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Lead, Follow, or Get Out of the Way . . . Hedgeye Is Long of Oil

Position: Long Oil via the etf USO


In the last nine weeks, we have seen a bifurcation in the price of oil and copper.  While the correlation is still high, oil has outperformed Dr. Copper. Specifically, copper is down 8% over the last nine weeks, while oil is up 1%.  Prices matter.


As we have often said, Dr. Copper received her PH.D in economics for her work as a leading indicator.  As Keith mentioned in the Early Look today, Dr. Copper seems to be signaling that global growth may be set to moderate.   This, of course, isn’t surprising given the steps that China has taken to slow loan growth and property construction.  In a tight note yesterday, Darius Dale highlighted a few of these points, the most important of which are:

  • China's Banking Regulatory Commission ordered 78 state-controlled companies to exit real estate sector;
  • Chinese Banks are now asking for 40%-50% down payments  for second mortgages;
  • In March, Chinese officials raised deposit requirements for buyers at land auctions to 20% of the minimum price to increase costs for developers; and
  • China's State Council raised down payment requirements for second homes to at least 50% and have pegged mortgage rates to no lower than 110% of the benchmark rate.

This headwind is obviously bearish for the price of Dr. Copper, since China consumes roughly 1/3 of the world’s copper, a large part of which goes into construction.


In contrast, oil has a more favorable set up.  We bought oil earlier this morning in the Virtual Portfolio as it neared its TAIL Line.   Two bullish points that we want to highlight on oil this morning relate to geo-political risk and drilling activity in the Gulf of Mexico.


We do not have the intention of being alarmists, but if the event in Times Square reminds us of anything, it is that terrorism is alive and well.  While the car bomb has been described as “amateurish”, the fact remains that the perpetrator was able to drive and park a car bomb in Times Square.  Given the amount of news in the news cycle in recent days relating to Goldman Sachs and sovereign debt issues, the brazen nature of this attempted attack was left somewhat unanalyzed.  The reality is, even if there were merely a hundred such individuals in the United States, they could do serious damage.  The ultimate derivative of such attacks is that the United States accelerates military action in the Middle East, which puts at risk global oil supply, at least in the short term.


Over time, despite assurances from each respective President that this would not occur, the United States has become increasingly dependent on foreign sources of oil.  In the table below, we’ve outlined the U.S.’s increasing dependence on foreign oil over time, which, in aggregate, emphasize the increased geopolitical risk factor that should be incorporated into the price of oil.


Lead, Follow, or Get Out of the Way . . . Hedgeye Is Long of Oil - Dependence of Foreign Oil


The other important point to emphasize, which is bullish for oil, is the oil spill in the Gulf of Mexico.  The oil spill is quickly becoming the most substantial potential environmental disaster in decades in the United States.  For comparison purposes, the Exxon Valdex spill was 11 million gallons, but in this situation, a well is leaking, which has many times the capacity of a tanker.


We are already seeing the impact of this spill from a policy perspective.  Specifically, Governor Schwarzenegger from California has withdrawn his support for expanded drilling off the coast of California.  In the worst case scenario, offshore drilling in the United States is dramatically curtailed, or halted outright.  In a more realistic scenario, costs for offshore drilling from insurance and increased infrastructure increase dramatically.  Regardless, the nominal cost of drilling offshore in the United States will go up, and supply will tighten on the margin.


In the shorter term, the oil slick could disrupt production in the Gulf.  The key offloading port for oil in the United States is Louisianan Offshore Oil Port, which is where many foreign tankers offload their oil.  If the slick gravitates towards that area, it could halt 300K barrels of daily oil production and 1.3 billion cubic feet of natural gas product, which is equivalent to a major hurricane shut in.  The slick would obviously slow the offloading of tankers as well.


We are buyers of oil this morning as it trades down towards it’s long term TAIL line.


Daryl G. Jones
Managing Director


Lead, Follow, or Get Out of the Way . . . Hedgeye Is Long of Oil - Oil v Copper

Fade Fear: SP500 Levels, Refreshed

As prices fall and volume/volatility spikes, we are tightening the durations in our models. Managing risk in down tapes is what we specialize in. I love days like this.


