Armageddon (Or Not)

Client Talking Points


Thank goodness the Chinese re-opened the stock market. The Shanghai Composite led the charge in Asian Equities overnight closing up +1.1% after another growth stabilizing report. Chinese Services PMI was 52.4 in September versus 52.8 August. Meanwhile, the rest of Asia also acted well all things considered. Thailand was up +1.3%, Indonesia up +1.2, etc. We are long China now via the FXI ETF. US stocks? They're down 10 out of the last 13 days since Bernanke opted not to taper. Asia doesn’t care.


Question: Can government “save” its market from itself? Witness the freshly squeezed year-to-date highs for the Italian stock market this morning. The rest of European equities are trading sideways. This is the most positive divergence in global equities in the last week.


Will the Yen make another lower-high? Will the US Dollar Index hold its long-term TAIL support of $79.21? End of the world ("EOW") watchers need to know. Because if you’re looking for a US “default” to drive the US Dollar into total oblivion, we’re looking to take the other side of that. So keep these levels in proper context.

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


Ridiculous Bloomberg headlines continue > A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall 



He knows nothing and he thinks he knows everything. That points clearly to a political career.- Sir Walter Besant


The Dollar Index, which measures the U.S. currency's value against a basket of currencies, DXY, is still within striking distance of last week's 8-month low of 79.627.

Bernanke's Lure

This note was originally published at 8am on September 24, 2013 for Hedgeye subscribers.

“It has exerted its pull on the West for a thousand years.”                                                                                          

-Scott Anderson                                   


That’s what Scott Anderson called the “lure of the East” in a fascinating new book I just started studying about the history of the Middle East called Lawrence in Arabia (2013).


“That lure brought wave after wave of Christian Crusaders to the Near East over a three-hundred year span in the Middle Ages. More recently, it brought a conquering French general with pharaonic fantasies named Napoleon… Europe’s greatest archaeologists in the 1830s… hordes of Western oil barons… and con men to the shores of the Caspian Sea in the 1870s.” (pg 15)


While 1,000 years is a long time, the lure of central planners clipping coins and/or devaluing the currency of The People has been in motion for at least 2x that. “In 64 A.D., in a naïve attempt to deceive the populace, Nero decreased the silver content in the coins and made silver and gold coins slightly smaller” (The History of Money, pg 52). Bernanke hopes no one has read that history.


Back to the Global Macro Grind


What is it, precisely, that gave both the Roman and Ottoman Empires the audacity to plunder the purchasing power of their people? After 200 years of operating as an independent bank, what made the British Empire so soft that it felt it had to socialize (nationalize) the Bank of England in 1946? What was the US “Free-Market” Empire and why have we empowered the Fed to change it?


My apologies in advance for thinking this morning. If you disregard the vacuum of history in which Bernanke thinks (1930s) and  contextualize the moment that his Fed is in (within the construct of long-term history which will ultimately judge Bernanke when he is long gone), it’s getting scary again. But you already know that – and the sad thing is that some of his Fed heads do too.


Yesterday, Dallas Fed Head (Fisher) basically admitted two things:

  1. The current White House Administration has politicized the US Federal Reserve
  2. By not doing what they led the market to believe what they’d do (taper), the Fed is losing credibility

Check. check.


I think most people who aren’t paid not to “get” it understand this now. If you don’t understand the history of un-elected politicians devaluing currencies, you have some reading to do. Self-education is the best long-term path to not becoming a lemming.


I’m not that smart. I think most people who have seen my SAT scores get that too. But Mr. Market is a very smart cookie, and what I tend to get (on a lag) is what he (or she) is telling me to get. I don’t wake up every morning trying to bend economic gravity.


Bernanke thinks he can “smooth” gravity, cycles, etc. He’s telling the entire bond, currency, and stock markets they are wrong. #Wow, bro. So let’s rewind the tapes and go to the score – what have markets done since Bernanke didn’t taper?

  1. US Dollar went straight down (now bearish TREND after being bullish for the better part of the last 9-10 months)
  2. US Interest Rates went straight down (still bullish TREND, but lost the immediate-term TRADE momentum line of 2.80% 10yr)
  3. US Growth Stocks stopped going up; slow-growth Utilities stopped going down

Now isn’t that last part perfect. Great job Ben. Instead of US growth expectations accelerating, now they are slowing again.


