 10am: Pending Home Sales M/m, July, est. 1% (prior -1.4%)
  • 10:30am: DoE Inventories
  • 11am: Fed to purchase $4.25b-$5b notes 8/31/2018-8/15/2020
  • 1pm: U.S. to sell $35b 5-yr notes
  • 2pm: Fed’s Beige Book


    • Republican National Convention, Day 3: Speakers include Paul Ryan; John McCain; Mitch McConnell; Jeb Bush; Tim Pawlenty; Condoleezza Rice
    • House, Senate not in session
    • SEC meets to consider eliminating prohibition against general solicitation, advertising in securities offerings, 10am
    • CMS holds semi-annual meeting of advisory panel on outpatient payments for hospitals, 9am
    • International Society of Air Safety Investigators holds annual seminar, with NTSB Vice Chairman Christopher Hart, 8am


  • Daikin buys Goodman Global for $3.7b to expand in Nth. America
  • Hurricane Isaac beginning to move into Louisiana, NHC says
  • G-7 countries call for increased oil output to meet demand
  • KKR said to be in talks to buy Renesas for $1.2b: Nikkei
  • Italy borrowing costs fall at 6m bill auction
  • Republican convention continues in Tampa; Paul Ryan speaks
  • Morgan Stanley, Citigroup delay valuation of brokerage JV
  • Wellpoint searches for new CEO as Angela Braly resigns
  • Apple’s request for Samsung ban to be heard Dec. 6
  • Swedish FSA says banks can lend more amid tougher rules


    • Joy Global (JOY) 6am, $1.89 - Preview
    • Fresh Market (TFM) 6am, $0.27
    • Jos A Bank (JOSB) 6am, $0.73
    • HJ Heinz (HNZ) 7am, $0.81
    • JA Solar (JASO) 7am, ($0.96)
    • Zale (ZLC) 7:30am, ($0.83)
    • Genesco (GCO) 7:31am, $0.26
    • Brown-Forman (BF/B) 8am, $0.63
    • Tivo (TIVO) 4pm, ($0.24)
    • Oxford Industries (OXM) 4pm, $0.63
    • Pandora Media (P) 4:02pm, ($0.03)
    • Vera Bradley (VRA) 4:02pm, $0.35
    • Greif (GEF) 4:07pm, $0.71
    • Canadian Western Bank (CWB CN) 6:48pm, $C$0.57


  • No Return to Dirty ’30s as Farmer Sees Drought Relieved by U.S.
  • Oil Falls From One-Week High on Isaac, G-7 as Gasoline Declines
  • Timah Restarts Tin Spot Sales After Advances, Sukrisno Says
  • Big Coal Faces Steel Slowdown Amid Shale-Gas Pain: Commodities
  • Southeast Asian Buyers Seek Cheaper Soybean Meal, Corn Supplies
  • Soybeans Rise for Second Day on Signs of Increasing World Demand
  • Monsoon Revival Brightens Prospects for India Rice, Cane Crops
  • Gold Seen Falling in London Before Bernanke Speech This Week
  • Aluminum Premiums in Japan Set for Record High as Supply Limited
  • Cocoa Rises as West Africa May Have Little to Sell; Sugar Gains
  • Gold ETP Assets Jump to Record to Overtake Italy’s Reserves
  • Lingerie Delayed as $517 Billion India Jam Idles Trucks: Freight
  • Platinum ‘Correction’ a Buying Opportunity: Technical Analysis
  • Gold Calls at 2008 High on Jackson Hole Bet
  • Tin Declines as Restart of Producer Sales Eases Supply Concern
  • Palm Oil Drops on Speculation Stockpiles to Increase in Malaysia
  • Gold Calls at 2008 High on Easing Bets for Jackson Hole: Options










EUROPE – lower-highs on lower volumes across the board in all of the major Eurocrat markets; finally, the apex of the short squeeze looks to be over as my most immediate-term TRADE lines of price momentum are all snapping (for the IBEX that line = 7416).






CHINA – it’s not just U.S. consumers who couldn’t care less about 6 wk U.S. stock market rallies to lower highs; Chinese and Indian consumers do not like food/energy prices up here and neither do their stock markets; Shanghai Comp -1%, back to YTD lows.










The Hedgeye Macro Team


Takeaway: Solid pricing better than expected

Despite investor fears, ASPs remain stable



Investor concerns surrounding pricing pressure have weighed on the equipment stocks.  At least for the for-sale slot market we can confirm our suspicion that pricing held steady through Q2.  Following Aristocrat’s report today and combined with the other three large public suppliers (the public 4), the data indicates that ASPs actually increased in 1H2012.


On an as-reported basis, pricing for 1H12 increased 1.3% YoY.  Based on our estimates, 1Q pricing was up 2.0% YoY and 2Q pricing was up 0.3% YoY.


One of the factors that dragged down pricing in 1H12 was a higher than normal level of used unit sales.  IGT’s NA product sales included 1,700 used unit sales in the June quarter versus a normal quarterly run rate of 500.  Aristocrat also blamed an elevated number of refurbished units in their mix as a culprit for lower pricing.  If we assume that the used/refurbished units are priced at $8,000 and factor out the used units in 1H12 and 1H11 (500/Q for IGT), then ASPs for the public 4 look like they increased by 3.2% YoY.  Based on our estimates, 1Q and 2Q pricing was up 2.3% and 3.7% YoY, respectively.



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