Powered By Pride

“I will never quit. I persevere and thrive on adversity. My Nation expects me to be physically harder and mentally stronger than my enemies. If knocked down, I will get back up, every time. I will draw on every remaining ounce of strength to protect my teammates and accomplish our mission. I am never out of the fight.”
-US Navy SEALs
That quote was cited by Marcus Luttrell - Team Leader, SDV Team 1, Alfa Platoon - as the central paragraph of the philosophy of the US Navy SEALs. I am Canadian. My son is American. That’s the kind of American Leadership we can believe in.
In 2007, Luttrell wrote an eye witness account of his SEAL Team’s deadly fight in Afghanistan. It was titled Lone Survivor. The true story remains the most impactful military book I have read this year. It’s All American in a way that the US Financial System used to be – powered by pride and accountability.
Today is Veteran’s Day. On behalf of everyone on my team, I would like to thank the bravest men and women of America for providing us the opportunity to wake-up and do what we do every day.
Yesterday marked another day of lower-highs for the US stock market. Closing flat on the day at 1093, the SP500 is only -0.4% off of the closing-high established on October 19th, and a full +61.7% higher than where a lot of market strategists called this entire system “out of the fight.”
America always finds a way to fight back. This time, we took a page out of FDR’s playbook and we fanned the fires of deflation by devaluing our currency. To a point, Breaking the Buck (we called for Obama to do that on February 24th) was something everyone on the American team could tolerate, to protect their teammates.
Then, predictably, some Washington and Wall Street individuals got greedy. Instead of Breaking it, they started Burning it. The Bankers, Debtors, and Politicians got paid. The American Savers and Consumers got the bill.
What does your Nation expect of you? What do you expect of your Nation?
My greatest fear in American finance today is that memories on Wall Street are as short as their last text message. There was a lot of economic sacrifice in this country, by a lot of people. The 119,000 employees of JP Morgan, Morgan Stanley, and Goldman didn’t get us out of this financial mess. The American team did. Sadly, only a select few deem themselves worthy of the reward.
If you show me 30 Billion reasons why The Big 3 Bankers in this country deserve $30B in bonuses in 2009, I’ll show you the cowardice that only a Taliban terrorist dressed as a goat herder can rival in Afghanistan. There is no pride in watching you people behave like this. It’s un-American.
The only way out is for American financiers to start behaving like patriots again. It’s time to “draw on every remaining ounce of strength to protect” our teammates , “and accomplish our mission.” It’s time to look this American Credibility Crisis in the eye, raise interest rates and strengthen our currency. Capitalizing the balance sheets of a select few and kicking a socialized can of losses down the road to our neighbor’s children is gutless resolve.
On the heels of America’s Squirrel Hunter (Geithner) saying the following in Tokyo today, the Buck is Burning down to another YTD low at $74.85:

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar”

Enough of what you believe “deeply” already. No one believes you, dude. Your voice is being laughed at by the Chinese. The world is using your conflicted compromise to engage in carry trading with our hard earned American currency. Your voice is a metaphor for the Lone Survivor in American Leadership lost.
It’s time to find that American voice again. It’s time to power the US Financial System with pride and accountability again. Let’s get on with it.
“I’m a sniper, and I’m the platoon medic. But most of all, I’m an American.”
-Marcus Luttrell
My immediate term TRADE lines for the SP500 are now 1070 (support) and 1101 (resistance).
Best of luck out there today,



EWT – iShares Taiwan
With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

XLU – SPDR Utilities We bought low beta Utilities on discount on 10/20. TRADE and TREND bullish.

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.   

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.

EWY – iShares South Korea South Korea has joined Japan in the ominous position of broken TREND and TRADE. This is not China or Taiwan. This is an early cycle economy that we want to be short against China/Taiwan.

XLI – SPDR Industrials We shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative.  Q3 saw its GDP contract by -0.4%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. TRADE and TREND bullish.  

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.

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.

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 realistic.


The Macau Metro Monitor. November 11th, 2009



LVS plans to begin preliminary work in January to restart lots 5&6.  At 13.3 million square feet of net developable area, the new project would be even larger than the Venetian Macau.  The company says it needs around $2 billion to finish the halted portion of the projects; thus far the company has secured financing from banks of around $1.45 billion. 


A person “familiar with the matter” disclosed that the company plans to use roughly $500 million the proceeds from the upcoming IPO to finance Macau construction. 





Casino operator Galaxy Entertainment said Wednesday its HK$14.1 billion (US$1.81 billion) flagship casino resort in Macau is scheduled to open in the first quarter of 2011.  The opening has been delayed for one year.  Galaxy has already committed HK$5.1 billion to the project, named Galaxy Macau.  The company is not considering a share placement as a means to raise the capital needed to complete the financing for the project.  The company plans to release details on its financing plans for the project within 45 days. 




On November 8th we posted a note titled “A Busy Quarter Indeed,” in which we erroneously attributed earnings release information to Wendy’s International (WEN).  The earnings information in question was that of Trian Acquisition Corp, Inc. (TUX).  There is an existing business relationship between Wendy's and Trian Fund Management L.P., however our report was a simple error.  No conclusion or inference should be drawn from it regarding any relationship or transaction between the entities. 


