Golden Apple







For a long time, people thought you could just buy Apple (AAPL) and ride the train higher with little pullback in the stock. Things changed when people realized that the market is not Apple and Apple is not the market. The stock can drag the Nasdaq and tech down somewhat but it’s not the ultimate name in beta. Other factors drive market moves, like the US dollar. And if you remember our mantra, you know that if you get the US dollar right, you tend to get a lot of other things right.




If you think stocks are A-OK, yesterday’s sell off may have had you thinking twice. And there are plenty of other things to think about. Bernanke and Geithner still have their jobs, the US dollar continues to be devalued, equity volumes are lower than ever, global indices around the globe are down significantly from their 2012 highs, and regulation is being crammed down the industry’s throat. Positive catalysts are few and far between these days it seems and we’re reaching a turning point that will culminate in November’s election. After that, who knows what we’re in store for?






Cash:                DOWN


U.S. Equities:   UP


Int'l Equities:   UP   


Commodities: Flat


Fixed Income:  DOWN


Int'l Currencies: Flat  








Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • 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



This company’s on track to post $3Bn in revenues by ’14 – impressive given a $1.5Bn print in 2011. Perhaps more impressive is the breadth of growth drivers that will get it there – women’s, accessories, new underwear platform etc. in addition to footwear. UA is gaining share in both apparel and footwear quarter-to-date. While some may be concerned over the loss of UA’s SVP/Sourcing we’re 8% ahead of the Street in the upcoming quarter and buyers on weakness.

  • TAIL:      LONG







“Many of the 80 or so [Chinese] companies that produce wind turbines will probably have to close."” -@WindSector




“Honesty pays, but it doesn't seem to pay enough to suit some people.” -Kin Hubbard




20% of Corporate America cooks their books according to a new study from finance professors at Duke and Emory University.





TODAY’S S&P 500 SET-UP – October 10, 2012

As we look at today’s set up for the S&P 500, the range is 30 points or -0.52% downside to 1434 and 1.56% upside to 1464. 













  • ADVANCE/DECLINE LINE: on 10/09 NYSE -1639
    • Decrease versus the prior day’s trading of -601
  • VOLUME: on 10/09 NYSE 612.52
    • Increase versus prior day’s trading of 31.94%
  • VIX:  as of 10/09 was at 16.37
    • Increase versus most recent day’s trading of 8.34%
    • Year-to-date decrease of -30.04%
  • SPX PUT/CALL RATIO: as of 10/09 closed at 2.35
    • Up from the day prior at 1.87


TREASURIES – almost all of the time, bonds would rip w/ US stocks falling for 3 straight days – not this time; so respect the market move as it looks like oversold in stocks into JPM earnings Friday could be the tell here; not sure – need to see more data.

  • TED SPREAD: as of this morning 25.04
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.74%
    • Increase from prior day’s trading of 1.71%
  • YIELD CURVE: as of this morning 1.47
    • Up from prior day’s trading at 1.45

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications (prior 16.6%)
  • 10am: JOLTS Job Openings (Aug.) est. 3735, prior 3664
  • 10am: Wholesale Inventories (Aug.) est 0.4%, prior 0.7%
  • 10:30am: EIA Weekly petroleum status report
  • 11am: U.S. Fed to sell notes
  • 11:30am: U.S. to sell $40b in 4-week bills
  • 2pm: Fed’s Beige Book
  • 2:45pm: Fed’s Kocherlakota speaks in Montana
  • 4:30pm: API Energy Inventories
  • 4:30pm: Fed’s Tarullo speaks in Philadelphia
  • 4:45pm: Fed’s Fisher speaks at Cato Conference in Washington


