COMPLIANCE: Settlements Freeze

Smart and tough, seasoned and scrappy, prosecutor Robert Khuzami came charging into his new job has head of SEC Enforcement to great fanfare.  Journalists who dog the Law Beat hailed this as the SEC’s Gangbusters moment.  The Untouchables were invoked, and high hopes were held out for a new regime that would kick serious butt, take names, and make Wall Street safe for the average investor.


We expressed our initial disappointment when, in his introductory press conference, Mr. Khuzami announced that his department would set a precedent of winner bigger settlements than ever before.  He has been true to his word – the Goldman settlement is considered a milestone in this regard.  But, with nary a jail sentence in sight, all Mr. Khuzami has done is to boost the price of crime.  The fundamental game is unchanged.


Improper securities deals aside, the number of high profile banks involved in money laundering, and the dollar magnitude of the alleged activities, is staggering.  In cases of money laundering by European banks on behalf of Iran, for example, the amounts disclosed run well into the billions.  We can only imagine the ratio of discovered to undiscovered dealings.  And yet, even in this high-stakes game, no one is going to prison.  Banks are not being shuttered.  A few hundred million in fines is paid, a couple of bank executives are relieved of their duties.  It seems the real crime lies not in perpetrating a fraud on the public trust, but in being caught.  Is it time to beatify Richard Nixon?


Mr. Khuzami has an opportunity to put the lumbering craft of regulation into high gear.  The Wall Street Journal has performed a significant service to the public – not, we think, always its primary reportorial objective – reporting on Congressional staffers who trade in stocks of companies directly affected by legislation overseen by their own bosses (11 October, “Congress Staffers Gain From Trading In Stocks”).  “At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee,” reports the Journal.  Shades of Ivan Boesky!  The juiciest part of the article is the observation that “insider-trading laws don’t apply to Congress.”


The Journal also reports (12 October, “Lawmaker Aims To Outlaw Insider Trading On The Hill”) that a bill to outlaw insider trading in the House has languished for five years and currently enjoys the support of just nine Representatives.  No parallel bill has been proposed in the Senate.


One would imagine that, in the wake of this year’s revelation of insider trading by SEC staffers, Congress would rush to clean house.  Not only have they not done so – they don’t think there is anything wrong.  Congress has more important concerns than ensuring that its members meet the Caesar’s Wife standard.


In his former incarnation as federal prosecutor, Mr. Khuzami was cited for personal bravery, including an award for risking his life to bring drug dealers to justice.  It is one helluva come-down for him to be marking time in the wake of Chairman Schapiro’s ongoing political tightrope act.  We think the time has come for Mr. Khuzami to bang some heads together.  Where better to start than with the miscreants on the Hill?  Settlements be damned!  Please, Mr. Khuzami – please, please, oooh pretty please! – throw somebody in jail.


It can not be an excessive stretch for a tough and nimble legal mind such as Khuzami’s to find a theory on which to try Congressional staffers who participate in discussions about government intervention, then trade the stocks of the very companies that will be affected by these pending – and unannounced – actions.


On the face of it, this is an ongoing pattern of trading on the basis of material, non-public information.  This is the stuff your compliance officer spoke to you about when you joined the firm, and reminds you about regularly.  This is the stuff people get sent to prison for.  But if those who make the laws, can break the laws, it is time for the SEC to go gangbusters on this one.  Even though the likeliest outcome is not jail time, nor even fines or disgorgement, we would dearly love to see our lawmakers sweat.


Chairman Schapiro must go on the offensive with Congress.  If she does not, she is less politically canny than we credit her.  Even if she fails to convince the SEC Commissioners of the necessity to change the law, her labor-union constituency and their pension managers will have plenty to say on the subject.  This is a topic on which she can score a clear moral victory.  We envision the odd coalition of Wall Street bankers and labor leaders descending on Washington to demand that Congress forbid itself to break the law.


