• run with the bulls

    get your first month

    of hedgeye free



Recent housing data bodes well for BYD’s local LV business.



April housing data continued a positive recent trend in Las Vegas.  We’ve shown in the past that housing prices were the number one driver of gaming revenues over the last 15 years both in the US and the locals Las Vegas market.  Clearly, BYD would benefit immensely from home price inflation.


The median price of a single-family home sold in April gained 2% over the last year bringing the 3 month moving average to almost flat.  Single-family home sales increased 3%, while new home sales jumped 35% in April.  While those figures are important in terms of price stability reliability, actual pricing is the key variable.  Case-Schiller pricing data is probably more reliable but we only have data through February 2012.  Up to that point, the data showed similar trends to the Greater Las Vegas Association of REALTORS (GLVAR) data as seen below.


BYD’s net gaming revenues have been trending flattish in recent quarters, yet EBITDA has been substantially higher due to a smaller cost structure.  If housing prices and thus gaming revenues continue the trend, the flow through should be high and BYD should continue beating estimates for the foreseeable future.




Initial Claims

Initial claims came in at 370k for the second week in a row. Incorporating the 2k upward revision to last week's print, claims fell by 2k. Rolling claims also declined, falling 5.5k to 370k. On a non-seasonally adjusted basis, claims rose 2.5k to 328k. Over the last few weeks, claims have been treading water, making only slight movements up or down. We expect to see claims rise in the summer months based on faulty seasonal adjustment factors. 














2-10 Spread

The 2-10 spread tightened 3 bps versus last week to 145 bps as of yesterday.  The ten-year bond yield decreased 3 bps to 174 bps.






Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 


INITIAL CLAIMS: TREADING WATER  - Subsector performance


Joshua Steiner, CFA


Allison Kaptur


Robert Belsky


Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser. 



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.

Market Hangovers

“You come home, and you party. But after that, you get a hangover. Everything about that is negative.”
-Mike Tyson


Yesterday Keith, myself, and our head of consulting, Michael Lintell, had a meeting with one of our long term subscribers in our New Haven office.  Not only does this client have a great long term track record in their respective market (which happens to be Europe), but they are massively outperforming this year as well.  I won’t get into the intricacies of our discussion, but at the end of the meeting we all collectively agreed that this is not the type of market that you want to trade with a hangover.


For those that have never had a hangover before, Wikipedia defines a hangover as follows:


“A hangover is the experience of various unpleasant physiological effects following heavy consumption of alcoholic beverages. The most commonly reported characteristics of a hangover include headache, nausea, sensitivity to light and noise, lethargy, dysphoria, diarrhea, and thirst, typically after the intoxicating effect of the alcohol begins to wear off. While a hangover can be experienced at any time, generally speaking a hangover is experienced the morning after a night of heavy drinking. In addition to the physical symptoms, a hangover may also induce psychological symptoms including heightened feelings of depression and anxiety." 


Arguably the way the market is trading currently, with the SP500 down 5.7% for month to date, it is creating feelings of depression and anxiety in many stock market operators.  In effect, a market hangover over that is akin to taking down too many Jägerbombs the night before (for you old timers a Jägerbomb involves dropping a shot of Jägermeister into a glass of Red Bull and then chugging it).


The last five days of trading are prime examples as to why you need all of your wits about you.  Yes, some investors with true long term duration don’t have to adjust exposures and worry about monthly or quarterly performance, but the reality is that most of us do have to worry about short term performance.  In a market like this, the only way to really capture marginal performance, especially when correlations are heightened, is to “buy ‘em” when other people are selling and “sell ‘em” when other people are buying.


In the Chart of the Day, we emphasize the volatility of the last week.  The SP500 started the period at 1,328 then traded down to 1,295 then ripped up to 1,331 and then dropped back to 1,300.  Much like a hangover, that kind of short term volatility can be nauseating.  We actually look at it in a positive light and use it as an opportunity to adjust exposures accordingly, and gain performance edge.  While everyone’s strategy is unique, email our head of consulting at if you want some help developing a more proactive risk management strategy for your portfolio.


