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Bonds. James Bonds.

This note was originally published at 8am on August 20, 2012 for Hedgeye subscribers.

“This is a serious problem, although it is not as dramatic as sort of an epidemic.”

                -James Bond


Author Ian Fleming created James Bond, code named 007, in 1953 and subsequently featured him in twelve novels and two short story collections.  Bond was an intelligence officer in the Secret Intelligence Service and a Royal Naval Reserve Commander.   Fleming based this fictional character on many of the intelligence officers and commandos he met during World War II.  Interestingly, the name James Bond came from American ornithologist James Bond, a Caribbean bird expert and author of the definitive field guide Birds of the West Indies. (Don’t worry, I haven’t read it either.)


Over the course of the Fleming’s twelve novels and the twenty-two James Bond movies (the highest grossing series ever at $4.9 billion), Bond utilizes his astute intelligence gathering capabilities, combined with various gadgets, including an exploding attaché case, to save the world from a myriad of threats.  If Bond were a research analyst studying today’s markets, the U.S. bond markets may be considered an emerging epidemic in his analytical purview. 


Even if not an epidemic, bond issuance levels this year have been staggering.   Firstly, in the municipal bond market in the United States, as of May, issuance is up 70% compared to the same period in 2011.  Secondly, in the U.S. corporate bond market issuance is up 5% year-over-year, but has seen a serious acceleration in the last few months with investment grade issuance up 54% and high yield up 30% in July 2012.  Finally, according to Lipper Research, bond ETFs have seen the eighteenth consecutive month of net inflows.


So, is there is a bond epidemic / bubble?  Given the stance of the global central banks to keep interest rates at artificially low levels, it is likely not an epidemic that is going to end in the short term.  In fact, we are actually aggressively allocated to U.S. government bonds as we think equities are at an extreme and growth is continuing to slow.  Certainly though, James Bond, the research analyst, would be gathering his intelligence and watching and waiting for an opportunity to sell the high yield bond market.


As we show in the Chart of the Day below, which we have aptly named, From the Central Banks with Love, the high yield market is at a generational low in yield.  Obviously when studying a corporate bond, there are a number of factors to analyze in determining whether it is overvalued or undervalued.  Certainly, the overall interest rate environment is critical, but ultimately the prospects of the company are the drivers of a junk bond’s value, especially given the bond’s inferior position in the capital structure.  Therefore, given that yields in the junk bond market are literally at generational lows, it implies that default risk is also close to an all-time low.  Personally, I’d need a few James Bond-esque martinis before I’d believe that last point to be an accurate assessment of default risk.


Speaking of bonds, Der Spiegel reported this weekend that the ECB may set a specific threshold to cap periphery bond yields at its meeting in September.  The immediate reaction in the European sovereign debt markets is, not surprisingly, positive as credit default swaps are trading tighter across the board.  As well, the Spanish 10-year is back down to 6.19%.  Even if positive in the short term, broad intervention in a large market speaks to another epidemic, the epidemic of government intervention in the free markets.  Random intervention by governments does not build confidence in the markets.  And confidence is what is sorely missing in the European debt markets.


In the latest sign that global growth is slowing, the Shanghai Composite hit a fresh three and a half year low this morning.   The Chinese equity markets may not always garner headlines in the U.S. financial media, but nonetheless China remains the engine for global growth and as China goes so goes marginal global growth.  Thursday will give us some important insights on Chinese and global growth as flash PMIs are reported for China, Europe and the United States.


Keith is back in Thunder Bay this week taking some time off with his family ahead of what is going to be a busy next few months at Hedgeye, so we will be highlighting some of the key calls from our broader research team this week.  This will be kicked off this morning with our Financials Sector Head Josh Steiner and our Retail Sector Brian McGough leading our morning client call at 830 a.m.  Email qa@hedgeye.com if you like to ask them any questions, or get access to the call.


