Elegant Outcomes

“Not everything I say is elegant.”

-Mitt Romney


For 5 straight weeks both Romney and the US Dollar took a public brow-beating from both Obama and Bernanke. We’ll see where the Hedgeye Election Indicator scores Romney tomorrow. For now, all I can tell you is that last week the US Dollar just had its 1st up week in six.


Can Policies To Inflate, deflate? Oil just did, fast. Gold, Silver, and US Stocks are on their way lower this morning too. Did last night’s 60 Minutes moment for Romney mark a short-term top for Obama? Intrade had him at a fresh new high of 70% last week. At a bare minimum, that has some short-term mean reversion risk heading into the 1st debate (October 3rd).


From Greenspan/Bernanke asset price bubbles (Internet stocks in 2000, Housing in 2007, and Commodities in 2012) to mean reversion and correlation risks, Macro hasn’t been elegant over the course of the last 15 years. Neither is writing about the truth.


Back to the Global Macro Grind


With 43 days to the #Election and 99 days to the #FiscalCliff, both the US Dollar’s direction and the Obama vs. Romney Spread matter to markets – big time. Causality (policy) is driving correlation in market pricing right now. When that changes, we’ll let you know.


Correlation Risk Update (30-day immediate-term USD correlations, across asset classes):

  1. Gold = -0.98
  2. Copper = -0.97
  3. Silver = -0.96
  4. Coffee = -0.84
  5. CRB Commodities Index = -0.82
  6. SP500 = -0.89

In other words, if Obama gets the Dollar right (down), he should be fine for the next 30 days. If he doesn’t, Dollar up may very well be read as Romney building momentum off his mid-September lows.


Partisan people may not like this analysis, but the math is quite elegant when you show it in bullet point form. With the US Dollar Index up +0.6% last week, here’s what Big Macro data did:

  1. CRB Commodities Index = down -3.8%
  2. Oil = down -6.2%
  3. Copper = down -1.6%
  4. Coffee = down -4.1%
  5. SP500 = down -0.34%
  6. Russell2000 = down -1.0%
  7. Chinese stocks = down -4.6%
  8. Italian stocks = -3.8%
  9. Russian stocks = -3.8%
  10. Gold = +0.2%

Yes, Gold prices diverged from the rest of reality last week – but they aren’t this morning. That’s an interesting callout, if only because Gold was the last holdout in Bernanke’s Bubble (Commodities) to not make higher all-time highs.


The all-time high (not pricing it in rice beans or Thai Baht) in nominal Gold was established in February of 2012. And if you really want to think bubbly, it makes sense for it to potentially have topped before Bernanke printed to “Infinity & Beyond.” After all, Gold has been up for 12 consecutive years, discounting something, no?


What’s next?


If the US Dollar falls again from here and Gold recovers this morning’s losses to make higher-all-time-highs, I’ll likely cover my short position in GLD. If it doesn’t, well, I guess that’s not going to be my problem.


Within the weekly CFTC futures/options contract data, Gold is as frothy right now as Corn was in mid-August (Corn, by the way, is down -11% since then, in a straight line):


Here’s the update on Commodity speculation within that CFTC data:

  1. Total contracts finally fell wk-over-wk (-1.7%) after hitting their February 2012 highs of 1.33M contracts last week
  2. Gold contracts ripped another +8% wk-over-wk (up 5 weeks in a row with USD down) to a February high of 178,426 contracts
  3. Oil contracts made higher YTD highs into and out of Bernanke = +6% wk-over-wk to 214,647 contracts

All the while, Commodity speculation on Farm Goods (corn, wheat, soy, etc.) dropped -7% wk-over-wk, AFTER corn prices fell, not before. Super secret: hedge funds chase commodity beta high and sell it low (they’ll sell oil today, watch) – that’s why these prices whip around so much within the construct of Bernanke’s broken promise of “price stability.”