Obviously the key driver of recent volatility in equities is Europe.  This morning we are getting more of the same.  On one hand European equities are at the highs of the day and respecting yesterday’s late day rip in U.S. equities.  On the other hand, there remains little chance of resolution to the sovereign debt mess in Europe, especially given the shifting politics.


Currently, the positive sentiment is centered on increased chances of Euro-area deposit insurances and the growing likelihood of Eurobonds that were supposedly discussed at yesterday’s summit.  In reality, though, no new progress was made and the next summit is not until June 28th.  Frankly, European Central Bank President Mario Draghi probably summarized it best yesterday when he said:


“Euro bonds make sense when you have a fiscal union, otherwise they don't make sense. They are the first step towards a fiscal union.”


We have said it many times, a monetary union is no union at all without a strong political and fiscal union.  Until that occurs, the Euro is doomed to fail.


The one global macro market that is slowly shifting from being in hangover mode to recovery mode is natural gas.  In our best ideas call yesterday, we emphasized our shift from being long term natural gas bears to getting more constructive on natty. Some of the key reasons are as follows:


1.   Bottoms are processes, not points. And after a 3.5 year bear market in gas that saw the front-month NYMEX contract fall 80%, we think that bottoming process is in motion; front-month gas has bounced convincingly off the $2/Mcf level, gaining 30% in a month to trade over $2.60/Mcf, and has regained its TRADE and TREND lines on our quantitative model.


2.   Production growth is slowing, and will continue to slow. Gas production is already slowing on the margin: +4% YoY in early May versus +9% in 4Q11. We see that decline accelerating as oil prices move lower. Our research indicates that the average full-cycle cost to produce 1 Mcf of gas in North America is ~$5.50/Mcf ($2 cash cost and $3.50 PD FD&A cost), which suggests that producers in aggregate are well below breakeven.


3.   Demand from the power sector is surging and won’t stop. The U.S. power sector has responded to the low gas price by increasing consumption 44%, or 7.5 Bcf/d, YoY in the first week of May, taking market share away from coal, nuclear, and hydro in a short amount of time.


4.   The 2012 storage issue is priced-in. We will hit storage capacity this fall. That is probably the most consensus opinion on natural gas there is in the market right now. In fact, in an April 2012 survey of investors and industry professionals, 78% said that we will hit storage capacity this year.


5.   From a long-term perspective, sentiment is still bearish on natural gas. From 1995 – 2006, non-commercial traders (hedge funds, mutual funds, etc.) were net neutral on natural gas. Only since 2007 have non-commercial traders been heavily, consistently, and correctly short the commodity.


Just like real hangovers, most hung over markets will eventually recover.  We believe natural gas is one of those markets.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Market Hangovers - CotDay


Market Hangovers - VPP

American Pilots

This note was originally published at 8am on May 10, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“American and British pilots were forced to learn about this lethal athlete the hard way.”

-Ian Toll


Don’t blame the pilots. Blame the politicians. They were willfully blind to obvious risks and put our bravest in the sky anyway. That’s one of the key risk management and leadership lessons I learned from Ian Toll’s excellent new book about WWII, Pacific Crucible.


“The Mitsubishi A6M Zero was a dog-fighting champion, and aerial acrobat that out-turned, out-climbed, and out-maneuvered any fighter plane the Allies could send against it… The Zero had been placed in service in the summer of 1940, almost 18 months before Pearl Harbor… it was yet another example of the fatal hubris of the West in the face of plentiful evidence..” (pages 52-53)


I read about war because it educates me on winning and losing. Every decision counts. Decision processes matter. There has been “plentiful evidence” that the US Dollar has been driving The Correlation Risk in Global Macro markets since 2007-2008. There has also been an outright obfuscation of facts by Western Academics who have chosen to ignore it. It’s un-objective and un-American.


Back to the Global Macro Grind


The US Dollar is up for the 7thconsecutive day and US Stock Futures are indicated down for the 7thconsecutive day. There is absolutely zero irony in this causal relationship. Policy expectations drive currency prices.


