Great for Bulls, Awful For U.S.

Client Talking Points


Well, Ben Bernanke just eviscerated almost my entire bull case for US growth accelerating from here. So it’s a good thing he cut his GDP forecast. The best way to slow real economic growth is by burning your currency. Bottom line here is that yesterday was a great day for 2013 US stock market bulls, but a very sad day for America.


Anything linked to Burning The Buck went absolutely ape on Bernanke fighting economic gravity. If Ben bans the economic cycle, Gold should love that. Of course, Bernanke rescued Gold from crashing yesterday. The two are Best Friends Forever. And he’ll keep that nice fat consumption tax on at the gas pump going on US consumers. Instead of snapping its TAIL risk line, Bernanke has Brent Oil hold $109.04 TAIL support.


They absolutely love Ben Bernanke and Down Dollar. So you can take that slide deck we have on Emerging Markets and burn it alongside the buck too. Turkey rocketed +7.6% overnight, Indonesia shot up  +4.8%. No, those are not typos.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


As for Ben Bernanke and the Fed, shame on you - you are a national embarrassment @federalreserve



"I may reverse my entire macro position based on Bernanke's disaster day - and I won't apologize for it" - Keith McCullough


Assets the Fed holds have jumped by over $800 billion, or about 30%, to more than $3.6 trillion since it first announced its latest bond-buying program last September. The balance sheet is up from less than $1 trillion prior to the recession.

September 19, 2013

September 19, 2013 - dtr



September 19, 2013 - 10yr

September 19, 2013 - spx

September 19, 2013 - dax

September 19, 2013 - nik

September 19, 2013 - euro

September 19, 2013 - oil

September 19, 2013 - natgas2



September 19, 2013 - VIX

September 19, 2013 - dxy

September 19, 2013 - yen
September 19, 2013 - gold

September 19, 2013 - copper

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed

Takeaway: The trend of smaller bond fund outflows continued in the most recent week but still both taxable and tax-free bond funds booked outflows

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity mutual fund inflow accelerated week-to-week to $5.2 billion for the 5 day period ending September 11th, up from the $903 million inflow the week prior


Fixed income mutual fund outflows also improved but still resulted in a $5.5 billion withdrawal by investors, an improvement from the $6.7 billion draw down last week


Within ETFs, passive equity products experienced an large inflow of $10.3 billion, the best weekly period in 2 months with bond ETFs flows also experiencing positive trends with a $1.4 billion inflow


ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 1



For the week ending September 11th, the Investment Company Institute reported improvements in both equity and fixed income mutual fund flows however with bond trends simply booking a smaller outflow. Total equity fund flow totaled a $5.2 billion inflow which broke out to a $2.7 billion inflow into international equity products and a $2.4 million inflow in domestic stock funds. These trends were an improvement from the prior week's total equity fund inflow of $903 million. Including this acceleration in stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.6 billion inflow for total equity mutual funds, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, outflow trends continued for the week ending September 11th with the aggregate of taxable and tax-free bond funds combining to lose $5.5 billion in fund flow. The taxable bond category specifically shed $2.8 billion in the most recent period versus the $4.7 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $2.7 billion in the week ending September 11th, continuing its trend from last week which experienced a $2.0 billion outflow and the 10th consecutive week over the $2.0 billion outflow mark. Franklin Resources (BEN) continues to have the most exposure in our coverage group to declining Municipal bond trends with over 10% of its assets-under-management in the tax-free category. The 2013 weekly average for fixed income fund flow has now drastically declined from 2012, now averaging a $464 million weekly outflow this year, a far cry from the $5.8 billion weekly inflow averaged last year.