Although we are currently not short it in the Virtual Portfolio, one of McGough’s favorite short ideas has been J.C. Penney.   We’ve been consistently short JCP for the past fifteen months and will likely look to re-short when we see our level.  McGough had the following to say after JCP’s recent earnings announcement:


“We won't bother with the full financial review. Comps down -22%, dot.com down 33% and a ($0.67) loss pretty much sums that up.


But that's the past. We invest for the future. One thing that matters in investing for the future is believing in who is running the ship. We initially figured that Johnson's Apple halo would have lasted 18-24 months. But about 5-minutes into his commentary today, his credibility stood up, ran out the door, and got hit by a bus.


Last quarter, his level of arrogance around communicating the message was bothersome. He spoke to the Street like we were toddlers, or at least retail novices. He glossed over the bad, and played up whatever positive statistic he could find. A JV mistake for a new CEO.”


As it relates to CEO Ron Johnson at J.C. Penney, or really any CEO of a large public company, perhaps Ian Fleming said it best when he wrote:


“Once is happenstance. Twice is coincidence.  Three times is enemy action.”




Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1601-1624, $110.89-115.21, $82.20-82.89, $1.22-1.24, 1.72-1.87%, and 1406-1419, respectively.



Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Bonds.  James Bonds. - Chart of the Day



Bonds.  James Bonds. - Virtual Portfolio


Weekly European Monitor: Grinding Higher?

Takeaway: Despite sovereign yields moderating, growth remains constrained and austerity’s tail is not fully priced in across Europe.

-- For specific questions on anything Europe, please contact me at to set up a call.


Positions in Europe: Short EUR/USD (FXE)


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -0.7% week-over-week vs -1.8% last week. Bottom performers: Ukraine -5.2%; Russia (RTSI) -2.9%; Sweden -1.4%; Switzerland -1.4%; UK -1.1%; Finland -1.0%. Top performers: Portugal +2.5%; Spain +1.5%; Italy +1.5%; Hungary +0.7%.[Other: France -0.6%; Germany 0.0%; Greece +0.4%].
  • FX:  The EUR/USD is up +0.56% week-over-week.  W/W Divergences: RUB/EUR -2.14%; HUF/EUR -1.90%; PLN/EUR -1.85%; TRY/EUR -1.69%; GBP/EUR -0.15%; DKK/EUR -0.04%; NOK/EUR -0.01%; CHF/EUR +0.01%.
  • Fixed Income:  The 10YR yield for sovereigns across the region were mostly higher this week. Spain saw the largest increase, +28bps to 6.70%, followed by France’s +14bps move to 2.19%.  Italy rose +8bps to 5.79bps and Germany was up +4bps to 1.39%.  Greece bucked the trend, falling -54bps to 23.43%.  
  • Sovereign CDS:  Sovereign CDS followed yields, up slightly across the periphery this week. On a week-over-week basis Spain rose the most, up +18bps to 511bps, followed by Italy +14bps to 463bps. France, Germany, the UK, and Ireland were mostly flat on the week. Portugal showed a negative inflection of -13bps to 669bps.   

Weekly European Monitor: Grinding Higher? - bb. yields


Weekly European Monitor: Grinding Higher? - bb. cds a


Weekly European Monitor: Grinding Higher? - bb. cds b



Grinding Higher?

This week in Europe produced a ton of noise: it started off with Draghi announcing that he would not attend Jackson Hole and increased speculation that the ECB is considering informal, flexible yield targets on short-term peripheral sovereign debt and concluded with Bundesbank President Jens Weidmann reiterating his opposition to ECB purchases of peripheral debt and his possible resignation. In short, we see the success of targeting yields as highly doubtful. Interesting, Chancellor Merkel remains in a tight spot supporting Weidmann while understanding that she must play ball with her fellow Eurocrats and inevitably grant more bailouts and support concessions to prevent the exit of Greece and limit risk premiums across the periphery.


Keep in mind that the market is wrestling with two immediate catalysts: 1. The results of the Governing Council meeting of the ECB this coming Thursday (9/6), and 2. The decision of the German Constitutional Court on 9/12. 


