A New Idea

“Where is the knowledge we have lost in information?”

-T.S. Eliot


That’s the opening quote from the latest book I cracked open on an airplane this week – The Idea Factory, by Jon Gertner. I did 3 cities (Kansas City, Denver, and Minneapolis) in 3 days and came up with a new idea for the next crisis – prayer.


Whether you like it or not; whether you have realized that the Fed completely missed its opportunity to taper or not; whether you agree that the US government is getting dumber with market and economic information or not – newsflash:  it doesn’t matter.


All that matters today is what the next un-elected-central-planner-in-Chief-of-your-hard-earned-currency thinks. While hope is not a risk management process, many still hope Janet Yellen won’t be as “dovish” as Bernanke. If she walks and quacks like a dove, she’s not a hawk. She will redefine a new species of accountability ducking doves.


Back to the Global Macro Grind


In textbook Fed front-running form, the US stock market got a leak intraday yesterday as to what Yellen was going to say and ripped to another new all-time high. Gold and Bonds went up too. Everyone was a winner!


But who is everyone?


I think we all know the answer to that question. And this, sadly, is not a new idea in the world either. Marxist/Socialist political regimes have plundered The People across centuries. The power of information is no longer in entrepreneurial ideas, it’s in having insider knowledge on the next central plan.


Since Obama didn’t get the asymmetric risks embedded in Obamacare, there’s less than a 1% chance he will be in the area code of comprehending the long-term TAIL risks associated with the Bernanke Bond Bubble. But don’t worry about that, for now. Buy the damn bubble (#BTDB), and pray you aren’t the one without a chair when the music stops.


I’m not kidding, as my Canadian sniffer caught a downwind leak of the Yellen’s pending plan, I:

  1. Bought Bonds (TLT)
  2. Bought Gold (GLD)
  3. Bought Utilities (XLU)

In other words, I bought everything that I was short for the better part of the last year on my other 2013 New Idea that the Fed was going to finally get out of our way (and taper).


Do you think I’m crazy? I do.


In fact, I spread a full 1/3 of the Hedgeye Asset Allocation across 4 asset classes at 8% each. Crazy Eights!

  1. Commodities 8%
  2. Fixed Income 8%
  3. International Equities 8%
  4. US Equities 8%

With a little dovish leaky-peaky from the boys who worked for and/or hang with Dudley’s Goldman boys at the New York Fed (I believe they are all old and young boys, but don’t quote me on that), why not roll the bones? Spreading our bets around a casino where everyone wins takes down our “VAR” too!


People who don’t make money in down markets love to talk about “Black Swans”, but they have yet to make it a known known to The American People that this eventual bond market crash isn’t a TAIL risk at all. Our risk management process considers it a rising probability in 2014-2015.


And what are all the poor souls who are long the PIMCO “total return” fund going to do when they realize that it was lathered up with the a sub-asset “class” within the Bernanke Bond Bubble that people won’t be able to get out of (MBS)?


Or was the plan always that the New York Fed was going to buy the Bond Bull Lobby time to get out? Was the plan to change the goal posts every time non-linear economies surprise these central planners’ forecasts? Evidently, it was.


So pull up a seat. Meet your maker -Janet Yellen - the Mother of All Doves. She’ll outline why, despite the USA running +2.84% GDP in Q313, that her unaccountable definition of the economy is “far from potential.”


She’ll make up some new rules. She’ll look real serious about it too. Because when her MBS (mortgage backed security) bond bubble pops, this is going to be very serious. That’s why my best New Idea is recommending prayer.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.66-2.82%


VIX 12.12-14.46
USD 80.43-81.39

Pound 1.59-1.61

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


A New Idea - Chart of the Day


A New Idea - Virtual Portfolio

$KSS Misses Big, McGough Nails It

Kohl's (KSS) shares are deep in the red this morning after a bad earnings miss. Hedgeye Retail Sector Head Brian McGough nailed this call. Check out video below. Go to the 3:10 mark for his take on Kohl's. 


November 14, 2013

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real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.






