Scarce transactions close out the year, though volume was better  



Upper upscale (UUP) & Luxury Transaction Trends for Q4 2012 

  • Q4 2012 worldwide hotel transaction volume (UUP & Luxury brands) was $3.2 billion, up from Q3 2012's $2.7 billion, and higher than Q4 2011's $1.3 billion. 2012 transaction volume reached almost $10 billion, lower than the $11 billion in 2011.
  • The number of US luxury/UUP hotel transactions was 9 in Q4 2012 compared with 12 in Q3 2012 and 9 in Q4 2011. 
  • The number of non-US luxury/UUP hotel transactions was 3 in Q4 2012, compared with 6 in Q3 2012 and the 11 in Q4 2011.
  • There were two portfolio deals: 1) The Government of Singapore Investment Corp. bought the Grand Wailea on Maui, the La Quinta Resort & Club and PGA West golf course in La Quinta, Calif., the Arizona Biltmore Resort & Spa in Phoenix - which are all managed by Waldorf Astoria Management under Hilton Worldwide’s Waldorf Astoria Hotels & Resorts brand - and Claremont Resort & Spa in Berkeley, CA.  The seller was a joint venture led by Paulson & Co. which had taken over the properties in a bankruptcy deal as part of a $600 million restructuring of Morgan Stanley's real estate funds.  The hotel properties then filed for Chapter 11 bankruptcy protection. 2) Host hotel's European JV bought five hotels from Whitehall - Paris Marriott Rive Gauche Hotel & Conference Center, Renaissance Amsterdam Hotel, Renaissance Paris La Defense Hotel, Renaissance Paris Vendome Hotel, and the Courtyard Paris La Defense West – Colombes. 
  • Relative to a seven quarter trailing average, US average price per key (APPK) in the UUP segment is in-line at $266k.  Non-US APPK in the UUP segment moved to $360k, 15% higher than its seven quarter trailing average. 

Other Chain Scale Trends for Q4 2012

  • There were two large M&A transactions:  1) Apple REIT 6 was sold to BRE Select Hotels Corp (a Blackstone affiliate). 2) InTown Suites was sold to Starwood Capital Group.
  • According to Fitch, the hotel delinquency rate in November was 9.83%, lower than the 10.82% seen in August.  The delinquency rate remains well below the relative high of 14% seen in Q3 2011.







TODAY’S S&P 500 SET-UP – January 3, 2013

As we look at today's setup for the S&P 500, the range is 45 points or 2.29% downside to 1429 and 0.79% upside to 1474.              















  • YIELD CURVE: 1.58 from 1.58
  • VIX closed at 14.68 1 day percent change of -18.53%
  • ECONOMIC DATA – the 3 big engines for Global #GrowthStabilizing (China, Germany, USA) all better sequentially in the last 24hrs (US PMI 50.7 DEC vs 49.5 NOV, w/ a very good employment reading within that report of 52.7; German unemployment 6.9% was solid; and Chinese non-manufacturing PMI of 56.1 DEC vs 55.6 NOV hit a 4mth high).

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, week of Dec. 28
  • 7:30am: Challenger Job Cuts, Y/y, Dec., (prior 34.4%)
  • 8:00am: RBC Consumer Outlook, Jan. (prior 46.9)
  • 8:15am: ADP Employment Change, Dec., est. 140k (prior 118k)
  • 8:30am: Initial Jobless Claims, wk of Dec. 29, est. 360k (prior 350k)
  • 9:45am: Bloomberg Consumer Comfort, wk of Dec. 30 (prior -32.1)
  • 9:45am: ISM New York, Dec. (prior 52.5)
  • 10am: Freddie Mac mortgage rate survey
  • 2pm: Fed releases minutes from Dec. 11-12 FOMC meeting
  • 4:30pm: API weekly inventories
  • U.S. Treasury to announce 1Y, 3Y, 10Y, 30Y auction sizes