We think it’s unlikely that we’ll get definitive color on secondary peripheral buying at the ECB’s meeting and expect rates to be on hold until we get at least another month of data and after there’s clarity from the German Constitutional Court’s decision on the constitutionality of the ESM and Fiscal Compact; currently it looks probable that it will pass.


While sovereign yields and CDS spreads were marginally higher on a week over week basis, they remain (at least for the moment) under levels seen earlier this summer -- as recently as late July -- when Italy and Spain’s 10YR were trading north of the 6% and 7% levels, effectively the market’s freak-out level. It’s unclear whether this is a function of indecision ahead of the ECB and German Court decisions or a new-found confidence that Eurocrats will continue to throw the kitchen sink at their problems despite our view that Eurocrats have no clue on how to craft a long term path towards a united, growing Europe.


Interestingly, new issuance from Italy and Spain this week was issued at lower yields than previous auctions for similar maturities, a bullish signal. But is it sustainable? We think not so long as growth remains constrained and austerity’s tail is not fully priced in. Recent fundamental data, as we show below for this week under the section Data Dump, remains awful to challenged.



Auction Results (highlights):

Italy sold €4.0B 10YR bonds with an average yield of 5.82% vs prior 5.96%, (bid to cover 1.42 vs prior 1.29; target €3.0-4.0B).


Italy sold €9.0B 6M bills with an average yield of 1.585% vs previous 2.454% on July 27 (bid-to-cover 1.69 times vs previous 1.61).


Spain sold 3M bills at 0.946%, down from the 2.434% at the last auction in July (bid-to-cover improved to 3.4x from 2.9x).


Spain sold 6M bills at 2.026% vs 3.691% last month (bid-to-cover fell to 2.2x from 3.0x in July).




Call Outs:


Germany - German government economic adviser Lars Feld (one of Germany's five "wise men") said that a breakup of the Euro would cut up to 10% off the German economy. He added that even just a Greek exit would present significant risks.


China - Premier Wen told visiting Merkel that Spain, Italy, and Greece must take “comprehensive measures” to prevent crisis from worsening.  Wen did say China is willing to invest in the European Bond Market, though on the condition of a full evaluation of risk, and said that the key to solving the crisis is to strike a balance between fiscal tightening and economic stimulus.


Netherlands - The Political backdrop in the Netherlands ahead of the 12-Sept elections: opinion surveys show that the anti-austerity Socialist Party could garner between a fifth and a quarter of the seats in parliament, beating out the pro-business Liberal Party. This could put Socialist party and its leader, Emile Roemer, in a position to form a coalition. However, forming a coalition will not be easy, as an alliance with its two natural allies, Labor and Green, would be unlikely to secure enough seats to form a government. This could spell coalition building problems over austerity plans agreed under the government in April and derail the budget targets for 2013 set by the European Commission. The Socialists also want a referendum on the new fiscal compact.


Germany - Der Spiegel reported that German Chancellor Merkel wants an EU convention to draft a new treaty for deeper Eurozone integration. The magazine said that Merkel hopes that an EU leaders' summit in December can produce a firm date for the start of the convention on a new treaty.


Spain - ECB data showed that deposits in Spanish banking institutions fell 4.7% M/M in July. However, a Bank of Spain official told Dow Jones that the number was impacted by the fact that Spanish companies typically pay taxes in July, while households tend to spend more in the summer months as they go on holiday.


Spain - ECB data showed that Spanish banks cut their government bond holdings by €7.58B to €247.2B in July, the largest monthly drop since August of last year.


Italy - Prime Minister Monti said in an interview with the Italian business daily Il sole-24 Ore that while he may seek support from the Eurozone bailout mechanism to help lower borrowing costs, he does not want Italy to be subjected to "some sort of intrusive special administration like has happened with the countries that needed aid to balance their accounts". He added that Italy is "not in that situation".


Spanish - Deposit outflows for July was €74B (2x the previous month and equal to 7% GDP).