The likeliest outcome is a change in procedures.  Currently, staffers report their transactions once a year, and it is not clear that there is anything resembling compliance oversight of what employees of Congress do with their money.  Thanks to the light and heat generated by the Journal’s articles, that should change.


Congress doesn’t wish the law of the land to apply to its own members?  Tea, anyone?


Moshe Silver
Chief Compliance Officer


COMPLIANCE: Qualitative Easing

"Time and persecution brings many wonderful things to pass."

-         George Washington



We are reading the new biography of George Washington from the pen (ok… laptop) of master biographer Ron Chernow.  We are wholly absorbed in the tale, and Chernow’s insights about the Father of this country and his time shed much light on our present season of discontent.


Today the underlying issue is a total abdication of responsibility on the part of those invested with the Public Trust.  The reason it has become compelling as an ongoing policy matter to debauch the once-proud Dollar is that our society has established a pattern of behavior, reaching back certainly to the post WWII period, of encouraging excessive behavior by consumers.  The rest of the world recognized US indebtedness as a nascent problem as far back as the early 1980’s.  Is it realistic for Washington now to push back on generations of excess?  We search in vain for anyone in a position of public trust to take a stand against this madness.


Not Fed Chairman Ben Bernanke, who said this week, “We are still learning about the efficacy and appropriate management” of “non-standard policy tools that do not rely on interest rate deductions.”  Chairman Bernanke, who appears to have taken classes in opacity from his predecessor, was telling us that he wishes he could reduce interest rates further.  But, while in mathematical modeling Zero represents merely a reference point, in real world economics it takes on all the characteristics of a physical barrier, forcing the great minds (who in these matters certainly Think Alike) to get creative.


As a society, we appear to be on the cusp of disaster.  Our elected officials, desperate to abdicate responsibility, appoint academics to make key decisions.  The academics say “This worked great on the blackboard,” but there is a very real risk that appointed officials will come to believe in their own infallibility.  We saw this under Emperor Greenspan, and the same has happened to Summers and Geithner.  Tossing the hot potato to another player, then ducking out of the room, does not constitute a proper system of checks and balances.


“…still learning about the efficacy and appropriate management…” in plain English, the Chairman is telling us – “We haven’t quite gotten the knack of handing your money, but we are making progress.  Another few trillion and we should really have it down to a science.”  Like journeyman stockbrokers and money managers who learn their craft by losing large quantities of their investors’ money, those charged with managing the economy have resorted to guessing.  And, like the broker who has put you into six losing trades in a row, we are now being asked for “one more shot.”  Chairman Bernanke’s Princeton-educated guess notwithstanding, recent policy decisions broadcast the message that We Don’t Know What We’re Doing, But We’ve Been On This Course For Too Long To Change.  In the movies, this is generally what the driver says a moment before shrieking “Oh my God!  We’re going to crash!”


To return to a linguistic bugaboo we have already criticized: some three years into this Awful New World of global finance, we disagree with those who persist in calling our current position a “crisis.”  We are no longer in the midst of an abrupt and temporary departure from the norm, but are feeling our way, albeit reluctantly, in the New Norm.  There is no longer a Mean to which our markets and our society can revert, and we must establish a new orientation.  True, this change was precipitated by crisis, but major societal shifts generally require an explosion to counteract generations of inertia.  As pointed out by economist Hyman Minsky, the cycle of Boom, Bubble and Bust is built into the very structure of our financial markets.  It is thus perhaps not even fitting to call the turbulent events of three summers ago a “crisis” – which implies a lack of predictability, a sense of disbelief – except to point out that they were of greater magnitude than, say, the “crisis” of the dot-com bust or the “crisis” of the S&L failures.


“Crisis” is what strikes the unprepared, otherwise known as the Public.  For the prepared – those who drove the economy off the cliff – it is a pause to reload and map strategy for the next phase of the campaign.


