Today, October 5th, 2PM EDT


5-10 minutes prior to the 2 PM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 724674#

To access the 4Q Key Macro Themes materials please click here.

To submit questions for the Q&A, please email .




The Hedgeye Macro Team, led by CEO Keith McCullough, will detail Hedgeye's 4Q Key Macro Themes, which are as follows:

  • Japan's Jugular - The Keynesian experiment that is Japan will continue to implode in Q4. The Yen, JGBs, and Nikkei all remain at risk.
  • Krugman Kryptonite - As the Fed signals its intent to use more Krugman Kryptonite (printing dollars/ quantitative easing) we look at both the short and long term implications behind the faulty math of Dr. Krugman.
  • Consumption Cannonball - U.S. consumption will roll over sequentially in Q4 based on our bottom-up consumption model. This is a negative catalyst for our below consensus Q4 GDP domestic growth projections.



Hedgeye Macro Team

Bear/Bull Battle: SP500 Levels, Refreshed

You can take everything I wrote in yesterday’s SP500 refresh and reverse it – because prices have reversed to the upside benefit of stocks.



  1. US Dollar was UP for once
  2. VIX was UP, breaking out above its immediate term TRADE line of 23.11
  3. SP500 was DOWN, breaking both TRADE and TREND lines of 1141 and 1144, respectively 

Today (so far): 

  1. USD is getting smoked again to lower-intermediate-term lows (the inverse correlation USD/SPY is 0.88!)
  2. VIX is DOWN, breaking back down through the immediate term TRADE line of 23.11 (no support to 21.48)
  3. SP500 is UP, breaking out above both aforementioned TRADE and TREND lines w/ no immediate term resistance until 1157 

This, of course, puts the heightening probability of a crash call back in play. The only way we have a heightened probability of an October crash is if the shorts keep getting squeezed and the perma-bulls suspend disbelief (chase performance).


As a reminder, I need to see 2 things before I re-short the SP500 (SPY): 

  1. SP500 at or higher than 1164
  2. VIX depressed down towards 20 

Heli-Ben is hell bent on taking us there. Buckle up.



Keith R. McCullough
Chief Executive Officer


Bear/Bull Battle: SP500 Levels, Refreshed - 1

European PMI Services Slow in September

Hedgeye Position: Long Germany (EWG), Long British Pound (FXB), bullish on EUR-USD; Short Italy (EWI)


Today, the final September figures for European Services PMI were released– and much like the European Manufacturing PMI figures issued last week, in aggregate there is a slowdown in the September numbers for the major economies, which is in line with our forecast for weaker European economic data in the back half of 2010 (see chart below). It’s important to note that both Spain and Ireland fell comfortably below the 50 mark, the line dividing contraction (below 50) and expansion (above 50).


European PMI Services Slow in September - p1


This data is in line with our call for divergences among European countries, similar to our Sovereign Debt Dichotomy theme in 2Q10. Currently we are bullish on Germany and continue to warn of further deterioration in the capital markets of countries like Portugal, Ireland, Italy, Greece, and Spain. [Greece leads global equity markets on the downside, currently at -31.5% YTD. 


The data also suggests that Services were slightly more resilient than Manufacturing.  Concurrently, as austerity measures and civil unrest weigh on confidence and consumption, a separate survey shows today that Eurozone retail sales fell 40bps in August versus the previous month, and have been trending lower over the last months (see chart). We think this downturn in the data is being reflected in Europe’s equity markets, with today only the first day in seven that most are up.


European PMI Services Slow in September - p2


We are still bullish on the EUR-USD, despite the ongoing sovereign debt contagion threats across the Eurozone, with a TRADE (3 weeks or less) range of $1.35-$1.38. The EUR-USD is on a tear intraday, up 1% at $1.3827. Stay tuned for our positioning as the level violates our TRADE level of resistance.   


Our TRADE levels on the British Pound-USD are $1.56-$1.59 with TREND line support (3 months or more) at $1.54, and outlined in the chart below.


