Still climbing but converging:  When will we know what is normal?


  • Luck obviously affects quarterly hold on all tables, not just VIP, but for Mass at least, it’s difficult to calculate.
  • Mass hold is impacted by the percent of chips taken out of the cage (not included in the denominator of the hold calculation) versus the table, dealer competency, player ability, and table minimums. 
  • Market hold has been on a steady climb especially for MPEL and Galaxy for all of the above reasons save luck.
  • Until we get a flattening of the rolling curve, it’s impossible to determine hold normalcy and calculate the luck impact on any given quarter.




August 22, 2013

August 22, 2013 - dtr



August 22, 2013 - 10yr

August 22, 2013 - spx

August 22, 2013 - ftse

August 22, 2013 - dax

August 22, 2013 - dxy

August 22, 2013 - euro

August 22, 2013 - oil



August 22, 2013 - VIX

August 22, 2013 - yen

August 22, 2013 - natgas
August 22, 2013 - gold

August 22, 2013 - copper

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The Desert

“What makes the desert beautiful is that somewhere it hides a well.”

-Antoine de Saint-Exupery


Volumes are light, ideas are sparse and the Hamptons are packed.  Welcome to summer on Wall Street!


The desert is the most pertinent geographical analogy to this part of the investing year.   Deserts are defined in a number of different ways, but generally the classification is based on the amount of precipitation that occurs in any year.  Below a certain level of precipitation, the region is considered a desert.  Think of precipitation as the idea generation engine of Wall Street that slows during the summer.


Interestingly, while most of us likely perceive a desert as a vast region of sand and limited plant growth, the reality is that only 20% of deserts have sand.  The largest desert in the world is actually the Antarctic Desert, which is, naturally, in Antarctica and covers more than 5.5 million square miles of ice and snow.  So, no, cold desert is not an oxymoron.


One place you don’t want to go after a long night of cavorting and over indulging is the Atacama Desert, which is the driest place on Earth and virtually devoid of life.  The average rainfall in parts of the Atacama is less than 1mm per year.  Further, evidence suggests that the Atacama may not have had any rainfall for the four hundred year period between 1570 and 1970.  Needless to say, even if you feel your portfolio is devoid of new ideas, there have been worse droughts!


In the Chart of the Day, I’ve attached our current Best Ideas list, which is comprised of the ideas that our research team recommends for three months and beyond (TREND) in our models.  Independent of this list I want to highlight the three ideas that I find most compelling.  They are as follows:


1.   International Game Technology (IGT) – IGT makes gaming machines and is, not to mince words, a free cash flow monster.  Over the course of the past three fiscal years, operating cash flow has outpaced total capital expenditures by over a $1 billion dollars in aggregate.    Compared to the current market capitalization of just under $5BN, this provides IGT ample cash to return to investors via share repurchases or debt pay down.


Speaking of debt pay down and cash flow, one of the more compelling reasons to own this stock is its potential interest to private equity firms and its inherent private market value.   As our Gaming, Lodging & Leisure Sector Head Todd Jordan has oft noted, four private equity firms were interested in IGT’s competitor WMS and one made it to the final round before Scientific Games ultimately won out.


2.   Nationstar Mortgage Holdings (NSM) – The roll up of mortgage servicing is a trillion dollar opportunity and NSM is ideally positioned.  (Translation: this is huge market.) NSM recently put up an EPS number for Q2 of $1.37, which outpaced the consensus estimate by almost 50%.  We think there is continued upside in numbers through 2014.  Currently based on the midpoint of NSM’s 2014 guidance, the stock is trading at less than 7x earnings with upward revisions and continued acquisition catalysts on the horizon.


3.   Fed-Ex (FDX) – FDX is just shy of a 52-week high and has outperformed the SP500 over that period, so is not necessarily a contrarian stock.  On a valuation basis, the stock is cheap trading at less than 6x TTM EV/EBITDA and has net cash on its balance sheet (excluding leases). 

Setting aside the financials, which are bullet proof, we think a key reason for owning the stock is that investors are currently ascribing little value to FedEx Express.  We think this division, once restructured, could have a similar margin to UPS or DHL’s express margin and generate an incremental $1.5BN in additional EBIT per year.   Frankly, if the Germans can make DHL Express profitable, it should be achievable for FDX.  If FDX can’t do it, there is no doubt an activist will consider stepping up.


Speaking of Fed-Ex, its key competitor UPS announced late yesterday that it was going to be dropping 15,000 spouses who are eligible for coverage from their own employer from its health insurance plan due to higher anticipated costs under the Affordable Care Act.  UPS expects to save up to $60MM per year on this “initiative”.