Hybrid funds, or products that combine both fixed income and equity allocation, continue to be the most stable category bringing in another $1.2 billion in the most recent weekly period, an improvement from the $349 million inflow the week prior. The year-to-date weekly average inflow for hybrid products is now $1.6 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 2

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 3

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 4

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 5

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 6



Passive Products - Large Equity ETF Inflow:



Exchange traded funds experienced positive trends for the week ending September 11th with a massive equity inflow and also a stable fixed income subscription. Equity ETFs gained $10.3 billion, the biggest inflow in 8 weeks for equity ETF products and the 5th largest inflow for the category in all of 2013. Including this week's inflow, 2013 weekly average equity ETF trends are averaging a $2.8 billion weekly inflow, an improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs also had a positive week with a stable $1.4 billion inflow which was a slight decline from last week's $2.4 billion subscription. Including this sequential drop in the most recent period the 2013 weekly bond ETF average is now just a $375 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.



ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 7

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 8



HEDGEYE Asset Management Thought of the Week: Quantitative Easing...To Infinity and Beyond:


With the renewed emphasis on pumping liquidity into the credit markets and beyond as articulated by the Fed Reserve yesterday, we highlight the corresponding historical reaction of the asset management stocks in 1 week; 1 month; and 3 month time-frames. While each announcement was made in very different market conditions (for example the announcement of QE1 in 2008 was made in a Bear market for all stocks versus the announcement of QE2 in November of 2010 which was made in recovering equity markets), we none-the-less estimate the average stock reaction for all 4 current rounds of Quantitative Easing (QE) is useful for investors to understand. The averages point to the most favorable positive reaction for Blackrock shareholders, with BLK stock having averaged a 4%; 4%; and an 11% return in the 1 week; 1 month; and 3 month periods following major Fed QE announcements, the best reaction in the asset management group. This is likely because of the firm's substantial emerging markets business (which is 10% of the entire EM assets outstanding when including ETFs and mutual funds) which have historically benefited with lower or easing credit conditions in developed market economies. The leading real estate and balanced fund franchise at Invesco (IVZ) has also reacted positively to QE announcements as lower rates and easing credit conditions makes these yield based products more competitive. IVZ stock has averaged a 5%; 4%; and 5% return over the various stages of QE announcements in the 1 week; 1 month; and 3 month time-frames, the second best beneficiary of these announcements.  


 ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 9



Jonathan Casteleyn, CFA, CMT







Joshua Steiner, CFA






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WYNN is considering an investment north of USD4 billion in Japan casino resorts if it wins permission.  MGM has also commented about investing “several” billion dollars in the market if given the opportunity.


Hiroyuki Hosoda, the chairman of a cross-party group of lawmakers promoting casino development in Japan, said that the group aims to submit a casino bill to the next diet session which starts in October and pass the bill in the following session of parliament.  A competitive bidding process will be needed before one or more casino resorts can be developed, he said. It would take five years after the legalization before the first casino is operational, Hosoda said.


MGM and WYNN said that they plan to partner with local consortiums to develop casino projects. According to managing director of global development for LVS, George Tanasijevich, LVS is also “open minded” about having local partners.


Among speculated local partners are trading companies such as Mitsui & Co., Mitsubishi Corp. and Itochu Corp. and gaming machine makers Sega Sammy Holdings Inc. and Konami Corp.  The trading companies have project-finance experience and real estate development connections, while the game makers have helped develop casino projects and technology outside of Japan.  The specific details about sites and operators will probably come after legalization.


Possible sites include the Odaiba section of Tokyo, an island of reclaimed land in Tokyo Bay, between Haneda airport and the business district surrounding the city’s main train station.  Sands will fund Japan casino resorts with existing operating cash if allowed to build, Tanasijevich said.


Tokyo’s potential as a gambling market is also drawing interest from CZR, SJM, and MPEL. 



Time is running out for the governing Kuomintang in Taiwan to pass legislation that would permit casinos on outlying islands. reports that a committee crucial for the passage of the bill has no plans to meet ahead of the end of the current legislative session in December.  A political stalemate is also threatening to stall the bill’s passage into law.  A lobbyist in Taiwan for Park Strategies, Anita Chen, said gaming legislation was included in the premier's list of some 45 priority bills.

