• run with the bulls

    get your first month

    of hedgeye free


Holding Our Position

“We are holding our position.”

-General George S. Patton


That’s what one of America’s greatest said on the eve of July 31, 1944 when Patton “outlined the basic procedure for his men until war’s end.” In specifically addressing his intentions toward the enemy, he also added that “we’re going to go through him like crap through a goose.” (The Soul of Battle, page 289)


In terms of how I think about our proverbial enemy in Global Economics (The Keynesian Army of Academia), that sounds about right. As I watched a good man win $30,000 after hitting a Hole-In-One yesterday at the Homes For The Brave fundraiser in CT, I said to myself ‘divine intervention!’ Somewhere, something out there is telling me Americans are smarter than our failed policy makers.


After their 2-day Viagra rally, Bernanke’s Bailout Beggars are back on their heels. Our Q2 2012 Global Macro Theme of “The Last War: Fed Fighting” isn’t easy. But it ain’t over till it’s over either. We’re Holding Our Position that Policies To Inflate (Qe3) will only perpetuate the global growth slowdown. We believe that Strong Dollar is the only way to long-term American prosperity.


Back to the Global Macro Grind


Don’t look now, but US stocks are down for 5 of the last 6 days and have done nothing but go down versus the YTD highs established on the day after Bernanke became completely politicized (September 13th, 2012).


From that goose poop intraday high on September 14th of 1474 in the SP500:

  1. US stocks are down -1.2% and -1.9% respectively (SP500 and Russell 2000)
  2. CRB Commodities Index is down hard, from 320 to 305 (-4.8%)
  3. US Treasury Bond Yields are down even harder, from 1.89% to 1.69% (-11%)

Ok, maybe calling it goose poop is a bit much. But if you bought stocks/commodities up there and shorted bonds, and put your nose real close to your P&L since, it’s closer to the truth than a rumor.


On a more serious note, this is getting serious. The Chairman of the Federal Reserve continues to make promises to markets that he cannot keep. Reality here is sad and simple, at the same time:

  1. Money Managers are forced to front-run Bernanke, chasing asset prices higher into central planning events
  2. Then they all need to sell, at the same time, before economic gravity takes hold, and prices correct

This is the anti-thesis of part I of Bernanke’s Congressional mandate (“price stability”). It’s also the #1 reason why A) people won’t hire and B) people won’t invest in this market at a 4.5 year top. Real people with real money don’t trust this market as far as they can throw an NFL replacement ref.


Now, to be fair, the equity bulls who got smoked from March-June have absolutely “nailed it” from July-September – maybe for all of the wrong reasons (#GrowthSlowing) – but nailing it is nailing it when it comes to the score.


But where do they go from here? In March perma-bulls said “3-4% growth is back, earnings are great, and stocks are cheap.” Today, we have both Growth and Earnings Slowing, but something like 216,000 global “easings” which are, allegedly, going to trump earnings season.


In addition to what Fedex (FDX), Intel (INTC), Staples (SPLS), Norfolk Southern (NSC), Bed Bath & Beyond (BBBY), and Oracle (ORCL) have previewed in the last 2 weeks, here’s the Growth and #EarningsSlowing Update from Caterpillar (CAT) last night:

  1. CAT cut 2012 and 2015 guidance without a lot of specifics
  2. Management hinted that 2012 Revenues would “come off” by about $2 Billion Dollars
  3. Management insisted cutting 2015 guidance from $15-20 in EPS to $12-18 in EPS was “not a guidance cut”

So, in our Research Meeting today I’ll ask our new long-cycle master Industrials Managing Director, Jay Van Sciver, if it’s “not a guidance cut”, what specifically does that goosy stuff smell like to you?


To review: when people say “stocks are cheap”, this CAT puke example really speaks to the heart of what that might mean. Cheap is cheap if the company can actually deliver on revenue and earnings expectations. “Cheap” gets cheaper when companies guide down:

  1. If you bought CAT in February 2012 at $116, assuming $20 in 2015 EPS, you paid what you thought was 6x EPS on 2015
  2. If you shorted CAT in February at $116, assuming $12 in 2015 EPS, you shorted it at 10x hopeful 2015 EPS

Ok, so 6-10x is cheap, I guess, if you use 2015! I’d need at least 6 Bud Lights and a 50% chance at Powerball to put my name on a 2015 forecast right now, by the way.