This is the first 2013 US stock market “correction” that I will not buy because Bernanke has decided that the opposite of what I want is what he wants. To review, what I want is A) what was happening and B) what every American should want:


1.       #StrongDollar

2.       #RatesRising

3.       #GrowthAccelerating


To be fair, there are a lot of people who are in the business of slow-growth (Gold, Bond, MLP, etc.) investing who have a pre-determined path as to what they want (more money to manage). But that’s not what The People want.


You don’t have to go back 2,000 years to get this either:

  1. 1983-89 US Growth > 4% GDP with #StrongDollar (Reagan’s avg = $115.25 USD) and Down Oil ($16.53/barrel avg)
  2. 1993-99 US Growth > 4% GDP with #StrongDollar (Clinton’s avg = $97.89 USD) and Down Oil ($19.69/barrel avg)

And maybe Hillary is smart enough to get what Obama doesn’t – and maybe that’s the only way out of this mess:

  1. Obama’s average USD (US Dollar Index) is the lowest in Presidential history at $79.52
  2. Obama’s average Oil price (Brent Oil) is the highest in Presidential history at $102.01/barrel

But that’s more than a few years away and sadly, at some point, someone in this country is going to realize that empowering both Putin and Middle Eastern kings via a Down Dollar, Up Oil policy is no different than doing the same via an un-elected Federal Reserve.


There is no doubt in my mind that the Fed is exerting its misplaced fear-mongering pull on the President. The lure is also to get you, The People, to fear the alternative (“if rates rise, housing will collapse”) when in reality it’s the government policy itself that is luring us away from the free-market system that gave America its empire to begin with.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.59-2.80%

SPX 1681-1730

VIX 12.93-14.98

USD 80.01-80.98

Euro 1.34-1.36

Brent 107.03-109.13


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bernanke's Lure - Chart of the Day


Bernanke's Lure - 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.

Expert Call TODAY on US Pipeline Regulation, Rates, Maintenance, and MLPs (New Dial-In Code!)

Continuing our work and research on Kinder Morgan, midstream MLPs, pipeline safety, and FERC rates and regulations, we will host an expert call TODAY, October 8th, at 11am EST with Elisabeth Myers.



  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 356924#
  • There will be no presentation or slides associated with this call

Elisabeth Myers is the founding principal of Myers Energy International.  An energy lawyer with twenty years of experience, she specializes in the regulation of oil and natural gas pipelines and represents companies before federal and state regulatory agencies with respect to rate and regulatory issues.  She has litigated before the FERC, the California Public Utilities Commission, the U.S. Courts of Appeals, and the U.S. Supreme Court.  She advises on pipeline safety compliance issues under the U.S. Department of Transportation's Pipeline and Hazardous Materials and Safety Administration regulations.  Her clients have included major oil companies; a state regulatory commission; a producer trade association in rulemakings restructuring the natural gas industry; oil refineries; farmers in the mid-west seeking interconnects with interstate pipelines; independent producers and marketers of oil, natural gas, and natural gas liquids with respect to various regulatory and related transactional issues; municipalities and municipal gas distribution systems, and chemical manufacturers. 


Ms. Myers also has extensive knowledge of Kinder Morgan, as she litigated against SFPP in ground-breaking rate cases before the CPUC and FERC in the mid 2000s.


Topics of Discussion:

  • What’s the current state of pipeline regulation in the US?  How does the regulation of oil/product lines differ from natural gas?
  • History of pipeline regulation…  Where have we come from and where might we be going?
  • Pipeline safety and compliance…  Are companies spending enough on maintaining their pipelines?  Are they spending too much just to increase the rate bases (“gold-plating”)?  Is a certain level of spend mandated or regulated?
  • The growing prevalence of MLPs…  What’s it mean for US energy infrastructure, consumers, and investors?
  • MLPs, income taxes, and regulated rates…  Are MLPs “tax-advantaged” securities?  Why does the FERC permit an income tax allowance for MLPs?
  • And more...

If you have any questions for Ms. Myers, please send them to me at .


Kevin Kaiser

Senior Analyst

October 8, 2013

October 8, 2013 - dtr



October 8, 2013 - 10yr

October 8, 2013 - spx

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October 8, 2013 - mib

October 8, 2013 - vixB

October 8, 2013 - euroB



October 8, 2013 - dxy

October 8, 2013 - natgas

October 8, 2013 - gold

October 8, 2013 - copper


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