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Unemployment Lines Continues To Lengthen - Cash Is King!

This morning's unemployment number didn't surprise us whatsoever. The US unemployment rate continues to increase, monthly. At 5.7%, this is certainly not the end of the unemployment cycle. With US bankruptcy filings ramping up this week, I think we're still closer to the beginning, rather.

Everything levered to cheap money has either crashed, or is in the midst of crashing. Commodities of course were the hold out, until they had their worst month in 28 years (July).

In a market where access to capital continues to tighten alongside cost of capital rising, CASH IS KING.
  • Keith R. McCullough
    Chief Investment Officer
    Research Edge, LLC
Picture: http://traxus4420.files.wordpress.com/2007/11/unemployment_line-749345.jpg

Selling My Chinese Rental, FXI

Overnight, China reported the 1st contraction in their PMI survey since the survey has been available to analyze! As the facts change, I do. China was a long position I took against my short Japan (EWJ) position in July.

After this week's alarming Japanese economic data, I am much more comfortable being outright short Japan, than hedged with a qualitative catalyst, like China's upcoming Olympics.

China led Asian advancers overnight, closing up another +0.94% at 2939 on the Shanghai Index, which has equated to a +5.7% advance since July 1st, outperforming most major asset classes, globally, for the month.

Buy low, Sell High.
*Full Disclosure: I sold my FXI this morning into a strong open.

(chart courtesy of stockcharts.com)

"Citi says SEC has issued a formal order of investigation"

This headline just hit the tape from our friends at Street Account. The Pandit Bandit is not out of the woods yet...

Old bridges and their structures are being investigated, and rightly so...

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China Meat Prices Rising Steeply

CHINA - Meat and poultry prices have risen by more than 27% in the last year. The cost of meat and poultry in June was 27.3% higher than the same month in 2007. Edible oils, grains and vegetables were up by 43%, 8.7% and 8.3%, respectively.

For the first half of the year and after adjusting for inflation, average disposable income in urban areas has risen by 6.3% to 8,065 yuan (CNY) and average personal expenditure by 5.7% to CNY 5,490.

The official report continues that the growing and economically powerful middle classes are beginning to be concerned about the trend towards rising food prices.

ThePoultrySite News Desk

The Eclipse

Another month end has come and gone. Another round of winners and losers in this business has emerged. With each passing day we are finally seeing the unwind of bull-market business models, leadership styles, and the investment processes embedded therein.

On this day of August 1, 2008, we will witness the Moon’s shadow crossing our Earth’s surface . Not unlike this day in 1831, when the New London Bridge opened (replacing the 600 year old structurally impaired and damaged one), today is the beginning of many great days. Today is the eclipse. Out with Wall Street’s old ravaged model that lacked transparency and accountability. In with the new and evolving changing of the guard.

John Thain’s Merrill Lynch is being sued this morning by the government of Massachusetts for fraud, while Peter Thiel’s Macro Fund, Clarium Capital, is being beneficed by George Soros as the new rising sun of global macro investing. The 40 year old Thiel is up +47% for his limited partners for the year to date, while Merrill is printing bailout paper -40-50% in the hole to its existing shareholders, telling them one thing, and doing another. Merrill takes out full page ads in Barron’s talking about their history. Meanwhile, Thiel is building businesses like PayPal and Clarium that are simply replacing their outdated foundations.

The US bankruptcy cycle that we hosted a conference call on last month is now in full motion. Our view was that the breaking down of the US financial system, and those old bridges holding it together, would lead to collapses on Main Street America. Since that call, Brian McGough has already worked through 3 bankruptcies in the US department store sector (Mervyn’s, Boscov’s, and Goody’s); Howard Penney was flashing Bennigan’s Steak going under this week; and Todd Jordan is watching private equity held casinos blow through their debt covenants. No, Wall Street doesn’t shop, eat, or smoke at these places. But that certainly doesn’t mean they cease to exist. Yesterday’s US jobless claims number reflected an ominous unemployment line forming, as a result.

I took the 4 train down to Wall Street on Tuesday, then I was in Boston on Wednesday, having meetings with American capitalists that have one thing in common – they’re changing. No, John Thain and Dick Fuld won’t see this powerful force of revolutionary American grit, until it’s too late. God Bless that reality. Out of this economic crisis, great changes are being born. Creative destruction has always been the answer in this country. It won’t go away – people that lie will. Schumpeter, Thiel, and the folks at Google will all raise their glasses to that.

The innovative geniuses at Wikipedia would do the same, and they call “an eclipse is an astronomical event that occurs when one celestial object moves into the shadow of another.” The forces of nature are in motion to see this through on Wall Street. I for one have been overly critical at times of what didn’t make sense to me in this business anymore. Those shadows are moving behind us. Now, I’ll have my feet on the floor early in the mornings, looking forward to new suns rising.

Have a great weekend,


BYD is up 20% after announcing the postponement of construction on Echelon. I’ve thought for a long time that Boyd had some levers to pull to increase shareholder value and this was one of them. PNK also has options. Management certainly has the financial incentive. As can be seen in the chart, the in-the-money value of CEO Dan Lee’s options fell from a peak of $36million down to $2million.

What can they do? Unlike BYD before today, PNK actually maintains decent liquidity. However, there is significant negative equity value in the stock associated with expectations of future projects. I believe if PNK just announced the intent to sell the AC land, even at a loss, even with the tax ramifications, the stock would go up. AC costs PNK about $15-20 million a year. Given the relative strength of the LA and TX economies, Sugarcane Bay is not a terrible project but ROI is likely to be low. I’d prefer to see PNK try to negotiate with the State to postpone Sugarcane Bay but develop Baton Rouge. I’m still constructive on the South County St. Louis project (fully financed).

Oh I almost forgot the best shareholder creating option of all: selling the company. There is only one buyer out there. A PENN/PNK deal sure seems to make a lot of sense.

Incentive in place to increase shareholder value

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