Portugal - According to a government source, troika is considering relaxing Portugal's 2012 budget deficit target from 4.5% of GDP to slightly above 5%. The paper said that the concession is in exchange for the improvement that Portugal has shown with its external deficit, which came in below 2% in the first half of the year, below the annual 2.5% target.


Spain - Moody's expected to downgrade Spain to junk in September. Moody's put Spain on negative review in June, giving itself three months to decide whether or not to cut the sovereign debt rating to junk.





Our immediate term TRADE range for the cross is $1.23 to $1.26. In the second chart below we look at CFTC data for net contracts of Euro non-commercial positions. Interestingly, since a high in short positions in the Euro on 6/5/12 (-213.060 contracts), investors have been less bearish (and covering), moving to 41% less bearish contracts (-125.817) as of 8/21.  On a 1M basis, contracts moved to 20% less bearish; 3M = 35% less bearish; and 6M = 8% less bearish.     


Weekly European Monitor: Grinding Higher? - bb. eur


Weekly European Monitor: Grinding Higher? - bb. cme



Data Dump:


In yet another week Europe showed very weak fundamental data across most of the board.  In highlight, Eurozone confidence figures broadly declined in August versus July, a similar trend that was seen with German (IFO) confidence declining for four straight months, as inflation moved higher in the Eurozone (+2.6% in August) and remained sticky and high in Italy, at 3.5%.


Eurozone Business Climate -1.21 AUG (exp. -1.30) vs -1.27 JUL

Eurozone Consumer Confidence (Final) -24.6 AUG (inline) vs -21.5 JUL

Eurozone Economic Confidence 86.1 AUG (exp. 87.5) vs 87.9 JUL


Weekly European Monitor: Grinding Higher? - bb. confid euro consumer and econ


Eurozone Industrial Confidence -15.3 AUG (exp. -15.5) vs -15.1 JUL

Eurozone Services Confidence -10.8 AUG (exp. -9.0) vs -8.5 JUL


Weekly European Monitor: Grinding Higher? - bb  euro conf manufact and service


Eurozone M3 3.8% JUL Y/Y (exp. 3.2%) vs 3.1% JUN

Eurozone CPI 2.6% AUG (exp. 2.5%) vs 2.4% JUL

Eurozone Unemployment Rate 11.3% JUL vs 11.3% JUN (revised from 11.2%)


Germany Unemployment Change +9K AUG (exp. +7K) vs +9K JUL

Germany Unemployment Rate 6.8% AUG vs 6.8% JUL

Germany IFO Business Climate 102.3 AUG (exp. 102.7) vs 103.2 JUL

Germany IFO Current Assessment 111.2 AUG (exp. 110.8) vs 111.5 JUL

Germany IFO Expectations 94.2 AUG (exp. 95) vs 95.5 JUL


Weekly European Monitor: Grinding Higher? - bb. ifo


Germany Import Price Index 0.7% JUL M/M (exp. 0.9%) vs -1.5% JUN   [1.2% JUL Y/Y (exp. 1.4%) vs 1.3% JUN]

