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The Obama Election

Takeaway: Romney has one chance at a comeback and that is the upcoming debates. Otherwise, consider Obama a winner.

According to the latest data from 270towin.com, President Obama essentially has the election locked up with 97.2% of the wins. Intrade has the President’s odds of being reelected at 76%. Things just aren’t looking good for Romney at this point.


Data for Ohio shows Obama taking a near-six point percentage lead over Romney. If Romney doesn’t win Ohio, he’s basically done for. No Republican has ever won the Presidency without clinching Ohio. Romney has one last chance to win the voting public over and that is with the upcoming debates. If he can lay the smackdown on Obama in a meaningful, engaging way, he may have a shot at a comeback.


The Obama Election - 270towin 100112



The Obama Election - U of Coloaroad Electoral Table

European Banking Monitor

Takeaway: Sovereign swaps moved in tandem with bank swaps in Europe (and around the world), widening across the board.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated.


If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor There was widening across the board in European financials last week, with Spanish and Italian banks leading the charge higher. France saw 3 of of 4 French bank swaps widen.    


European Banking Monitor - aa1


Euribor-OIS spread – The Euribor-OIS spread tightened by 2 bps to 13 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor - aa2


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor - aa3

The Industrial Recession?

Takeaway: Growth is still slowing and the latest data doesn't lie. Companies are careful offering 2013 guidance and with good reason.

There’s no spinning it; the latest industrial data coming out in the US and abroad is weak. It coincides with our macro theme of growth slowing and ISM, durable goods and corporate earnings data backs it up. We’ve seen companies like FedEx (FDX) and Caterpillar (CAT) become cautious about 2013 earnings guidance and revenue growth across large US companies continues to slow.


Looking at the charts below, you can see that the ISM Manufacturing Orders Index has been below 50 for the past three months and is on the decline. And the latest durable goods number was abysmal. Throw in the slowdown that’s been occurring for months now in China and it paints a grim tale. If you wanted proof we’re still in a recession, you certainly have it now.


The Industrial Recession?  - ISMindex


The Industrial Recession?  - durablegoods

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%

The Intervention







When you think of an intervention, perhaps a friend who drinks too much comes to mind. But we’re thinking of an intervention that’s far too big to control and one that involves Big Government. Ben Bernanke’s intervention in the global marketplace has given us false markets with gilded data. We now have shorter economic cycles (per each QE announcement) and heightened market volatility. Keep in mind that each announcement related to QE is NOT a good thing. Just because you have a short-term gain doesn’t mean you’ll escape the long-term pain. Stocks are down for the last 8 out of 10 days; does that sound awesome to you?




After watching HBO’s latest hit “Boardwalk Empire” last night, we ask ourselves: who’s more crooked? The politicians of today or yesteryear? At this rate, it doesn’t even matter anymore. Romney should be out there saying he’ll get rid of Bernanke and returning strength and trust to the US dollar. Meanwhile, Obama is doing much of the same old nonsense we’ve experienced for the last four years. As long as the market is up according to some metric, that’s good in an election year. Keith summed it up quite nicely this morning in his Early Look:


The Obama/Bernanke money printing theory suggests that if A) you devalue your currency, B) you’ll see “exports” rise. Whereas, in the real world, when you print money A) input + consumer costs rise, and B) real-inflation-adjusted growth slows.”






Cash:                UP


U.S. Equities:   DOWN


Int'l Equities:   DOWN   


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            



Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • 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







“I can't wait for Friday's Jobs Report to see how many jobs QE3 created already #sarcasm” -@jfahmy




“Facts do not cease to exist because they are ignored.” -Aldous Huxley




Spanish government bonds rose for the third straight day post-stress tests with the 10-year yield dropping six basis points to 5.88%.




Insanely Great

“This country is insanely great.”

-Steve Jobs


That’s what Steve Jobs told President Obama at a fundraising dinner in California in February of 2011. He went on to add that what he was worried about “is that we don’t talk enough about solutions.”