It being in the nature of cycles to overlay other cycles in concentric, or spiraling patterns, some future economic historian will trace this period’s origins to longer-term forces, rather than to the lame excuse of the “perfect storm.”  Incredibly, everyone from Blankfein, to Fuld, to Greenspan has sat before Congress and testified to the equivalent of “My dog ate it,” all of which has done nothing more than stoke a moment or two of Congressional testiness.  Where are the mobs with the pitchforks, we ask?  Where the honorable suicides, as legislators acknowledge how horribly they have failed their country?

The year 1893 saw a depression where unemployment ran in excess of ten percent, and for the better part of a decade.  The period saw social unrest, labor union violence, and the surge of the Populist and Free Silver movements.  With Glenn Back pitching gold ingots, with the Tea Partiers treading a fine line between inclusive dialogue and crypto-fascist, social exclusionary fear-mongering – with unemployment hovering at the double digit threshold and no end in sight – are we experiencing an extended-wave repetition of a long-term cycle?


The Kondratieff Wave is named for Soviet economist Nicolai Kondratieff, who posited that capitalist economies are subject to cycles of 50-60 years.  Later theorists posited a longer wave stretching beyond a century, the rough equivalent of two Kondratieff waves (“K2”?).  While admitting that economics is hardly an exact science, approximately two Kondratieff Waves ago, in 1893, there was a period of economic upheaval in this country.  And approximately two Kondratieff Waves before that, in the early 1770’s, the economic crisis in the American colonies unleashed a sequence of events that led to the creation of this country.  “The World Turned Upside Down,” the British called it.


Chernow says it is curious and unique that the American Revolution was started not by the impoverished oppressed, but by the upper classes, struggling under the economic disadvantage forced on them by the Crown and its attendant explosion in personal indebtedness.  Murmurings of tax revolt at home spurred Parliament and the Crown to increase the tax burden on its productive colony.  Americans were constrained to sell all their produce through British factors, who set prices arbitrarily.  A Virginia planter would ship his tobacco crop to London and would find out only months later at what price it had been sold.  Americans purchased all their furnishings from London purveyors.  This included not only the tools with which they built and farmed their plantations, but their personal wardrobes, books, trinkets and the textiles from which their slaves’ clothing was sewn.  Chernow paints with livid strokes Washington’s evolution from a young soldier yearning for recognition from the Mother Country, to a mature and accomplished citizen whose devotion to the revolutionary cause arose inevitably from his potent sense of justice and fair play.


As Washington observed, if people are mistreated long enough, they will change their behavior.  And a change is not a “crisis” – unless, that is, you happen to be King George III.


We are struck by the shocking disregard of social equity in today’s system – American society has long been a colonial province of Wall Street, its subjugation assured by Washington (“DC”, not General George!)  The Wall Street Journal paints a perfect picture of the chasm between philosophy and reality (12 October, “Wall Street Pay: A Record $144 Billion”).  Ponder with us, if you will, the world-view this article reveals.


“Many firms say that if they don’t adequately compensate employees, they risk losing top talent.”  Surely this applies to any area of endeavor.  Why is this different?  Later on the article says “Tough new rules about how much capital banks must hold could force Wall Street to cut back on compensation in an effort to preserve returns on equity for shareholders.”

The financial industry is highly people intensive, and firms pay out about half their revenues in compensation.  For all the regulation the industry is famously subject to, the basic model has not changed: investment banks are run for the benefit of their employees, not their shareholders.  It is oddly poignant that Dick Fuld and many of Lehman’s top executives had the majority of their personal wealth in Lehman stock – stock they had not disposed of when the walls came crashing down.

In short: the more bankers, traders and salespeople are required to work for the benefit of their shareholders, the more likely they are to seek out employment at a firm that is less focused on creating value.  The manager / producer / shareholder paradigm is not what it used to be.  The investment banks all went public specifically to undo the link between firms’ risk taking, revenue producing activities on the one hand, and the risk-bearing function of shareholder capital, on the other.  They retain the benefits of private partnership – witness the pay packages they receive even in losing years – while laying off the capital risk associated with ownership onto public shareholders.  The notion that the nations of the world need to band together to legislate that capitalists should work for the benefit of their shareholders is the single clearest indicator that the system has run right off the rails.


