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As a follow up to our 10/16 note, we've got some more Hyatt tidbits.



Looks like some of the revisions in the 4th version of the S-1 addressed some of the contentious issues between the Pritzkers.  Below is another glimpse of Pritzker dirty laundry and the conflicts presented by the dual voting structure of the Class A & B Shares.


Risks of Pritzker family drama to future shareholders

“Disputes among Pritzker family members and among Pritzker family members and the trustees of the Pritzker family trusts may...

  • result in significant distractions to our management
  • disrupt our business
  • have a negative effect on the trading price of our Class A common stock and/or generate negative publicity about Hyatt and the Pritzker family


Ghosts of past Pritzker disputes

  • “In the past, disputes have arisen between and among certain Pritzker family members, and between and among beneficiaries of the Pritzker family trusts and the trustees of such trusts, with respect to the ownership, operation, governance, and management of certain Pritzker family business interests
  • “In certain cases, proceedings were initiated, against certain Pritzker family members, including Thomas J. Pritzker, our executive chairman, and other Pritzker family members, some of whom have been or are our directors, and against the trustees, including Thomas J. Pritzker
  • “Such past allegations related to trust management and administration, and violations of certain trustee duties, including fiduciary duties.
  • “Some of these disputes led to significant negative publicity for the Pritzker family.”



Disputes regarding Hyatt IPO

“Recently, with respect to Hyatt, disputes arose between and among certain Pritzker family members and the trustees of trusts with respect to our dual class structure, which will become effective prior to the completion of this offering.

Minsky Meltup: SP500 Levels, Refreshed...

The “shock and awe” of it all may very well have left even Larry Kudlow bearish! Where did all the Bulls go?


I remember those days of the Perpetual Bulls calling for these ZERO percent rate policies all too well. They called for “shock and awe” levels of free moneys… and now they are definitely getting what they asked for!


As the Buck Burns to lower-lows, we’re seeing stocks hit higher-highs. A clanging monkey can even make money being long this market now. Doesn’t this feel great?


Don’t get upset about it. Just do your best to respect that the math of the moment as it will continue to dominate any consideration of the long term. There is no long term in the Fed’s policy. There is only “shock and awe” associated with “exceptionally low rates” for an “exceptional period of time.”


The SP500 remains in what we call a Bullish Formation (positive TRADE, TREND, and TAIL) and it will be immediate term overbought at the 1107 line (dotted red). Provided that the Buck continues to Burn, it should continue to hold a higher-low of support at the 1079 line (dotted green).


If the 1079 line breaks AND we see a US Dollar recovery above the $76.59 line, that solid green line of TREND line resistance (1004) will become the ‘watch-out below’ line from what we have recently labeled the Minsky Meltup.



Keith R. McCullough
Chief Executive Officer


Minsky Meltup: SP500 Levels, Refreshed...  - a5



The cold wet weather that has dogged the Midwest this year has caused projected harvest start and completion times to be delayed for staple grains, with Corn and Soybean harvests off to the slowest start in decades.  As of October 11, the USDA estimated that only 13% of the total corn crop had been harvested versus an average of 35% by that time in the past five harvests.  Although the harvest is seriously delayed, in absolute size it’s anticipated to be a bumper crop: The USDA estimates a 13 billion bushel season for 2009, which would make it the second largest harvest on record. 


Futures markets ultimately function as insurance markets however, and despite the size of the yield, anticipated prices have risen sharply as more time in the field creates further risk of weather damage and other unknowns. With the harvest expected to drag into late November, the price of December delivery corn has bounced back from last month’s low close of $3 per bushel on September 4th  to  almost $3.85 per bushel in today’s session.


Sanderson Farm (SAFM) is trading lower after being downgraded at KeyBanc.  The thesis is that rising corn prices make feed costs more expensive.  As the story goes corn prices will continue rising due to a declining U.S. dollar boosting exports and expectations that ethanol producers will use more corn.


Keith bought SAFM today on the downgrade.  At research edge we do not agree that corn is headed much higher.  At the current prices for crude oil, Ethanol is not a concern and the bumper crop for corn will ultimately dictate the future of corn prices, which is likely lower.   In two weeks, SAFM will be holding an analyst meeting updating the investment community on where the company is headed and the state of the industry.  Notwithstanding a slight uptick in the price of corn, the industry outlook is positive and SAFM is one of the best managed companies in the space.


Our bottom line: Corn has a broken TAIL and a bullish TREND… within an industry that’s been wrecked/consolidated, broken TAIL prices are positive for producers.






Early Look

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Last week’s copper import data release for September from China caught many observers by surprise.  At 399,000 metric tons, arriving shipments increased from August by 23%. With more questions than answers raised by these figures, Shanghai contracts saw selling pressure on heavier than average volume and declining open interest on Friday before last night’s snap back as traders are beginning to suspect that copper is being stockpiled in China.  In fact, China has imported 1.9MM tons year-to-date, which us up 77% from a year ago.


The two critical factors for traders this week will be the NBS release of production data for September and the weekly stock level report by the Shanghai Exchange on Friday. If production failed to keep pace with imports last month then rising stock levels should weigh on the futures market, potentially offset if Friday’s stocks track inventory reports to date –which have not indicated a dramatic increase, indicating that late summer levels were lower than originally thought.


