Keith on Forbes: U.S. Remains Hostage

Takeaway: We remain hostage to a bunch of un-elected NYC banking group-thinkers.

“In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns… because it is trying to arbitrarily set the single most important price of the economy – the price of money… setting wage and price controls from the time of Diocletian to Nixon, has proven in every case a disaster for economies and the people entrapped by them.” 

-John Allison


Keith on Forbes: U.S. Remains Hostage - benmoney


Former BB&T CEO John Allison retired from finance in 2010 after building, brick-by-brick, one of the best run banks in American history. As author George Gilder observes in his excellent book, “Knowledge and Power,” Allison steered BB&T through the entire sub-prime crisis without suffering a single quarterly loss. Not one penny. During his almost two-decades at the helm, BB&T blossomed from a small, relatively inconsequential local bank to a $152 billion regional powerhouse successfully operating in 11 southern states and the District of Columbia. Simply put, John Allison knows how to lead.


“[BB&T] had really strong presidents,” according to Allison, redirecting credit to his underlings. “They had a much higher level of authority than our competitors… they were held responsible – they owned the process.”


Now shift your focus from John Allison, visionary business leader, to the Fed Crony Boys over in the “Land of Mediocrity.”


Click here to continue reading Hedgeye CEO Keith McCullough's latest op-ed on Forbes.

Short BWP – Report and Dial-In

We added SHORT Boardwalk Pipeline Partners (BWP) to our Best Ideas list on 12/2/2013.


Click the link for our FULL REPORT ON BWP:


We will host a quick call TODAY at 11am EST to hit the key points of the thesis and field questions.  If you have any questions, send them over to .


Dial-in Info:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 855488# 


Kevin Kaiser

Managing Director

Twitter: @HedgeyeEnergy







Japanese lawmakers from the ruling Liberal Democratic Party submitted a bill to legalize casinos to parliament.   The bill was also jointly submitted by the members of the Japan Restoration Party and other groups, Hiroyuki Hosoda, the chairman of a cross-party group of pro-casino lawmakers.  LDP’s junior coalition partner New Komeito has approved the submission, LDP’s policy chief Sanae Takaichi said.


The parties aim to pass the bill in the next session beginning January, said Hosoda, who is also an executive acting LDP secretary-general.  The bill, which was drafted by a group of pro-casino lawmakers across parties, was approved by the LDP’s General Council last month.


The LDP has a single-party majority in the lower house and would probably gain enough opposition support to pass the bill in the upper house and enact the law even without New Komeito’s backing.

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Christmas Bear Scraps

Client Talking Points


If you wanted to short a major equity market for a real correction, you should have tried a whirl on the Nikkei for 48 hours. Japan was down -1.5% overnight. It's down -3.7% in 2-days after the YEN stopped going down versus the US Dollar. Global macro matters.


So in spite of that European Central Bank cut, the Eurocrats just can’t seem to keep the Euro down versus the US Dollar. Why? Because Ben Bernanke is prepping his academic turkeys for more no-taper basting. Who cares what the economic data says? That scent in the air is the smell of #BurningBucks.


What's that? #RatesRisingagain? Yes.. to 2.83% (Gold down -0.8% this morning, it no likey rising rates). So, Bill Gross and the bond guys over at PIMCO and the New York Fed better intervene soon. After all, our unelected central planners at the Federal Reserve must never let economic gravity get in the way of good dogmatic storytelling. #Sad. On a related note, SPX risk range is now 1788-1815. Time to buy and cover (again).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


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.