Germany GfK Consumer Confidence 5.9 SEPT vs 5.8 AUG

Germany CPI Preliminary 2.2% AUG Y/Y (exp. 2.0%) vs 1.9% JUL

Germany Retail Sales -1.0% JUL Y/Y (exp. 0.1%) vs 3.7% JUN


France Own Company Production Outlook -6 AUG vs -9 JUL

France Production Outlook -44 AUG vs -44 JUL

France Business Confidence 90 AUG vs 89 JUL


UK M4 Money Supply -4.6% JUL Y/Y vs -5.2% JUN

UK Nationwide House Prices -0.7% AUG Y/Y (exp. -2.2%) vs -2.6% JUL


Italy Business Confidence 87.2 AUG (exp. 86.8) vs 87.1 JUL

Italy Hourly Wages 1.5% JUL Y/Y vs 1.5% JUN

Italy Retail Sales -0.5% JUN Y/Y vs -1.7% MAY

Italy Consumer Confidence 86 AUG vs 86.5 JUL

Italy Unemployment Rate 10.7% JUL Prelim.  vs 10.7% JUN

Italy CPI 3.5% AUG Prelim Y/Y vs 3.6% JUL

Italy PPI 2.4% JUL Y/Y vs 2.2% JUN


Spain CPI Preliminary 2.7% AUG Y/Y (exp. 2.3%) vs 2.2% JUL

Spain final Q2 GDP -0.4% Q/Q (exp. -0.4%) and UNCH vs preliminary   [-1.3% Y/Y (exp. -1.0%) and -1.0% preliminary]


Spain Mortgages on Houses -25.2% JUN Y/Y vs -30.5% MAY

Spain Retail Sales -6.9% JUL Y/Y vs -4.4% JUN


Portugal Consumer Confidence -49.2 AUG vs -50.4 JUL

Portugal Economic Climate -4.0 AUG vs -4.4 JUL

Portugal Industrial Production -0.2% JUL Y/Y vs -4.6% JUN

Portugal Retail Sales -7.9% JUL Y/Y vs -5.4% JUN


Ireland Property Prices -13.6% JUL vs -14.4% JUN


Austria PPI 0.2% JUL Y/Y vs 0.3% JUN

Belgium CPI 2.86% AUG Y/Y vs 2.32% JUL

Switzerland KOF Swiss Leading Indicator 1.57 AUG vs 1.41 JUL


Sweden Household Lending 4.4% JUL Y/Y vs 4.6% MAY

Sweden PPI -1.1% JUL Y/Y (exp. -0.6%) vs 0.2% JUN

Sweden Consumer Confidence 5.4 AUG vs 5.6 JUL

Sweden Manufacturing Confidence -9 AUG vs -3 JUL

Sweden Economic Tendency 97.1 AUG vs 95.4 JUL


Netherlands Producer Confidence -4.6 AUG vs -5.2 JUL

Netherlands Consumer Spending -0.6% JUN Y/Y (exp. -1.7%) vs -1.6% MAY

Belgium Unemployment Rate 7.2% JUL vs 7.2% JUN


Denmark Q2 GDP Preliminary -0.5% Q/Q vs 0.3% in Q1   [-0.9% Y/Y vs 0.3% in Q1]

Norway Unemployment Rate 2.6% AUG vs 2.7% JUL

Finland Business Confidence -7 AUG vs -5 JUL

Finland Consumer Confidence 0.5 AUG vs 0.1 JUL


Ireland Consumer Confidence 70 AUG vs 67.7 JUL

Ireland Retail Sales Volume -1.5% JUL Y/Y vs -6.0% JUN


Greece Retail Sales -9.6% JUN Y/Y vs -9.2% MAY


Poland Q2 GDP 0.4% Q/Q (exp. 0.5%) vs 0.6% in Q1   [2.4% Y/Y (exp. 2.9%) vs 3.5% in Q1]

Hungary Unemployment Rate 10.5% JUL vs 10.9% JUN

Hungary Producer Prices 6.2% JUL Y/Y vs 6.9% JUN


Slovakia Consumer Confidence -25.9 AUG vs -23.0 JUL

Slovakia Industrial Confidence -4.7 AUG vs -6.7 JUL

Slovakia PPI 3.6% JUL Y/Y vs 4.0% JUN

Turkey Tourist Arrivals -0.6% JUL Y/Y vs 2.7% JUN



Interest Rate Decisions:


(8/28) Hungary Base Rate Announcement CUT 25bps to 6.75%

(8/29) Norway Deposit Rates UNCH at 1.50%



The Week Ahead:


Monday:  Aug. Eurozone, Germany and France PMI Manufacturing – Final; Aug. UK PMI Manufacturing; Spain and Greece Manufacturing PMI; Aug. Italy PMI Manufacturing, New Car Registrations, and Budget Balance