In other Contrarian Signal news, Fund Flows may be negative in Equities (ex-ETFs, Equity Fund outflows were another -$1.9B last wk), but they dog-piled into Raw Material/Commodity funds last week at +$2.36B (per EPFR data), and Goldman just upped their “Commodities” forecast to another +18% from here!


If Goldman and Obama are right, I’ll be wrong on Gold and Oil highs for 2012 being in the rear-view mirror. And the USA will probably be in a recession within 6-12 months. Don’t take my word for it on that - ask the bond market. Policies To Inflate slow growth. To Keynesians advising Bush and Obama, that hasn’t been an elegant economic outcome either.


My immediate-term risk ranges in Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $107.60-111.44, $78.69-79.96, $1.28-1.30, 1.69-1.79%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Elegant Outcomes - Chart of the Day


Elegant Outcomes - Virtual Portfolio



Express Carriers: Getting Interesting

Takeaway: While early, we are getting interested in $UPS & $FDX on the long side. FDX may pull capacity. Lucrative USPS contract up for grabs.

Express Carriers: Getting Interesting

  • Express Carriers Long Out of Favor:  We have covered Fedex and UPS for a really long time and have not been interested in them for a really long time.  However, recent underperformance (i.e. valuation improvement) and a better cyclical set up is starting to make the group look more promising.
  • Capacity Reductions?:  Fedex appears to have added excess express capacity after the financial crisis and may announce its withdrawal at its October analyst meeting.  That capacity reduction, among other factors, could be a help to industry utilization and margins.
  • USPS Contract Up:  We also note that the Fedex USPS contract is up for grabs now.  UPS has a bid in.  It’s a ~$1 billion in revenue with above average margins, so it moves the needle – down for FDX if it loses the business.

Express Carriers: Getting Interesting - 2



Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


The Economic Data calendar for the week of the 24th of September through the 28th 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: Our pricing survey suggests CCL should provide solid 2013 guidance

Carnival will report F3Q earnings on Tuesday.  We believe the company will maintain FY 2012 yield guidance and give a solid 2013 yield outlook.  Not surprisingly, the FY 2012 EPS guidance range may be lowered slightly due to a 16% rise in bunker costs since the end of June.  We’re forecasting $1.86 for FY 2012 EPS and $2.64 for FY 2013 EPS, in-line and 6% above the Street, respectively.    


CCL should reiterate the tough yield comps in the Caribbean, particularly in F1Q 2013, but stress that early European summer pricing is picking up due to easy comps.   Given that CCL has risen 11% since F2Q earnings and trading at 14x forward earnings (close to 20 year average), we think bullish expectations are mostly priced in the stock.





Weakness in Caribbean pricing for some last minute bookings is dragging down F4Q performance but that is offset by further improvements in European pricing.  While it’s too early to make a call given the limited summer 2013 itineraries, Costa pricing looks like it is rebounding strongly.  For the most part, 2013 pricing looks solid, which is expected given easy comps in Europe after two years of substantial price discounting.



Here are some other conclusions from our cruise pricing survey.  The charts below track pricing trends on a relative basis—i.e. prices relative to that seen on the last earnings call i.e. RCL - July 20 and CCL - June 22.      




  • Caribbean continues to be a concern.  With some newcomers entering the market in 2013 (e.g. Carnival Valor, Princess ships, Norwegian Breakaway), pricing looks weak.  Caribbean pricing is down 3% in F1Q 2013, F2Q 2013 pricing is flat, and very early F3Q pricing is also down slightly.  F4Q 2012 is also being dragged down by Caribbean weakness.  The good news is that the trend in September saw sequential improvement from a month ago.
  • Europe pricing continues to improve in F4Q 2012.  However, Cunard Europe pricing continues to lag, particularly in F1Q 2013.
  • Mexico pricing is trending modestly higher in F4Q 2012 and F1Q 2013.



