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Broken America?

This note was originally published at 8am on October 08, 2012 for Hedgeye subscribers.

“America feels broken.”

-Chris Hayes


That about sums it up. That’s the opening line to what I’ve found to be a surprisingly thought provoking book just published by MSNBC’s Chris Hayes, Twilight of The Elites.  Hayes is not Chris Matthews. He’s half his age, and he has much better hair.


Hays also has a much more balanced approached in attempting to explain the sometimes un-explainable - the zeitgeist of the US Political Economy: “Over the course of the last decade, a nation accustomed to greatness and progress has had to reconcile itself to an economy that seems to be lurching backwards.” (page 1)


That’s why people got so fired up about the Jack Welch suggestion about the US jobs report on Friday. Conspiracy theories are no longer conspiracy theories when they are proven to be true. The truth is that we have both a failed Keynesian spending jobless recovery and money printing induced inflation. Any government “report” suggesting otherwise only perpetuates The People’s distrust.


The other thing I like about Hayes is that he actually thinks about what I attempt to explain every morning from a completely different perspective. He grew up in the Bronx and was a Philosophy major at Brown. In Chapter 1 of his book he introduces the framework of “Insurrectionists and Institutionalists.” I am one of the former, and appreciate his making up a word for those I criticize as the latter.


“Whatever my own insurrectionist sympathies – and they are considerable – I am also stalked by the fear that the status quo, in which discredited elites and institutions retain their power, can just as easily produce destructive and antisocial impulses as it can spur transformation and reform… when people come to view all formal authority as fraudulent, good governance becomes impossible.”


Again, that’s why what Welch said is still driving the “institutionalist” media batty again this morning – but they are missing the point. Hayes nails it, calling this a “Crisis of Authority”… and the longer it “persists, the more it runs the risk of metastasizing into something that could threaten what we cherish most about American life: our ability to self-correct.” (page 29)


Back to the Global Macro Grind


It’s not my job to be a Bull, Bear, Republican or a Democrat. My job is to empathize with both sides of the debate, and attempt to probability-weight which way the crowd will lean in and around those polarized perspectives. If you listen to both sides closely enough, you can actually hear that both make some great points.


Last week, the US Dollar was down for the 1st week in 3, so stocks and commodities were up. That’s not a political point. That’s just what’s happening today in markets. They are completely correlated to currency moves. Hugo Chavez has nailed this inasmuch as both Bush and Obama did – he devalued his currency, stocks ripped another +31% higher last week to +245% YTD, and boom – re-election!


Even if you don’t have an education, you probably get the math – if I devalue what’s in your pocket, you can buy less of what you need with what’s left in your pocket. From 1920’s Germany to Charles de Gaulle in France, Policies to Inflate have been around for a lot longer than polarized journalists attempting to spin easy money any other way.


But what do we do when all that asset price inflation deflates?

  1. We get Bernanke to call it what 21% of people in France suffer from (depression)
  2. We beg and plea for more bailout policies to re-flate
  3. We say “it’s different this time”, just so we can feel better about it

All the while, economic gravity has proven to bite both Democrat and Republican politicians in the behind. Politicians have never been able to “smooth” either the Global Growth or US #EarningsSlowing cycles – and this morning, we have to once again deal with both.


At 130PM EST, Daryl Jones and I will host our Q4 2012 Global Macro Themes Conference Call (email Sales@Hedgeye.com for access) where we’ll take a closer look at the following intermediate-term TREND to longer-term TAIL risks:

  1. Earnings Slowing – what does it mean when corporate margins are coming off all-time peaks?
  2. Bubble #3 – what do Bernanke Bubbles (Commodities) do now that he’s out of communication bullets?
  3. Keynesian Cliff – what happens if the USA bonks the Debt Ceiling before The Cliff?

Sadly, some of these themes are political. That’s a direct function of our governing elite fundamentally believing that they are the solution (rather than the cause) to our economic problems.


Both Neil Barofsky (Democrat author of Bailout) and Sheila Bair (Republican ex-Chairperson of the FDIC) have recently called the likes of Timmy Geithner out in their tell-all books about the reality of our situation. The problem with government is government itself.


America isn’t broken; your trust in your government is.


My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1755-1776, $108.44-112.45, $79.24-80.25, $1.29-1.31, 1.59-1.74%, and 1447-1464, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Broken America? - Chart of the Day


Broken America? - Virtual Portfolio


The Macau Metro Monitor, October 22, 2012




Francis Tam, the Secretary for Economy and Finance, stressed that the government has yet decided on the allocation of gaming tables for new casinos, which will largely depend on the non-gaming business these gaming operators have.  Tam clarified that the number of gaming tables is just a target put forward to the authority by MGM for its Cotai project, but currently the government has yet to make a decision on the allocation of new gaming tables.  The Secretary also stressed that no new gaming tables will be allocated to casinos this year. 



Macau CPI for September increased by 5.69% YoY and 0.01% MoM. 