The Casino Regulatory Authority of Singapore (CRA) has fined MBS S$337,500 and RWS S$190,000.  The authority said the fines are for breaches of social safeguard measures that it detected for the period of May 1, 2012 to December 31, 2012.


By law, the two companies need to keep certain groups of Singapore citizens and permanent residents from entering its casinos, including those without valid entry levies, those banned from entering the casinos by an exclusion order, and those under 21 years of age.



Paradise Entertainment, the supplier of gambling equipment in Macau, said it expects sales to grow at least 35% in 2014 as casino operators plan to buy more electronic table games to boost their profitability.  Casino companies are ordering more electronic equipment and replacing lower-yielding betting tables with new games that allow more players to bet simultaneously, Chairman and Managing Director Jay Chun said.  The new games would aid revenue next year when no new casino is scheduled to open, added Chun, who expects “strong replacement and new orders.”  Paradise expects sales for its slot machines to rise above 40% next year.


Paradise Entertainment's biggest clients include Sands China, SJM Holdings and MPEL.  Paradise Entertainment also manages the Kam Pek Paradise casino under the license of SJM.  Located next to Casino Lisboa, Kam Pek Paradise casino has 37 gaming tables, more than 900 live multi-game machines and over 300 slot machines.  It aims to operate two more casinos in the Chinese city, Chun said, without disclosing details.


The company currently accounts for 20% of the slot machine market in Macau and 60% of the electronic live table games market.



Macau government expects revenue of MOP115.5 billion (US$14.4 billion) from the special gaming tax in 2014.  The sum is 25% more than budgeted for 2013.  The government tends to make conservative predictions about the growth of the gaming industry.  Its revenue from the special gaming tax this year will probably be greater than the amount it expects to get next year.  The proposed budget for next year envisages total revenue of MOP153.6 billion, 14% more than budgeted for this year, and spending of MOP77.6 billion, 6% less.



Visitor arrivals in package tour surged by 26.0% YoY to 944,188 in September 2013.  Visitors in package tour mostly came from Mainland China (759,272), with 272,532 from Guangdong Province, followed by Taiwan (56,789); Hong Kong (35,650); and the Republic of Korea (35,610).


There were 98 hotels and guesthouses operating at the end of September 2013, providing 27,807 guest rooms, up by 6.7% YoY.  The average length of stay of guests held stable as September 2012, at 1.3 nights.


TODAY’S S&P 500 SET-UP – November 14, 2013

As we look at today's setup for the S&P 500, the range is 20 points or 0.90% downside to 1766 and 0.22% upside to 1786.                                                   










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.43 from 2.40
  • VIX closed at 12.52 1 day percent change of -2.34%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init. Jobless Claims, Nov. 9, est. 330k (prior 336k)
  • 8:30am: Nonfarm Productivity, 3Q, est. 2.2% (prior 2.3%)
  • 8:30am: Trade Balance, Sept., est. -$39.0b (prior -$38.8b)
  • 9am: Fed’s Plosser speaks on monetary policy in Washington
  • 9:45am: Bloomberg Consumer Comfort (prior -37.9)
  • 10am: Senate Banking Committee meets on Yellen nomination
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage
  • 11am: DOE inventories
  • 11am: Fed buys $2.75b-$3.5b in 2020-2023 sector
  • 12:45pm: Bundesbank’s Nagel speaks in Wart, Germany
  • 1pm: U.S. sells $16b 30Y bonds
  • 1:45pm: BoE’s Miles speaks in Dallas


    • 9:30am: House Energy and Commerce Cmte meets on EPA’s greenhouse-gas standards for new power plants
    • 10am: House Science Cmte hears from EPA Administrator Gina McCarthy on transparency, accountability
    • 10am: House Education and Workforce Cmte holds hearing on effects of health-care law on schools
    • 3:30pm: President Obama speaks on economy in Cleveland