  • F4Q 2012
    • In the Caribbean, modest discounting is seen for some last minute bookings by Royal brands.  Celebrity pricing remains robust YoY but trend is deteriorating.
    • Europe is looking better though remain much lower YoY.
    • Asia pricing is solid.
    • While sparse in itineraries, South America pricing continues to weaken.
  • Caribbean pricing is slightly up in F1Q 2013 but down modestly in early F2Q 2013.  Like CCL, trend is improving.
  • Asia pricing is higher in F1Q 2013.













Weekly European Monitor: Charts of the Week

Takeaway: Draghi’s “unlimited” fuels the disconnect between fundamentals and the market; however there’s risk in blind following.

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


Positions in Europe: Long German Bonds (BUNL); Short EUR/USD (FXE)


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -0.1% week-over-week vs +1.3% last week. Bottom performers: Italy -3.8%; Russia (RTSI) -3.8%; Finland -2.7%; Hungary -2.5%; Austria -2.3%; Czech Republic -1.5%; France -1.4%. Top performers: Greece +4.4%; Slovakia +3.1%; Denmark +2.1%; Cyprus +1.7%. [Other: UK -1.1% and Germany +0.5%].
  • FX:  The EUR/USD is up +1.09% week-over-week.  W/W Divergences: GBP/EUR +1.24%; TRY/EUR +1.10%; SEK/EUR +0.94%; CHF/EUR +0.42%; NOK/EUR +0.05%; DKK/EUR -0.01%; HUF/EUR -0.25%; RUB/EUR -0.75%; PLN/EUR -1.76%; CZK/EUR -1.99%.
  • Fixed Income:  The 10YR yield for sovereigns were mixed week-over-week after peripherals fell decidedly in the last two straight weeks.  Greece saw the largest decline, -45bps to 20.34%, followed by Germany’s -10bps move to 1.60%. Portugal gained the most, rising +51bps to 8.60% and Spain gained +12bps to 5.76%.  Italy gained +5bps to 5.02% while most other countries were flat.  
  • Sovereign CDS:  Sovereign CDS were mostly higher on the week. On a week-over-week basis Spain led the charge at +32bps to 367bps, followed by Italy +18bps to 328bps, and Portugal +10bps to 474bps. Ireland was a notable exception falling -12bps to 277bps and Germany fell -3bps to 47bps.

Weekly European Monitor: Charts of the Week - 22. YIELDS


Weekly European Monitor: Charts of the Week - 22. CDS   A


Weekly European Monitor: Charts of the Week - 22. CDS   B



Charts of the Week


Due to the Central Banker Waves in recent weeks we’re focusing on the data this week vis-à-vis charts. We’ll continue to identify the risks we see across Europe and frame the political developments, however here we’ll let some of the more salient charts of the week do the talking. While Draghi has certainly made great waves with his newest “unlimited” sovereign bond purchasing program, we think there remains great risk in the market due to the constrained nature of the Eurozone; Eurocrat indecision on a concrete path forward; and grave hurdles in creating a fiscal and banking union across the Eurozone (and/or EU). 


What should remain is an environment of growth slowing, especially across the periphery, and to levels well below current consensus. Some of the forces acting on growth include: austerity, lower government tax revenues, high unemployment rates, reduced trade demand from key trading partners, all of which should continue to reduce confidence and spending across the economies.


Today we received a money card that we had long been expecting: Italy cuts its GDP forecasts for 2012 to -2.4% vs -1.2% prior and in 2013 to -0.2% from +0.5% prior. It also revised its public deficit estimates for this year from 1.7% of GDP to 2.6% and next year from 0.5% of GDP to 1.8%. These are massive misses!


In short, there’s a significant disconnect between fundamentals and market performance. We’re currently on the side lines given the risk profile and not playing into Draghi’s “unlimited” hand. 