In the absence of immediate-term expectations for an iQe4 upgrade of Gold and Oil price inflation from Ben Bernanke, the US Dollar has arrested its decline – and stocks and commodities have arrested their ascent.


Here’s a real-time update on the surreal Correlation Risk (inverse correlations between the USD and asset prices) developing:

  1. SP500 = -0.90
  2. Euro Stoxx = -0.92
  3. CRB Commodities Index = -0.94
  4. WTIC Oil = -0.89
  5. Gold = -0.89
  6. US Equity Volatility (VIX) = +0.93

Yes, you’ll notice that in the Romper Room that has become Keynesian Economic Policy outcomes, one of these things is not like the other – one of these things just doesn’t belong. It’s called volatility.


The US Federal Reserve has a 2-stroke mandate:

  1. Price “stability”
  2. Full Employment

We have neither. We have price volatility like the world has never seen. And we have forced American Pilots of other people’s hard earned moneys to chase their own tails of performance going after short-term and short-sighted Policies To Inflate.


As US Dollar Debauchery has only proven to Slow Global Economic Growth via accelerating short-term food and energy price inflations, now world markets have to deal with the other short-term side of the trade:

  1. Growth Slowing (until it slows at a slower rate)
  2. Deflating The Inflation (Bernanke’s Bubbles in Oil, Gold, etc. are popping)

When these 2 things are happening at the same time, you just cannot ignore the capital losses. They happen real fast.


That said, what’s been fascinating about this -4.6% draw-down in the SP500 from its April 2nd, 2012 top (capital loss from the Russell2000 March 26th, 2012 top = -6.9%) isn’t the absolute performance impact, but the Storytelling.


The Most Read (Bloomberg) headline this morning epitomizes the storytelling of the Old Wall: “Dow Falls For 6th Day In Longest Losing Streak Since August On Greece.


On Greece? C’mon. Americans in this profession are better than that.


You can look at real-time market signals (leading indicators) in 2-ways at this stage of the Fed Fight:

  1. What’s happened on the margin (draw-downs) from the YTD tops in February-April
  2. What’s happened YTD

The YTD thing is all about the Storytelling. Just don’t do it with my money. Last I checked, the SP500 is still down -13.5% from its willfully blind 2007 high and needs to be up almost +16% (from here) just to get The People and their 301ks back to break-even.


Everything that happens on the margin in markets matters most to the American and Global Macro Pilots who are trying to manage your money’s real-time risks. What happens on the margin is what drives fear and greed. It’s also what builds or destroys confidence.


If you don’t have planes or markets that the pilots can trust, you’re one step closer to losing whatever is left of the money they are willing to flow back to the politicized decision making process that’s driving markets.


Bottoms are processes, not points. We humbly suggest you fly these risky skies of Federal Reserve sponsored Price Volatility with the credible analytical sources out there who have actually landed the planes for the last 5 years.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, and the SP500 are now $1585-1640, $110.23-113.89, $79.42-80.28, $1.29-1.31, and 1346-1367, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


American Pilots - Chart of the Day


American Pilots - Virtual Portfolio


TODAY’S S&P 500 SET-UP – May 24, 2012

As we look at today’s set up for the S&P 500, the range is 33 points or -2.26% downside to 1289 and 0.24% upside to 1322. 












    • Up from the prior day’s trading of 104
  • VOLUME: on 5/23 NYSE 863.01
    • Increase versus prior day’s trading of 1.93%
  • VIX:  as of 5/23 was at 22.33
    • Decrease versus most recent day’s trading of -0.67%
    • Year-to-date decrease of -4.57%
  • SPX PUT/CALL RATIO: as of 05/23 closed at 1.83
    • Unchanged from the day prior 