We note with horripilation the measured, bland reportorial tones with which the Journal describes Wall Street’s forthcoming bonus orgy as the paper notes (“Bankers Are Still Upbeat About Pay”, 11 October) 50% of Wall Street professionals expect higher bonuses this year than in 2009.  “They Like Money,” quips the headline, curiously juxtaposed with a report (“Signing Bonuses Haunt Wall Street”) of losses suffered by firms that lured brokers from rival firms with fat up-front signing bonuses, based on prior years’ production.  When a broker can not generate the same levels of assets or commissions as he used to – for example, when the markets get trashed and everyone is terrified – his new employer will not recoup this outlay.  As it says in the mutual fund prospectus, prior performance is no guarantee of future returns.


The signing bonus is just another symptom of the ongoing search for customers who can provide revenues for the firm – and not a search by the brokers for firms which can provide revenues for the customers.  Bankers publicly criticize their competitors as being venal and unscrupulous.  In the next breath they will tell you that, if they don’t pay outlandish bonuses, their own employees will leave in a heartbeat and go work for these low-lifes.  “As long as the music is playing, you’ve got to get up and dance,” famously stated Chuck Prince, former CEO of Citigroup, as though he had no choice.  Everyone gives mournful lip service to the notion that this system stinks, but no one is willing to step off the financial murder-go-round.


This, then, is the social and political cowardice that reigns today – the Qualitative Easing that has allowed us, three years on, to continue to struggle in this fiscal cesspool.  The Fed has transitioned from Stimulus, to More Stimulus, to Quantitative Easing, to – as our CEO Keith has smartly characterized it – “Krugman Kryptonite.”  Because Washington is afraid to inflict pain on the moneyed interests, we are, at last, down to the proverbial Mess of Pottage.  Mysteriously, the pain and suffering of the American People is acceptable – which is why the greatest broad-based housing crisis in history is consistently called a “banking crisis.”  A couple of million families thrown out of their homes pose less concern to the mind of Washington than a few dozen bankers deprived of their bonuses – or a few dozen banks taking hits to their balance sheets.  Because even in their millions, these people have far to go before they form a consolidated bloc that will seek a political goal.

But we hear a distant drumbeat.


The Journal features a piece (16-17 October, “What The Tea Partiers Really Want”) that purports to clarify the Tempest in the You Know What.  The author says Tea Partiers are outraged that government is in the business of protecting Americans from the consequences of their actions – and to guaranteeing equality of outcome to those who have trouble keeping up.  We agree that, in broad strokes, these are bad polities – and probably not the job of government.  Stupid business decisions should lead to failures.  Highly competent and motivated people should succeed.  But the analysis stops short.  The article fails to underscore how far government is removed from the actual public interest.  One could build a multi-generational conspiracy theory in which the entire program of government served to do nothing more than distract the people from the fact that those in government primarily feed their own self interest, and screw the public royally in the process.


Washington undercuts the likelihood of a broad coalition of the angry from ever descending on the Capitol, pitchforks in hand.  It does this by making sure the rich stay rich, and the poor are mollified with health care, housing and income support.  Underclasses are held in subjugation by programs that cater to their vanity.  Bilingual education, for example, perpetuated the second-class status, not merely of the immigrant generation, but of their American-born descendants.

Lately, Washington has managed to keep the rich rich, but things with the poor haven’t gone so well.  Many of the formerly not-poor have been tipped into the dustbin along with the societal trash so many of them have worked so hard to rise above.  Amazingly, they are not yet angry enough, or organized enough, to do any real damage.  We thought the twin housing and employment disasters were going to be seen as a Ruby Ridge moment, driving the newly dispossessed to violence.  Frankly, we are surprised that no one has been assassinated.