Weekly European Monitor: Charts of the Week - 22. Euro indust and retail


Weekly European Monitor: Charts of the Week - 22. indust by country


Weekly European Monitor: Charts of the Week - 22. EU CAR


Weekly European Monitor: Charts of the Week - 22. china exports


Weekly European Monitor: Charts of the Week - 22. japan exports


Weekly European Monitor: Charts of the Week - 22. Spanish borrowing


Weekly European Monitor: Charts of the Week - 22. ZEW







Our immediate term TRADE range for the cross is $1.29 to $1.31. Our long-term TAIL line of resistance is also $1.31.  While Draghi’s “unlimited” promise has boosted the currency pair, we see a heavy line of resistance at our TRADE and TAIL resistance level that we do not expect to be overcome. We’re currently short the EUR/USD via the etf FXE. 


Weekly European Monitor: Charts of the Week - 22. eur USD



Data Dump:


Eurozone Labor Costs 1.6% in Q2 Y/Y vs 1.5% in Q1

Eurozone Economic Sentiment -3.8 SEPT vs -21.2 AUG

Eurozone Construction Output -4.7% JUL Y/Y vs -2.8% JUN

Eurozone Composite 45.9 SEPT Flash (exp. 46.6) vs 46.3 AUG

Eurozone PMI Manufacturing 46 SEPT Flash (exp. 45.5) vs 45.1 AUG

Eurozone PMI Services 46 SEPT Flash (exp. 47.5) vs 47.2 AUG


EU27 New Car Registrations -8.9% AUG Y/Y vs -7.8% JUL

  • Volkswagen (VOW.GR) 204,034 +1.6%
  • PSA (UG.FP) 81,562 (12.3%)
  • GM (GM) 53,586 (17.7%)
  • Renault (RNO.FP) 61,749 (13.0%)
  • Fiat (F.IM) 37,687 (17.7%)
  • Daimler (DAI.GR) 39,464 (0.3%)
  • Toyota (TM) 32,214 (5.5%)
  • BMW (BMW.GR) 42,894 (12.4%)
  • Nissan (NSANY) 22,668 (4.8%)
  • Honda (HMC) 8,567 +18.7%
  • Ford (F) 43,401 (28.7%)


Germany Producer Prices 1.6% AUG Y/Y vs 0.9% JUL

Germany ZEW Current Situation 12.6 SEPT (exp. 18) vs 18.2 AUG

Germany ZEW Economic Sentiment -18.2 SEPT (exp. -20) vs -25.5 AUG

Germany PMI Manufacturing 47.3 SEPT Flash (exp. 45.2) vs 44.7 AUG

Germany PMI Services 50.6 SEPT Flash (exp. 48.5) vs 48.3 AUG


France PMI Manufacturing 42.6 SEPT Flash (exp. 46.4) vs 46 AUG

France PMI Services 46.1 SEPT Flash (exp. 49.5) vs 49.2 AUG


Italy Industrial Order -4.9% JUL Y/Y vs -10.8% JUN

Portugal Producer Prices 4.0% AUG Y/Y vs 3.0% JUL


UK CPI 2.5% AUG Y/Y (exp. 2.5%) vs 2.6% JUL   [0.5% AUG M/M vs 0.1% JUL]

UK RPI 2.9% AUG Y/Y (exp. 3.1%) vs 3.2% JUL

UK Retail Sales w Auto Fuel 2.7% AUG Y/Y vs 2.3% JUL   [-0.2% AUG M/M vs 0.3% JUL]


Spain Mortgages on Houses -17.5% JUL Y/Y vs -25.2% JUN

Spain Mortgages-capital Loaned -27.4% JUL Y/Y vs -20.4% JUN


Switzerland Credit Suisse ZEW Survey of Expectations of Growth -34.9 SEPT vs -33.3 AUG