    • Commerce Dept. announces anti-dumping duties on Chinese solar-energy imports
    • G-7 finance ministers meet in Tokyo
    • Citigroup’s global head of commodities research, Edward Morse, speaks at DOE “Winter Fuels Outlook” conference. Other speakers include EIA Administrator Adam Sieminski, 8:30am
    • CFTC Chairman Gary Gensler, Futures Industry Association President Walter Lukken, SEC Senior Special Counsel Matthew Daigler discuss derivatives regulation under Dodd-Frank, 8:30am
    • Commerce Dept., National Telecommunications and Information Administration holds stakeholder meeting to develop consumer data privacy codes of conduct on mobile apps, 9:30am
    • Space Exploration Technologies Corp., led by billionaire Elon Musk, will attempt to attach its Dragon spacecraft to the International Space Station, 7:30am


  • FedEx to make public today details about goal to boost profit by $1.7b within three years, at meeting starting at 9am NY time
  • True Religion may announce plans to be sold as soon as today, private-equity firms, clothing cos. have expressed interest: WSJ
  • Toshiba will pay ~125b yen ($1.6b) to acquire Shaw Group’s 20% stake in co.’s nuclear power unit Westinghouse Electric
  • Alcoa cut forecast for global consumption of aluminum by 1 ppt on slowing Chinese demand
  • Chinese passenger-vehicle sales unexpectedly shrank for 1st time in 8 mos.
  • EADS, BAE Systems may determine fate of planned combination by 5pm in London today
  • Morgan Stanley, Mitsubishi UFJ CEOs may meet Oct. 13 in Tokyo to discuss deepening their partnerships
  • Microsoft cut fiscal 2012 bonus for CEO Steve Ballmer, citing slower-than-planned progress in online services division, failure to comply with pact with European regulators
  • Peter Muller’s PDT hedge fund said to raise more than $500m from Blackstone
  • RBS said to agree to sell two buildings in Frankfurt, Berlin to Axa Investment Managers, valued at $1b
  • Disney’s ABC network, Buena Vista Television units will ask federal appeals court to overturn $319m judgment won 2 years ago by U.K. creators of “Who Wants to Be a Millionaire”
  • Trades that caused disruptions in ~140 cos., ETFs canceled after review by firm that reported them
  • Lone Star Funds, Kennedy-Wilson Holdings said to be among remaining bidders for parts of ~EU2b of mainly Irish real estate loans Lloyds Banking is selling
  • H&R Block may drop designation as savings and loan holding co.
  • EBay,’s sales growth slowed in Sept.
  • BlackRock’s Laurence Fink said policy makers should plan global bank resolution system that would respond to deteriorations in capital sooner
  • Drought damage to corn, soybean fields in U.S. eroding supplies to below consumption Y/y for 1st time since 1974
  • U.S. cos. doing business in China less optimistic than 3 yrs ago, according to U.S.-China Business Council survey


    • Host Hotels & Resorts (HST) 6am, $0.21
    • Jean Coutu Group (PJC/A CN) 7am, C$0.22
    • Helen of Troy Group (HELE) 7:30am, $0.85
    • Progressive (PGR) 8:30am, $0.26
    • Ruby Tuesday (RT) 4:01pm, $0.07
    • Adtran (ADTN) After-mkt, $0.19


  • Alcoa Cuts Global Aluminum Demand Forecast on China Slowdown
  • Greece Welcomes Gold Miners to Rank First in Europe: Commodities
  • Japan Easing Restrictions on U.S. Beef, Paving Way for Tyson
  • Oil Trades Near One-Week High as Mideast Risk Counters Slowdown
  • China’s Gold Imports From Hong Kong Slump as Price Deters Buyers
  • Palm Oil Stockpiles in Malaysia Surge to Record as Output Climbs
  • Soybeans Slide as Harvest Progress Eases Concern About Supply
  • Spot Gold Climbs 0.2% to $1,767.25/Oz, Erasing Earlier Decline
  • Cocoa Resumes Fall as Data May Signal Weak Demand; Coffee Rises
  • Gold Best of Biggest ETFs as Traders Seek Haven: Riskless Return
  • Romney’s Farm Policy Restates Republican Positions, Analysts Say
  • Drought Cuts U.S. Crops Below Demand First Time in 38 Years
  • China Piped Gas Imperils $100 Billion LNG Plans: Energy Markets
  • Rubber Declines on Europe Debt Crisis, Slowing China Car Sales





USD – don’t look now, but the most asymmetric trade in all of Global Macro is going our way; Romney mo + Euro slow + Japanese money printing pending = USD mo mo; USD now up for 3 of the last 4 wks but finally signaling immediate-term TRADE overbought here, which should but in a base of support for stocks, gold, oil, etc.