Tuesday: Jul. Eurozone PPI; Aug. UK PMI Construction, BRC Shop Price Index; Aug. Spain Unemployment


Wednesday: Aug. Eurozone PMI Composite and Services - Final; Jul. Eurozone Retail Sales; Aug. Germany PMI Services – Final; Aug. UK. PMI Services, Official Reserves; Aug. France PMI Services – Final; Spain Services PMI; Aug. Italy PMI Services


Thursday: Governing Council meeting of the ECB in Frankfurt; ECB Announces Interest Rates; 2Q Eurozone Household Consumption Expenditures, Gross Fixed Capital Formation, Government Expenditures, GDP – Preliminary; Jul. Germany Factory Orders; BoE Announces Rates; BoE Asset Purchase Target; Aug. UK New Car Registrations; 2Q France Unemployment Rate; Jun. Greece Unemployment


Friday: Aug. Germany Wholesale Price Index (Sept. 7-12); Jul. Germany Exports, Imports, Current Account, Trade Balance, Industrial Production; 2Q Germany Labor Costs Workday and Season 1Q Labor Costs to be published the day as 2Q; Aug. UK BoE/GfK Inflation Next 12 Months, PPI Input and Output



Matthew Hedrick

Senior Analyst

NAV: Outlook Grim, But Revised Penalties Not So Bad

Takeaway: Revised EPA NCPs are minimal and may be challenged. Looking like a failure risk can make $NAV a failure risk. Owning $PCAR a way to benefit.


Best Outcome on Non-Conformance Penalties, Outlook Still Pretty Grim


Still Expect NAV to Lose Market Share, Generate Losses.  Paccar a Potential Winner.


Surprisingly Small Changes:  Navistar avoided retroactive fines, outright bans and prohibitively high fines.  The new maximum penalty is $3,775, increasing “several hundred dollars per engine each year for later model years.”  The EPA release can be found at http://www.epa.gov/otaq/regs/hd-hwy/ncp/420f12049.pdf.  


Breathing Room:  Navistar can continue to sell its existing 13L engine at this penalty level for quite some time.  That may give NAV additional time to integrate the 15L engine from Cummins, which we expect to take longer than the company’s current January 2013 forecast.  It may allow Navistar to delay the new 13L engine and develop a more practical solution.  The revised NCPs help to ease selling risks in CARB states in the near-term.


Expect Challenges:  Competitors may not see this as an adequate penalty and the court may well agree.  The advantages of noncompliance probably exceed the increased (straight-line) cost addition of $400-$800 per year.


Navistar a Potential Zero (Reflexive Risk)That Navistar looks like it could end up in distress increases the probability that Navistar WILL end up in distress Customers need a strong corporation providing warranties, service and replacement parts for years to come.   Residual value guarantees and off balance sheet commitments could add to the concerns should the resale market falter.   Customers depend heavily on their trucks and do not want supplier risk.  Once confidence is lost, it will probably require an outside buyer like VW or Hino to get it back.  The CDS chart below shows how confidence in NAV is trending.  Looking like a failure risk could make Navistar a failure risk.


Products Matter:  Navistar does not have a successful product strategy, in our view.  There are already concerns regarding the reliability of the current 13L MaxxForce engine.  The 15L from Cummins looks like the most promising answer, but 15L engines represent less than half of the class 8 market and it isn’t obvious that they can get it out by January 2013.  At least initially, we expect NAV’s EGR cum SCR 13L engine to be uncompetitive.


Navistar Losses:  Heavy discounting has allowed the company to maintain market share amid product uncertainty.  Losses could accelerate as the company runs out of emissions credits and NCPs increase.   We expect NAV to lose market share as its financial situation looks more acute and the company struggles to deliver compliant products.


Market Share Losses:  Even if NAV is purchased by a stronger company, International  is likely to shed market share in 2H 2012/2013.  Navistar cannot maintain heavy discounting indefinitely.


