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Happy Hunting

According to the Economist’s September 27th issue, “there have been only 13 attacks by black bears resulting in injury (including one death) in the whole of North America this year. Grizzlies have carried out a further 11 attacks, resulting in no deaths. Neither species has averaged more than two kills a year since the 1950’s… there are 70,000 grizzlies and 900,000 black bears sharing the continent with 440M people… that puts bear attacks well below bee stings and lightning bolts as threats to human life…”

Bear markets don’t kill people. So let’s all take a deep breath this morning and relax. If you proactively prepared for this crisis, you are smiling at the opportunity born out of it. You’ve had your bear mace in hand. You don’t have to depend on the US jobs report this morning as your lifeline. You don’t have to pray that US Congress votes “yes” to bail you out. You don’t have to panic. You don’t have to run.

Everyone from the Canadian town where I am writing this note from this morning (Thunder Bay, Ontario) is street smart enough to know that the last thing you do when facing a growling bear is run. If your boss is screaming and running this morning, let him do that – right out the door. Goodbye and good luck. It’s not time to be pointing fingers at your teammates. It’s time for leadership. It’s time to buy low.

As we strap on the global bear hunter pants, we are waking up to a world that’s on sale this morning. From commodities to foreign currencies, the deleveraging and deflationary cycle is in full motion. The CRB Commodities Index has lost -10% of its value this week alone! Currencies from the Russian Ruble to the South Korean Won are running for the exits. Fertilizer stocks and the “smart hedgies” who bought them have been put out to pasture, and Jim Cramer’s buy everything Brazil call from the ‘You Tube’ archives of 6 months ago saw the Brazilian stock market lose -7.3% in one fell swoop yesterday! Sell high. Buy Low. Don’t run.

Asian markets got crushed again last night. As sure as the sun rising in the east, Japan was down again, losing another -1.9% of its perceived “value”. India got mauled by the bear and closed down another -4.1%, leading Asian markets to the downside, and stocks in Hong Kong lost another -2.9%. We’ve been patiently waiting on China via the EWH and FXI exchange traded funds. Prices pending, I may very well step up and buy them in the ‘Hedgeye Portfolio’ this morning.

European equities look less interesting to me than those in Asia, but more interesting than Mexico or Canada who have over 75% of their exports tied to the US panic room. European Central Bank chief, Jean Claude Trichet, is going to be forced to cut bait (interest rates) or dance with the bear himself. Europeans, unlike Americans, actually have some cushion to make some moves on the monetary policy side simply because they held onto their bear mace, and didn’t start running too soon.

On October 29th, expect the US Federal Reserve to do more of the same, and run from reality. They’ll cry wolf, play Japanese, and cut real rates to zero. Rather than providing leadership as lender of last resort, the Fed has been politicized. This is unfortunate, but it’s the truth.

We’re looking for solutions. We’re looking for opportunities born out of our competition’s internal crisis’. One of the ideas we have been suggesting is for Obama to bring in the 6 foot 7’ cigar smoking bear hunter, Paul Volcker. He wasn’t popular with politicians, but he was right. Running from this growling bear is not the answer. It’s time to stand up, cock the hammer, look this “Investment banking Inc” animal in the eyes, and pull the trigger.

Happy hunting,
KM



GEORGIANS WELCOME

Desperate for visitors, the Federal Migration Service began a program to allow hotels in Moscow to register visas themselves. I’m sure President Saakashvili will appreciate the convenience on his next vacation to Moscow.

Given the state of world tourism and travel, I wouldn’t be surprised to see other countries introduce similar measures.


Decent Week For Sports Apparel

Total sports apparel sales as reported by SportscanInfo came in +3.0. This might not seem meaningful, but it is the fifth consecutive week of accelerating yy sales. Not bad. Interesting to see a massive divergence between channels, with the Sports Retailers and Discounters/Mass taking share, with the ‘Family’ channel off by 30%. This category includes the likes of Boscov’s and other regional department stores that are struggling to stay afloat. Apparently they’re losing the struggle…

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OCTOBER SURPRISE?

We will have our “Eyes” on the Palin-Biden debate tonight. Not so much because we think either Vice Presidential candidate will say anything interesting, but because we believe the potential for an October surprise game change in this Presidential election will result from the Vice Presidential camp. While rumors have been rampant about Biden withdrawing due to “health reasons”, we think that a Palin withdrawal is even more likely given her very weak recent interview performances and Senator Obama’s decided margin in Real Clear Politics National Poll Average, which is currently showing him with a +5.7 point lead. The current Intrade contract for a Palin withdrawal is $10.2, which implies a 10% chance she will withdrawal. This is up from ~4% one week ago.

Daryl G. Jones
Managing Director

OIL BREAKING DOWN

Oil just broke Keith’s intermediate term support line of $95.34. While gasoline inventories are near all time lows in the U.S., which suggests demand for Oil in the U.S. should increase in the short term, it is difficult to make the case that demand will increase globally in a slowing global economy. It is likely that credit constraints, as we have been hammering home in our series of Ted Spread posts, only accelerates declining demand for Oil and other commodities. Our models have the next level of support at $91.07.

Daryl Jones
Managing Director

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