In our simplistic view of the world, the government could have used the TARP billions (our money, we remind you) to gut the Gordian Knot of fugazy homeowner mortgage finance.  Since the money was being handed over to the banks anyway, it should have been funneled through the homeowners.  By paying off underwater mortgages, the federal government would have relieved the burden on the homeowners – freeing up current income for consumption.  It would have relieved the pressure on the banks’ balance sheets, wiping out billions in debt that would otherwise have to be charged off.  And it would have buoyed home prices, by ratifying the obscenely overinflated prices of houses bought with fraudulent mortgages.  Call it a “cram-up.”


In their infinite wisdom, the Mother Country – Washington and Wall Street – determined this would reward a lack of virtue and of foresight on the part of the consumer.  Congress voting to bail out the taxpayer – can you imagine?


Moshe Silver

Chief Compliance Officer


The Slope of Hope: US Industrial Production

POSITIONS: short the US Dollar (UUP) and short the SP500 (SPY)


You’d think, with all of the academic-dogma-nites out there parroting how “good” a Debauched Dollar is “for US Exports”, that QE would have these kinds of charts spiking up into the right. Not so much…


While this morning’s US Industrial Production report for September may very well have stoked further hope that we’ll have QE3, it won’t change the prospects that matter to 99% of non-Wall Street types in this country who see the writing on the wall - Industrial Production in America is slowing.


Notwithstanding that September’s IP report missed the sell-side’s hopeful expectations, what matters most to our macro model here at Hedgeye is the slope of this line. Since the peak of this cyclical recovery in US IP (June’s reading of +8.3% y/y) to September’s report of +5.4%, there is a fairly obvious gravitational force (math) that is going to draw this line towards flat year-over-year growth in the next 3-6 months.


January is when the “comps” (comparisons) for Industrial Production growth get very difficult. By summer-time of next year, the Keynesians might be begging Bernanke for QE6.


QE is only perpetuating US style Jobless Stagflation via a Debauched Dollar and hope is not an investment process.



Keith R. McCullough
Chief Executive Officer


The Slope of Hope: US Industrial Production - 1

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Table revs thru the 17th were HK$10.8bn. Normalizing the rest of the month would produce 47% YoY growth (HK $18bn) for October, below expectations of $HK20bn.



The Golden Week honeymoon is over and business levels in Macau in the past week have slowed substantially.  Table revenue per day in the first 10 days was HK$868m but only HK$320m in the last 7 days.  Assuming only HK$320m per day for the rest of the month (taking into account weekend vs weekdays) and adding in slot revenue produces full month October revenue of only HK$16.2 billion, up 32% YoY.  However, we believe the last week was unusually slow due to the end of the Golden Week honeymoon and business will “normalize” for the rest of the month.  If we normalize the last two weeks of October at the average daily revenue for the year, then full month would come in at HK$18.0b, up 47%.  We think this is more realistic.  Either way, the numbers are a disappointment from consensus expectations of HK$20b following the strong Golden Week.


In terms of market share, both Wynn and MPEL lost share since we reported on the numbers through the 10th.  Galaxy’s share has started to normalize and MGM continued to hold an above trend share, which we expect to continue.  Here are the numbers through 10/17:



R3: VFC, GIII, URBN, and the NFL


October 18, 2010


With the majority of the NFL licenses locked up again for several years, we believe we’ll see renewed interest and marketing surrounding the next generation of on and off-field merchandise.  In the interim, choose your jerseys wisely as team uniforms, colors, and logos, are likely to see some tweaks in 2012.





- With hard earned cash hard to come by, retailers are thinking creatively about bartering and trade-ins.  Toys R Us is currently offering up to $100 for used iPods this week in exchange for a cash/gift card to be used towards a new device.  Recall that Radioshack and Costco also offer electronics trade in programs.