PCAR and Volatility, Not NAV:  Navistar is most likely not going to resolve these problems as an independent company, in our view.  The brand and dealer network are valuable assets and Navistar could get bought, though probably not at a price above $40/share.  That makes shorting very risky.  However, the company may well be purchased in distress or even bankruptcy, if this drags on.  That makes long positions a tough bet.  We would keep an eye on implied volatility, though, and consider January straddles if they get cheap, with the Cummins 15L, a potential acquisition and market share losses as catalysts.  Better, the best way to play problems at Navistar is to be long PCAR, in our view, a company likely to benefit from Navistar’s market share losses.



NAV: Outlook Grim, But Revised Penalties Not So Bad - cds

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The Economic Data calendar for the week of the 3rd of September through the 7th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




Takeaway: We continue to expect Bernanke to disappoint his #BailoutBeggar followers.

Hedgeye CEO Keith McCullough appeared on CNBC’s The Kudlow Report last night to chime in on today's market activity and expectations for Ben Bernanke’s meeting at Jackson Hole today and throughout the weekend. To access the video, please click on the following link: http://app.hedgeye.com/unlocked_content/22879-waiting-for-bernanke-s-next-move.


The fact of the matter is that the general public is a proponent of a stronger US dollar and will continue to be bullish going forward. Mitt Romney and Paul Ryan are both advocates of a stronger US dollar; this is clearly something people can get behind.


Should Romney win the election, he’ll need to give Bernanke the boot. He’s got no growth, no employment gains and consumer confidence is down. Obama and Bernanke’s strategy is to keep the stock market up and yesterday the Dow dropped 100 points. As far as our strategy goes, we’re basically on the sidelines playing it safe until Jackson Hole is over and done with. It’s sad that we need to wait for central planners to speak before making moves, but that’s life. Deal with it.


Enjoy the long weekend with your respective families.




The Hedgeye Macro Team

See You At Jackson Hole







Japan is getting hit in the gut and no one is lending a helping hand to help them stand back up. On top of the $26.3 billion loss suffered by their Public Pension Fund, the Nikkei is down -1.6% into month end for August and is down -3.7% since August 23. Oh, and it’s also down -13.8% since the all important month of March. For 20 years this country has been in the gutter. But as long as they follow the path of Keynesian economics and keep printing that yen, everything will be OK (until it’s not).




The truth can be hard to swallow but sometimes you need to buck up and face it head on. Let’s look at some recent economic data and number play that reflects the global environment we live in where growth slows and printing presses never get shut off, shall we? We’ll make it easy on you and will focus on US numbers only. If we gave you the full breakdown, we’d have to call you a doctor:


1.                    US Jobless Claims rose wk-over-wk to 374,000 vs 366,000 two weeks ago

2.                    US Consumer Confidence fell -8% month-over-month in AUG to 60.6 vs 65.9 in JUL3

3.                    US GDP Growth for Q212 slowed to 1.73% vs +1.97% in Q112




Today’s the big day. Will we get another round of quantitative easing from the Federal Reserve or not? That is THE question. And furthermore, is QE already priced into the market? Will it even matter if we get another round? Unfortunately, we have to stay on the sidelines while we wait for Bernanke to speak. That’s the problem with these central planning catalysts; you basically can’t do anything until you have them come out, clear the pomp and circumstance and tell the investing public what they plan on doing. At least after today we can return to trading knowing what the state of monetary policy is.






Cash:                  Flat


U.S. Equities:   Flat


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  Flat


Int'l Currencies: Flat  








Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • TAIL:      LONG            



The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TAIL:      LONG



LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TAIL:      NEUTRAL







“figured trading volume will fall off a cliff at 12 noon today... holiday weekend” -@tjtakes




“Eccentricity is not, as dull people would have us believe, a form of madness. It is often a kind of innocent pride, and the man of genius and the aristocrat are frequently regarded as eccentrics because genius and aristocrat are entirely unafraid of and uninfluenced by the opinions and vagaries of the crowd.” -Edith Sitwell




$26.3 billion. The amount of the loss suffered at the Japan Public Pension Fund.