I disagree with Jobs on the 2nd part of that statement. America’s academic and political elite talk plenty about solutions. What worries me is that they’re always talking about government solutions.


Jobs’ aforementioned quote comes at the end of the Introduction in The 4% Solution where James Glassman writes “that government needs to get out of the way of enterprise for growth to take off.” I like that. What I don’t like is that the rest of the book goes on and on about more ways the government can help.


Back to the Global Macro Grind


To review last week’s US Economic data: Big Government Intervention continues to A) shorten economic cycles and B) amplify market volatility. The stock market isn’t the economy.


If you think the stock market is the economy, we’ll that didn’t look very healthy last week either. It was the biggest down week for stocks since June and, since Bernanke’s most recent Policy To Inflate top, US stocks are down for 8 of the last 10 days.


Why? Economic Gravity can’t be “smoothed” away by government solutions:

  1. US GDP Growth for Q2 of 2012 was reported last week 69.27% lower than where it was 6 months ago
  2. Chicago’s Purchasing Managers Index (PMI) report for SEP dropped -6.2% mth-over-mth in SEP to 49.7
  3. Within the PMI report, New Orders and Employment dropped from 54.8 and 57.1, to 47.4 and 52, respectively

Whether you want to talk to me about Q2 or the last month of Q3, from a US growth perspective, that’s just nasty. On the inflation front, the news wasn’t much better. Prices Paid (within the same PMI report for September) ripped higher from 57 to 63.2!


Repeat after me: Policies To Inflate Slow Growth. Period.


Plenty a Keynesian academic advisor to Obama will continue to hide from that 1970s like conclusion, until they can’t. Maybe that’s why Romney is finally distancing himself from Harvard Keynesian Economist (and advisor) Greg Mankiw this morning.


The #2 Most Read story on the Economy tab of Bloomberg.com this morning: “Romney Bashing Bernanke Rejects Mankiw’s Monetary Views.” That doesn’t mean Romney is going to be President. It just means he just found a way to land a punch.


Back to the US Economic Data. Here’s how US GDP Growth fell -69.27% in the last 6 months:

  1. Headline quarterly GDP fell from 4.10% in Q411 to 1.26% in Q212
  2. Consumer Goods fell from 1.29% in Q411 to 0.08% in Q212
  3. Fixed Investment fell from 1.19% in Q411 to 0.56% in Q212
  4. Inventories fell from +2.53% in Q411 to down -0.46% in Q212
  5. Exports minus Imports didn’t do a darn thing to move the needle

The Obama/Bernanke money printing theory suggests that if A) you devalue your currency, B) you’ll see “exports” rise. Whereas, in the real world, when you print money A) input + consumer costs rise, and B) real-inflation-adjusted growth slows.


Adjusting for inflation is annoying to government guys who take car service to work because they don’t have to pay for gas or that pastry spread awaiting them at their next Washington meeting. That must be why the aforementioned Real GDP print only implies a +1.52% “Deflator.”


What’s shocking (and sad) is that the US Government’s “Deflator” (the number they subtract from the nominal, inflated, growth in order to print the “real” number) has been marked down by more than 27% since Q4 of 2011 AS PRICES INFLATED!


If Housing was really “back”, shouldn’t we be seeing that in the rental component of US Government reported “inflation”? How about Prices Paid rising +11% in last month’s PMI report alone? Or how about oil prices +30% off the YTD lows, +160% since 2009?


Nope. On the margin, Bernanke sees none of it impacting consumption or costs. No inflation. Touchdown Seahawks!


In a country that used to be considered Insanely Great, I don’t have to wonder how America’s next innovator likes them Apples. We can do a lot better than lying to people. Progress starts with telling people the truth. It’s only from there that we can move forward.


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $110.61-112.98, $79.41-80.31, $1.27-1.29, 1.59-1.70%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Insanely Great - Chart of the Day


Insanely Great - Virtual Portfolio

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.