• run with the bulls

    get your first month

    of hedgeye free


US Strategy – Housing on tap

On Monday, the S&P 500 closed at 1,097, up 0.9% on the day.  The S&P 500 has now risen nine of the last ten days, albeit on decelerating volume the S&P 500 hit another higher-high, while the USD hit another lower-low. 


Driving the market higher is (1) the trend of better-than-expected Q3 earnings and upbeat guidance, (2) M&A generally, but the highlight is in Technology. 


Yesterday’s portfolio activity included selling our long position in the XLU and EWT and buying SAFM and MPEL.  Todd Jordan has Keith warming up the Macau bus again; we are buying MPEL back on a down day.  We also covered our short in NKE. 


We continue to be short the XHB and expect that the recent enthusiasm around the home builders to wane in the coming days.  The National Association of Home Builders housing market index dipped to 18 from 19 in September, falling below market expectations for a reading of 20.  Home builder sentiment is waning for the market for newly built single-family homes, as the November 30 expiration of the government's $8,000 tax credit for first-time buyer’s approaches. The WSJ also notes today that the IRS is examining more than 100,000 suspicious claims for the first-time home-buyer tax break.  Not a good sign that the program will be extended.


The momentum behind the “currency creditability crisis” continued to weigh on the dollar index, which fell for five of the last six days, finishing down 0.35%.   For the first time in ten days the VIX rose 0.3% on the day.  In early trading today Oil traded above $80 as the dollar index fell to its lowest level since August 2008. 


Yesterday, six sectors outperformed the S&P 500 and every sector was up on the day.  The three best performing sectors were Energy (XLE), Materials (XLB) and Utilities (XLU), while Financials (XLF), Consumer Staples (XLP) and Healthcare (XLV) were the bottom three. 


Yesterday, the Financials were the worst performing sector and it was not the only sector down over the past week.  The banks are dragging the group down, with regional banks being hit the hardest.  This was highlighted by the results from BBT yesterday, on concerns over credit deterioration.  The trend will likely continue as STI, SNV and MI are all scheduled to report on Thursday.


Today, the set up for the S&P 500 is: TRADE (1,079) and TREND is positive (1,003).   Day 7 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% upside and 1.5% downside in the S&P 500.  At the time of writing the major market futures in the U.S. were higher.


The Research Edge MACRO team.



US Strategy – Housing on tap - S P500


US Strategy – Housing on tap - s pperf

US Strategy – Housing on tap - s plevels




The Macau Metro Monitor. October 20th, 2009




Hyatt Hotels & Resorts today announced the opening of Grand Hyatt Macau located on the Cotai Strip in the new City of Dreams development.  The 791-guestroom hotel has fifteen individual function areas spanning more than 968,000 square feet.  Grand Hyatt Macau now has one of the largest event spaces in Macau.




Las Vegas Sands Corp is seeking $1.75 billion to $2 billion five-year financing for its subsidiary, Venetian Macau, almost twelve months after cancelling a $5.25 billion financing and mothballing its Macau projects, according to banking sources.  Funds from the new deal will be used to complete Lots 5&6.  The news could come as a boost ahead of the company’s upcoming $1.5billion - $2 billion initial public offering in Hong Kong in November.


The financing is said to comprise of revolving credit and a term loan. LVS is rumored to be seeking a rate of 400 basis points over LIBOR, while “bankers looking at the deal” said they would expect pricing over 500 basis points all-in. 