The Legislative Assembly passed the bill rising the entry age to casinos to 21 with effect from November 1, and the new law will apply to both gaming employees and casino visitors.


FL/FINL: Stealth Strength in Athletic Specialty FW

Takeaway: With a reacceleration in Oct-to-date sales and significantly stronger results in September, we are taking up our numbers for $FL & $FINL.


Concerns over slowing growth in the athletic specialty channel as reflected by weekly footwear figures has been overstated in recent weeks. The latest read on monthly sales by channel confirm that the Athletic Specialty channel significantly outperformed our expectations. Coupled with a reacceleration in October-to-date sales, we’re taking up our numbers for FL and FINL.

It’s important to keep these weekly figures in perspective because they represent sales in aggregate across ALL channels representing Athletic Specialty/Sporting Goods (~60% of sample), Shoe Chains (~20% of sample), and Dept/National Chain Stores (~20% of sample). As seen in the chart below, the continued underperformance in the other channels cause weekly sales to significantly understate performance in the Athletic Specialty channel. Such was the case in September, but to an even greater magnitude than usual due to considerable weakness in the Dept/National Chain Store channel.

  • Following a strong August (+9.2%), we were modeling September sales up +2% given weekly sales came in up +0.3% and reflecting the typical adjustment for athletic specialty channel outperformance.
  • September actually came in up +7.6% significantly better than we had estimated
  • Oct-to-date weekly sales are tracking +3.3% sequentially stronger than Sept by 3pts.
  • Based on the reacceleration in October sales reflecting several new basketball launches, we are modeling October sales in the athletic specialty channel to be running up +9%.
  • In addition, we’ve seen a modest reacceleration in apparel sales month-to-date as well.
  • In looking at FL’s 3Q, it’s important to note sales contribution by month which are front-end loaded to August (~42%) compared to September (~35%) and October (~23%).
  • As such, we have good visibility on how domestic sales are shaping up easing concerns of incremental weakness in what has been one of the strongest multi-year trends in retail.

All in, we’re taking our FL comp for quarter up to +9.5% from +7.5% and EPS to $0.59 vs. $0.54E and remain 3% and 7% above consensus estimates for this year and next at $2.52 and $2.90. We are modeling a +8% comp for FINL and EPS of $0.12 vs. $0.11E (we have SG&A a bit higher) and are +6% and +8% Street estimates with EPS of $1.78 and $2.05 in (Feb) FY13 and FY14 respectively.

We remain positive on both stocks. Given relative underperformance of FINL due to investor concern over the potential of incremental costs related to Macy’s (we see as a shift in timing, but not dollars), we favor FINL over FL at these prices. We are also incrementally more positive on NKE, which is one of our top ideas.

FL/FINL: Stealth Strength in Athletic Specialty FW - MoFWChan


FL/FINL: Stealth Strength in Athletic Specialty FW - FL Comps


FL/FINL: Stealth Strength in Athletic Specialty FW - FINL Commps


FL/FINL: Stealth Strength in Athletic Specialty FW - FW Mo YY Cat




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.


Today we shorted the WisdomTree Japan Hedged Equity Fund ETF (DXJ) at $31.96 a share at 3:32 PM EDT in our Real Time Alerts.




Japan had a mean reversion bounce this week that has yet to fully correct and Keith thinks it will. Japan’s current economic situation remains deteriorated and the ongoing land dispute with China is far from over.


The Economic Data calendar for the week of the 22nd of October through the 26th 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.



Dial-In Information: "View From the Battleground States"


Dial-In Information: "View From the Battleground States" - Invite


"Based on our forecasting model, it becomes clear that the president is in electoral trouble"

-Ken Bickers     


On Wednesday, October 24th at 1:00pm EST, the Hedgeye Macro Team and Healthcare Team will be hosting a View From the Battleground States Expert Call with Professor Kenneth Bickers of the University of Colorado. Bickers and his colleague, Michael Berry, have created an economic forecasting model that has accurately predicted the outcome of the last eight presidential elections.


Topics will include: 

  • Electoral College vote set-up, impact and the importance of swing states 
  • Discuss Forecasting Model Factors: including state and national unemployment figures and changes in real per capita income
  • Factors that will make this election different 
  • Voter expectations and turn out
  • Economic impacts following the election (healthcare, fiscal cliff) 

Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below and presentation materials will be distributed prior to the call:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 496674#


Bickers' Background

  • Joined faculty at CU Boulder in 2003
  • Received his Ph.D. from the University of Wisconsin-Madison and his BA from TCU in Fort Worth
  • Published articles in numerous journals, including the American Journal of Political Science, Journal of Politics, Public Choice, Administration and Society, and the Journal of Conflict Resolution
  • Current research includes;
    • The consequences of devolution of federal policy activities to states and local communities
    • Local Government Elections Project, an ongoing investigation of the recruitment and campaigns of local office holders who populate local and state offices
    • Exploration of the relationship between residential mobility and local politics 

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