JAPAN – Nikkei gets crushed overnight, down another -2% (down -16.2% since #GrowthSlowing started, globally, in March), and the Chinese aren’t going to the IMF meetings because they are being hosted by Japan. FX War = On; short the Yen.










The Hedgeye Macro Team






Free-Market Confidence

This note was originally published at 8am on September 26, 2012 for Hedgeye subscribers.

“Free-Market capitalism offers the most efficient and just way to order an economy.”

-George W. Bush


While it’s a shame that when short-term politics met economic gravity that neither Bush nor Obama gave anything other than lip service to one of America’s greatest economic ideals, that doesn’t mean all is yet lost. Arresting the un-American trend of centrally planned markets may very well be our greatest opportunity.


While I’ve had some big market calls wrong in the last month, I haven’t been wrong on the fundamental realities born out of Big Government Interventions. First, Policies To Inflate slow growth. Then they slow corporate earnings. Bernanke Bailout Bulls can blame Europe for yesterday’s decline, or they can pull up a chart of Caterpillar (CAT). Markets don’t lie; politicians do.


To give the aforementioned quote the appropriate context, it comes from a book I’ll be critically reviewing in the coming weeks: The 4% Solution. Bush wrote the Foreword and admirably prefaced his comment about American Liberty by holding himself accountable. He admits that “market-distorting government policies” played a big part in the 2008 crisis. God help our children if we can’t learn from that.


Back to the Global Macro Grind


At the top of the market’s performance chasing squeeze (September 14th), we didn’t hide from our Q2 2012 Macro Theme, The Last War: Fed Fighting. We dug in our heels and stayed true to our process. Commodity inflation is not economic growth. It slows growth.


Headline this morning from Bloomberg: “Fed’s Plosser Says QE3 Risks Fed Credibility, Won’t Boost Jobs”




I’ll get to why I started covering shorts and buying stocks more aggressively yesterday in a moment, but first let’s rewind the tapes on what just happened after Bernanke pinned market prices at their YTD highs on no-volume:

  1. US stocks are down for 6 of the last 7 days (down -2.2% from the intraday high of 1474 Friday September 14th)
  2. CRB Commodities Index has lost -4.3% of its value in a straight line; Oil snapped TAIL risk support of $111.44 (Brent)
  3. US Treasury Bonds (10yr yield) just ripped a +13% move (yields down from 1.9% to 1.65% this morning)

I think Bernanke calls this something like “price stability.”


To their credit, a Perma-Bull might say, “a 2.2% correction is nothing.” Agreed. It’s only something if you bought the 1474 SP500 top in the Big Beta Sectors, with leverage. Underneath the beta-chasing hood, here’s what’s happened from the September 14th high:

  1. Financials (XLF) = down -4.2%
  2. Basic Materials (XLB) = down -4.2%
  3. Energy (XLE) = down -4.0%

While bulls sounded more like crickets into yesterday’s close, I can assure you that buying high and selling low, if done repeatedly for no other reason than chasing a benchmark, will leave a short-term performance mark.


What did we do? It’s all #timestamped, so you don’t have to take my word for it, but I’m encouraged that I didn’t meet my pre-September 14th mistakes with more mistakes-upon-mistakes. During the 1.5 week correction we sucked +1.71% of alpha out of the long side of Utilities (XLU) and, instead of buying a US Index into yesterday’s oversold close, we bought Apple.


