Investigating Truth

“The first duty of a man is the seeking after and investigation of truth.”



Hail Mary end-zone finale to Packers/Seahawks? Last night’s end to the Presidential Debate was not, but Candy Crowley played the role of an NFL replacement ref, turning what I had scored as a tie into a late Obama win.


What is the truth in America? Was the moderator “fact-checking” Romney into the boards at the most critical point of the debate fair? Does it matter? Like many journalists in the manic media, Candy knows where her bread is buttered. Maintaining access to the party in power = priority #1. Sadly, for the country, that included her on-the-fly interpretation of Romney vs Obama truth.


Not surprisingly, the stock, currency, and commodity markets front-ran the momentum swing of the debate. It was a marginal win for Obama, but what happens on the margin in Macro matters most. What’s good (on the margin) for Obama, is bad for the US Dollar. It has been since he took office. Partisan Republicans may disagree with me on last night’s score; the market doesn’t.


Back to the Global Macro Grind


With the SP500 inverse correlation to the US Dollar of -0.95 right now, the truth is that if you get the immediate-term moves in the US Dollar right, you’ll get a lot of other things right. That’s the only reason why I feel compelled to score political momentum right now.


Perversely (even though I think Gold is in a long-term bubble) that’s why I bought Gold in front of last night’s debate. Obama up = Dollar down = Gold Up. Bubbles can remain bubbles for as long as causality (policies to debauch the Dollar) remains intact.


As I investigate other truths this morning, here are some big ones:


1.   #EarningsSlowing – this is our top Hedgeye Global Macro Theme for Q4 2012 (send an email if you want the slide-deck; I did meetings all day in Boston yesterday and we came away with plenty more long-cycle ideas to discuss on peak US Corporate margins). #EarningsSlowing remains very relevant this morning with both Intel (INTC) and IBM reiterating the same.


2.   Tech Stocks (XLK) – if you didn’t know global growth slowing would translate into +/- GDP businesses (semis, hardware, etc.) seeing top and bottom line slowdowns, now you know. Tech is down -2.4% for October.


3.   The sun rises in the East


While Obama, Geithner, and Bernanke continue to believe that they can “smooth” the economic cycle (Keynesian Economics 101), points #1 and #2 are now colliding with point #3 (gravity). The stock market hasn’t been the economy in 2012 but, eventually, they’ll collide.


What’s the market’s truth (last price) telling you this morning?

  1. Lower-highs in stocks (globally)
  2. Higher-lows in bonds (globally)
  3. EUR/USD testing its TAIL risk line of resistance

On that last point, I can’t overstate how important the next currency move is from here.


A)     IF the US Dollar snaps its TAIL line of support ($78.11)

B)      AND the Euro (vs USD) breaks out above its TAIL risk line of resistance ($1.31)

C)      THEN the market is probably telling you that Obama is going to win the Election


Four more years of the same (Big Government Interventions, Spending, and Regulation/Rule-Making on-the-fly) might actually be fantastic for the stock market – but it will continue to crush both real (inflation adjusted) economic growth, hiring, and confidence. I wonder what the 47% think about that?


Collectively, the American people aren’t as dumb as some of the media’s partisans. I highly doubt they’ll trust the stock market anymore today than they didn’t yesterday (stocks at 5yr highs = Equity Fund outflows and Financial Media ratings at YTD lows).


If you didn’t know Candy’s role in the debate was as politically rigged as Bernanke’s has been at the Fed, now you know that too. The truth about America 2.0: your un-elected and un-accountable pundits and politicians are running the gong-show.


My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Russell2000, and the SP500 are now $1, $112.60-115.26, $79.08-80.07, $1.29-1.31, 1.64-1.76%, 813-842, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Investigating Truth - Chart of the Day


Investigating Truth - Virtual Portfolio


The Macau Metro Monitor, October 17, 2012




At the end of Q3 2012, there were 5,497 gaming tables and 17,029 slots.



