Repetitive Drills

This note was originally published at 8am on August 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Even in his repetitive drills he had a way of making the mundane seem important.”

-David Maraniss (on Vince Lombardi)


That quote comes from an inspirational excerpt on page 212 of “When Pride Still Mattered” where David Maraniss boils down the deep simplicity of Lombardi’s coaching process. If you’re trying to lead a country, company, or family this morning, I confidently submit that consuming this perspective is well worth your time. America needs you, The People, to lead us out of this mess.


Vince Lombardi was “the football variation of a masterly novelist who could take the muddle of everyday life and bring clarity and sense to it, and allow readers to see, for the first time what was in front of their eyes all along. Bart Starr was on the edge of his seat, listening – getting it for the first time. All the crap was gone; this was right to the bone, simple, yet so refreshing and exciting.”


“Everything was accounted for, labeled, identified, put in order, fundamental and sound. You could tell that the coach believed in what he was doing. His tone of voice, his posture, his manner – it all made you believe. It all made sense.”


So let’s grind. This globally interconnected marketplace all makes sense – you just need to account for “everything”:

  1. US TREASURIES – across the curve, 2s, 10s, and 30-year UST yields are making fresh YTD lows this morning in the face of a very wrong bet by some of our industry’s losing teams that suggested there was US “credit risk” coming down the pike. Not today.
  2. US DOLLARS – had a breakout day yesterday, trading right back above an important line of immediate-term support ($74.11 on the US Dollar Index) as clarity on the “Debt Deal” found her way into the market’s currency expectations.
  3. US EQUITIES – not good folks; not good – but are you surprised? With “Debt Deal” being replaced by “Growth Slowing” in this morning’s headlines, many a macro market observer has come to realize that more than just US politics makes globally interconnected risk go round.

Perversely, since La Bernank has addicted the entire Institutional Investing Community to chasing yield, what’s good for America’s currency is quite bad, in the immediate-term, for stocks and commodities.


We’ve labeled this The Correlation Risk (USD up = stocks and commodities down). Sadly, Bernanke and Geithner have been negligent in addressing this massive tail risk to the American people when under oath.


So what do you do with that?

  1. Short the Euro
  2. Short European Equities
  3. Sell US Equity and Commodity exposure

People want “clarity” in this market place. There it is.


On yesterday’s proactively predictable opening market strength, I sold down my US Equity exposure in the Hedgeye Asset Allocation Model to 0%. That’s ZERO. Like my long exposure to European Equities – ZERO.


As of yesterday’s close, here’s how the Hedgeye Asset Allocation Model is positioned:

  1. Cash = 52% (up from 43% last week)
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Currencies = 12% (US Dollar and Canadian Dollar – UUP and FXC)
  4. International Equities = 12% (China, India, and S&P International Dividend ETF – CAF, INP, and DWX)
  5. Commodities = 6% (Silver – SLV)
  6. US Equities = 0%

Now the Hedgeye Portfolio (14 LONGS and 12 SHORTS) is a different product obviously than long-only asset allocation. Neither of these products are perfect. No one’s risk management process in this business ever will be. We get that – but every move we make is based on a repeatable process that changes as the math does. And, believe me, the coach over here believes in what he is doing.


My goal is simple. I want to win. And my team will stand here alongside you on the front lines of Global Macro market risk, just as we did during the thralls of 2008, so that you don’t lose your hard earned net wealth. We don’t make excuses. We make moves.


Since January 2011, we have led the debate that Global Growth Slowing was going to equate to lower than expected US Equity returns. Every morning since, we have been banging the drums with our often Repetitive Drills to remind you what we are seeing and when.


That doesn’t mean I am going to own US Treasuries (TLT), Flatteners (FLAT), or Silver (SLV) forever. I could sell them all today and nothing will have changed unless I deviate from the process in order to make those decisions. If the process changes, I better know why. And I damn well better be able to explain it to my troops.


In a world where people have no reason to believe their country’s leaders…


In a world where politics trump objectively scored performance…


That’s the best we can do as leaders. We have to be accountable. We have to make sense.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1611-1637, $94.11-96.21, and 1275-1316, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Repetitive Drills - Chart of the Day


Repetitive Drills - Virtual Portfolio

Anniversary Day

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



I lost over three hundred dollars of my net wealth yesterday. Happy Anniversary Laura.