Bought APPL? Yep. Not my 1st rodeo riding beta – it’s all about managing the risk of the immediate-term range. In a world where both Growth and #EarningsSlowing are going to dominate fundamental news-flow, I think investors will buck up for the growth that they can find.


Under the current US central planning regime of Obama, Bernanke, and Geithner, I think there’s a better chance of my becoming an adjunct professor of charlatan Economics at Yale than the USA seeing a 4% GDP print anytime soon. That’s what makes growth stocks attractive when A) you can find them, and B) they are on sale.


To review our Real-Time Positions, we have 10 LONGS and 6 SHORTS. On the long side, the best long-term Growth Ideas are:

  1. Las Vegas Sands (LVS)
  2. Apple (AAPL)
  3. Paccar (PCAR)
  4. Starbucks (SBUX)
  5. Under Armour (UA)
  6. Urban Outfitters (URBN)
  7. Brinker (EAT)

We also bought Brazil (EWZ) on red yesterday. While the government is moving towards making up its inflation numbers like Japanese, US, and European governments do, Brazilian economic growth looks ready to slow at a slower-rate. On the margin, that’s better than bad.


Unlike in the USA, where the manic media is attempting to tell you that yesterday’s Consumer Confidence print of 70.3 for September is bullish (see Chart of The Day for the historical context of US confidence – it’s lower than where it was in the 1970s), Brazilian Consumer Confidence clocked a 122.1 for September! That’s the kind of confidence we need.


To Review: during the only 2 sustainable +4% US GDP Growth runs of the last 40 years:

  1. 1983-1989 (Reagan, Strong Dollar) = US Consumer Confidence tracked between 90-120
  2. 1993-1999 (Clinton, Strong Dollar) = US Consumer Confidence tracked between 100-140

In other words, USA is not Brazil. Today’s American Consumer Confidence (oscillating between 40-70 during Bush & Obama Dollar Debauchery Administrations) reflects, precisely, what the zeitgeist in America feels like. Brazil's confidence tracked between 95 and 120 from 2005 to 2010. That's the kind of confidence we need.


This is not the country I came to in the mid-1990s. This is not a “free-market” either. This needs to change, just like my positioning did.


My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar,  EUR/USD, UST 10yr Yield, AAPL, and the SP500 are now $1742-1769, $105.74-111.44, $79.15-80.59, $1.28-1.30, 1.63-1.72%, $671-693, and 1430-1458, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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The Macau Metro Monitor, October 10, 2012




The head of the Gaming Inspection and Coordination Bureau, Manuel Joaquim das Neves, forecasts Macau’s casino gross gaming revenue to “to grow between 10% and 15%” for full 2012.  “We have a much higher base of comparison from 2011, especially during the second half of the year. Taking into consideration the global economic downturn, to achieve such growth would be a very good result,” Neves said.  “Based on the first week, we expect this October to be good month,” he added.



Average rates for hotel rooms during the National Day Golden Week holiday period (October 1 to October 7) registered a slightly YoY drop.  Data released yesterday by the Macau Government Tourist Office shows that average daily room rates of three to five-star hotels stood at MOP1,741 (US$218), down by 1.03% YoY.  On the contrary, average daily room prices for guesthouses recorded an increase of 33.84% during the Golden Week period.  Renting a room at a guesthouse, cost on average MOP526.57 during the holiday period.


According to an industry representative, despite the increase in tourist arrivals during the Golden Week holiday period, retail sales failed to follow suit.  The head of the Macau Association of Retailers and Tourism Services, Frederick Yip Wing Fat says mainland tourists were more cautious in their spending this year due to the economic slowdown there.  “We do not have the exact figure yet but there were drops in retail sales this year,” Yip said.  “The best scenario would only barely reach the same level as last year”.  Yip added one area where drops were recorded was in sales of luxury products and jewelry.  


Smell The Truth

“Keep it simple. Tell the truth. People can smell the truth.”