In the meantime, what about 2013? What if the company can’t drive earnings above $9 for the next 3yrs? What does Chinese “construction off 40%” (per CAT management) mean to Q3 and Q4 of 2012 revenues and earnings assumptions?


If you are long CAT, we’re guessing you don’t know the answer to those questions this morning. That’s ok, neither does CAT’s management. Therefore, goose or no goose, we are Holding Our Position: Short CAT as growth and earnings slow.


My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $106.73-111.44, $1, $78.85-80.63, $1.28-1.30, 1.63-1.79%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Holding Our Position - Chart of the Day


Holding Our Position - Virtual Portfolio


The Macau Metro Monitor, September 25, 2012




SJM CEO Ambrose So said regarding his Cotai project, “These are not projects you can do in two days. They take around three years to complete. So it’s not a matter of life and death who gets over the line first in terms of [government] permission."  So reiterated his hopes of getting 600 to 700 live gaming tables for its Cotai project. He also admitted that the recent shareholder battle over the control of Greek Mythology Casino, one of SJM Holdings’ satellite casinos, had hurt the gaming operator’s gross gaming revenue market share.  “We will try our best and hope we can achieve our target of about 30% [market share].”


The number of imported workers in Macau reached a new all-time high in August.  According to official data from the police released today, Macau had a total of 107,400 imported workers by the end of August, 61% of whom came from the mainland.  This was the second month in a row in which a new all-time high for imported workers was set.


TODAY’S S&P 500 SET-UP – September 25, 2012

As we look at today’s set up for the S&P 500, the range is 16 points or -1.02% downside to 1442 and 0.08% upside to 1458. 













  • ADVANCE/DECLINE LINE: on 09/24 NYSE -586
    • Decrease versus the prior day’s trading of 526
  • VOLUME: on 09/24 NYSE 625.57
    • Decrease versus prior day’s trading of -65.42%
  • VIX:  as of 09/24 was at 14.15
    • Increase versus most recent day’s trading of 1.22%
    • Year-to-date decrease of -39.53%
  • SPX PUT/CALL RATIO: as of 09/24 closed at 2.59
    • Up from the day prior at 1.21 


TREASURIES – as wrong as we were that Bernanke couldn’t go to infinity is as wrong as his market call looks all of a sudden, especially in the eyes of who has had #GrowthSlowing nailed for all of 2012 (the bond market); 10yr UST yield literally straight down since peaking post Bernanke Sept13 day from 1.89% to 1.69% last (Yield Spread at 2wk lows).

  • TED SPREAD: as of this morning 27.09
  • 3-MONTH T-BILL YIELD: as of this morning 0.11%
  • 10-Year: as of this morning 1.69%
    • Decrease from prior day’s trading of 1.71%
  • YIELD CURVE: as of this morning 1.43
    • Down from prior day’s trading at 1.45 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7:45am/8:55am: ICSC/Redbook weekly sales
  • 9am: S&P/Case-Shiller 20 City (M/m) SA, July, est. 0.8%
  • 10am: Conference Board Consumer Conf. Index, Sept., est. 63.2
  • 10am: Richmond Fed Manuf. Index, Sept., est. -6 (prior -9)
  • 10am: House Price Index (M/m), July, est. 0.6% (prior 0.7%)
  • 11am: Fed to purchase $4.5b-$5.5b notes due 11/15/2020-8/15/2022
  • 11:30am: U.S. to sell $40b 4-week bills
  • 1pm: U.S. to sell $35b 2-year notes
  • 4:30pm: API inventories


    • Obama set to speak at United Nations
    • IMF releases portions of Global Financial Stability Report, including “The Reform Agenda: An Interim Report on Progress Towards a Safer Financial System,” 10:30am
    • DARPA program manager Richard Ridgway discusses military’s use of mobile hotspot technology at Military Antennas Summit, 8am
    • FCC Chairman Julius Genachowski discusses broadband challenges at Vox Media event, 10:30am


  • Apple’s use of thin display seen driving iPhone 5 supply shortfall
  • Spain sells EU4b of bills meeting maximum traget
  • Schaeffler sells $2b stake in Continental to cut debt
  • Billionaire Ellison increases Oracle credit line to $4.5b
  • Digital Domain sale to Chinese-Indian venture approved by court
  • Diego in talks to buy United Spirits stake: WSJ
  • Nasdaq, Amazon to partner on cloud storage of financial data
  • Foxconn resumes production at China plant after worker brawl
  • Warner Music says Cohen resigns as CEO of recorded music
  • Providence Equity Partners sells stake of under 10%: WSJ
  • BAE CFO Lynas said to hold same role in proposed EADS merger
  • AT&T to market business mobile security to consumers in 2013
  • Chevron under EPA probe for avoiding refinery monitors in 2009
  • California offers lowest interest rate in $1.75b bond sale