Weidner Resorts of Las Vegas is the only company that has openly campaigned for a casino-resort, on Matsu.



Macau CPI for August 2013 increased by 5.31% YoY and 0.17% MoM.



Macau Government Tourist Office director Maria Helena de Senna Fernandes says there is no plan to extend the individual visa scheme to more mainland cities.  Apple Daily newspaper said Hong Kong officials had suggested the scheme could be extended to tourists from the northern cities of Qingdao, Taiyuan and Xi’an.

Is It Over?

“Insanity: doing the same thing over and over again, and expecting different results.”

-Albert Einstein


Is it over?


Well, it depends on what you think it is.


Is it the US Constitution? Is it the US Dollar? Is it US Growth?


Back to the Global Macro Grind


I’ll keep it tight this morning, because if I rant about what I really think about what Ben Bernanke did yesterday, I might lose some clients and have the NSA parked outside of my house.


While it was a great day for those of us who have been US stock market bulls in 2013, it was a very sad day for America.


Basically, Bernanke eviscerated almost my entire bull case for US growth accelerating from here, so it's a good thing he cut his GDP forecast. The best way to slow real (inflation adjusted) economic growth is by burning your currency.


To review the 3 core components of our 2013 bullish thesis for US #GrowthAccelerating:

  1. American Purchasing Power (US Dollar) stabilizes and strengthens by arresting policies to devalue the Dollar
  2. As purchasing power rises, American confidence, hiring, and spending does – rates rise too (it’s called a cycle)
  3. Economic cycles are reflexive – they feed on themselves, so the Fed needs to get out of this one’s way

None of that happened yesterday, because an un-elected central planner decided so. #perfect


Exactly what Jefferson and Franklin had in mind.



  1. After snapping my intermediate-term TREND line of $81.34, Bernanke smoked the US Dollar to a 6 month low
  2. Everything slow-growth went ape (to the upside); Gold, Bonds, Utilities, etc, – everything we don’t want to see
  3. And Emerging Markets went haywire (Turkey +7.6%, Indonesia +4.7%, India +3.7%, etc)

I have no doubt that everyone who is in the business of being long every recipient of the US Dollar devaluation had a great day. But that doesn’t do jack for the hard working American who will be taking this one in the pump and/or the conservative American saver who was actually getting something more than 0% for the last few months.


Bernanke should have respected Mr. Market’s long-standing American pro-growth signal of #StrongDollar, #CommodityDeflation, and #RatesRising – and he did not. Period. For that, he should feel shame.


So you tell me, is it over? And over for whom? Who is going to hold Bernanke accountable for:

  1. Renewing the American Tax at the pump (Dollar Down, Oil up on Bernanke is as potent as Assad)
  2. Cutting risk-free income on savings accounts (2yr yield just dropped 36% to 0.33%)
  3. Causing US GDP growth to go from 2.5% real to 1.5-2% (the GDP Deflator goes up when the Dollar goes down)

Is this all part of the class warfare thing Obama likes to talk about? Other than the political class, who, precisely, Mr. President, got paid by Bernanke’s un-objective and un-elected decision yesterday? Or did all those “folks” you’ve been standing up for refi whatever they have left on their house and buy Gold futures with it yesterday?


I clearly don’t get what Bernanke is trying to achieve by banning things like gravity, consumption tax cuts, and the economic cycle. But my gut says no one in America who doesn’t get paid to say they get it gets it either.  


Unlike the US Federal Reserve who has been behind the curve using broken forecasting models, my research team will continue to respect both the data and markets as leading indicators. That part of what we do isn’t over this morning. Neither will changing our mind as circumstances do.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.58-2.81


VIX 13.11-14.82

USD 80.12-81.34

Brent 109.04-111.76

Gold 1


Best of luck out there with your centrally planned day,



Keith R. McCullough
Chief Executive Officer


Is It Over? - chart


Is It Over? - z. vp 919

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