As of 1030AM EST time, here are our refreshed risk management lines for the SP500: 

  1. Overhead resistance remains material at the TRADE line of 1192; use that as a stop sign for your shorts
  2. Immediate term support (oversold line) = 1160
  3. Intermediate term TREND support = 1144 

The gravitational suck of the math in our model suggests that there is a heightening probability that we take a good hard look at 1144, but that doesn’t mean we are going there today. The slingshot bounce off of 1160 could easily drive a +2.7% move to 1192 and nothing will have changed.


The reality of the math remains. The SP500 is broken from a TRADE perspective and holding TREND line support.


It’s time to fade fear, from a price.



Keith R. McCullough
Chief Executive Officer


Fade Fear: SP500 Levels, Refreshed - S P


Management struck a satisfied but cautious tone during the conference call.


Led by extremely strong top and bottom line results, DPZ posted an extremely strong quarter yesterday that had largely been priced into the stock which, before yesterday, had run up over 90% YTD.  Over the past couple of years the company has contended with softer consumer environments and high inflation in food costs.  Of late, consumer spending has been stronger and personal consumption expenditures have rebounded strongly on a year-over-year basis.  Additionally, while the commodity basket was up 4.1% for DPZ during 1Q, the company is not significantly exposed given contracts currently in place with suppliers. 


It was interesting to note that, even with the company maintaining cheese guidance of $1.50-$1.70 per pound for later in the year, there seem to be no plans to adjust pricing.  Promotions such as “two medium two-topping pizzas for $5.99 each” have proved profitable, according to management’s commentary, once “Coke, chicken and bread size” are included. 


Later in the call, a discussion of comps revealed that the +14.3% domestic comp was driven exclusively by traffic, with check “slightly down”.  Clearly any move injurious to comps would be a mistake for DPZ and the two obvious drivers of traffic were promotions and the new advertising campaign which, management said, had a high correlation with the sales improvement.  The company emphasized the new pizza as the key driver of trial and repeat customers this quarter but long-term guidance being maintained at +1% to +3% for domestic comparable store sales, despite the +14.3% growth in 1Q10, seems to have been insufficient to maintain investor confidence in the stock’s run (traded down nearly 13% yesterday).  FYI, the 14.3% domestic comp was versus +1.0% in 1Q09.  The quarterly comps to hurdle for the remainder of the year (-0.7%, 0.0%, and +1.4% for 2Q09, 3Q09, and 4Q09, respectively) are in line with those lapped so successfully during the just-reported quarter so guidance assumes a significant deceleration in trends.


Specifically, management said, “we’re certainly expecting solid results in the second quarter. This is a company that had 12 years without a negative comp … But we feel very good about getting back to consistent, positive comps as a company in our domestic business.  Not only did we have good trial on this new pizza, but our repeat numbers were great, our frequency has increased. There was strength across all consumer metrics. So, we feel very good about where we are.  All of that said, our long-term guidance remains positive comps of 1% to 3% on the domestic business.”  Beyond that, management wouldn’t get into specifics when questioned further on trends in 2Q.






DPZ Notes from the earnings call

  • Strong start to the year
    • EPS up 75% yoy on broad-based performance
  • Business is stabilized and company is poised to develop well
  • US momentum


  • Global retail sales grew 17.4% incl. FX
    • Robust domestic SSS growth
    • Strong int’l SSS growth
    • Int’l store growth


  • One of the best quarters ever
  • SSS +14.3% vs +1% in 09
  • Franchise up 14.2%, company 14.7%
  • Closed 17 stores
    • Shifting towards opening
    • Ending 2010 with flat domestic growth


  • 54 new stores
  • SSS +4.2% constant dollar vs +6.6% in ‘09

Total revenues

  • Up 18.4%
  • All operating divisions saw revenue growth
  • 2/3 of revenue increase attributable to supply chains
  • Higher volumes due to new pizza
  • Higher royalties
    • SSS and store count growth