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


Devalue The Dollar and crush seniors starving on fixed savings w/ 0% rates (and talk "income disparity") @BarackObama


"Great minds talk about ideas, average minds talk about events, and small minds talk about people." - Eleanor Roosevelt


Bond prices fell yesterday, sending the 10-year note's yield to as high as 2.852%, nearing the 3% mark touched this past summer when investors bet the Fed would retreat from buying Treasury and mortgage bonds at its September policy meeting. (WSJ)

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle

Takeaway: Taxable bond outflows have now occurred in 22 of the past 26 weeks with tax-free or municipal outflows in 26 consecutive weeks

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Total equity mutual fund flow for the week ending November 27th was $1.5 billion, a below average weekly inflow for 2013 but none-the-less a slightly positive indication for stocks. Within the total equity inflow result, domestic equity mutual funds lost $1.3 billion, the first outflow in 6 weeks with International equity funds posting a $2.9 billion inflow. Total equity mutual fund trends in 2013 however now tally a $3.2 billion weekly average inflow, a complete reversal from 2012's $3.0 billion weekly outflow 


Fixed income mutual funds continued persistent outflows during the most recent 5 day period with another $4.7 billion withdrawn from bond funds. This week's draw down worsened sequentially from the $3.2 billion outflow the week prior which has now forced the 2013 weekly average for all fixed income funds to an $1.1 billion outflow which compares to the strong weekly inflow of $5.8 billion throughout 2012


ETFs experienced mixed trends in the most recent 5 day period, with equity products seeing very strong inflows and fixed income ETFs seeing slight outflows week-to-week. Passive equity products gained $11.4 billion for the 5 day period ending November 27th, the 5th best week in all of 2013. Bond ETFs experienced a $251 million outflow, a deceleration from the $363 million subscription in the 5 days prior. ETF products also reflect the 2013 asset allocation shift, with the weekly averages for equity products up year-over-year versus bond ETFs which are seeing weaker year-over-year results


ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 1

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 2



For the week ending November 27th, the Investment Company Institute reported slight equity inflows into mutual funds with over $1.5 billion flowing into total stock funds. The breakout between domestic and world stock funds separated to a $1.3 billion outflow into domestic stock funds and a $2.9 billion inflow into international or world stock funds. These results for the most recent 5 day period within stock funds were bifurcated, with the outflow in domestic stock funds below the weekly average of a $597 million inflow and with world stock fund production slightly above the $2.6 billion weekly inflow average. The aggregate inflow for all stock funds this year now sits at a $3.2 billion inflow, an average which has been getting progressively bigger each week and a complete reversal from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds continued their weak trends for the 5 day period ended November 27th with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $4.7 billion outflow, a sequential deterioration from the $3.2 billion lost in the 5 day period prior. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $3.6 billion, which joined the $1.0 billion outflow in tax-free or municipal bonds. Taxable bonds have now had outflows in 22 of the past 26 weeks and municipal bonds having had 26 consecutive weeks of outflow. While the sharp outflows that marked most of the summer and the start of the third quarter have moderated, the appetite for bonds has hardly rebounded. The 2013 weekly average for fixed income fund flows is now a $1.1 billion weekly outflow, a sharp reversal from the $5.8 billion weekly inflow averaged last year.


Hybrid mutual funds, products which combine both equity and fixed income allocations, continue to be the most stable category within the ICI survey with another $870 million inflow in the most recent 5 day period. Hybrid funds have had inflow in 24 of the past 26 weeks with the 2013 weekly average inflow now at $1.6 billion, a strong advance versus the 2012 weekly average inflow of $911 million.



ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 3

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 4

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 5

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 6

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 7



Passive Products:



Exchange traded funds had mixed trends within the same 5 day period ending November 27th with equity ETFs posting a very strong $11.4 billion inflow, a sequential improvement from the $4.0 billion subscription the week prior and the 5th best week all year for stock ETFs. The 2013 weekly average for stock ETFs is now a $3.3 billion weekly inflow, nearly a 50% improvement from last year's $2.2 billion weekly average inflow.


Bond ETFs experienced a slight outflow for the 5 day period ending November 27th with a $251 million redemption, a sequential deceleration from the week prior which netted a $363 million inflow for passive bond products. Taking in consideration this most recent data, 2013 averages for bond ETFs are flagging with just a $265 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.



ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 8

ICI Fund Flow Survey - Hey Diddle Diddle...Bond Outflows Down the Middle - chart 9 



Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

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