We’ve long extolled the benefits of limiting governments, in large part, due to unintended consequences of policy.   In the UPS instance, it may lead to less or more limited coverage for 15,000 working women.   There has also been ample evidence of workers hours being reduced so employers can avoid the punitive impact of the Affordable Care Act on their bottom line.


On a more macro level, there are potentially long term impacts to the labor market.  As Chicago Economist Casey Mulligan wrote in a recent blog for the New York Times:


“The Affordable Care Act’s explicit taxes on employers, subsidies for layoffs and implicit taxes on employees, together amount to five or six percentage point addition to the marginal tax rate on labor income.”


By Mulligan’s analysis, this may contract the labor pool by 3% in 2015.  At the end of the day, this shouldn’t really surprise any of us for as Milton Friedman said on the topic of government management:


“If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.”




Our immediate-term Risk Ranges are now:


UST10yr 2.74-2.96%



USD 80.91-81.81

Yen 96.21-98.56

Gold 1


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Desert - COD


The Desert - vp 8 22


TODAY’S S&P 500 SET-UP – August 22, 2013

As we look at today's setup for the S&P 500, the range is 38 points or 0.72% downside to 1631 and 1.59% upside to 1669.  










  • YIELD CURVE: 2.55 from 2.53
  • VIX  closed at 15.94 1 day percent change of 6.91%

MACRO DATA POINTS (Bloomberg Estimates):

  • Kansas City Fed Jackson Hole Economic Summit, thr. Aug. 24
  • 8:30am: Init Jobless Claims, Aug. 17, est. 330k (pr. 320k)
  • 8:58am: Markit U.S. PMI Prelim., Aug., est. 54.2 (pr. 53.2)
  • 9am: House Price Index M/m, June, est. 0.6% (prior 0.7%)
  • 9:45am: Bloomberg Economic Expectations, Aug. (prior -5)
  • 10am: Leading Eco. Indicators, July, est. 0.5% (prior 0.0%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Kansas City Fed Manufacturing, Aug., est. 6 (prior 6)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11am: U.S. to announce sizes of 2Y, 5Y, 7Y notes
  • 1pm: U.S. to sell $16b 5Y TIPS in reopening
  • 2pm: Fed’s Fisher speaks in Orlando, Fla.


    • President Obama speaks on improving value of higher education for middle class during bus tour through N.Y. and Penn.
    • 11am: Airlines for America qtrly briefing on U.S. passenger airlines’ YTD financial, operational results, performance
    • 2pm: Chairman of Joint Chiefs of Staff Gen. Martin Dempsey briefs foreign media on U.S. national security strategy
    • 4pm: Treasury Sec. Jack Lew speaks to Commonwealth Club of Calif.


  • FBI said to hunt for criminal acts in JPMorgan energy inquiry
  • Wells Fargo said to eliminate 2,300 mortgage-production jobs
  • Microsoft says bribery investigation includes Russia, Pakistan
  • EU said to weigh curb on collateral asset reuse in repo trades
  • China’s manufacturing gains on stronger domestic demand
  • Everbright Securities president Xu quits after trading error
  • Yahoo tops Google in U.S. for July web traffic, ComScore says
  • Hoover maker aims to turn bankrupt Oreck profitable next year
  • Tesla CEO weighs overseas plants for mass-market electric car
  • Potash rift seen lasting as Asia sales said to rile Uralkali
  • JSW seeks to sell U.S. plant as demand revives
  • Euro-area services output grows for first time in 19 months
  • GM’s Opel revamps insignia to regain customers
  • FHFA should develop policies to govern settlements: report



    • Abercrombie & Fitch (ANF) 6:30am, $0.29 - Preview
    • Buckle (BKE) 7am, $0.52
    • Children’s Place (PLCE) 6:30am, $(0.53)
    • Dollar Tree (DLTR) 7:29am, $0.57
    • GameStop (GME) 8:30am, $0.04
    • Hormel Foods (HRL) 6am, $0.45
    • Patterson (PDCO) 7am, $0.48
    • Ross Stores (ROST) 8:25am, $0.93
    • Sears Holdings (SHLD) 6am, $(1.07)
    • Toro (TTC) 8:30am, $0.59


    • Aeropostale (ARO) 4:01pm, $(0.28)
    • Aruba Networks (ARUN) 4:03pm, $0.11
    • Autodesk (ADSK) 4:01pm, $0.42
    • Gap (GPS) 4pm, $0.64
    • Marvell Technology (MRVL) 4:03pm, $0.19
    • Mentor Graphics (MENT) 4:05pm, $0.17
    • Micros Systems (MCRS) 4:02pm, $0.62
    • Nordson (NDSN) 4:30pm, $1.05
    • Pandora Media (P) 4:02pm, $0.02 - Preview
    • Solera Holdings (SLH) 4:07pm, $0.66