Operating margin

  • Increased 70 bps vs last year
  • High volumes QoQ
    • Offset by higher cheese and meat prices
  • Company owned margins increased 1.4% YoY
  • 20%+ margin levels at company owned stores
  • Labor and occupancy costs dropped as a results of the increased leverage due to higher volume


  • $1.44 vs 1.23 last year for cheese
    • Some predicting increases/decreases…we see $1.50 to $1.70 range by end of year but not apparent yet
  • Supply chain margins benefitted from product mix changes, offset by higher commodity costs


  • Increased due to strong operating performance
    • Bonuses and expenses

Income tax

  • 38% this quarter
  • 39% will be normalized tax rate


  • $0.41 (or $0.35 adjusted)
  • Improvement is from
    • Lower interest expense
    • Foreign currency ($0.02)
    • Lower tax ($0.01)
    • Higher share count negatively impacted

Balance sheet

  • Bought back and retired ~$60m of principle on outstanding fixed rate senior notes at a discount
  • Leverage at 6.1x
  • 28m unrestricted cash
  • 27.4m of FCF in 1Q
  • Anticipating improving FCF on 2009


SSS increase is unprecedented

  • MCD posted a similar comp in 1Q04 at the beginning of a strong period for their business
  • Rare pace of sales growth is not something expected to continue at this level
  • DPZ responded to critics and produced an improved product


  • Suburban and high income customers coming on board
  • Online ordering nearing 25% of sales
  • Transparency has won a lot of custom and positive PR


Lessons learned

  • No tolerance of poor operators in system
  • Weeding out franchisees that won’t operate at the higher level
    • Reduction of store closure speaks to progress on that front



  • Retail sales will surpass domestic sales in just a few years
  • Want to nearly double the top ten international store counts internationally
  • International was 34% of operating income in 2009
    • Only YUM, MCD and BKC’s international businesses contributed more
  • International DPZ is larger than the system of any of its competitors


  • Potential is strong
  • Demographics are favorable
    • 1.2 billion people
    • DPZ is the largest QSR brand there
    • Median age is 25 vs 34 in China
    • Economy growing at high single digit rate
    • Great franchisee in that market

Bain Capital has done some distributions recently that brought down their holdings

  • No surprise to see them continue to distribute these shares
  • Recently bought into the master franchise project in Japan
  • Distributions were easily absorbed by demand





Q: Sales outlook? How is the category growing? Taking share from frozen pizza?  Dynamics besides the new pizza launch that may be driving comps?


A: Expecting solid results in 2Q, repeat numbers were great, frequency picked up, strength across all consumer metrics.  Long term guidance remains 1%-3% on domestic business.  Unclear if there is share being taken from frozen. Category has some weakness in ’08 and ’09 and some of this is recapturing those consumers.  Pizza is the fastest growing category vs the rest of the restaurant industry at the moment



Q: Weather impact?


A: If weather had any impact, the new pizza overwhelmed that impact.



Q: Comment on day part/day of week/geographies?


A: More strength in dinner day part.  Lunch and sandwich business all held up well.  Relative strength in dinner part versus a sea of strength!  International markets at 4.3% vs long term guidance of 2%-3% shows that we were strong really across the board. 



Q: Flat unit growth…with the improving unit economics your seeing are you getting more interest from possible franchisees?


A: the improving results are encouraging, particularly for existing franchisees.  The vast majority of growth going forward is going to come from existing franchisees. 



Q: Commodities?


A: Not seeing serious pressure – margins are up, sales are up, feel good about unit economics… we’re still running the same promotion that was started at the start of December. 



Q: In light of earnings growth, any thoughts on share repurchase?


A: Near term we’ll continue to buy back debt.  FCF at 1.5m per week rate…we’ll continue to buy back debt and will be focused on returning best returns possible for the shareholders.  We think that’s the right strategy right now.



Q: Other platforms, sandwiches?


A: These new platforms, like American Legend, have provided higher price points and the American Legend offers room for customers to trade up.  Although that’s been the focus of conversation, other platforms have done well.    