From a macro perspective, either outcome –rising stock levels or heated production, support continued concerns about forming asset bubbles on a shorter duration (either commodity or construction), while also supporting continued strong growth trajectory on a longer duration (barring a dramatic shortfall in production figures, something we do not factor as likely). 


The concerns articulated by traders in Shanghai futures market last week have also been supported by inventories building on the Comex and LME.  In aggregate, the combined total on both exchanges is now over 400,000 metric tons, which is significantly above the low set in July of 312,357.  Last week oil was up 9 – 10%, while copper was essentially flat which has us wondering whether these supply data points are starting to offset the perception of improved economic demand in 2010 and U.S. dollar weakness as the key drivers of copper’s price.


Daryl G. Jones

Managing Director


Andrew Barber







Chart of The Week: Credibility Crisis

With the Buck Burning again today (down another -0.4% at $75.31), the US Equity market is testing higher-YTD-highs…


That’s just the way it is folks. Dollar Down gets the Debtors and Bankers paid. The Creditors foot the bill.


There is no need to get political or emotional about this in your portfolio. Making money on the long side of this macro inverse correlation is becoming relatively easy. The Volatility Index has been smashed (VIX down -25% in the last 2 weeks) and volumes are starting to accelerate again on the up moves. For the immediate term TRADE at least, all is well in the house of levered cards that the American Financial System built.


What’s fascinating about this is that as Wall Street gets paid, the US Consumer isn’t buying in. While some in Washington might like to think that Americans are as stupid as politicians look while being YouTubed on economics, they aren’t. When it comes to their wallet, Americans are always aware of reality.


The New Reality is that both America’s currency and the government officials that fail to support it have been revealed. This is the Credibility Crisis. Andrew Barber and I show this to scale in the chart below which overlays the US Dollar with the University of Michigan Consumer Confidence going back 3 years.


There are 3 points to be made about the 2 factors in this chart:

  1. They are correlated
  2. They have been since Bernanke started playing this REFLATION game
  3. They both continue to make a series of long term lower-highs

Friday’s Michigan Consumer Confidence reading (for the month of October) came in at 69.4. That was a lower-high versus the reading we saw in September of 73.5. If the US Dollar continues along its current path of negative price momentum, it won’t be long before it tests making a lower-all time-low.


I know. The US Dollar Bulls say that the Buck hasn’t yet Burned below its 2008 low. That’s plenty fine until it isn’t. Just remember that the US Dollar reference point from 2008 not only prefaced a crash in US Consumer spending ($150 oil), but it was a 38 year low for America’s currency.


Everything priced in Dollars can continue to REFLATE, other than the American Financial System’s Credibility.



Keith R. McCullough
Chief Executive Officer


Chart of The Week: Credibility Crisis - COTW Oct 19


US Strategy – Great Expectations

Take nothing on its looks; take everything on evidence. There's no better rule.
- Charles Dickens, Great Expectations


On Friday, the S&P 500 closed at 1,087, down 0.8% on the day.  The S&P 500 down day on Friday came on a weak volume study, which is bullish on the margin.  This week once again will be highlighted with notable earnings announcements.   Apple Computer (AAPL) will start the week off after the close today.  AAPL’s stock is up more than 120% year-to-date and similar to Goldman Sachs last week, expectations are elevated.  AAPL’s ability to meet or beat these great expectations will set the market tone early this week.


On the macro front, October Michigan consumer sentiment fell to 69.4 from 73.5 in September; consensus expectations were for a slight pullback to 73.1.  Consistent with our view on the sentiment indicators, sentiment surrounding personal finances and the outlook for employment are cited as areas of increased concern. On the positive side the manufacturing sector continued to see improvement, as industrial production rose 0.7% month-to-month in September vs expectations for a 0.2% increase.


For the second day in a row, Consumer Staples (XLP) and Utilities (XLU) were the two best performing sectors as the beta trade seemed to take a bit of a breather.  On Friday, the consumer Staples had a strong day, so Keith shorted the XLP in the virtual portfolio. The sector also continues to benefit from the supermarket names following the stronger-than-expected Q3 results from SWY, which we believe will be short lived.   We shorted more KR on Friday.   See Eric Levine's notes on the SWY quarter.  It looks like someone has (or thinks they have) material information on KR that we definitely don't have! 


The momentum behind the “Currency Creditability Crisis” took a breather on Friday, as the dollar index finished up 0.2%, which, not surprisingly, led to a down day in the market.  The VIX declined for the tenth straight day (1.3%) and is now down 51% over the past six months, which has created a much more risk averse investing environment.


On Friday, six of the nine sectors outperformed the S&P 500, with two sectors rising on the day.  The three best performing sectors were Healthcare (XLV), Consumer Staples (XLP) and Utilities (XLU), while Materials (XLB), Technology (XLK) and Financials (XLF) were the bottom three.  The Financials (XLF) were the worst performer for a second straight session today.


Today, the set up for the S&P 500 is: TRADE (1,074) and TREND is positive (1001).   Day 6 of perfection - the Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 9 of 9 sectors are positive from the TRADE duration.         


The Research Edge Quant models have 1.5% upside and 1.0% downside in the S&P 500.  At the time of writing Equity futures are trading above fair value; the S&P 500 is trading +3.97, the NASDAQ is trading up 4.40 and the Dow Jones is trading up 23.78.  


The Research Edge MACRO team.


US Strategy – Great Expectations - S P500


US Strategy – Great Expectations - s pperf

US Strategy – Great Expectations - s plevels