Actually, if you back into the valuation of my largest holding (Hedgeye)… assume a 3-month Treasury discount rate of 0.00% (this morning you almost have to pay the government to hold your money)… and infer that our team’s analytical competence added some value to our clients’ risk management process this week… I think I made back my three hundred bucks.


Like a lot of things manic media and the Wall Street/Washington they cover, their concept of CASH can be amusing. I personally invested approximately 1/3 of my CASH in this company during the thralls of 2008. I considered that a relatively “high conviction” idea.


But when Wall Street talks about CASH, bankers and brokers are usually talking about your money. There is a gargantuan marketing machine that stands behind this basic compensation mechanism – they need other people’s money to make money.


People are always asking me “what’s your best long term idea”? Away from Hedgeye, I think CASH is the best weapon for self defense in the modern Fiat Fool world in which we live. CASH saves you on a day like yesterday (worst day for US Equities since 2008). CASH also provides you the opportunity to make long (or short-term) investments when your competition is not allowed to make them.


Back to the Global Macro Grind


Before the price of Silver collapsed intraday, I raised another 12% CASH in the Hedgeye Asset Allocation Model. That takes my CASH position to 67%. I sold my 6% allocations to the US Dollar and Silver (total = 12%) at 10:27AM and 11:06AM, respectively. At the time, they were both up on the day. I was pleased.


Now a lot of people (and I mean a lot) told me I “couldn’t” go to 96% CASH in Q3 of 2008. Less people will tell me I can’t go to 67% CASH in 2011. Why? Most likely because I just did.


The idea here this morning isn’t to take a victory lap (although these things do occur for winning teams). The idea is the same idea I have been pounding on since 2008. Our industry needs new ideas, new risk management processes, and new blood. Re-think. Re-work. Evolve. Old Wall Street knows that. They are Too Big To Change as fast as Hedgeye has changed – Old Wall Street knows that too.


Today’s Hedgeye Asset Allocation is as follows:

  1. CASH = 67%
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Equities = 9% (China and S&P International Dividend ETF – CAF and DWX)
  4. International Currencies = 6% (Canadian Dollar – FXC)
  5. Commodities = 0%
  6. US Equities = 0%

Again, this is an asset allocation product, not a hedge fund or a book of long/short ideas (that’s the Hedgeye Portfolio – different product). When I think about this product, I think about Laura, Jack, and Callie. That’s who I work for when preserving our assets.


I also work for them to grow our assets. But another funny thing about Wall Street is that some people think you should be in “growth” mode every day.


In some asset classes, some of the time, sure – great idea. Most of the time, in most asset classes, that’s a really bad idea. Markets that are being manipulated by central planners do not owe us anything.


Globally interconnected markets care about a lot of things at the same time. Right now, they are anchoring on the #1 risk that no one was talking about in mainstream media yesterday: Fiat Fools trying to convince the Institutional Investing Community to chase yield.


Chasing yield is all good and fine until the music stops. Remember what the buy-side bus tour operator, Citigroup’s, retired storyteller (the artist formerly known as Chuck Prince) told the Financial Times on July 10, 2007:


“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing…”


Today is August 5, 2011. It’s our 5thWedding Anniversary and I, for one, feel like the luckiest man in the world today. I married a beautiful, loving, and thoughtful woman. I have healthy children. I have a happy firm.


And I still have my cash.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $86.52-91.95, and 1165-1256, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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TODAY’S S&P 500 SET-UP - August 5, 2011


From a research/risk management perspective yesterday was one of the best day’s we’ve had versus our sell-side competition since 08. It was also the biggest down day for stocks since 08, so that makes sense. Having 0% asset allocation to US/European Equities helps!


Every bear market gets immediate-term TRADE oversold, and that’s what I see this morning. That said, I want to be crystal clear on this, sell all rallies in Equities/Commodities because the Street is still too long and needs to take down gross and net exposures.


