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Repairing The Eurozone

The sovereign debt crisis in the Eurozone has cooled off in the mainstream media lately, but the situation is far from being fixed completely. 10-year bond yields have declined significantly from the heightened levels experienced in June of this year. Greece, Portugal and Italy remain the biggest at-risk countries for investors and Germany and France continue to plow forward without any hiccups. Keep an eye on maturing debt for various countries in 2013 as some (particularly Italy) have nasty situations they must face.


Repairing The Eurozone - EuropeRates

Risky Business

Client Talking Points

Trading The Range

We have a method here at Hedgeye and we stick to it. It creates order and discourages chaos in a market where chaos can be the norm. An important part of our method is trading the risk and the range. That means we determine the risk involved with a trade and set ranges we’re comfortable trading. For instance, our risk range for the S&P 500 this morning is 1404 and 1419. The former is support where we think it’s a good idea to buy and the latter is where we’d sell at. Our levels change as the market changes, but if we stick to the plan, we won’t get burned. 

Bad Company

The corporate earnings environment looks dreadful as we close out 2012. Our theme of #EarningsSlowing has never been more relevant as the Q4 earnings come in. Want to know how bad it is out there? Keith breaks it down for us:


1.       For Q4 2012 so far, 78 companies have issued negative EPS guidance (29 companies have issued positive EPS guidance)

2.       That means 73% (78 out of 107) of the companies that have said something, said something negative, on the margin

3.       73% = 2nd highest percentage of companies issuing negative EPS guidance since FactSet began tracking the data in Q1 2006

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.




Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.


We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road


“Brazil NOV Exports: -6% YoY from -1.7%, global #GrowthSlowing” -@KeithMcCullough


Australia's central bank cuts benchmark interest rate by 25 basis points to 3%.


“Experience is that marvelous thing that enables you to recognize a mistake when you make it again.” -Franklin P. Jones

Expert Call; What's Next For Agricultural Prices?

Expert Call; What's Next For Agricultural Prices? - Ag.Call


Restaurant Tickers Affected:



Food Processing Tickers Affected:



On Tuesday, December 4th, at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends.


Please dial in 5-10 minutes prior to the 11:00 EST start time using the number provided below. If you have any further questions email 


Please dial in 5-10 minutes prior to the 11:00 EST start time using the number provided below. If you have any further questions email 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762#


Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  


Good's Background


Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  


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.


The Macau Metro Monitor, December 4, 2012




In recent weeks, police in mainland China and Macau have detained people from at least three of Macau's biggest junkets.  Some of the detentions have occurred in China and in other cases, the detainees have been moved there.  The recent detentions "are an attempt by the Chinese government to tell people in the market that they need to behave, especially regarding underground money transfers," said Hoffman Ma, deputy chief executive of Ponte 16, an SJM property. 


Last month at Wynn Macau, police detained a partner of one of Macau's major junket operators who has ties to Bo Xilai, the disgraced Chinese politician. The partner, Pang Yufeng, and his associates, including his driver, were taken to China at the request of Chinese authorities.  Pang is one of four partners at junket operator David Star, which has a presence at all six of Macau's casino operators, including properties owned by WYNN and LVS.  Pang is also the director of a David Star affiliate called Zhong Ying Sociedade Unipessoal Lda., which operates at Venetian Macau. 


Qin Si Xin, another partner of David Star, is among those who have been detained in China.  Qin, a mainlander, is listed on a LVS ledger viewed by the Journal that shows intracompany transactions between Macau and Las Vegas.  In September 2009, he received $1.65 million at the Venetian in Las Vegas from a junket operator in Macau, according to the ledger. It is unclear what the payment was for, but there is no evidence that Mr. Qin's transaction violated any laws. 


Transfers where money flows across borders via casino accounts have raised concerns among casino executives and U.S. authorities that customers could exploit the intracompany accounts to launder money. The apparent crackdown comes as the Macau government conducts a major review of its antimoney-laundering rules. Hong Kong tightened its antimoney-laundering rules in April, which pushed banking business to Macau, people familiar with the transactions said.


Liberty's Bells

“It is seldom that liberty of any kind is lost all at once.”