Confirmation Bias

“I ask you to judge me by the enemies I have made.”
-Franklin D. Roosevelt
Where did all of the Great Depressionistas go? It is funny and predictable all at the same time. This is Wall Street. We tell stories until they stop making sense – then we drop the context of the narratives altogether, hoping that no one YouTubes us.
It wasn’t too long ago that the Roubinis and Rosenbergs were calling for the end of the US stock market as we know it. After clocking another fresh YTD high on the SP500 last night, I’d have to agree with them. A +62.3% nine-month Minsky Meltup puts an end to what we knew as the Depressionista storytelling, for now…
But why is it that we stop remembering history? How can we go from everyone becoming an expert on 1929-style crashes to dismissing 1933-style recoveries? That’s easy to answer. Wall Street and Washington have what neuroscientists have labeled “Confirmation Bias.”
Per our friends at Wikipedia, Confirmation Bias is “an irrational tendency to search for, interpret or remember information in a way that confirms preconceptions or working hypotheses.” For the common sense crowd, this isn’t new – writers like Francis Bacon (1) and Leo Tolstoy (1) had observed Groupthink phenomena a long time ago…
The reason why I quoted FDR is to contextualize this Confirmation Bias point. Right here and now, how many “economists” and “strategists” are reminding you of the Q4 US Dollar Devaluation period of 1933? The time period is in the same area code of what the Depressionistas sold a lot of books about. Wasn’t the 1933 recovery that made FDR plenty of enemies worth mentioning?
By October of 1933, Roosevelt had devalued the US Dollar by -30%! Then, on October 22nd of 1933, he and his Cornell farmer/economist friend, George Warren, decided to Burn the Buck further by announcing that they’d buy gold in the open market. No one in FDR’s old boy network of Washington economic advisors supported the decision. Plenty of the James Warburgs (the “smart” Wall Street banker crowd) were initially up in arms, but FDR pushed his policy forward.
In Q4 of 1933, FDR effectively Bombed Out the Buck by another -10%, and ran over every patriotic short seller of his policy while doing it. Equities, from Britain to America REFLATED, big time, and John Maynard Keynes became a modern day George Soros.
Today is October 20, 2009, and the US Dollar is trading down again, hitting fresh YTD lows of $75.20. At the same time, on the heels of what didn’t look like Depressionista earnings out of Apple to me, US equity futures are looking to open at higher-YTD-highs. There is no narrative fallacy here folks – this is math.
A monkey or a brain surgeon can figure this out at this point. So don’t get upset with FDR or Obama or whomever might be running you over covering their consensus short position at the highs. Just see this immediate term story line for what it is. Respect it. Manage risk around it.
Across the world today, I am surveying headlines that hardly look deflationary to me. Ben Bernanke was in San Francisco talking about Asia and suggesting that “the United States must increase its national saving rate”. That’s cool Benny, but in what country should we save? And at what rate?
In the US, Japan, and the UK interest rates are effectively ZERO this morning. So American Savers and Creditors alike, even though everything priced in US Dollars is going up, you might want to take a gander at how much slower those US prices are going up versus everywhere else.
Here’s a peak at what the Global Equity Depressionistas have in terms of YTD losses on the short side:
1.      Russia, up another +1.1% this morning to +130% YTD

2.      Turkey, up another 0.87% this morning to +86% YTD

3.      Brazil, up +1.6% yesterday to +79% YTD

4.      China, up 12% in the last 3 weeks (up another +1.5% overnight) to +69% YTD

5.      Australia, up another +1.1% last night to +33% YTD

6.      Hungary, up another +0.61% this morning to +73% YTD

Who cares about Hungary or Turkey? Probably the people who have been smart enough to buy low and flow capital there. The New Reality is that the world is increasingly interconnected. Capital flows, real-time, to rates of return that earn her respect.
Capital chases yield. Yield generates returns. Returns build Savings. Savings drive Investment. 1920’s America or 2010 China, anyone?
You don’t need me to remind you of 1933 economic history to understand how capital flows. Capital chases yield. That’s been a long standing capitalistic pursuit that investors have embraced for generations. So don’t get upset about the US Government’s transparency issues this morning. Just understand this Burning Buck policy and profit from it.
There is still immediate term TRADE upside to the SP500’s 1107 line. Then we’ll be overbought again. However, provided that the Buck continues to Burn, all pullbacks to immediate term SP500 support of 1079 should be bought, not sold. Get out there and make some enemies in the Depressionista camp while you are at it too! I’m starting to have some fun with this.
Best of luck out there today,




EWG – iShares Germany Chancellor Angela Merkel won reelection with her pro-business coalition partners the Free Democrats. We expect to see continued leadership from her team with a focus on economic growth, including tax cuts. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy.

CAF – Morgan Stanley China Fund
A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the more volatile domestic equity market instead of the shares listed in Hong Kong. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth. Although this process will inevitably come at a steep cost, we still see this as the best catalyst for economic growth globally and are long going into the celebration of the 60th Anniversary of the People’s Republic.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

XLV – SPDR Healthcare We’re finally getting the correction we’ve been calling for in Healthcare. We like defensible growth with an M&A tailwind. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.


CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

FXB – CurrencyShares British Pound Sterling
The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.

XLP – SPDR Consumer Staples
Strong day for Consumer Staples on 10/16, prompting a short versus our low beta long position in Utilities (XLU).

XHB – SPDR Homebuilders We were the bulls on a Q2 housing turn but, as the facts change so do we: now we are getting cautious on 1H 2010 US Housing. Rates up as access to capital tightens is not good for new home builders as we enter into a new year and series of potential catalysts for renewed pressure in the secondary market, including the expiration of the $8,000 tax credit.

WTIC Oil traded just north of our overbought line on 10/12. With the US Dollar hitting another higher-low, we shorted more of oil’s curve.

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

SHY – iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realis

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.


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.






investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.