Q: Sensitivity of cheese to earnings?


A: looking at commodities being stable.  For the quarter, basket up 1.1%. cheese is most significant.  Inventories and production are up.  Maybe cheese will hit the $1.50 to $1.70 range in back of year but not seeing it.  Wheat, meat and poultry all look stable.



Q: Check was down? Comment on check and traffic mix, please.


A: It was all traffic.  We drove a lot of traffic.  Check was slightly down and all of the growth was from traffic.



Q: On G&A line, in January you saw a pickup in G&A, did a fair amount of that go in 1Q or is it going to be loaded in 2Q?


A: 3m of G&A and offset in revenues…call center is an example.  Primarily front loaded to first half.  The 1Q increase is related to sales growth and sales awards and incentives and bonus plan. 



Q: Marketing…any unusual laps?


A: Strong all year, we had franchisees commit to a new contract that started on January 1 that moves spend to 5% of sales. Record weeks on air this year.



Q: Considering how to spend your cash going forward?


A: We’re seeing the results of previous investments.  This is the best quarter a major US QSR chain has had.  The sales boost puts a lot of pressure on capacity and the system coped very well.



Q: International opportunity to invest more equity?  Given growth and scale would the company not look to put equity in international markets?


A: Never say never, but we like the model we have. 



Q: Advertising in Q1, was there a high correlation between sales improvement and spend? Is 1Q heavier in terms of advertising?


A: The day we went on air we saw an increase in sales, so consumers reacted quickly. Advertising clearly worked. It will continue to be strong through 2010.



Q:  Online sales were at 25%? Does it have a higher average ticket…with ticket down, why was that if online sales increased by 5% as % of sales versus 4Q?


A: Online sales were up by almost 5% and it continues to grow.  Skews heavily towards delivery.  It does have a higher ticket than phone or carry out sales but there are higher levels of customer satisfaction when orders come through online.

Increase in sequential online sales by 3/4% but on a year over year basis the impact on check isn’t that big.


Howard Penney

Managing Director

Early Look

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R3: Meteorological Observations


May 5, 2010





March’s strong sales results, which resulted from a near perfect confluence of positive events (great weather, tax refunds, easy compares, Easter shift, pent-up demand , etc…) inevitably make for difficult comparisons when tomorrow’s April sales are reported.  There’s no question that results will appear to have slowed this month and we’re already seeing some rumblings as to why.  We’ve seen weather being used recently as an excuse, especially in the golf sector.  So, in advance of tomorrow’s releases, we want to make sure we at least get facts straight on the meteorology.  It is clear from the weekly trends, that there was a divergence between cooler weather on the West coast and warmer weather on the East coast.   What this amounts to is a little bit of something for everyone.  Those with a national footprint may actually net out to “normal” weather exposure, while those with West coast exposure are likely to express the “blues” .


Eric Levine



R3: Meteorological Observations - weather1

 R3: Meteorological Observations - weather 2


R3: Meteorological Observations - Rain1

R3: Meteorological Observations - rain2





- Amidst the flurry of congratulatory comments on the True Religion conference call, a subtle detail may have been overlooked. The company’s same-store sales, which were only released for the second time (given the inherent youth of the store base), slowed sequentially in 1Q10. With a comp base of 46 stores, same store sales increased by 18.7% in the quarter vs. 22.3% in 4Q09 (36 store base). Interestingly, same store sales including e-commerce were 18.2%, indicating that the .com platform was negative for the quarter.


- Despite a normal seasonal shift, Steve Madden noted that boots and booties were a strong category in the recently reported Q1 results. Given the strength, AUR’s were strong in the quarter. Overall booties made up 52% of the company’s mix in the quarter, up 1100 bps year over year. Given this strength and the strong order book for deliveries slated for 6/25 and 7/25 management is confident that boots will remain strong through the Fall. However, the company is not planning as aggressively for the category given last year’s very strong results.