- Ralph Lauren’s latest boutique on 109  Prince St. in Soho is leading some to speculate what exactly may be coming to this former Replay Jeans location.  The window stencils read “Ralph Lauren Quality Goods Proprietor”- a new tagline.  We suspect this may be an accessories focused boutique, especially given its proximity to two other locations within a several block radius.


- According to the Pew Research Center, 85% of Americans own a cell phone while only 59% own a desk top computer.  Laptops are owned by 52% Americans, 47% own an MP3 player, and 42% own a game console.


- Add wedding packages to the list of creative initiatives to drive traffic and ‘other revenue’ streams at McDonald’s. Cakes made of burgers, or apple pies is just one of the custom touches available for interested couples, which average about 10/week at Hong Kong locations – the first to offer this option. While these packages are not yet offered in the U.S., it’s just a matter of time and also begs the question when lavishly decorated retailers might also consider opening their doors for nuptials.





Anthropologie Introduces Accessories Only Concept - Anthropologie is opening an accessories-only store Oct. 29 in Chevy Chase, Md., the first of several new retail concepts it will roll out. The 1,400-square-foot accessories-only store at 5402 Wisconsin Ave. will have the largest selection of shoes, handbags, scarves, belts, costume jewelry, fine jewelry and, for the first time, estate and antique jewelry, including one-of-a-kind brooches and engagement rings. There will also be handcrafted one-off pieces and reworked vintage styles. The store’s initial assortment will include shoes by designers Rachel Comey, Chie Mihara and Bourne, among others. Accessories were designed by Marion Vidal, Eugenia Kim, Ikou Tschuss and Leslie Oschmann.  <>

Hedgeye Retail’s Take:  Given URBN’s methodical approach to testing and incubating, we’re not going to get overly excited (yet) about this concept.  However, if there is any fashion retailer  that can create the look and feel of a specialty boutique (while still backed by a multi-billion dollar corporation) it’s URBN.  More to come here for sure. 


VF Licensed Sports Group to Extend NFL Partnership - VF Licensed Sports Group and the National Football League (NFL) have reached an agreement to extend apparel rights. The new contract, which starts in 2012, marks the 25th anniversary of the VF-NFL partnership, which began in 1987.  <>

Hedgeye Retail’s Take:  With NKE taking the lead with the on-field license, there may be some positive “rub off” for other licensees given the marketing efforts that are likely to ensue with the transition to the Swoosh. 


G-III Apparel Group, Ltd. Signs Expanded License With NFL - G-III Apparel Group, Ltd. has entered into a new, extended and expanded license agreement with National Football League Properties, Inc. to manufacture and market men's and women's outerwear, sportswear, and swimwear products in the United States under a variety of NFL trademarks, according to a release by the company. <>

Hedgeye Retail’s Take:   See above.  In addition, we’d keep an eye on the women’s opportunity which should be the largest growth opportunity under the NFL license umbrella. 


Luxury Goods Update - Sales of luxury goods may climb this year to the highest level since 2007, led by demand in China and a rebound in the U.S., according to Bain & Co. Sales of high-end apparel, accessories, watches and jewelry and other products may rise to as much as $236 bn, helped by currency moves including the appreciation of the dollar. Sales of leather goods will lead the increase, gaining 20%. Sales in stores directly operated by makers of luxury goods may grow 20% in 2010, while wholesale revenue may rise 6% as U.S. department stores restock inventories. <>

Hedgeye Retail’s Take: Sustainability of this demand remains the key question as stock shortages have begun to impact retailers heading into the holiday season. The offset with potential staying power continues to be the devaluation of the dollar relative to far east economies – as such, domestic luxury brands will be at a considerable competitive disadvantage to counterparts with global scale.