  • Yellen says U.S. economy must improve before Fed tapers QE
  • Cisco 2Q adj. EPS, revenue ests. miss analyst estimates
  • Cisco suppliers, peers fall post-mkt after 2Q view misses ests.
  • Boeing’s largest union rejects swapping pensions for 777X
  • Facebook said to offer $3b for Snapchat to attract teens
  • Pershing, Berkshire among those to file as 13F deadline approaches
  • Samsung said to plan Galaxy smartphone with wraparound display
  • Lilly triples investment in growing mkt for diabetes products
  • Berkowitz seeks to acquire two insurers from Fannie, Freddie
  • GM CEO Akerson may step down as soon as next yr, Reuters says
  • Apollo, Lee said to explore Capella Healthcare buyout: Reuters
  • Redfin raises $50m in funding led by Tiger, T. Rowe Price
  • HP, Google suspend Chromebook 11 sales after overheating reports
  • HUD said to fail in bid to sell $450m of FHA mortgages
  • Houghton Mifflin raises $219m pricing IPO below range
  • Europe recovery wanes as Germany slows, French GDP falls
  • British retail sales unexpectedly declined 0.7% in Oct.
  • Japan slowdown flashes warning to Abe as reforms await


    • B2Gold (BTO CN) 6:30am, $0.03
    • CGI Group (GIB/A CN) 6:30am, C$0.61
    • Finning Intl (FTT CN) 8am, C$0.52
    • Helmerich & Payne (HP) 6am, $1.40
    • Kohl’s (KSS) 7am, $0.86 - Preview
    • Manchester United (MANU) 7am, $0.01
    • Paladin Labs (PLB CN) 6:30am, C$0.64
    • Sally Beauty (SBH) 7am, $0.39
    • TransDigm Group (TDG) 7am, $1.71
    • Tyco Intl (TYC) 6am, $0.52 - Preview
    • Viacom (VIAB) 6:45am, $1.44 - Preview
    • Wal-Mart Stores (WMT) 7am, $1.13 - Preview


    • Agilent Technologies (A) 4:05pm, $0.76
    • Algonquin Power & Utilities (AQN CN) Aft-mkt, C$0.02
    • Applied Materials (AMAT) 4pm, $0.18
    • Boardwalk REIT (BEI-U CN) 4:10pm, C$0.82
    • Matthews Intl (MATW) 4:10pm, $0.74
    • Nordstrom (JWN) 4:04pm, $0.67 - Preview
    • Power of Canada (POW CN) 12:05pm, C$0.64
    • Youku Tudou (YOKU) 5pm, $(0.20)


  • Gold Seen Flowing East as Refiners Recast Bars for Asian Buyers
  • Starbucks Costs Retreat in Coffee Bear Market Slump: Commodities
  • Commodities Revenue at Top 10 Banks Seen Dropping 14% This Year
  • IEA Sees Libya, Iraq as Growing Risks to Oil Market Balance
  • China Gold Jewelry Demand Jumps as WGC Restates 1,000-Ton Target
  • WTI Crude’s Discount to Brent Widest Since April as Supply Rises
  • Copper Swings Between Advances, Declines on Europe Data, Yellen
  • Sumitomo Metal’s Taganito Project Ships First Nickel to Japan
  • Mistry Sees Steady Palm Oil Prices After Output Trails Estimates
  • Robusta Coffee Falls as Vietnam Harvest Advances; Sugar Retreats
  • Oil Producers Overtaking Refiners on Flood of U.S. Shale: Energy
  • India’s Gold Imports Slump in Third Quarter to Lowest Since 2009
  • Fortescue Pays Bonds Early in Rising Star Push: Australia Credit
  • Gold Demand Fell 21% Last Quarter as Investors Sold ETP Holdings


























The Hedgeye Macro Team














The Doppelganger Fed

This note was originally published at 8am on October 31, 2013 for Hedgeye subscribers.

“One day everything will be well, that is our hope. Everything’s fine today, that is our illusion.”



In German folklore a doppelganger is literally a paranormal double of a living person. More contemporarily, the word doppelganger is used to identify a person that closely resembles someone else either physically or behaviorally. As an example, some people have suggested that my doppelganger is Russell Crowe.