- It’s important to know where the competition stands, especially in the global athletic footwear environment. On yesterday’s Adidas conference call, management stated, “On market shares when we talk about market share then we mainly talk about market share within our main competitors [like] Nike.  Nike is in the first half growing faster than us because they started earlier to clean [up their business and inventories].” Recent sell-side concerns about Adi’s success at the expense of Nike were clearly overblown.


- It’s hard to believe that Dr. Martens may be making a stateside comeback, but the opening of the brand’s first NYC outpost may be a starting point. After celebrating the brand’s 50th anniversary by giving away free shoes at the London store, this may be the first credible attempt to revive 90’s fashion.





R3: Meteorological Observations - Calendar





USITC Investigation Could Lead to Higher Duties for Certain Footwear with Textile Outsoles - The USITC has conducted an investigation under Chapter 64 relating to certain footwear featuring outer soles of rubber or plastic to which a layer of textile material has been added. These changes would reflect decisions on the classification of that particular footwear. If the proposed recommendations are accepted by the USITC and green-lighted by the president, foreign footwear manufacturers would no longer be able to use glued on/slapped on and appliqué textile outsoles to lower the duty rates on several footwear items, including 19 types of rubber/fabric and plastic/protective footwear that are still manufactured in the United States. This footwear would be classified under heading 6404 (footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials) with duties ranging from 20% to 67.5% instead of heading 6405 (other footwear) with duties ranging from 7.5% to 15%.   <fashionnetasia.com>


Web Shoppers' Experiences Improved - According to the latest survey from research group ForeSee Results that monitors 100 internet retailers, web sellers mostly garnered more positive ratings than they did a year ago, when many were in survival mode. This year, the poll’s composite score set a record high of 78 on the survey’s 100-point scale, up almost 5 points from a drop-off last year. L.L. Bean led among the 23 apparel and accessories retailers on the list with a score of 82 (80 and above is excellent), and was followed by Coldwater Creek Inc., at 80. Abercrombie & Fitch Co., Polo Ralph Lauren Corp. and the Victoria’s Secret unit of Limited Brands Inc. each logged a 79. In the mass merchant category, J.C. Penney Co. Inc., Kohl’s Corp. and Wal-Mart Stores Inc. all made the top 10 with a score of 80. Beauty firm Avon Products Inc. came in third in the overall rankings with a score of 83, while Web giants Netflix Inc. and Amazon.com Inc. took first and second, respectively.  <wwd.com/business-news>


E-Retailers Top 500 Guide Take Aways - This year’s Top 500 Guide reveals several trends that emphasize consumers’ continuing shift to online buying and the shift to large retailers:

  • The Top 500 retailers’ sales grew 8.7% to $126.38 billion in 2009 from $116.28 billion in 2008.
  • Total traffic to the Top 500 increased 22.9% year over year to 2.58 billion monthly visits from 2.10 billion visits in 2008.
  • Web sales now account for 6.5% of retail sales, up from 6.2% a year earlier.
  • Web sales were the only growth area for most chain retailers( 26 of the 50 biggest chains)
  • The Top 100 grew 11.6% and the retailers number 401 to 500 in the Top 500 Guide grew 2%, further evidence that a shift to bigger online retailers is taking place.

By category, last year’s results show:

  • Combined sales for all top 500 web-only merchants grew year over year by 19.8% to $42.94 billion from $35.83 billion.
  • Consumer brand manufacturers in the Top 500 grew web sales by 3.8% to $15.30 billion from $14.74 billion in 2009.
  • Retail chains in the Top 500 grew combined web sales last year by 6.6% to $49.80 billion from $46.71 billion.
  • Catalog companies posted a drop in sales last year, declining by 3.1% to $18.32 billion from $18.91 billion.  <internetretailer.com>


Sears Making a Major Apparel Push - The mandate to turn around apparel was emphasized at the outset and underscored throughout the three-hours-plus shareholders meeting. Kmart is performing well with an apparel turnaround while moving to everyday pricing and significant improvements to the in-store experience. Revitalizing the Sears apparel brand is a top priority. New brands exclusive to Sears and Kmart, such as Bongo and Dream Out Loud with their younger demographic, will be key drivers. John Goodman, executive vice president of apparel and home, is building a new culture around apparel with significant talent. <wwd.com/business-news>


