After a long steep climb, the MPEL engine may be slowing down.



We're still positive on Macau so it’s difficult to be negative on MPEL.  However, MPEL’s recent share losses in the Junket segment are a little disconcerting and could continue.  Moreover, MPEL’s Mass share could be at risk as Sands Cotai Central begins its push into Premium Mass next year.  So while not negative, it’s probably safe to say we've pushed MPEL to the bottom half of attractive Macau operators, behind LVS, MGM, and Galaxy.


As seen in the following chart, MPEL’s 3 month average Rolling Chip share has fallen almost 200bps from its May high.  We do think it is possible that some of the drop could be conversion of Junket players to Direct VIP and Premium Mass.  Indeed, MPEL’s Mass share has held up well and VIP Revenue share (which includes Direct Play) has dropped 160bps - less than its Junket volume decline.  




However, our research indicates that competitive forces are probably playing a bigger role.  From the next chart, it appears that Galaxy, SJM and Wynn have gained the most share since May.  Galaxy recently moved 12 Junket tables from the Grand Waldo to the much more alluring Galaxy Macau.  We’re pretty sure Galaxy was able to attract at least one new junket.  Galaxy may also be offering a more attractive junket credit package.  We know SJM added a few new junkets this year as did Wynn.




In the future, LVS could be the market share gainer MPEL should fear, not only in Premium Mass but also in VIP.  With conservative COO David Sisk out of the picture, look for more aggression on the Junket side in terms of credit and commission advancement packages.  We already know that Sands Cotai Central will be opening new Premium Mass facilities which should grow the market but also take share from the Cotai Premium Mass leader, MPEL’s City of Dreams.


If Macau keeps growing in the mid to high teens rate, all the Macau stocks should do well.  Our view is that after a long and strong run, a few fundamental risks could derail MPEL’s momentum.  Other Macau stocks such as LVS look more protected, and thus attractive, at this point.


TODAY’S S&P 500 SET-UP – September 5, 2013

As we look at today's setup for the S&P 500, the range is 25 points or 0.61% downside to 1643 and 0.90% upside to 1668.                  










  • YIELD CURVE: 2.45 from 2.43
  • VIX  closed at 15.88 1 day percent change of -4.39%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England seen maintaining bank rate of 0.5%
  • 7:30am: Challenger Job Cuts Y/y, Aug. (prior 2.3%)
  • 7:30am: RBC Consumer Outlook Index, Sept. (prior 49.4)
  • 7:45am: ECB seen maintaining benchmark rates at 0.5%
  • 8:15am: ADP Employment Change, Aug., est. 180k (prior 200k)
  • 8:30am: ECB’s Draghi holds news conference
  • 8:30am: Nonfarm Productivity, 2Q final, est. 1.6% (pr 0.9%)
  • 8:30am: Init Jobless Claims, Aug. 31, est. 330k (pr 331k)
  • 9am: Fed’s Kocherlakota speaks in La Crosse, Wis.
  • 9:45am: Bloomberg Consumer Comfort, Sept. 1
  • 10am: Factory Orders, July, est. -3.4% (prior 1.5%)
  • 10am: ISM Non-Manufacturing, Aug., est. 55 (prior 56)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: DoE energy inventories
  • 11am: U.S. to announce plans for sale of 3Y notes, 10Y notes, 30Y bonds
  • 1:30pm: Fed’s Fisher speaks in economy in Dallas


    • G-20 Leaders Summit begins in St. Petersburg, Russia
    • 2pm: Members of Congress receive classfied briefing on Syria


  • Microsoft wins jury trial over Google patent licensing tactics
  • Aug. U.S. Retail Sales Seen Hurt by Delayed School Shopping
  • SKF to buy Kaydon for $1.25b to expand U.S. business
  • sells rest of its Facebook stake for $525m
  • Sprint raises $6.5b in biggest junk sale since 2008
  • Otsuka Holdings offers to buy Astex for up to $886m
  • Fed’s Kocherlakota says U.S. economy needs more accommodation
  • LinkedIn boosts offering to $1.2b after share rally
  • Liberty Media’s Malone said to plan for succession: NY Post
  • G-20 draft calls for more job training, infrastructure spending
  • Dominion bids $1.6m for offshore Virginia wind project
  • Nasdaq, SIP outline proposed actions after Aug. 22 glitch
  • Kuroda says Japan can roll out stimulus if needed after tax rise
  • Samsung $299 Galaxy Gear tests consumer smartwatch demand
  • Focus Media owners seek up to $500m dividend recap: Reuters


    • Conn’s (CONN) 7am, $0.60
    • Cooper Cos (COO) 4:01pm, $1.72
    • Finisar (FNSR) 4pm, $0.31
    • Infoblox (BLOX) 4:05pm, $0.09
    • Jos A Bank Clothiers (JOSB) 6am, $0.52
    • Quiksilver (ZQK) 4pm, $0.04
    • Smith & Wesson (SWHC) 4:05pm, $0.36
    • VeriFone Systems (PAY) 4:01pm, $0.20