According to a company source, LVS has attracted sufficient funding to start building its new casino complex in Madrid in December 2013.  CEO Sheldon Adelson told the Madrid regional government in a meeting that it had offers of loans for the “Eurovegas” project, a source close to the discussions told AFP.  “They are negotiating with the banks, which already have made some offers,” the source said. “They have the financing, it is just a question of seeing which bank lends them the money most cheaply.”



Greek Mythology Casino has returned 40 gaming tables to SJM.  Greek Mythology Casino is a third-party property, operating under SJM Holdings casino licence.  The tables were returned on August and represented roughly one third of the total inventory in Greek Mythology Casino.


Growing The Economy


Hedgeye CEO Keith McCullough appeared live on CNBC’s The Kudlow Report this evening to weigh in on the second presidential debate. The topic du jour was growing the economy and how each candidate proposes doing so.


According to Keith, we need to get back to a stronger dollar and stronger America. We need confidence and have to instill it in small business owners and entrepreneurs. Growth starts with capitalists and a pro growth tax policy that helps businesses. If Romney can deliver that, he'll knock Obama out cold.


Watch the clip above for Keith’s appearance on The Kudlow Report.



Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.


Today we shorted MGM Resorts (MGM) into the close at $10.73 a share at 3:48 PM EDT in our Real Time Alerts. 


TRADE OF THE DAY: MGM  - tardemgm


The short follows Gaming, Leisure and Lodging Sector Head Todd Jordan’s guidance from a bearish note he put out on October 15 suggesting that MGM could be a decent short. The stock is right at the TRADE line of resistance of $10.71 a share and fundamentals are in line with the call. MGM is a stock that has a great deal of exposure to the Las Vegas gaming market and right now, Vegas is in a slump. Per Jordan’s note:


The Las Vegas Strip is back in a slump.  Slot volume, which we believe is the most important barometer of the Strip, has declined for five consecutive months and the bleeding will likely continue through Q1 2013.  Slot revenue has outpaced slot volume growth for years as the player payout has declined.  We don’t think a strategy of “price increases” through worse player odds is sustainable.

CRI: Product Differentiation

Carter's (CRI) is a company full of challenges that lie ahead and our Retail Team has focused its attention on product differentiation, or lack thereof in the case of Carter's, which impacts the company's ability to command pricing power with wholesale accounts. Going forward, Cater's will find it difficult to justify its EBIT margins with its current setup.


Consider that you can get Carter's products in its own stores, Walmart, Amazon and other places. The same goes for produce from Nike (NKE) and Ralph Lauren (RL) but the difference is in the product stratification by availability and price. For instance, Ralph Lauren and Nike have their own direct channels via Nike and RL stores. Here they sell higher-end products that are priced as such. They can also sell entry-to-mid level product to retailers like department stores, Kohl's, online websites, etc. 



CRI: Product Differentiation  - CRIProdDiff normal



Carter's on the other hand just sells the same product at the same price across all channels. 90% of the product hitting the floor on on the first day comes with an average 40% discount. In other words, it has no pricing power. It has 24% market share in its core business, and 12% share in kids - about midway between a NKE and RL.


Takeaway: We remain bearish on $DRI, $BLMN, and $TXRH

The Bureau of Labor Statistics released CPI data for the month of September this morning.  The spread between CPI for Food at Home versus Food Away from Home continues to grow.  Inflation in the restaurant check is far-outstripping inflation in the grocery aisle.


The advantage that restaurants enjoyed over grocers in 2011, in terms of lower price increases year-over-year, has reversed.  Restaurants’ pricing power is much-diminished.  As CPI for Food at Home decelerated to 0.8% in September, CPI for Food Away from Home continues to grow at 2.8%. 


CPI DATA REMAINS BEARISH FOR RESTAURANTS - food at home vs food away from home



Casual Dining


As we wrote in our recent post, “RELATIVE VALUE MATTERS FOR CASUAL DINING”, our research indicates that the Restaurant Value Spread, or difference between CPI FAH and CPI FAFH, is highlighting downside risk for casual dining same-restaurant sales expectations.





Howard Penney

Managing Director


Rory Green



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.