Athleta Opens 1st Store - Athleta, Gap Inc.’s online women’s sportswear and activewear company, is taking a first step into the world of bricks and mortar. Less than two years after Gap acquired Athleta for $150 mm in cash, the specialty retail giant will roll out the first Athleta test store in Strawberry Village Center in Mill Valley, Calif. The test store, which will be 2,424 square feet, is slated to open before the end of this month, said a spokeswoman at the Strawberry Village Center Mall.  <wwd.com/business-news>


Cabela's Reports -1.7% Comps - Cabela's Incorporated reported total revenue for the quarter of 2010, adjusted for divestitures, increased 5.1% to $559.6 million; retail store revenue decreased 1.5% to $271.3 million; direct revenue increased 2.1% to $222.7 million; and comparable store sales decreased 1.7%. Cabela's Plans Stores for its third store in Texas and its first in Oregon.  <sportsonesource.com>


 R3: Meteorological Observations - CAB SIGMA


Overstock.com Starts Off the Year with Stronger Sales and a Profit - For the first quarter ended March 31, Overstock reported an increase in revenue of 42.3%. Net income was $3.7 million compared with a net loss $4 million in the prior year. <internetretailer.com>


Girl Obesity Rises 2x Rate of Boys - The percentage of obese girls in the United States increased more than twice as much as the percentage of obese boys from 2003 to 2007, according to a study released Monday by researchers at the Health Resources and Services Administration. Potential tailwind for plus sized women's specialty retailers such as CHRS.  <sportsonesource.com>


Guess COO Steps Down - Carlos Alberini has stepped down as president and chief operating officer of Guess Inc., the Los Angeles retailer and wholesaler, to become co-chief executive officer of Restoration Hardware, effective June 1. Alberini, 54, has been at Guess since December 2000 and has agreed to remain on the board at Guess for two more years. <wwd.com/retail-news>



Agonizing Math

“He who will not economize will have to agonize.”



Yesterday was a great day for risk management. I don’t say that because most markets were down. I say that because markets actually did what the math said they should. In other words, from Spanish equities to US volatility, the macro moves were proactively predictable. Markets don’t lie; people do.


I went into the US equity market part of the day with a similar position to Ben Bernanke – at least in terms of absolutes. Rather than posting a zero percent rate of return to prudent American savers who refuse to be dared to speculate, I posted a zero percent asset allocation to US Equities.


If you are me, making a short call on the SP500 to correct on the order of 4-7%, it stands to reason that I would not only have been short the SP500 but not, at the same time, telling our clients that I want assets allocated to a market that I think is going down. Only a full service super-market-ing broker/dealer would tell you do something like that with your hard earned net worth.


You know I love to be right. I’m not one of those people who wakes up every morning expecting to be wrong. I don’t get paid what I used to, but I am certainly having more fun. My goal this morning isn’t to grandstand. It’s actually to explain what it is that I do. My friends call me Mucker, and I am your Risk Manager.


Every short call starts with a top down Global Macro Theme. We change these themes every three months because market prices and the expectations embedded in them do. As a reminder, our Q2 Macro Themes at Hedgeye Risk Management are:

  1. Sovereign Debt Dichotomy (short the Euro, long the USD; short Spain, long Germany)
  2. Inflation’s V Bottom (long TIP, oil, Aussi dollars, Chinese Yuan; short SP500, short term Treasuries and select US Equities)
  3. April Flowers/May Showers (short the SP500 with a topside target of 1214)

If you’d like the slide presentation for these themes, email the ex-Captain of the Colgate Women’s Field Hockey team who show jumps as our head of sales, Jen Kane, at . Jen plays center link for us in New Haven and she is flanked by a recently retired pro hockey player named Leclerc and our race car driver, Bergie.