As we look at today’s set up for the S&P 500, the range is 91 points or -2.92% downside to 1165 and 4.66% upside to 1256.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -2818 (-3263)  
  • VOLUME: NYSE 1821.32 (+34.71%)
  • VIX:  31.66 +35.41% YTD PERFORMANCE: +78.37%
  • SPX PUT/CALL RATIO: 2.24 from 1.51 (+47.70%)


  • TED SPREAD: 26.94
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.47 from 2.64    
  • YIELD CURVE: 2.31 from 2.33


  • 8:30 a.m.: Change in Nonfarm Payrolls, Jul, est. 85k, prior 18k
  • Change in Private Payrolls, Jul, est. 113k, prior 57k
  • Change in Manu Payrolls, Jul, est. 10k, prior 6k
  • Unemployment Rate, Jul, est. 9.2%, prior 9.2%
  • 1 p.m.: Baker Hughes Rig Count
  • 3 p.m.: Consumer Credit, Jun, est. $5.00b, prior $5.08b


  • WSJ is lukewarm on Kraft Foods
  • Payrolls probably climbed by 85k workers in July, failing to create enough jobs to reduce 9.2% unemployment rate, economists’ forecast ahead of today’s report
  • Google+ may grow to claim 22% of online U.S. adults in a year, surpassing Twitter, LinkedIn to be 2nd-most-used social site after Facebook, survey from Bloomberg/YouGov found
  • 2-yr note yield hits record low of 0.3039%



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Commodities Post Worst Run Since 2008, Erasing Gains for Year
  • Copper Slumps to Five-Week Low on Concern Growth Will Falter
  • Gold Gains in London as Financial Turmoil Boosts Investor Demand
  • Oil Drops to Lowest in Eight Months Amid Global Rout on Economy
  • China Said to Be Planning Soybean Sale to Rotate State Inventory
  • Indonesia May Surpass Japan as Biggest Wheat Buyer in Asia
  • Palm Oil Drops as Commodities Plunge on U.S. Recovery Concern
  • Rubber Slumps Most in Almost Six Weeks as Economic Concern Grows
  • AngloGold Plans Trial to Tap $118 Billion of 3-Mile Deep Ore
  • Palm Oil Inventory in Malaysia Climbs to 19-Month High on Output
  • Goldman Raises Corn, Wheat Targets on ‘Remarkably Hot’ Spell
  • Escondida Workers Vote on Proposal to End Chile Mine Strike
  • Wheat, Corn Decline as Economic Recovery Concern Dampens Demand
  • Crude Oil May Fall on Slowing Economy Concern, Survey Shows
  • Japan Considers Additional Steps to Contain Tainted Beef Crisis
  • Copper Seen Above $4 a Pound on China Recovery, Codelco Says
  • Zimbabwe Diamond Production Surges After Marange Sales Allowed



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: same scary divergences; all "rallies" trying to come out of the lowest quality markets while the pseudo safe get smoked (Germany)

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: China down the least of the majors in the world this week (down -2.1% last night), and that’s about the only constructive thing I can say


 THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director



July gaming volumes hit a new monthly record besting even the seasonally stronger month of May




One of the big market takeaways is that July Rolling Chip volume actually exceeded the record set in May despite May typically being a much stronger month (Golden Week).  VIP hold percentage was slightly below that of May so that is why GGR didn’t set a new record in July.  Perhaps even more encouraging is that Mass table revenue grew over 41%, the highest YoY growth for that segment since May of 2010, and a new monthly record.


After reviewing the detail, we still think MPEL was the standout as market share increased 170bps sequentially to 15.6% in July, above what it was trending even before Galaxy Macau opened.  Importantly, the gains were not just hold related - VIP volume increased 40bps from June, Mass maintained its above trend share of 11.5% from June, and slot share actually increased 200bps.  On a YoY basis, MPEL grew its GGR 56%, well above market growth.  These metrics bode well for Q3 profitability, particularly relative to the Street.


As we previously discussed, Wynn’s market share was strong again in July at 15.2%, maintaining its pre-Galaxy share.  However, the details are not as favorable.  Wynn lost 140bps of Mass share from June, falling below 10% for the first time since August.  They also lost 110bps of VIP volume share but made up for it with a very high VIP hold percentage.  In essence, luck made the month for Wynn.