    • FactSet Research Systems (FDS) 7am, $1.17
    • Vail Resorts (MTN) 7:30am, $(1.56)
    • Carnival (CCL) 9:15am, $1.43
    • Synnex (SNX) 4pm, $0.93
    • Jabil Circuit (JBL) 4:02pm, $0.58
    • Copart (CPRT) Post-Mkt, $0.33



OIL – getting a +0.5% bounce this morn, but remains a bearish TAIL risk situation in our signaling model as long ast $111.44 Brent remains resistance; interesting that the US equity futures aren’t up w/ oil up; EUR/USD down again trumping that, as it should. 

  • Oil Rises in New York on Speculation Last Week’s Drop Overdone
  • Pork Supply Shrinks to Lowest Since 1975 on Drought: Commodities
  • Copper Stockpiles in Shanghai Bonded Warehouses Seen at Record
  • Silver in ETPs Set for Record as Central Banks Ignite Demand
  • Soybeans Set to Rebound From Six-Week Low on Importer Purchases
  • Kazakhstan Expands Gold Reserves as South Korea Buys 16 Tons
  • Palm Oil Snaps Five Days of Losses as Declines Deemed Overdone
  • Oil Supply Rises Third Week Post Isaac in Survey: Energy Markets
  • Bearish Bets on Potash Decline at Fastest Pace Ever: Options
  • Iron Ore’s Rebound Poised to Peter Out on Weak Demand, ANZ Says
  • Western Europeans Munch the Most Chocolate Globally, U.K. Leads
  • Einhorn’s Losing Gold-Miner Strategy Endorsed: Chart of the Day
  • Japan’s Nuclear Exit Extending Record Profit for Golar: Freight
  • Pork Supply Shrinks to Lowest Since 1975
  • Copper Advances in London After Report of Stabilization in China









GERMANY – the Germans, meanwhile, told the French to go fly a kite this weekend on timing and are “now losing patience with Spain”; Merkel comments have dominated my tweet-stream sources since 430AM EST as European stocks move back to their lows; ITALY is down -4.7% (MIB Index) since Bernanke’s Infinity & Beyond say (Sep13).














The Hedgeye Macro Team

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CAT Letting Us Down Easy? Opaque Guidance Cuts At CAT’s Analyst Meeting

Takeaway: $CAT cut 2012 and 2015 guidance without a lot of specifics. Management may be trying to lower expectations into 3Q results and guidance.


 Letting Us Down Easy:  Opaque Guidance Cuts At CAT’s Analyst Meeting

  • 2012 Guidance Cut?:  Management hinted that 2012 sales would "come off" by about $2 billion.  That is not positive for 3Q and 4Q sales and EPS.  This feels like management is trying to lower expectations gradually so 3Q earnings and guidance are not too surprising.  We will be watching to see if consensus estimates come down for 2H 2012 and 2013.
  • 2015 Guidance Cut: We are not sure that a guidance outlook into 2015 is particularly relevant, but it does appear that CAT is trying to lower expectations.  Management insisted that the cut from $15-$20 in 2015 EPS to $12-$18 in 2015 EPS was not a guidance cut.  We do not yet follow that logic, but note that the range is wider.
  • Expecting a Downturn? CAT seems to be expecting an end market downturn and seemed to feel defensive about being prepared for it. Aside from excess inventories and recently added capacity, I guess CAT is “prepared.”
  • “The Company Is In Cyclical Businesses”:  CAT’s cyclicality is a key part of our thesis, which is that you shouldn’t buy cyclical companies at peak margins and sales.  Mining capital spending should be a cyclical, sub-GDP growth industry.
  • Chinese Construction Off 40%: That is not a number I have heard before, but it is pretty spectacular and is consistent with what we have seen in Chinese construction materials prices.
  • CAT Overview: Please see our more detailed review of CAT in our Black Book and Conference call at CAT’s Deep Cycle and Flash CAT Call Replay.

President Obama’s Reelection Chances

After reaching an all time high of 63% last week, President Obama’s chances of being reelected held flat week-over-week.  Since tops are processes, not points, we believe there’s room between now and November for the President to gain (or lose) a few percentage points. The ball is very much in Mitt Romney’s court right now.