Once we establish these top down themes, we lock, load, and refresh our multi-factor risk management model. We refresh our view (upside/downside bands of probability across 3 investment durations: TRADE, TREND, and TAIL) every 90 minutes of marked-to-market trading. We refresh because prices, volatility, and volumes are constantly changing.


We call this dynamic (real-time) risk management. At the Bloomberg Hedge Fund Conference yesterday afternoon in NYC, I had a great discussion with John Taylor (CEO of FX Concepts) and Dean Curnutt (CEO of Macro Risk Advisors) about being a risk manager in these globally interconnected times. Both gentlemen agreed that managing risk doesn’t occur in your ideologies or politics. It occurs daily and mathematically.


We don’t need to geek out on the math this morning, but we do need to remind you that there is a huge difference between managing risk in an interconnected ecosystem whereby you accept certainty (ie. I know Mastercard is going to have a good quarter) and uncertainty (chaos and complexity theory). The last price is what matters, and your daily objective should be to manage the risks associated with probable outcomes based on that real-time price.


Back to the grind… and explaining what we did yesterday… and what we’ll do this morning…


Like Jim Chanos, who seems perfectly ok with talking about his Chinese short position in transparent forums these days, we like to make all of our moves on a live marked-to-market investment portal. Here’s what we did yesterday as the market weakened – everything is time stamped:

  1. 1012AM, sold Mastercard (MA) after a solid EPS report
  2. 1019AM, sold the US Dollar ETF (UUP) on strength
  3. 1040AM, covered our short position in Ross Stores (ROST) on weakness
  4. 1044AM, covered our short position in the Euro (FXE) on weakness
  5. 1051AM, bought China (CAF) on weakness
  6. 1223PM, bought Intercontinental Exchange (ICE), on weakness
  7. 1226PM, covered our short position in the SP500 (SPY) on weakness

That’s it. That’s the best transparency I can give you on what it is that we actually do with all of our math. We have a research team that’s approximately 22 people in size (depending on what Big Alberta eats for breakfast). We grind research. We fade the market’s price action. We rinse and repeat.


As of this morning’s real-time prices, here are some critical risk management thoughts.

  1. SP500 immediate term TRADE support and resistance levels are now 1170-1192 (we’ll look to re-short the bounce)
  2. SP500 intermediate term TREND line of support = 1143; so ultimately, this correction has another -2.6% to go from last night’s close
  3. VIX (volatility) was up +18% yesterday to 23.84 and is now bullish on both TRADE and TREND with TREND line support = 19.51
  4. US Equity market volume was up a moon-shot +34% on our daily risk management study = bearish when combined with price/volatility
  5. Spanish equities have officially crashed, down another -1.5% this morning and down -21.5% since January
  6. The Euro is immediate term oversold and now has refreshed support/resistance levels of 1.29-1.32
  7. Brazil’s Bovespa finally broke its intermediate term TREND line = 68,334 after Brazil raised interest rates by 75bps to 9.5%
  8. Hong Kong’s Hang Seng is now broken from a TRADE and TREND perspective after trading down another -2.1% overnight
  9. Dr. Copper is signaling abort mission to the global growth trade; breaking its intermediate term TREND line of support at $3.35/lb

There are plenty of other “fundamental” news items this morning affecting prices. From Dodd/Shelby on Financial Reform to Putin Power taking this Euro freakout as an opportunity to seize Ukrainian energy assets, the “news” is always there.


All the while, our role as your Risk Manager, is to have our feet on the floor earlier than most, consume the news, and register the price action. No one said this is easy. That’s why we do it. And global macros risk waits for no one – so there are no days off.


Proactively sell high; buy low; and remember, “he who will not economize, will have to agonize” reactively. So capitalize on his consensus emotions.


Best of luck out there today,



Agonizing Math - Bovespa



The Macau Metro Monitor, May 5th, 2010




The Secretary for Transport and Public Works, Lau Si Io, says the government has received “a lot of applications” for land in Cotai. Lau says companies have requested land in the north of Estrada Flor de Lotus for “tourism and entertainment purposes” but did not specify which companies.

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.