We apologize for any confusion this may have caused.


Howard Penney

Managing Director


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Deng is Smiling

Research Edge Position: Long Chinese Yuan via etf CYB


Deng Xiaoping is the now deceased Chinese leader who took over the reins of China after Chairman Mao.   While Deng never held office as head of state or head of government, he did serve as the Paramount Leader (a Chinese expression for the leader of the party and country) of the People’s Republic of China from 1978 to the early 1990s.  Deng was of course known for implementing market based reforms.  In referring to economic policy the diminutive Deng once stated:


“It doesn’t matter if a cat is black or white, so long as it catches mice.”


His point was that if market based policies could expand the growth of the Chinese economy, then those were the appropriate policies to follow.


In 1978, China’s GDP in real terms was ~$147BN and it ranked eleventh in the world, while the United States ranked first at $2.3TN.  According to the IMF, and most other data sources, China is now ranked third globally with a GDP of $4.3TN, which is an increase of 292x in thirty years.  The United States’ GDP is now $14.2TN, which is an increase of 14x over the same time period.  Clearly, Deng would be smiling at this massive global GDP share gain over the last thirty years.


In recent days, we have seen continued evidence of the engine of Chinese growth, and the power of its stimulus program as it relates to car sales and home sales.  The Chinese consumer continues to power through the global downturn.  In October, Chinese passenger vehicle sales rose 76% y-o-y last month with a sales number of 946,400In total, this brings the year-to-date sales to +45.2%.  The test for car sales will of course occur at the end of the year, when stimulus measures, such as car tax cuts, expire.  The Chinese central bank also reported today that the prices of houses sold in 70 major cities rose 3.9% y-o-y, the highest rate in 14-months.


While many still question the impact of the U.S. stimulus program, except for the those on Wall Street who are benefitting from the Banker Bonanza, the Chinese seem to have gotten their stimulus package right, as their consumers are spending.


We remain long the Chinese Yuan as it seems likely that the Chinese government will continue to let their currency appreciate over time, as well they should given the relative strength of the domestic economy.


The Ox seems to be catching mice.


Daryl G. Jones
Managing Director



A Bearish German Expectations Report

Research Edge Position: Short the UK (EWU)


The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic conditions six months ahead, fell to 51.1 from 56 in October, underperforming a forecast for a decline to 55. 


While we have some reservations on the accuracy of the ZEW survey, we have cautioned over the last weeks that we expect to see a sequential deceleration in improvement in German and European fundamentals with headwinds including the rate of improvement itself, a strong Euro, and rising unemployment as we move into 2010.


The chart below of the investor and analyst expectations shows evidence of a top, with the last two months in decline.  ZEW’s gauge of the current economic situation however rose to -65.6 from -72.2 in October.


Today’s announcement from the survey sent the DAX in retreated. Yesterday morning we sold our position in Germany (via the etf EWG) into a strong open to book a modest gain in our model portfolio. The DAX recently broke its TRADE line, but the TREND and TAIL durations remain bullish, so we’ll look to buy EWG back on weakness.  


Despite the sale and survey, within the Eurozone we continue to like Germany and expect that its large industrial and manufacturing base and export-driven economy will benefit alongside global economies melting up. Yesterday, two bullish data points were released: German exports rose 3.8% in September month-over-month and German Industrial Output increased 2.7% in September compared to the previous month. Finally, today October CPI held steady at a comfortable level of -0.1% Y/Y. Stay tuned.


Matthew Hedrick



A Bearish German Expectations Report - wohl


Chart of The Day: Covering The Bombed Out Buck

Is consensus on the US Dollar finally Bearish Enough?


Now it might be. When I re-shorted the US Dollar on October 20th, my answer was no. Everything has a time and price.


There are plenty of negative catalysts for the price of Burning Bucks that are now in the rear-view mirror:

  1. Bernanke - pandering to the political wind last week, keeping rates at an “emergency rate” of ZERO percent
  2. G20 – no one trusts Geithner or his suggestion that countries “take a chance again on the American economy”
  3. US Employment – that was a nasty report on Friday

However, in my risk management model at least, sometimes the best catalyst simply is price.


In the Chart of The Day, Matt Hedrick and I show a Bombed Out Buck price of $75.01 on the US Dollar Index. Do not mistake our call to cover our short position in the US Dollar for anything other than what it is – an immediate term (3-weeks or less) TRADE call.


The Bearish Formation (negative TAIL, TREND, and TRADE) for the US Dollar remains. But +1-2% rallies in the Dollar can wreak havoc on anything priced in dollars.


We’ll be outlining our views of price and duration on our long standing Burning Buck investment theme on our Macro Strategy Conference Call today, at 1PM EST. If you need access information for this call, please email .


Keith R. McCullough
Chief Executive Officer


Chart of The Day: Covering The Bombed Out Buck - zeebuck