    • Congress convenes; almost 100 members will be sworn in to office for the first time
    • Centers for Medicare & Medicaid Services holds a conference call briefing on an announcement related to the Affordable Care Act, 1:30pm
    • American Bankers Association announces the release of the third quarter 2012 Consumer Credit Delinquency Bulletin, containing delinquency data for several consumer loan categories, 4pm


  • Google said to be set to end FTC antitrust probe with agreement today
  • Boehner set to regain speakership as party base decries tax vote
  • Sandy aid will get vote this month following delay, Boehner says
  • Retailers may post slowest Dec. sales growth since 2008
  • Ford, GM, other automakers release December sales
  • Barnes & Noble releases holiday sales, Nook update
  • AMR asks bankruptcy judge to approve revised supplier contracts
  • China service industries expanded at fastest pace in 4 mos. in Dec.
  • Paulson & Co. named as defendant in amended ACA Goldman Sachs lawsuit
  • Al Gore’s Current TV is said to be sold for $500m to Al Jazeera
  • Rambus barred from enforcing 12 chip patents in Micron lawsuit
  • Amgen whistle-blower blocked from challenging Aranesp settlement
  • Safeway CEO Burd to retire after 20 yrs


    • Family Dollar (FDO) 7am, $0.75
    • UniFirst (UNF) 8am, $1.33
    • Worthington Industries (WOR) 8:30am, $0.41
    • Progress Software (PRGS) 4:30pm, $0.34



GOLD – both bonds and gold do not like growth improving; that’s why both lagged yesterday and don’t look any better today (10yr 1.83% and Gold fails at $1690 TRADE line resistance); Gold snapping its long-term TAIL line again of $1671 is when you get paid there on the short side. A better employment rpt could easily do that.

  • Oil Drops From Highest in Three Months on Signs Gains Excessive
  • Dust Bowl Wilting U.S. Wheat as Funds Turn Bearish: Commodities
  • Gold Declines on U.S. Budget-Deal ‘Hangover’ as Dollar Rallies
  • Copper Advances on Prospects for an Economic Rebound in China
  • Soybeans Drop as Prospects Improve for South American Crops
  • Australia Swelters Amid Most Wide-Ranging Heatwave Since 2001
  • Gold Seen Sliding to $1,450 in 2013 on Investor Frustration
  • Natural Gas 4Q Price Gains Boost Producers, Challenge Suppliers
  • Coal’s Competitive Fuel Cost Advantage Over Gas Grows in 4Q
  • Chavez Cancer Imperils $7 Billion Caribbean Oil Funding: Energy
  • Rig Grounding Revives Debate Over Shell’s Arctic Oil Exploration
  • Asia Naphtha Crack Rebounds; Vitol Sells Gasoline: Oil Products
  • European Union Carbon-Dioxide Permits Decline to One-Month Low
  • Gold’s 12-Year Bull Market “Not Yet Dead,” Credit Suisse Says




EURO – biggest relative opportunity on the long-side potentially here this morning w/ EUR/USD moving to immediate-term TRADE oversold at $1.31 (risk range = 1.31-1.33). At a bare minimum, if you are short it, you cover here – we might buy it (which is just one more bullish signal for global macro beta right now). Haven’t bought the Euro in a while.














The Hedgeye Macro Team





The Macau Metro Monitor, January 3, 2013




Several casino workers’ associations have accused all of the six gaming concessionaires of taking advantage of the new regulation’s loopholes by assembling gaming tables and popular games together into smoking areas, leaving croupiers and other workers exposed to even higher densities of cigarette smoke.  They called for amendments to the regulations as well as stricter enforcement, and some of them even warn of strikes if the situation continues. 


All 44 casinos across the 6 concessionaires successfully applied to operate smoking areas, ranging from 34% to 49% of their floor-space.  When asked which casinos have the worst conditions, Leong Sun Iok, Vice-President of the Association’s Board of Directors of the Macau Gaming Industry Laborers Association said that in his initial observation of the casinos, the smaller ones seem to have more serious problems because of lower ceilings and less efficient ventilation systems, while those inside the large resorts have better conditions.