Matthew Hedrick



European PMI Services Slow in September - p3

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R3: Adi, LIZ, and Credit Card Fees


October 5, 2010


Expect the Visa/Mastercard settlement to facilitate changes at the POS.  It’s likely that consumers will see small discounts or rebates in return for using a particular form of payment.  With Discover representing the lowest cost credit card provides, we wouldn’t be surprised to see lower prices at retail for those using the card built on giving cash back.




- Ked’s is entering the sustainable shoe game with a version of it’s classic sneaker made from organic cotton.  The line, called Organic Champions, is also comprised of stitched eyelets and tea-stained laces.  Sounds like Ked’s may be looking to emulate a little bit of Tom’s success.


- On average American’s aged 12-24 spend two hours and fifty two minutes on the internet per day, about 5 minutes longer than the same group spends watching TV.  Playing video games is also a big part of this demographic’s daily routine, with an hour and ten minutes devoted to that activity.


- Keep an eye on where retailers are spending advertising/marketing dollars. According to an AdweekMedia/Harris Poll, 75% of Americans are reportedly confused by ads on television. In what might suggest marketers are getting too cute with their creativity, this study supports that retailers should consider further diversifying advertising channels toward mediums such as e-commerce, mobile, or even good old fashion print.


- As the “private” online sale becomes more mainstream, new e-commerce players are evolving with new twists.  Enter Birchbox, a new beauty e-commerce site which sends consumers a box of oversized product samples monthly for a fee of $10.  The consumer can then purchase the full-size product at Birchbox after having tested it.  The site also offers loyalty points as well as original editorial content.





Adidas Outdoor Selects Sales Groups to Represent Brand as it Enters the US Next Fall - Adidas Outdoor, which will enter the U.S. market next fall, has selected two more rep agencies. The Hartford Sales Group will represent the brand in California, Arizona and Nevada and RCP Pursuits landed the account in the Hawaiian Islands. <>

Hedgeye Retail’s Take: Adi’s new outdoor product is still a year away from hitting shelves, but the company’s decisiveness will give these seasoned agencies plenty of time to educate accounts and work initial shelf allocations come its U.S. launch in Fall 2011.


New Balance Reorganizes Specialty Sales Organization - New Balance announced that effective January 3, New Balance will reorganize the company's Specialty Sales Organization in an effort to accelerate business results in the distribution channels of New Balance stores, family shoe, and running specialty. Highlights of these changes include the launch of a New Balance Store and Family Shoe Specialist organization as well as a stand-alone Running Specialty Team. <>

Hedgeye Retail’s Take: With mid-single digit share in athletic footwear and increasingly more innovative product in the market from competitors, we haven’t seen much out of New Balance recently – something that will have to change in order for these segmented sales teams to have a chance both maintain and gain share.


Kate Spade to Make UK Retail Debut - US womenswear label Kate Spade will open a pop-up shop in Covent Garden in London this month.  <>

Hedgeye Retail’s Take:  Kate Spade has a lot going on besides growing profitability and continuing to deliver positive comps. Its launching new fragrances, expanding internationally, targeting Brazil and China, signed a JV with Japan, and is testing its Jack Spade concept. These are small but meaningful.


Golfsmith Looks To Drive Sales With An App - If a golfer runs out of balls or tees at the end of 18 holes, he can type in in his mobile phone’s web browser and buy more. However, golfers with iPhones can now access a richer Golfsmith mobile experience through the retailer’s new iPhone app. Golfsmith has designed the app with m-commerce technology provider Digby to make researching and purchasing products and accessing promotions much easier. The mobile app offers rich features including a special flash sales promotions board and product demonstrations by Golfsmith product experts.  <>

Hedgeye Retail’s Take: Bad news for those courses which discourage use of cell phones during play. 