As it relates to the Federal Reserve, the biggest question facing investors currently is whether Janet Yellen will be a doppelganger, in terms of policy and communication, of current Chairman Ben Bernanke (more commonly known as The Bernank).  Practically speaking, copying Bernanke’s behavior is likely to mean a continuation of QE Infinity.


Keith had some colorful comments on Fox Business last night as it relates this idea of QE Infinity. The video is attached in the link below and Keith’s comment begin at around the 3:00 mark. As Keith notes, the biggest issue is that the Fed is confusing the market which has dramatically heightened interest rate volatility this year.


Paul Singer from Elliott Management made a similar statement in his letter to investment partners yesterday where he wrote:


“QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying.”


This is indeed the issue, namely that the economy and investors have become so accustomed to abnormal interest rate policy, that they have an incredibly difficult time determining what normal is anymore.  Sadly, the new normal appears to be to wait for the Fed’s next whisper to the Wall Street Journal’s Jon Hilsenrath.


To be fair, for those that are into reading Federal Reserve tea leaves, there was communication other than whispers to Hilsenrath yesterday. Specifically, in its statement the Federal Reserve made three changes:

  • This clause was removed, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market”;
  • They changed ”that economic activity has been expanding at a moderate pace” to “generally suggests that economic activity has continued to expand at a moderate pace”; and
  • They removed the “some” from this statement - “Some indicators of labor market conditions have shown further improvement”.

Maybe it is just me, but I’ve been reading English for a long time now and I have no idea what the implication is of those changes.


The fact is that the bogey that remains out there is 6.5% unemployment and if we take their word then the Fed will:


“. . . keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent.”


Although, even there, The Bernank has been quite dodgey as he has at times alluded to 7% being the bogey for altering monetary policy and other times suggesting he would lower the bogey to 6%. But if we accept the current 6.5% target, QE Infinity is likely to continue at the rate of $85 billion, give or take, for the for seeable future. 


In the Chart of the Day, we’ve highlighted the growth of the Federal Reserve balance sheet since 2008 as a result of QE Infinity.  In total, the Fed is almost at $4 trillion in assets on its balance sheet.  Not to be the alarmist, but another reason that we may be in the low interest time zone for a lot longer than we realize is because of interest rate risk associated with the Fed’s balance sheet.


Ironically, some pundits (we won’t name names) have commended the Fed under Chairman Bernanke for being transparent and great at communicating.  Sadly, it doesn’t take much more than the last 24 hours to understand that a) the Fed is as bad at communicating as ever and b) this is why investors are so confused. Frankly, we see no reason to believe that Yellen will be anything but Bernanke’s doppelganger on the communication front . . . and so the confusion will go on.


Sadly for stock operators, this confusion has led to an environment in which fundamentals for companies are, at times, ignored.  As an example, let’s look at both earnings and sales results for SP500 companies:

  • Sales: 60% of companies that beat sales estimates subsequently outperformed the market to the tune of 3.7% on average.  The other 40% of companies that beat sales estimates underperformed the market over the subsequent 3-days by an average of -3.8%.   Subsequent performance for companies missing Sales estimates was similarly mixed.  
  • EPS:   56% of companies beating EPS estimates subsequently outperformed the market by ~3% on average while 44% went on to underperform the market by an average of -4.1%.  Subsequent performance for companies missing EPS estimates was similarly mixed.

In a nutshell, stock performance has had very little relation to fundamental performance in 2013.  More simply, it has been a structurally tough year to isolate Alpha.  But even there no one should be surprised, because it is a macro driven market.  And if you don’t do macro, macro will do you.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.47-2.60%

SPX 1755-1771

VIX 12.85-14.92

USD 79.21-81.16

Brent 108.86-111.27

Gold 1327-1363


Keep your head up and stick on the ice,

Daryl G. Jones


The Doppelganger Fed - Chart of the Day


The Doppelganger Fed - Virtual Portfolio

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.