Switzerland Exports 0.9% AUG M/M vs -0.7% JUL

Switzerland Imports 2.4% AUG M/M vs -0.7% JUL

Switzerland Money Supply M3 8.5% AUG Y/Y vs 9.5% JUL


Netherlands Consumer Confidence -29 SEPT vs -32 JUL

Netherland Unemployment Rate 6.5% AUG vs 6.5% JUL

Netherlands Consumer Spending -1.5% JUL Y/Y vs -0.5% JUN

Netherland House Price Index -8% AUG Y/Y vs -8% JUL


Ireland Q2 GDP 0.0% Q/Q vs -0.7% in Q1   [-1.1% Y/Y vs 2.1% in Q1]

Ireland PPI 6.0% AUG Y/Y vs 4.5% JUL


Slovakia Unemployment Rate 13.2% AUG vs 13.3% JUL

Slovenia Unemployment Rate 11.7% JUL vs 11.5% JUN

Poland Producer Prices 3.1% AUG Y/Y (exp. 3.0%) vs 3.7% JUL

Czech Republic PPI (Industrial) 1.9% AUG Y/Y vs 1.3% JUL

Croatia Unemployment Rate 17.5% AUG vs 17.5% JUL

Lithuania Industrial Production 10.9% AUG Y/Y vs 6.2% JUL

Latvia Producer Prices 2.2% AUG Y/Y vs 2.1% JUL


Russia Disposable Income 7.2% AUG Y/Y (exp. 2.7%) vs 2.2% JUL

Russia Real Wages 7.8% AUG Y/Y (exp. 9.6%) vs 8.1% JUL

Russia Retail Sales 4.3% AUG Y/Y (exp. 4.6%) vs 5.4% JUL

Russia Unemployment Rate 5.2% AUG (exp. 5.5%) vs 5.4% JUL

Russia Investment in Production Capacity 2.3% AUG Y/Y (exp. 3.5%) vs 3.8% JUL


Turkey Consumer Confidence 91.1 AUG vs 92.8 JUL

Turkey Unemployment Rate 8% JUN vs 8.2% MAY



Interest Rate Decisions:


(9/18) Turkey Benchmark Repo Rate UNCH at 5.75%

(9/19) BOE minutes show vote to keep rates and asset purchases on hold was unanimous 9-0



The European Week Ahead:


Monday: Sep. Germany IFO Business Climate, Current Assessment, Expectations; Aug. Germany Import Price Index (Sep. 24-30); Sep. UK Nationwide House Prices (Sep. 24-28)


Tuesday: Mario Draghi will discuss the state of economic and currency union in the Eurozone with German Chancellor Angela Merkel in Berlin; Oct. Germany GfK Consumer Confidence Survey; Aug. UK BBA Loans for House Purchase; Sep. France Own-Company Production Outlook, Production Outlook Indicator, Business Confidence Indicator; Aug. Spain Producer Prices, Budget Balance: Sep. Italy Consumer Confidence Indicator, Aug. Hourly Wages


Wednesday: Sep. Germany Consumer Price Index – Preliminary; Sep. UK CBI Reported Sales; Sep. France Consumer Confidence Indicator; Aug. France Jobseekers; Jul. Italy Retail Sales


Thursday: Sep. Eurozone Consumer Confidence – Final, Business Climate Indicator, Economic, Indust. and Services Confidence; Aug. Eurozone M3; Sep. Germany Unemployment Data Released by Federal Labor Agency, Unemployment Change, Unemployment Rate; Sep. UK Gfk Consumer Confidence Survey; 2Q UK GDP – Final, Total Business Investment – Final, Current Account; Aug. Spain Retail Sales; Jun. Spain Total Housing Permits; Sep. Italy Business Confidence


Friday: Sep. Eurozone CPI Estimate; Jul. UK Index of Services; Aug. France Producer Prices, Consumer Spending; 2Q France GDP – Final; Sep. Spain CPI - Preliminary; Jul. Spain Current Account; Sep. Italy CPI - Preliminary; Aug. Italy PPI; Jul. Greece Retail Sales



Matthew Hedrick

Senior Analyst

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.