-David Hume


If alarm bells aren’t going off in your head this holiday season, they should be. Don’t confuse our 2012 Global Macro call for #GrowthSlowing as regressive. Being a realist is progressive. So is standing on the front lines of change.


While he had a tough time marketing his progressive free-market ideas in the 1930s and 1940s, Hayek’s lessons lived on. The aforementioned quote from Hume stands like a rock alongside one from de Tocqueville at the beginning of The Road To Serfdom. Hayek addressed his book “to socialists of all parties.”


I’m not suggesting you become a hard core Hayekian. Neither am I telling you what and/or how to think. I am just a man in a room. I’m fighting for free-market liberties like many men and women who have come before me. During this generational debate about debt, spending, and taxes, all that we ask is that you educate yourself. Liberty’s Bells are ringing.


Back to the Global Macro Grind


After another Monday morning littered with Greek bailout headlines, Global Equities backed off their early morning highs and closed on their lows (SP500 -0.5%). Across durations in our risk management model, Risk Ranges are getting pretty tight.


Tight can be trade-able. That’s a good thing. In Hedgeye-speak we are always talking to clients about managing the Risk Range. Once you have a repeatable process to calculate it, it’s trivial. Risk Ranges are at the bottom of the Early Look note, every day.


Risk Ranges provide us with a quantitative, probability-weighted, framework to contextualize the storytelling in the marketplace. Most stories are qualitative in nature, so having some math wrapped around what’s happening out there is helpful.


We tell stories too. We call them our Hedgeye Global Macro Quarterly Themes. For Q4, they remain as follows:


1.   #EarningsSlowing

2.   Bubble#3 (Commodities)

3.   #KeynesianCliff

For accountability purposes, I use the hash-tag to provide you an archive of high-frequency macro data on Twitter. Being early doesn’t always make us right – but it will make you think outside the government’s centrally planned box.


While the #KeynesianCliff is annoying you, here’s an update on what used to matter to markets (#EarningsSlowing):

  1. For Q4 2012 so far, 78 companies have issued negative EPS guidance (29 companies have issued positive EPS guidance)
  2. That means 73% (78 out of 107) of the companies that have said something, said something negative, on the margin
  3. 73% = 2nd highest percentage of companies issuing negative EPS guidance since FactSet began tracking the data in Q1 2006

Per the lynx-eyed (and some say exotic) Darius Dale, I guess the perma-bulls would say that only 73% of companies guiding down is bullish! Relative to the worst quarter on recent record, that is (i.e. the one just reported with Q3 of 2012 = 74%).


I know, I know – since very few bulls called for both global and earnings growth to slow in Q1, blame everyone and everything but the forecasters in 2012. It’s all the government’s fault. So what we really need to do now is beg for more government.


Or do we?


The best thing that can happen to both the US and Global Consumption economy is more of Theme #2. Popping Bernanke’s Bubbles in food and energy prices would be wildly stimulative to the 71% (that’s US Consumption as a % of total US GDP).


Get consumption right, you’ll get global growth right.


That’s why I got bullish in 2009. That’s why I was bullish until January 25th of 2012 (until Bernanke decided to move 0% rates out to 2014 with more Policy To Inflate asset prices). Inflation is not growth.


We are now so conditioned by permanent price inflation that the idea of prices falling every year is difficult to grasp. And, yet, prices generally fell every year from the beginning of the Industrial Revolution in the latter part of the eighteenth century until 1940, with the exception of periods of major war when governments inflated the money supply radically and drove up prices.” -Rothbard


The only war I see now is between the #PoliticalClass and the rest of us.


At tomorrow’s NYC Analyst Day one of the greatest innovators in America will be talking up asset price deflation in commodities. The Brooklyn born grinder (Starbucks CEO, Howard Schultz) knows how to make a buck and then hire someone with it. Now he’s staring down a futures price in coffee that’s down 50% since topping in May (see Chart of The Day).


That may not be the kind of change you are hearing from Marxist price controllers and debt/deficit spending Keynesians. That’s simply called the Fed getting out of the way for a few months. Cheers to that. Liberty’s Bells are ringing.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $109.42-111.76, $3.54-3.66, $79.59-80.27, $1.29-1.31, 1.58-1.67%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Liberty's Bells - Chart of the Day


Liberty's Bells - Virtual Portfolio

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