According to the Health Bureau, SJM has secured a maximum of an average of 44% of smoking areas across its 19 casinos. 

Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Growth Stabilizing

“It is gone forever.”

-Jeremy Grantham


That’s what legendary investor, Jeremy Grantham, started off his Quarterly Letter with in November. It was titled “On the Road to Zero Growth” and was published right around the time that the Barron’s cover read “Are We Headed For A Recession” (November 12, 2012).


I have a tremendous amount of respect for Grantham’s long-term TAIL risk work, but that doesn’t mean I always agree with him; especially on timing. For the last six weeks, our Global Growth Model has explicitly disagreed with A) a global recession and/or B) anything that remotely resembles 1% US growth, never mind 0%.


Since the mid-December cover of The Economist was titled “A Rough Guide To Hell”, I think being relatively bullish on stocks (and bearish on both Bonds and Gold) here is still the contrarian call to make. I don’t make calls on forever.


Back to the Global Macro Grind


I’ll come back to the multi-duration, multi-factor, risk management support for the aforementioned research view in a few minutes. First, let’s just take a moment to respect what yesterday was – easily the most bullish 1-day move for growth expectations in at least a year.


  1. After holding its 1419 line of TREND support, the SP500 ripped to within 0.8% of its September 2012 intraday high
  2. The Russell 2000 closed up +2.9%, making an ALL-TIME higher-high at 873 (versus 865 in April of 2011)!
  3. Both VOLUME and VOLATILITY signals finally confirmed the PRICE moves – and it was broad based, across sectors


In our multi-duration S&P Sector Model, all 9 sectors are bullish on all 3 of our core risk management durations (TRADE, TREND, and TAIL) for the first time since December of 2011. We call those Bullish Formations.


Yes, in spite of the Fed and Congress – global growth stabilized as expectations for future Fed Intervention came down huge (CFTC Futures and Options net long contracts dropped -49.5% from their all-time top in September to the December lows).


Now what?


Rather than using Grantham’s duration (his 0% growth forecasts extend out to the years 2030-2050 – yes, you can fire me if I ever try durations like that), let’s focus on where at least 90% of money managers have to focus on these days – the intermediate-term TREND.


  1. Let’s start with where US GDP Growth is at – at least +2-3%, not 0 to 1%
  2. You can get mad about how Obama is getting to +2-3% (spending), but you also have to understand it
  3. Government spending is tracking +9.5% on an annualized basis – that’s a big pop


*Reminder: GDP = C + I + G + (EX-IM). So, given that Congress just yard-saled the can on spending cuts, the G (government spending), is not going to be a headwind for Q113 GDP either. It might be in Q2 or Q3 – we’ll let you know when we think we know.


And a lot can happen in between now and Q2. What if the employment report tomorrow starts getting consensus thinking about a 6% handle on the US unemployment rate?


Oh, no you didn’t Bernanke – you didn’t take your “experimentation” too far in targeting random numbers now did you? What if Bernanke is what he usually is – wrong on his growth forecasts? What if unemployment rate expectations start to fall towards 6.5% in 2013 instead of in 2017? Inquiring Bond and Gold bulls would like to know…


I have no idea what the unemployment rate is going to be tomorrow – but what I can tell you is that:


  1. Yesterday’s Employment component of the US manufacturing PMI reading accelerated to 52.7 in DEC vs 48.4 NOV
  2. Weekly US Jobless Claims have been tracking well below our critical employment growth level of 385,000
  3. Both Bonds and Gold have been signaling this shift in employment growth stabilizing for the last 3 weeks


Again, this doesn’t mean I am bullish on US growth forever. To the contrary, what I am really telling you is to really respect that Big Government Intervention perpetuating short-term economic cycles works both ways.


Growth scares work just as well on the upside as they do on the downside. And if the market is sniffing this one out right, wouldn’t it be ironic and deserving, all at once, for Ben Bernanke’s latest policy expectations gamble to pop the biggest bubble of them all – bonds.