Beyonce's Mom Expands Line at Select Wal-Marts - Tina Knowles, mother of recording artist Beyonce, is rolling out 30 new sportswear pieces for her exclusive line this month at select Walmart stores and Miss Tina by Tina Knowles, which originally launched in August 2007, includes denim, graphic T-shirts, embellished tops, day dresses, tunics, jackets, leggings and track suits. The line retails for $20 and under. Knowles is also founder and co-director of the House of Dereon and Dereon. <>

Hedgeye Retail’s Take: In the midst of a major merchandising transition, it appears that Beyonce’s Mom remains a winner at Wal-Mart.  Unfortunately this line isn’t going to move the needle as the overall apparel strategy remains in limbo.


China Shoe Consumption to Double - Footwear consumption in China will double in the coming years, according to the China Leather Industry Association (CLIA) president Zhang Shu Hua. Speaking at the All China Leather Exhibition in Shanghai, Zhang said that although official figures are hard to put together, her organization estimates that Chinese consumers buy an average of 1.5 pairs of shoes each per year. She added that this was likely to double, which means that the global footwear industry will soon have to find a way of supplying China with an extra 2 bn pairs of shoes a year. <>

Hedgeye Retail’s Take: If true, supply will begin to command increases in pricing.  Yet another reason to keep an eye on inflation, although this trend would certainly be longer-term in nature. 


Credit Card Rules Change - Visa Inc. and MasterCard Inc. agreed today to allow retailers to offer rebates to consumers who use a lower-cost payment form, for example, a debit card instead of a credit card, or a credit card that does not offer rewards and thus does not cost the merchant as much to accept. The two big card brands announced they were making the changes as part of a settlement of a lawsuit filed today in federal court by the U.S. Department of Justice against Visa, MasterCard and American Express Co. American Express refused to settle and say it will contest the lawsuit. It remains to be seen how much online retailers will benefit from this settlement. Some say it will free online retailers to accept payment options such as PIN-debit should such systems gain traction, and will open up competition in the burgeoning field of mobile payments. Others are skeptical that any online retailers will find it worthwhile to steer a shopper to a lower-cost card, at least for a single purchase. <>

Hedgeye Retail’s Take: Expect to see low cost provider, Discover, making a push at the POS as well as retailers offering % discounts tied to certain payment forms in a near future. 


US Retailers Upbeat on Holiday Comps But Hesitant on 2011 Inventory - Major U.S. retailers are entering the holiday shopping season with much more optimism, according to the latest BDO USA, LLP Retail Compass Survey of CFOs. The survey found a much lower percentage of CFOs expect negative comps. CFOs are split over whether too much inventory (53%) or insufficient inventory (47%) presents a greater threat to their holiday sales. Despite keeping a close eye on inventory, nearly half of retail CFOs (42%) plan to measurably increase inventory purchases in the first half of 2011. Others are holding off – 16% are delaying planned increased inventory purchases until the second half of 2011, and 24% are waiting to increase inventory until 2012 or later. Only 17% of CFOs plan to increase their inventory levels during the 4th quarter of 2010 in time for holiday shopping.  <>

Hedgeye Retail’s Take: Despite an uncertain demand environment, we agree that there are very few retailers placing aggressive bets on inventory as a means to drive sales.  Promotional activity still remains a wildcard.


Italy's Leather Goods and Accessories Sector Bouncing Back - After almost two years of decline, Italy’s leather goods and accessories sector appears positioned to begin bouncing back. The favorable indicators include stores that are rebuilding inventories amid growing international demand, said industry executives attending Mipel, the four-day leather goods and accessories show. Signs of improved sentiment are stronger now than they were in March and companies from Russia are placing larger orders. The trade show drew 16,200 visitors, flat compared with the March edition, but a 13.6 percent boost versus the same period last year, organizers said. About half of those attending came from abroad. Exhibitors said buying interest from China and Korea was significantly improved compared with last year, and orders from the U.S. over the same period were slowly picking up, helped by a weaker euro. <>

Hedgeye Retail’s Take: Perhaps another sign of recovery on the higher end of the price point spectrum as Italy tends to produce goods in less price sensitive niches.    