  • WTI Rises From One-Week Low as Senate Panel Backs Syria Strike
  • Steel Rallying With Chinese Builders Beating Mills: Commodities
  • Tin Heads for Four-Month High on Concern About Limited Supply
  • Sugar Surplus Shrinks on Quickening Demand in China to Indonesia
  • Rubber Advances on Thai Farmer Protests, U.S. Car Sales Gains
  • Rebar Futures Drop to Lowest in a Month as Premium Lures Sellers
  • Palm Oil Climbs as Crude-Price Gain Increases Appeal of Biofuel
  • Gold Rises as Investors Seek Haven Amid Syrian Strike Debate
  • Gold Imports to China From Hong Kong Climb on Physical Demand
  • Libya Propels Sweet African Oil Toward 2011 High: Energy Markets
  • Oil Puts at 18-Month Low as U.S. Prepares Syria Strike: Options
  • Iron Ore Supply of Up to 830 Million Tons May Be Added by 2020
  • Asia Fuel Oil Viscosity Spread at Two-Month High: Oil Products
  • World Food Prices Fell Fourth Month in August on Cheaper Grains


























The Hedgeye Macro Team













Stick It to Putin: Here’s How

Takeaway: The best way for Obama to pulverize Putin in St. Petersburg would be to stick a weapon of “Mass Currency Appreciation” in his grill.

In case you missed it, House Speaker John Boehner’s intraday comments yesterday mattered to the market. A lot. His (highly questionable) decision to support a strike on Syria spooked investors and sent what was a promising stock rally into the tank.


Why? Two words: Oil prices.


Stick It to Putin: Here’s How - oil99


Boehner stoked the flames of fear to the number one economic risk we currently face here in the United States. It’s called an Oil Tax at the pump. In other words, Boehner painted a bull’s-eye on what has been strong, recent US consumption growth.


The fact is that weakness in the greenback pushes prices for oil and other dollar-denominated commodities higher. All of this uncertainty over Syria has driven oil prices to fresh highs in recent weeks. Over the past month alone, the price of Brent crude oil has risen five dollars to $115 a barrel. Boehner basically poured a barrel of gas on the flames.


Bad for growth. Bad for consumers. Bad for America.


And guess what? Vladimir Putin likes it.


Now, I don’t know about you, but I’ve about had it with Putin.


Here’s a novel thought: The best way for President Obama to pulverize Mr. Putin in St. Petersburg this week would be to stick a weapon of “Mass Currency Appreciation” in his grill. You want to get Mr. Putin’s attention?  Obama should channel Clint Eastwood and make Putin eat a strong U.S. Dollar. Shove it down his throat.


Stick It to Putin: Here’s How - poot88


Look, if I was advising the President, I would have him hide a #StrongDollar ace up his sleeve at the G-20 poker table – and maybe say something like this:


“Hey Vlad. We’ve had it with you. We’ve had it with your bluster. So, let me tell you what I’m going to do if you don’t tone it down. First, I am going to taper. Big-time. Then I’m going to tighten. And if you don’t think I can get Larry Summers to do it, you just go ahead and try me. Your little Petro-Dollar power problem will look like Fukushima. Fast.”


But that’s just me – I’m a doer type of a guy. I like to make decisions without asking the weak-kneed  bureaucracy of the world for its opinion. And I sure as hell don’t like to watch second-rate dictators shove it in America’s face. We are better than that. Bullies like Putin need to be broken.


Stick It to Putin: Here’s How - strongdollar


It’s time. We desperately need a US President to get solidly behind and build a #StrongDollar. Not just with words, we’ve had enough of that over the years. I’m talking action. Big action. Bold action. Strong America revolution on the back of your hard earned currency.

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 78.36%

McCullough's Morning Macro Note

Takeaway: There’s a big difference between consensus being bearish and Mr. Market’s bullish opinion.

(Editor's note: What follows below is a complimentary excerpt from Hedgeye CEO Keith McCullough's "Morning Newsletter." If you would like more information on how you can start receiving these newsletters delivered to your inbox before 9:00am every weekday morning, click here. It's the best $29.95 you'll ever spend.)


McCullough's Morning Macro Note - bu1


After another shatteringly strong string of US economic data points (starting last Thursday with US roiling jobless claims hitting another YTD low and culminating with a blockbuster New Orders component of yesterday’s ISM report for August), yesterday’s US stock market ripped a +1% morning move to the upside and Treasury bonds continued to collapse.


Up for the 4th consecutive week, another #StrongDollar move was nipping on the heels of #RatesRising too. Consensus isn’t positioned for that, so I loved it. Then, all of a sudden, the most bearish catalyst of all hit the tape – a US politician’s opinion.