  • WTI Rebounds From Two-Week Low on China Manufacturing Growth   
  • Gold Rout Seen Bottoming by Analysts as China Buys: Commodities
  • Russian Urals Set to Lose Iraq-Attack Premium: Energy Markets
  • Toyota Said to Raise Steel Prices for Suppliers by 12 Percent
  • Gold Rises in London as Bearish Bets Drop Amid Sign of Bottoming
  • Corn Declines as U.S. Yields Boost Outlook; Soybeans Retreat
  • Rubber Jumps as China’s Manufacturing Improves, Yen Weakens
  • Gold’s Luster Burnished by Currency Collapse in Emerging Markets
  • Indonesia Cuts Palm Oil Export-Tax to Boost Sales as Prices Drop
  • FBI Said to Hunt for Criminal Acts in JPMorgan Energy Probe
  • Rebar Falls to Lowest in Two Weeks as Mills Increase Selling
  • Commodities May Decline 11% on Fibonacci: Technical Analysis
  • Tin Smelters in Indonesia to Start Trading Through Exchanges
  • Copper Advances as Manufacturing Unexpectedly Expands in China


























The Hedgeye Macro Team













She's Absurd

This note was originally published at 8am on August 08, 2013 for Hedgeye subscribers.

“So I hope you can accept nature as She is – absurd.”

-Richard Feynman


That’s what one of America’s great physicists, Richard Feynman, had to say about how quantum mechanics explains life. I think it describes markets well too. It “describes nature as absurd from the point of view of common sense. “ (American Prometheus, pg 79)


What Do You Care What Other People Think?” Good question. That was also the title of the book Feynman published in the year of his death (1988). It’s a question that I’d love to hear almost everyone in this profession answer out loud.


Yesterday, I asked you if the latest bear market correction was going to be 1%, 2%, or 5%. In case you care what consensus thinks, not one of you answered 1% (which means it’ll probably be 1%). Yesterday’s -0.4% drop in the SP500, put the 2-day correction from her all-time high at -1.1%. #Absurd


Back to the Global Macro Grind


I know, the absurdity of challenging perceived wisdoms in one of the last professions that has been forced to face the fiddle of accountability. If you don’t want to see any of it, turn Twitter off and watch the channel the rest of us have on mute.


To review reality (2013 YTD):

  1. Consensus came into 2013 long slow growth, Gold, and Bonds
  2. Consensus is now selling slow growth, Gold, and Bonds, but too scared to buy growth

But not just any kind of growth – our nature is to not buy “expensive” looking growth. Absurdly, in a growth investor’s market, expensive gets more expensive (Tesla, TSLA +18% pre-market).


“Oh, so you’re telling me growth is back Mucker? Ok, then I’m going to go buy an Emerging Market”




As you can see in Darius Dale’s Chart of The Day, Emerging Market Growth is SLOWING as the slope of US and Japanese Growth is ACCELERATING (and large components of European growth is STABILIZING).


Just model the slopes of lines. Simple is as simpleton does from Thunder Bay, Ontario. In our GIP (Growth, Inflation, Policy) model here @Hedgeye, the G and I (Growth and Inflation) are doing 1 of 3 things from a slope perspective:


And that’s just about it.


Markets pay a higher multiple for companies showing what?

  1. Revenue Growth Accelerating
  2. Margins Expanding

So why is my macro model considered so absurd? It’s the same thought, but for countries:

  1. GDP growth going from slowing to stabilizing to accelerating = LONG
  2. GDP growth going from accelerating to slowing (on the margin) = SHORT
  3. Inflation slowing (via strong currency) + GDP Growth accelerating = REALLY LONG

That’s 2013:

  1. US employment, housing, and consumption growth went from slowing (Q412) to stabilizing, to accelerating
  2. Emerging Market growth (China, Brazil, etc) went from slowing to slowing at an accelerating pace

All the while, July’s YTD high in #StrongDollar gave local inflation to “emerging markets” like India as the Rupee started to crash. Show me GDP Growth Slowing + Inflation Accelerating (India) and I’ll show you a stock market that is down YTD.


I’m not sure why I went off on all of this today. Probably just a function of the absurdity of me having to come up with something in 45 minutes or so at the top of the risk management morning. Thanks for reading my rant.


Our immediate-term Risk Ranges are now as follows:


UST 10yr Yield 2.57-2.73%

SPX 1676-1714

DAX 8233-8456

VIX 11.62-13.94

Yen 96.16-98.71

Copper 3.05-3.25


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


She's Absurd - Chart of the Day


She's Absurd - Virtual Portfolio

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