Fund flows out of bonds and into stocks would come back to this market in a hurry. The US stock market perma-bulls have been waiting for that train since 2007. If #GrowthStabilizing holds, that loco market machine may have already left the station.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $110.39-112.61, $3.61-3.77, $79.49-80.14, $1.31-1.33, 1.78-1.85%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Growth Stabilizing - Chart of the Day


Growth Stabilizing - Virtual Portfolio

FX War

This note was originally published at 8am on December 20, 2012 for Hedgeye subscribers.

“You can’t expect to have war all the time.”

-Winston Churchill


You can’t expect markets to keep going up or down all the time either. Especially in the middle of a Global Currency War, risk moves fast. So you have to keep moving out there. We call it managing the risk of the market’s range.


In addition to the aforementioned quote, in 1940, “Churchill told his War Cabinet that Roosevelt’s message came as near as possible to a declaration of war and probably as much as the President could do without Congress.” (The Last Lion, page 100)


After Paris fell to the Germans, that didn’t happen. Politically, Roosevelt wasn’t ready to commit. Militarily, America wasn’t yet ready either. Not unlike the FX War you are watching in markets today, timing and expectations matter. Ask the French.


Back to the Global Macro Grind


After being on the sidelines (relative to the US and Europe) since 2006, the Japanese are going to engage in the FX War, big time. That’s what Abe’s LDP party win promised, but the timing of Japan’s engagement doesn’t happen all at once.


The Bank of Japan (BOJ) told the market that it will expand its bailout fund (asset purchase fund) to 76 TRILLION Yens last night (that’s a lot of Yens). But, from a market expectations perspective, that wasn’t enough to keep the Yen down!


All the while, Japan’s economy continues to head deep into the cesspool of Keynesian policy promises. Japanese Exports (it’s an export economy) were reported at -4.1% year-over-year for November. That’s right, despite their recent successes setting their currency on fire, “cheaper exports” are not reacting to the FX War Policy To Inflate.


Sound familiar?


Of course it does. Charles de Gaulle tried it. Failed. The British tried it in the 1960s. Failed. Nixon/Carter tried it in the 1970s. Failed. Japan tried it in the 1990s. Failed. Now they are all trying it, at the same time, and it’s failing.


And I mean failing from an economic perspective. Any buffoon with a money printing machine can inflate his stock market if he devalues the currency that market is priced in. Chavez devalued. The Venezuelan stock market is +305% YTD.


If the Japanese start to double and triple down on the 76 TRILLION Yens, just when the US and Europe feels safe from theirs, Japan may very well end up being the next sovereign credit crisis in 2013.


Follow the bouncy ball:

  1. Japan Real Estate and Stock Market Bubble implodes. Print “lots of money”, economy fails, stocks rally, fail, rally, fail.
  2. USA Real Estate and Stock Market Bubble implodes. Print “lots of money”, stocks rip, economy doesn’t; rally, fail.
  3. European Real Estate and Stock Market Bubble implodes. Print “lots of money”, yep – need to do more of that, rally!

This gargantuan experiment of Keynesian academic dogma (Bernanke calls it “innovation”) started with America advising Japan to “PRINT LOTS OF MONEY” in 1997 (Paul Krugman). So why can’t a lie that cannot live end where it started?


Every risk management exercise should start with a simple question that doesn’t have an answer (yet).


Back to our current positioning:

  1. Long US Consumption Stocks (bought Consumer Staples, XLP, on red yesterday)
  2. Short Commodities (re-shorted Oil yesterday on green)
  3. Out of the way on Fixed Income (cut our asset allocation to 0% last week)

Now maybe buying anything that’s been propped up by Policies To Inflate doesn’t make sense. Once every asset class that hasn’t been locked down (stocks, bonds, commodities) has been artificially inflated, isn’t the only risk that remains deflation?


Probably not. That’s the whole point about the FX War – you can’t have deflation all of the time. Ask the government.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1664-1709, $105.95-110.02, 3.57-3.62, $79.15-79.91, $1.31-1.33, 1.73-1.85%, and 1426-1447, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


FX War - Chart of the Day


FX War - Virtual Portfolio

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