In the last year, there have been very few market risks that have scared me more than US central planners intervening during critical periods of market entropy. Going back to November of 2012 (when bond yields bottomed), Boehner’s voice was as market bearish as any you could find. He was the bearish factor yesterday too – the whole thing is just plain sad to watch.


Back to the economic gravity part…

  1. New Orders (in the ISM report for August) hit a monster shot of 63.2! yesterday (vs 58.3 in July)
  2. Go back to 2003 (see Chart or The Day) and look at how quickly economic gravity shocked growth bears to the upside
  3. Not unlike 2000-2002, consensus has become shatteringly bearish about growth; it’s a lagging indicator

To be clear, there’s a big difference between consensus being bearish and Mr. Market’s bullish opinion. While yesterday’s intraday gains in the SP500 were cut in half, the decliners were led by the slow-growth sectors (gainers were once again all about growth):

  1. Slow-Growth Utilities (XLU) got smoked again (after being down -5% for AUG), leading losers on the day at -1.2%
  2. Dividend Yield Chasing Consumer Staples (XLP) were down -0.1% in an up market as well (XLP -4.5% in AUG)
  3. Nasdaq (QQQ) +0.63% and Financials (XLF) +0.9% led gainers, as they have throughout 2013

In other words, if you are bummed out about Kimberly Clark (KMB) or Kinder Morgan (KMP) not getting you paid on the principal appreciation side of the equation, that’s just too bad. This Bernanke Yield Chaser style factor was as much a bubble as Gold was.


#RatesRising for the right reasons (growth expectations rising), is public enemy #1 for overvalued, slow-growth, securities. Whether it feels right or not, money chases positive returns. It flows away from draw-down risks.


Since I’m already out of everything Commodities, Fixed Income, and Emerging Markets (0% asset allocations), I have had relatively low stress on the draw-down risk side of big macro asset class moves in 2013 (Gold bounced, but is still -17% YTD and bonds are getting smoked), but that doesn’t mean I can afford to give up a lead for the sake of being beholden to this great growth data.


There are 3 big Macro things that would get me out of being long growth equities:

  1. If #StrongDollar snaps its long-term TAIL risk line of $79.11
  2. If #RatesRising stops and the 10 yr UST Yield breaks 2.44% @Hedgeye TREND support
  3. If #GrowthAccelerating Style Factors (like Nasdaq diverging from the Dow) reverse and break TREND

Johnny one-time Boehner’s intraday comments mattered because they kept the #1 risk to what’s been strong US consumption growth in play. It’s called an Oil tax at the pump. And Putin likes it.


***Click here to sign up for Hedgeye's Morning Newsletter.

Conference Call Invite: Are Energy Drinks Harmful? A Debate with Dr. Deborah Kennedy

Conference Call Invite: Are Energy Drinks Harmful? A Debate with Dr. Deborah Kennedy -


On Wednesday, September 11th at 11:00am EDT, we will be hosting an expert conference call titled "Are Energy Drinks Harmful?  A Debate with Dr. Deborah Kennedy".  


On the call we will host a lively debate with Dr. Deborah Kennedy about energy drinks and what may be looming for energy drink producers in the future.  A live Q&A session will be held directly after the call for all listeners. 




  • What's the science behind caffeine consumption?
  • Where does the medical community stand on energy drinks and caffeine in foods?
  • What legal action has been taken against energy drink makers?
  • How have energy drinks been regulated and what could the future hold?




Dr. "Deb" is the founder of Build Healthy Kids and has been at the forefront of nutritional studies and consumer awareness for almost two decades. Her experience ranges from pediatric nutrition and nutritional oncology to product development and kids' education programs.


Dr. Deb made national headlines from a March 2013 Build Healthy Kids newsletter in which she warned her subscribers that energy drinks can be dangerous, and told kids to "Never drink energy drinks: They can harm you" (alongside a cartoon skull 'n" crossbones and a generic energy drink can). Monster (MNST) took issue with Dr. Deb's language, and demanded that she retract the "defamatory statements" and correct them or else Monster would draw a legal suit. Following the action, she gained the support of Senator Richard Blumenthal (alongside Senator Richard Durbin and Congressman Edward Markey), who addressed Monster CEO Rodney Sacks in a letter stating that it's unclear why Monster would single out Build Healthy Kids since the company was never named and considering that Monster does not target the Build Healthy Kids demographic. To date, there is no formal legal suit against Dr. Deb or Build Healthy Kids.    


Dr. Deb has worked at Yale, Columbia, Tufts and Cornell University. She is a coauthor of Beat Sugar Addiction Now! for Kids and author of Nutrition Bites. She is currently working on her third book which deals with children's eating personalities. 





