Chart of the Week: The Bull Market Emerging In The VIX

You can overlay your own economic cycle and/or risk management factors. This is as relevant a long term chart as any I have on my screens.

Eye on Putin Power, II...


Eye on Putin Power...

By the time you're done your morning coffee today, you'll likely conclude that the geopolitical risk factors affecting markets have been stepped up a notch. The Israeli/Iran threat is the obvious one, but how many people are watching this Russian/Chinese alliance?

Putin's Russia joined arms with China vetoing a UN Security Council proposition to impose sanctions on Zimbabwe's Mugabe.

The US and the UK are lashing out against this move this weekend, and they should.

The higher energy prices go, the more amplified Putin's geopolitical power becomes.

Don't think for one minute that the Russians have enjoyed being subservient to US rhetoric for the past 20 years. That was approximately the length of the bull market in US stocks too. When everyone is making money, a lot of risks can get swept under the rug - when people stop making money is when you realize they are still there.

It is global this time, indeed.

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Indy Mac: 2nd largest US Bank Failure Ever

Below is a picture of what it looks like when the US government seizes control over a bank, and you want in. Indy Mac's 33 branches will be shuttered this weekend.

Like most levered business models, Indy Mac's didn't end well. An old fashioned run on the bank is now a real time reality.

This is going to cost the FDIC $8 billion in bailout capital, which represents approximately 15% of the Federal Deposit Insurance Agency's "insurance" buffer.

Picture: Annie Wells / Los Angeles Times

Subway's $5 Price point

There are significant cost pressures on the restaurant industry and its suppliers; fuel related issues, increasing labor, utility and food costs. As a result, it's very difficult for companies to maintain their current price point. If the current trends continue, it's going to weed out the marginal players from the companies with good unit economics and strong balance sheets. The strong franchise systems will gain market share. Nearly every restaurant company has been taking some price (3%-4%) to mitigate margin pressure. What happens if the industry can't raise prices anymore?

Not long ago I wrote about traffic trends on deal in the QSR industry. It turns out that Subway is seeing a lot of price elasticity to the $5 price point. The 14% increase in traffic is nothing short of remarkable in this environment.

The problem for the industry lies in the fact that nearly every competitor is copying it; not just the sandwich guys but also the burger boys. The competition is trying its version of a $5 meal because it is such a good price point in this environment. The segment that could be hurt the most is fast casual. Fast casual chains are well positioned when people have money, but now people don't want to spend $8-$9 for lunch when they can spend $5.

Prentice Needed the Research Edge...

Now that my performance is back (I had a bad quarter in Q2 of last year -I was too bearish at the market top I guess), if I had a $100 for every time someone in the hedge fund business approached me to run money in "Consumer" land, I may not have as much $ as Prentice Capital has lost year to date, but I'd have plenty enough to fund the next leg of my firm's software development!

As most of you know, I used to be a PM in the hedge fund business, following Global Consumer. Michael Zimmerman, who runs Prentice, has been a competitor of mine since his days working for SAC Capital. Playing at the highest level, I think we both had pretty good runs since 1999. In the past few years, past performance has seemingly provided us both with the opportunity to start our own firms.

Past performance in this business is never a predictor of long term future returns, unfortunately. How hard you play the game doesn't always equate to winning it either. That said, I'm always up for a game, and I get up early.

Michael played tennis at Harvard, so I'd have to line up with my intern Jeff Dawson (Captain of Yale's 2008 Tennis team), if he wants to dance with me on clay. We hockey players are really slow when off the ice. I'd have to play 2 on 1 to even come close!

The market game is a different one however. There I'm happy to play head to head. I called the Morgan Stanley Retail Index out as a short in mid May (see attached, MVR Index), and it has since lost 24% of its value.

Looking at this article in section C1 of the WSJ, Jenny Strasburg has Prentice down -46% year to date, with "almost half of that drop happened during June as the value of the firm's stock and debt investments in retailers plummeted."

There is a winner and a loser in every trade. Mine, fortuitously, has been to leave the hedge fund community, take the short side on the industry, and build a global macro research process that is transparent and saves people money.

Maybe Prentice can become a client!

Play hard, and shake hands when it's over. This game is one of the best in the world.

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.