Apparel and Textile Imports Continue to Rise - Apparel and textile imports in August rose to their highest one-month volume in two decades, despite flagging consumer confidence and a dim outlook for the holiday season. Combined shipments of textiles and apparel to the U.S. increased 28.6%. Apparel shipments increased 23.1% and textile imports rose 33.9%. <>

Hedgeye Retail’s Take: Driven primarily by concerns over rising shipping rates, retailers have been building inventory in an effort to stem one of the many components of cost inflation in the 2H. Inevitably, some retailers will get overaggressive setting up the likelihood of increased promotional activity at selective concepts and an opportunity for better managed and quality retailers to notably outperform.


Apparel Weakening, Prices Falling - Two government reports released Friday point to a weakening in demand for apparel, as retail sales fell and prices declined. In yearly comparisons, specialty store sales were up 3.2%, department store sales were off 0.8%, and general merchandise stores saw a 2.6%increase. Meanwhile, economic pressures drove retail apparel prices down a seasonally adjusted 0.6% in September, and decreased 1.2% compared with a year earlier. Women’s apparel prices fell 0.8% while men's dropped 0.2%. <>

Hedgeye Retail’s Take: With department store performance lagging broader retail, expect the channel to lead promotional cadence heading into the holiday season.


USA Bid Committee To Focus on 2022 FIFA World Cup - The USA Bid Committee has withdrawn from the 2018 FIFA World Cup bid and will exclusively focus on the 2022 campaign. <>

Hedgeye Retail’s Take: The 2010 World Cup in South Africa proved yet again that geographic location matters little when it comes to the financial impact of these games for athletic brands. That said, the biggest beneficiaries of a domestic Cup would undoubtedly be the smaller players given the natural halo effect.




*** We are including our Earnings Scorecard at the end of this note ***


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 5 of 10 improved / 3 of 10 unchanged / 2 of 10 worsened
  • Intermediate-term (MoM): Positive / 6 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Negative / 7 of 10 worsened / 2 of 10 improved / 0 of 10 unchanged / 1 of 10 n/a



1. US Financials CDS Monitor – Swaps were mixed last week but leaned negative.  Swaps tightened for 11 of the 29 reference entities and widened for 18.


Tightened the most vs last week: RDN, MBI, AGO

Widened the most vs last week: JPM, BAC, WFC

Tightened the most vs last month: PMI, MBI, AGO

Widened the most vs last month: BAC, WFC, PGR




2. European Financials CDS Monitor – In Europe, swaps indicated lessening risk. Swaps tightened for 29 of the 39 reference entities tightened and widened for 9.  


Tightened the most vs last week: Alpha Bank, National Bank of Greece, Sberbank

Widened the most vs last week: Deutsche Bank, Assicurazioni Generali, Investor AB

Tightened the most vs last month: Sberbank, Royal Bank of Scotland, Svenska Handelsbanken

Widened the most vs last month: Bank of Ireland, HSBC, EFG Eurobank




3. Sovereign CDS  – Sovereign CDS fell 29 bps on average last week, led by Ireland, Portugal, and Greece once again. 




4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.94 on Friday.  




5. Leveraged Loan Index Monitor – The leveraged loan index rose 7.3 points last week, closing at a new YTD high. 




6. TED Spread Monitor – Last week the TED spread fell, closing at 15.4 bps.




7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.96 points, closing at the highest level since early June.




8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields continued to plummet, falling another 88 bps.




9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads rose slightly last week, closing at 201 versus 199 the prior week.   




10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index rose, closing at 276 versus 270 the prior week.  




Earnings Scorecard

This morning we are introducing our rolling earnings scorecard which includes all financials that have reported thus far in the earnings season along with subsector averages and our proprietary Hedgeye Earnings Score. The score evaluates company performance across ten measures, looking for either sequential improvement or decline and performance relative to expectations. A "perfect" score would be 10 while the worst possible score is negative 10. Over the course of an earnings cycle, it can get confusing trying to gauge how both individual companies and whole subsectors are faring relative to the group. It is our intention to simplify that process with this product, which we will be publishing each morning over the course of the earnings season as an embedded table in our regular morning posts.





Joshua Steiner, CFA


Allison Kaptur

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%