Please email if you would like some more information.

Bonds: The Proverbial Falling Knife?

(Editor's note: This is an excerpt from Hedgeye's "Investing Ideas" from this past weekend. This particular research product is designed for the savvy, longer-term self directed investor looking for fresh, exciting long-only opportunities. With your subscription, you'll know immediately when one of our award-winning analysts uncovers a new Idea or changes a current one.)


Bonds: The Proverbial Falling Knife? - bo9




The US bond market is at an all-time high, with $38 trillion of US bonds outstanding.  Nearly a quarter of that – $11 trillion – is US Treasury debt, and another $8 trillion is mortgage related.  And note that the latest abdication of duty by the nation’s bank regulators – described in the previous section – will add significantly to the mortgage-related number.  The relaxing of lending standards is allegedly aimed at stimulating housing.   But Hedegeye’s work has shown that the housing sector hasn’t needed government stimulus for almost a year.  In fact, if the government were to butt out, the housing sector would recover on its own timetable, in concert with other improving demographic measures such as new family formation, rising birth trends, and improving employment.  Here you see a perfect example of how government meddling is guaranteed to create a bubble in an already over-inflated bond market. 


Adding fuel to this particular conflagration, the major brokerage firms have trimmed their fixed-income books, trying to get out of the way of the proverbial falling knife.  This means there is shrinking liquidity in a market that has gotten way too big already.  This will increase volatility, and will force bond prices still lower.  Oh, and it’s decidedly bad news for those investors (presumably mostly foreign pension managers and insurance companies) who will buy the soon-to-be-issued new mortgage paper that will be generated now that the banks don’t have to have skin in the game.


Casteleyn says the bond market represents 2/3 of the securities market, meaning there are two dollars in bonds for every dollar of stock – even after the equities market has risen 100% in the last 4 years!  This skewed relationship is unwinding, triggered by the Fed initiating its Quantitative Easing program in 2008.  The start of QE caused a number of market dislocations.  By taking a large portion of the apparent risk out of the fixed income market, it drove down the premium that corporate bond yields had traditionally offered over Treasuries, and even resulted in yields on junk bonds coming down heavily to what were historically considered low-investment-grade levels. 


Most obviously, QE forced investors to seek out riskier assets in their desperate quest for return, with the result that the stock market roared back from its post-Crisis lows.  This appears to have been Bernanke’s straightforward objective, and he has certainly achieved it.  Casteleyn’s analysis makes it clear that the “Bernanke glow” is just the beginning of a bull market in equities that could be every bit as massive as the 30-year bull market in bonds that has now ended.


Casteleyn says money is flowing out of the fixed income market, and into equities, at rates not seen since before the financial crisis.  Last week alone investors withdrew $11.1 billion from fixed income mutual funds.  Equity funds continue seeing their first positive year since 2007, with inflows at $1.3 billion for the week, resulting in the first annual inflow into stocks in over 5 years.


For those who are afraid they “missed the move,” there remains more than $2.6 trillion of investible capital in money market funds, although with the expectation that money funds are never drawn down to zero, investors will have to make allocation decisions between stocks and bonds.  Casteleyn says pensions have historically low allocations to stocks and record high exposure to fixed income – which means that as the bond market continues to kick off losses, fixed income will continued to be sold to reallocate into equities. 


Casteleyn points out that the current setup of this rotation from bonds into equities is following its historical cycle. This means that the bulk of the rotation is winding up in money market funds before the eventual re-planting into the new asset class. Thus the carnage in fixed income currently is largely landing in money funds before the eventual reallocation to equities.  Still, even while waiting for investors to take the plunge, we have seen the initial signs of inflows into stock funds this year for the first time in 5 years.  Inflows into equity funds are averaging $2.7 billion a week this year, a reversal from the $3 billion weekly outflowsin 2012.


Of all the not-so-unintended consequences of the Fed’s program to promote risk-seeking behavior, one actually not intended consequence could be overstuffing money market funds to a point where the funds buy increasing quantities of risky paper.  This has happened before – writing in February of 2012 in the Wall Street Journal, Sallie Krawcheck, former president of the Global Wealth & Investment Management division of Banc of America warned about the lack of transparency of the funds, as well as the decidedly dicey composition of their portfolios.  You may be aware that the SEC has introduced a rule requiring certain classes of institutional money market funds to post an actual net asset value, and not an artificial $1 price.  What you may not know is that for many years, as more and more money flowed into money market funds, managers went further afield in their hunt for yield – including buying bonds in such places as France, Italy and Spain – and Greece – in the midst of the Financial Crisis.


Heard enough?  The good news is: you haven’t missed the next big up-move in equities.  The scary good news is, this bull market in equities may run much farther, and last much longer than many people anticipate.  Keep your eye on Hedgeye – we’re keeping our eye out for you.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.