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 63% on September 17, 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

Are Poll Skews the Ultimate November Surprise?

Takeaway: Most polls currently favor Obama, but his true tailwind may well be that Democrats are oversampled in many prominent polls.

Last week we held a conference that outlined our key scenarios for the upcoming Presidential and Congressional elections.  We based these scenarios on a multifactor analysis of polls, electronic markets, and economic models.  Our key conclusions were that the highest probability outcomes in order were:

  1. Democratic President, Republican House, and Democratic Senate
  2. Democratic President, Democratic House, Democratic Senate
  3. Republican President, Republican House, Republican Senate

Since our call last week, President Obama’s chances of re-election have only increased on Intrade and are now north of 70%.  This is Obama’s highest level on Intrade this electoral cycle.  Intuitively, this makes sense as Intrade typical trades off of the national polls and the positive spread for Obama has been widening.


In our national poll aggregate, the race was effectively tied on September 6th 2012 at 46.7 to 46.7.  This coincided with the end of the Republican convention.  Since then Obama has widened out his margin and currently has a lead of +3.7.  This is beyond the margin of error in most polls.  Currently, the benefit of a convention bounce is now likely out of Obama’s numbers, which suggests, in theory, that he has now opened a sustainable edge over Romney.


Are Poll Skews the Ultimate November Surprise? - 44. 1


Historically, the polling at this point of the election cycle has been very accurate for assessing a final outcome.  Since 1936, of the 19 candidates who led in the polls at the point, 18 won the popular vote and 17 won the electoral college (Al Gore was the lone exception here).   As well, as Nate Silver touched upon in his insightful blog today, there is typically no tendency for races to shift to the challenger at this point in a Presidential election.


At face value, the state of the race does not look great for the Republican faithful as an Obama victory appears increasingly likely.  This, of course, assumes one thing, namely that polls are an accurate reflection of the actual electorate.  Increasingly, there is a view that many polls are skewed based on abnormally high Democratic turnout in 2008.


Based on the exit polls in 2008, there were approximately 7% more Democrats in the electorate.  This is really no surprise given the disenchantment with the Bush years and the excitement around then Senator Barack Obama’s candidacy.  Given that most voters vote along party lines, this edge in Democrats ultimately equated very closely to Obama’s edge in the popular vote at +7.6 in 2008. 


As we mentioned last week, there is some evidence that turnout this election could favor the Republicans and that more of the electorate identifies themselves as Republicans versus 2008.  Rasmussen actually runs a monthly poll on voter identification and in the September 1st release found that 37.6% of Americans consider themselves Republicans.  This is the highest reading in this poll since it began in 2002. In November of 2008, this poll had a +7.6% edge for Democrats over Republicans.


Are Poll Skews the Ultimate November Surprise? - 44. DJ 


An example of recent poll that utilizes skew towards Democrats is the Reason-Rupe public opinion survey released on Friday.  The poll found that 48% would vote for Obama and 43% would vote for Romney.  Interestingly, the poll also found that 28% of those polled viewed themselves as Republicans and 36% polled viewed themselves as Democrats for a staggering 8% advantage for the Democrats.  Assuming the Rasmussen party ID poll is accurate, the Reason polls and other polls may potentially be overstating voter turnout by party.   By non-skewing the Reason poll, Romney basically takes an almost 3 point lead.


In the most recent national poll from Politico, 43% of those polled identify themselves as Democrats and 40% identify themselves as Republicans. The Obama edge in the poll is . . .  you guessed it . . . +3.  The nature of the sample and the weighting it gives either party is ultimately consistent with the outcome and headline number of the poll.


In the table below, we’ve highlighted a break out of voter ID from the Associated Press poll which shows this point in detail.  The Likely Voter survey showed that Democrats had an edge of +1 over Republicans in poll, probably a reasonable sample. This breakdown effectively matched the results of the poll which gave Obama a +1 edge.  In the registered voter category, Democrats had a +7 point edge.  To the extent that a pollster, such as Gallup, is still using registered voters it is likely to overstate the results for Obama.


Are Poll Skews the Ultimate November Surprise? - 44. 3.


If Republicans maintain their edge in voter ID polls and national polls continue to oversample Democrats, the ultimate surprise in November could well be failure of polls and a surprise showing by the Republicans versus the expectations of pollsters.  The aforementioned poll from Rasmussen will be a key tell in this regard given its predictive ability on voter ID in 2008 and 2010.


Daryl G. Jones

Director of Research


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.