  • TED SPREAD: as of this morning 39
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.75
    • Increase from prior day’s trading at 1.73
  • YIELD CURVE: as of this morning 1.46
    • Up from prior day’s trading at 1.44 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Durable Goods Orders, Apr., est. 0.2% (prior -3.9% revised)
  • 8:30am: Cap Goods Orders Nondef Ex/Air, Apr., est. 0.8% (prior -0.8%)
  • 8:30am: Initial Jobless Claims, week of May 19, est. 370k (prior 370k)
  • 8:58am: Markit US PMI prelim., May
  • 9:45am: Bloomberg Consumer Comfort, week of May 20
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas change
  • 10:30am: Fed’s Dudley to speak on regional economy in New York at Federal Reserve building
  • 11am: Kansas City Fed Manf. Activity, May, est. 5 (prior 3)
  • 11am: Fed to purchase $1.5b-$2b notes in 2/15/2036 to 5/15/2042 range
  • 1pm: Fed’s Dudley to speak at Council on Foreign Relations in New York
  • 1pm: U.S. to sell $29b 7-yr notes 


    • EPA holds all-day meetings in D.C., Chicago on proposed rule governing greenhouse gas emissions from power generation, 8am
    • Federal Deposit Insurance Corp. releases quarterly report on bank industry earnings, 10am
    • NOAA issues seasonal hurricane forecast, 11am
    • Senate in session, House not in session
    • Senate Banking holds hearing on legislation to help homeowners refinance mortgages, 10am
    • SEC holds closed meeting on enforcement matters, 2pm 


  • Hewlett-Packard rose after announced plans to cut 27k jobs, had 2Q profit, sales that beat ests.
  • Facebook IPO debacle triggers legal debate over disclosure
  • Morgan Stanley’s Gorman said to join Facebook call on price
  • J&J-Bayer’s Xarelto rejected by U.S. panel for broader heart use
  • Deutsche Telekom CEO says complete sale of T-Mobile USA unlikely
  • European services, manufacturing contracted more than forecast in May
  • China manufacturing shrank for a 7th month
  • U.K. economy shrinks more than est. on building slump
  • April durable goods orders may have gained 0.2% after falling 3.9% in March
  • International Grains Council issues global wheat, corn, rice production est., 9am
  • U.S. Climate Prediction Center issues its preseason Atlantic hurricane forecast
  • Europe chiefs clash on Euro bonds as crisis summit bogs down
  • German May business confidence fell more than forecast
  • AIG can’t pursue some Countrywide claims in $10b lawsuit
  • Goldman Sachs’s Trott tells jury Buffett deal was kept secret
  • Goldman Sachs AGM
  • Bank of America, MERS lose bid to dismiss Texas filing fee suit
  • Jury found Google didn’t infringe Oracle’s patents in developing Android software 


    • Royal Bank of Canada (RY CN) 6am, C$1.18
    • Flowers Foods (FLO) 6:30am, $0.28
    • Toronto-Dominion Bank (TD CN) 6:30am, C$1.77
    • Ship Finance International Ltd (SFL), $0.42
    • Tiffany & Co (TIF) 7am, $0.69
    • HJ Heinz Co (HNZ) 7am, $0.79
    • Patterson (PDCO) 7am, $0.57
    • Signet Jewelers Ltd (SIG) 7:30am, $0.91
    • Monro Muffler Brake (MNRO) 7:30am, $0.35
    • Toro Co (TTC) 8:30am, $2.13
    • VeriFone Systems (PAY) 4pm, $0.61 



COMMODITIES – interesting that the ISI’s of the world still aren’t talking about things like Commodities crashing as a bearish leading indicator for demand (CRB down -13.8% from Feb top, oversold here, but remains broken).











GERMANY – Germany’s PMI print for May was awful (45 vs 46.2 in April, which was also awful); the DAX would need to close above and hold 6383 to re-capture its 1st line of resistance; not happening despite the fresh wave of rumoring about whatever.





CHINA – China’s growth data is not yet slowing at a slower rate, and we think that’s why the Shanghai Comp snapped its TREND line of 2372 again in the last week (sold our long position on that); PMIs are made up, to a degree, but 48.7 for May is what it is, lower than April.










The Hedgeye Macro Team

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.