The Macau Metro Monitor, October 5th 2010



On October 3rd, 126,700 people arrived in Macau via Zhuhai-Gongbei central cross border, of which 58,700 were traveling visitors.  Meanwhile, the occupancy rate for 3-star hotels was 99.91%, 4 star hotels 96.37%, and 5 star hotels 99.08%.



Michael H. Chen has left his position as President for Asia for the American gaming giant Harrah's Entertainment Inc. and started a sabbatical year on October 1.  "I was offered a position in Las Vegas at Harrah's which is great but I need some time off and they agreed to it", said Chen. Chen was responsible for the development of Harrah's business in Asia and had served as a corporate director and executive associate to the chairman, president & CEO, Gary Loveman.

EARLY LOOK: Japan's Jugular


“Great spirits have always encountered violent opposition from mediocre minds.“

-Albert Einstein


EARLY LOOK: Japan's Jugular - Einstein





I am currently in the middle of reading Walter Isaacson’s “Einstein: His Life and Universe.” For a young chaos theorist fighting the winds of Washington and Wall Street Groupthink, Einstein’s independence of thought is highly motivating.


Chaos and Complexity Theory are the most important mathematical discoveries since Einstein’s General Theory of Relativity. While we don’t give out our mathematical models here in New Haven, we distribute both their factors (inputs) and themes (outputs).


Like any other dynamic ecosystem in this universe, global markets are constantly changing. As a result, analyzing time, space, and gravity are seemingly rational places to start each and every risk management morning. Trivial points in time like a price-to-earnings ratio are what they are – of very little value to our research.


At 2PM EST today we’re going to introduce the 3 global macro risk management themes that we think will matter most to global investors in the 4th quarter of 2010 (if you are a qualified investor and would like to sign up for the call, please email ).


For Q4 2010 our Hedgeye Macro Themes are as follows:


EARLY LOOK: Japan's Jugular - 0 q4 THEMES


In sharp contrast to other “top-down” or “global macro” oriented sell-side research that calls everything “long-term”, we focus acutely on time (duration) and space (price). It’s all good and fine to come up with a “long-term” investment thesis (been there, tried that), but if you get time and price wrong, you’re best advised to get a job in academia.


I don’t disrespect academia. I just don’t want my firm, family, or country’s risk management system overseen by academics. Einstein himself would be the first to call out the long-term career risk associated with academic dogma. As markets evolve, we need to evolve the risk management process alongside them.


Living in the violent opposition of mediocre industry standards is one of the tremendous investment opportunities in global finance today. Schumpeter called this creative destruction. God bless the learning opportunities that are born out of the failures of Fiat Fools.


Unfortunately, Washington and Wall Street Groupthink doesn’t get this yet. Neither do the Japanese Bureaucrats who continue to believe that the best way to solve for structurally impaired economic growth is to throw more failed government policy action at the problem.


We’ll go through the why on this with a 68 slide presentation this afternoon, but the bottom line is that what you are seeing from Japan this morning is ultimately an admission that QE (Quantitative Easing) didn’t work.


In fact, after cutting interest rates from ZERO POINT ONE percent (0.10) to ZERO POINT ZERO percent (0.00), the most recent edition of a Japanese Heli-Ben (BOJ Governor Shirakawa) dropped the QE acronym altogether for a new one – CME (Comprehensive Monetary Easing).



EARLY LOOK: Japan's Jugular - japanchart



The best part about CME versus the QE that is sponsored by “New Keynesian Economics” academic dogma (Bernanke, Krugman, Stiglitz, etc.), is that I can actually understand what CME means. It’s very “comprehensive” to see that the Japanese can’t cut interest rates (until they raise them) again.


I’m certain Einstein would be a fan of CME. When failed ideologies like QE meet their maker of gravitational force, the next best step for a failed academic is to stop what they are doing. Then either retire, or change as the facts have. After all, it was Keynes himself that would be asking “New Keynesians”, what do you do now Sirs?


My immediate term support and resistance lines for the SP500 are now 1126 and 1144, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

Early Look

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