-Steve Wynn


If you’re looking for Steve Jobs like thought leadership, product innovation, and job creation in this country, look no further than Steve Wynn. The guy gets what most of us who have built something from nothing get – he has vision.


If you and your spouse and/or business partners are really going to build something on your own in this good life, you have to, deep down in your bones, believe that people will side with the truth.


If what you deliver is better than what they currently use, both you and your customers win. If you believe that people are dumb – and that they’re generally not smart enough to Smell The Truth, you’ve already lost. Politics might be a better career path.


Back to the Global Macro Grind


Whatever central planners want to throw at us this morning, I say bring it. The only certainty I have in my life is that the sun will rise in the East and, God willing, I will be sitting right here at my post, preparing to play the game that’s in front of me.


Yesterday, we got long again. We bought Apple (AAPL), Michael Kors (KORS), and Taiwan (EWT). We started the day with 7 LONGS, 8 SHORTS and closed the day with 11 LONGS and 3 SHORTS. Progress embraces change. So that’s what we do.


I’m not saying that our Top 3 Global Macro Themes for Q4 2012 have changed this morning. In fact, I’ll reiterate Theme #1 this morning (#EarningsSlowing) as that remains the market’s most important risk. That risk, however, gets overbought and oversold, fast.


The most important driver of the market’s daily beta isn’t AAPL. It’s the US Dollar. If you get that right, you tend to get a lot of other things right. Here’s the refreshed immediate-term TRADE correlation between the US Dollar Index and stocks:

  1. SP500 = -0.95
  2. EuroStoxx600 = -0.97
  3. MSCI World Index = -0.97

Those are wicked high correlations. So, you can either run around like a chicken with his 50-day Moving Monkey cut off on AAPL… or, you can just build a model that probability-weights where the US Dollar is immediate-term TRADE oversold/overbought, and then buy/sell AAPL (or whatever it is that you really like in the US or Global Stock market) using those signals as your headlights.


At the house of Marcus Goldman (when it was private and Partner Capital was on the line every day), they used to evaluate talent by asking themselves if their players could make money if locked in a “dark room” (by themselves) with only their process.


While they may have not put it that way precisely, I just did. Because I think that’s a great way to think about risk management and what it is, precisely, that you do. When everything goes straight down like it did yesterday, what do you smell? Buy or sell?


As a risk management process, smelling buy/sell opportunities should go both ways. That’s why I have had no problem changing my mind in the last 4 weeks. This isn’t politics – in real life business, flip-flopping your opinion is critical to success.


In the immediate-term, in particular for the beta implied in US stocks, there are always positives and negatives to consider.



  1. USD immediate-term TRADE overbought at $80.16
  2. EUR/USD immediate-term TRADE oversold at $1.28
  3. SP500 Immediate-term TRADE oversold at 1434
  4. VIX immediate-term TRADE overbought at 16.74
  5. UST 10yr yield holding 1.64% support
  6. II Bull/Bear Survey compresses by 1,000 basis points to the bear side


  1. Equity Volume is as dead as a doornail, nowhere to be found on last week’s bounce
  2. Tech (the market leader up until 3 weeks ago) is leading the decline
  3. S&P Sector Studies just saw 4 of 9 Sectors snap immediate-term TRADE support (XLK, XLI, XLY, XLB)
  4. KOSPI (South Korea) broke its immediate-term TRADE line again overnight
  5. Oil (Brent) is back above its TAIL risk line of $112.69/barrel
  6. Bernanke and Geithner are still gainfully employed

But, like any risk manager of any professional game, you have to make a call at some point on which way to lean. That’s why I have built a model that removes most of the emotion that I used to have when making those decisions. An emotional Mucker fights too much.


I don’t want to fight you. I want to help you. I don’t always lean, but when I do, I go with the process that most often tells me the truth.


My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, AAPL, and the SP500 are now $1, $112.69-115.01, $79.69-80.16, $1.28-1.30, 1.64-1.76%, $630-642, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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