It’s been well publicized that MGM lost a lot of share in July and the details show the breadth of that decline – hold, Mass, and Rolling Chip volume all played a role.  LVS also lost a lot of share but that was related to a very high hold % in June although July hold was still well above normal.



Total gross gaming revenues increased 48% YoY to HK$23.5 billion.  We estimate that direct play was 6.3% in July vs. 7.9% last year.  Adjusted for direct play volumes, market hold was 3.06% vs. 3.17% last year.  If we normalize hold levels, July would have been even stronger growth month – up 52% YoY. August will have an easier hold comparison which should benefit YoY growth rates. 



Y-o-Y Table Revenue Observations:


Total table revenues grew 49% YoY this month, on top of 73% growth las­t July.  July Mass revs rose 41%; VIP revs grew 51%; and Junket RC soared 60%. 


For the 5th straight month, LVS table revenues grew the slowest – at 13%.  Over the 10 months LVS’s table revenues have grown at roughly 1/3 of the market’s pace.

  • Sands was up 18% YoY, driven by a 25% rise in VIP and 8% increase in Mass
    • Junket RC was up 17%
    • Sands held low in July, however, they held even lower last year.  Adjusted for 12% direct play (in-line with 2Q11), hold was about 2.5%, compared with 2.3% hold in July 2010 assuming 14% direct play (in-line with 3Q10). 
  • Venetian was up 11% in July. Mass rose 28%, while VIP barely budged – up only 0.5% impacted by lower YoY hold and below average Junket RC growth
    • Junket VIP RC grew 12%
    • Hold was a little low in July at 2.7%, based on 22% direct play (in-line with 2Q11).  In July 2010, hold was 2.9%, assuming 23% direct play.
  • Four Seasons was up 13% YoY driven by 12% VIP growth and 24% growth in Mass. 
    • Junket VIP RC tumbled 26%.  Four Seasons was the only casino we track to have an decline in Junket RC YoY.
    • Results would have been worse if not for very high hold.  Assuming 41% direct play (in-line with 2Q11), we estimate hold was 5.6% compared to 3.6% in July 2010 assuming the same direct play percentage.

Wynn table revenues were up 54%

  • Mass was up 27% and VIP increased 60%
  • Junket RC increased 63%
  • Assuming 8% of total VIP play was direct (in-line with 2Q11) , we estimate that hold was 3.4% compared to 3.3% last year (assuming 13% direct play – in-line with 3Q10)

MPEL table revenues grew 57%, driven by Mass growth of 79% and VIP growth of 53%

  • Altira revenues soared was up 115% with Mass up 70% while VIP ballooned 118%, benefiting from high hold and easy comparisons
    • VIP RC increased 54%
    • We estimate that hold was 3.5% vs. 2.5% last year
  • CoD table revenue was up 33%, driven by 80% growth in Mass and 23% growth in VIP, dampened by a difficult YoY hold comparison
    • Junket VIP RC grew 47%
    • Assuming 14% direct play levels, hold was 3.1% in July compared to 3.6% last year (assuming 13% direct play in line with 3Q10)

SJM revs grew 29%

  • Mass was up 25% and VIP was up 31%
  • Junket RC was up 56%

Galaxy table revenue skyrocketed 122%. Mass went up by 252% and VIP rose by 109%.

  • StarWorld table revenues grew 43%
    • Mass grew 37% and VIP grew 44%
    • Junket RC grew 13%
    • Hold was high at 3.6%
  • Galaxy Macau's total gaming revenues were $236MM, 47% higher than June
    • Mass table revenue grew to $45MM, up 34% MoM
    • VIP table revenue of $191MM, up 51% with RC volume of $5.8BN. Assuming no direct play, hold was 3.3%.

MGM table revenue grew 71%.

  • Mass revenue growth was 35%, while VIP was up 85%
  • Junket RC grew 112%, marking the 11th straight month that MGM has led in growth for this category- which is impressive given the opening of Galaxy Macau
  • Assuming direct play levels of 13%, we estimate that hold was only 2.3% this month vs. 2.6% in July 2010


Sequential Market Share (property specific details are for table share while company-wide statistics are calculated on total GGR, including slots):


LVS share in July fell 1.4% sequentially to 14.5%. This compares to 6 month trailing market share of 16.6% and 2010 average share of 19.5%

  • Sands' share dropped 1.1% to 4%, an all-time low in share equal to that of May’s
    • The increase in share was primarily attributed to a 130bps drop in VIP rev share
  • Venetian’s share dropped 2.2% to 7.2% share, an all-time low since opening
    • VIP share plummeted 2.9% to 5.2%, also setting a record low for the property
    • Junket RC increased 30bps to 4.6%, bouncing off an all-time low set in June
  • FS share increased 1.8% to 2.7%
    • VIP share increased 2.3% to 3.0%
    • Mass share increased 40bps to 1.8%
    • Junket RC ticked down 10bps to 1.0%

WYNN share was flat MoM at 15.2%, helped by high hold.  July’s share was above its 6 month trailing average share of 14.8% and 2010 average share of 14.9%.

  • Mass market share fell 1.4% to 9.9% - Wynn’s worst share since August 2010
  • Losses in Mass were offset by VIP market share gains of 40bps to 16.7%
  • Junket RC share fell 1.1% to 14.7%, below its 6 and 12 month trailing average of 15.1%

After Galaxy, MPEL market share rose the most with a MoM gain of 1.7% to 15.6%, above their average 6 month trailing share of 14.9% and 2010 share of 14.6%.

  • Altira share ticked up 10bps to 6.1%, compared to 5.6% average share in 2010
  • CoD’s share increased 1.5% sequentially to 9.3%
    • Mass market share inched up 20bps to 10.1% - second only to Venetian and ahead of Wynn’s share
    • VIP share jumped 1.9% to 9.1%

SJM share fell 1.2% to 27.8% in July- the lowest share since September 2008 and below its 6-month trailing average of 31.1% and 2010 average of 31.3%.

  • Mass market share fell 20bps to 36.1% - an all time low
  • VIP share fell 1.3% to 26.3%
  • Junket RC share 1.2% to 33.4%

Galaxy continued its momentum from Galaxy Macau, gaining 3.4% to 18.8%, its highest share since August 2007. July share compares with an average share of 10.9% in 2010 and a 6 month trailing average of 11.6%.

  • Galaxy Macau garnered 8.1% market share, up from 6.5% in June
    • Mass market share gained 130bps to 6.9%, VIP share gained 180bps to 8.5% and RC share gained 230bps to 8.4%.
  • Surprisingly, Starworld also gained 1.7% of market share to 9.4%, 30 bps above its TTM pre-Galaxy Macau level
    • Mass market share ticked down 10bps to 2.8% while VIP share rose 170bps to 11.4%

MGM lost the most market share in July with share falling 2.4% to 8.1% due to very low table hold.  July share compares with an average share of 8.8% in 2010 and a 6 month trailing average of 11%.

  • Mass share decreased 60bps to 7.2% - the lowest level since April 2010
  • VIP share plummeted 3.1% to 8.1%
  • Junket RC decreased 70bps to 10%, which was still materially above the property’s 2010 average of 8.4% but below its 6 month trailing average of 10.8%


Slot Revenue:


Slot revenue grew 34% YoY in July to $121MM, up 8% sequentially

  • Galaxy slot revenues grew at a white hot pace of 644% YoY, reaching $13MM
  • Wynn slot revenues grew the least at just 3% YoY, losing $2MM sequentially to $21MM
  • MGM had the second best growth at 50% YoY, increasing $1MM sequentially to $16MM
  • MPEL’s slot revenue grew 42% YoY, increasing $4MM sequentially to $23MM
  • SJM’s slot revenues fell $3MM sequentially to $15MM, up 6% YoY
  • LVS slot revenues grew 21% YoY to $32MM







UPDATE: Dunkin Brands 2Q Profit Falls 1% Despite Dunkin Donut Growth

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 80.52%
  • SHORT SIGNALS 78.67%