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Mind Your Business

This note was originally published at 8am on September 25, 2013 for Hedgeye subscribers.

“Money, not morality, is the principle of commercial nations.”

-Thomas Jefferson


That’s the opening quote to chapter 7, “The Birth of The Dollar”, in Jack Weatherford’s economic history classic The History of Money. We study history so that we can attempt to contextualize the madness of the moment in which we are living. Watching Bernanke debauch the value of the American People’s money is obviously immoral – but who cares?


Morals? This isn’t about morals. This is about getting paid. And for political types, since the speech circuit pay-wheels have already been greased for life, you only get paid by politicians if you can spin. Storytelling that this recent 4-day drop in the US stock market is “all about Congress” is paramount to the unaccountable @FederalReserve’s fiction.


That’s the short-run. In the long run, most politically conflicted narratives are dead. We’re a long way removed from 1787 (1st issuance of coins in the United States) when “copper coins bore the motto “Mind Your Business” (Weatherford, pg 119).” But my business  of protecting against the loss of your capital to poorly timed policy decisions remains.


Back to the Global Macro Grind


My business adheres to a rule that Warren Buffett used to uphold as “Rule #1” of investing (before he went all chuckles @CNBC and pro government socialization of his P&L’s risk on us): “Don’t lose money.”


In order for we commoners who don’t get insider and government “preferred” investment terms to execute on this rule, we need to let Mr. Market tell us what to do next.


As of this morning, the most obvious of the new obvious in our Correlation Risk model is the US Dollar moving to an immediate-term correlation versus bond yields of almost 1.0 (US Dollar Index 3-week correlation to US 10yr Treasury Yield = +0.98).


What does that mean?

  1. Bernanke’s causal impact on the value of American Purchasing Power (US Dollar) is massive
  2. There’s an explicit link between US currency and bond yields in the face of policy information surprise
  3. When moving in tandem, US Dollars and Bond Yields are coincident (leading) US growth indicators

I realize that this isn’t the framework you are going to read from Morgan Stanley this morning. And that’s precisely why our contrarian bull case on US Growth was right this year. Consensus economists and market strategists don’t use our framework.


To review our (and world history’s) account of mapping economic gravity:

  1. When a country’s currency is rising alongside its country’s interest rates = #GrowthAccelerating signal
  2. When a country’s currency is falling alongside its country’s interest rates = #GrowthSlowing signal

To be clear, a signal can whip around and change direction more often than you can remain solvent trying to trade every move. But the intermediate-term TREND signals don’t lie nearly as often as the Fed’s forecasts do.


This is why we overlay our A) fundamental research with B) a quantitative risk management signal that is multi-duration and multi-factor. Since I never know what Mr. Market is going to start signaling as risk, I just need to wait and watch for trending signals.


Now some might say that doesn’t make sense because the trends can change. But that is precisely the power of the process. As policies, prices, correlations, etc. change - we do. The alternative strategy is dogmatic naval gazing about what “should” happen.


In summary, what’s “new” in our model as of the last week?

  1. US DOLLAR: our intermediate-term TREND line of $81.35 broke on Bernanke’s decision to break it
  2. US 10YR TREASURY YIELD: our immediate-term TRADE line of 2.79% broke; and TREND support of 2.55% is under attack

Since the #1 Style Factor leading market performance in 2013 YTD = LONG GROWTH, this very immediate-term information surprise to the market on both the US Dollar and Bond Yields matters, big time. Why? Because, unlike the Fed’s marked-to-model dogma of 0% interest rates on the short end of the curve, US growth expectations are marked-to-market.


One other way to consider Mr. Market’s current #GrowthSlowing message within this Down Dollar, Rates Down move was in yesterday’s US stock market sub-sector divergences. The Financials (XLF) led losers on the day (-0.6%). The why on that isn’t that complicated to follow – as long-term rates fall, the leading indicator for the Financials (Yield Spread) compresses.


Since Larry Summers was eliminated as a prospective Fed head (his policy would have been more hawkish = #StrongDollar, #RatesRising), the Yield Spread (10yr minus 2yr yield) has compressed by -8.5% to +229 basis points wide. That’s not a point of difference between Bernanke and my definition of morality; that’s just going to eat into the principle of profits.


Our immediate-term Risk Ranges are now as follows (we have 12 Global Macro ranges in our Daily Trading Range product too):


UST 10yr Yield 2.61-2.79%

SPX 1683-1704

Nikkei 14523-14844

VIX 12.95-14.98

USD 80.24-81.34

Gold 1291-1331


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Mind Your Business - Chart of the Day


Mind Your Business - Virtual Portfolio


TODAY’S S&P 500 SET-UP – October 9, 2013

As we look at today's setup for the S&P 500, the range is 12 points or 0.27% downside to 1651 and 0.46% upside to 1663.                                  













  • YIELD CURVE: 2.25 from 2.25
  • VIX  closed at 20.34 1 day percent change of 4.79%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Oct. 4 (prior -0.4%)
  • 10am: Fed’s Evans speaks on monetary policy in Washington
  • 10:30am: DOE Energy Inventories
  • 12pm: Fed’s Lockhart appears with Felipe Bulnes, Chilean ambassador to U.S., at World Affairs Council of Atlanta
  • 1pm: U.S. to sell $21b 10Y notes in reopening
  • 2pm: Fed releases minutes from Sept. 17-18 FOMC Meeting
  • 6pm: ECB’s Draghi speaks in Cambridge, Mass.


    • 8:30am: IMF Dir. of Monetary and Capital Markets Jose Vinals holds briefing on Global Financial Stability Report
    • 9am: World Bank President Jim Yong Kim gives press conference
    • 9:30am: House Oversight and Government Reform Committee holds hearing on IRS’s role in implementing Obamacare
    • 10am: Senate Banking, Housing and Urban Affairs Committee holds hearing on housing finance reform
    • 10:30am: Veterans Affairs Sec. Eric Shinseki testifies on effect of govt shutdown on VA benefits, services to veterans at House Veterans’ Affairs Cmte hearing
    • Noon: Financial Accounting Standards Board and International Accounting Standards Board hold public roundtable meeting on revised exposure drafts on leases
    • 1pm: House Small Business Committee holds hearing on effects of Obamacare on definitions of full-time employee with regard to small businesses


  • Yellen to be named by Obama as 1st female Fed chairman
  • Obama seeks post-debt deal talks as senate republicans seem open
  • Newcrest to replace CEO, chairman after asset writedown
  • Wal-Mart to buy Bharti’s stake in India retail venture
  • Jos. A. Bank offers to buy Men’s Wearhouse for $2.3b
  • SAC’s Cohen is said to face $1.8b cost to settle fraud charges
  • AT&T said to be close to wireless tower sale to Crown Castle
  • RBS said to hand over FX trader’s messages to U.K. regulator
  • Apple seeks China Mobile 3G, 4G knowledge in Beijing engineer ad
  • Apple said to debut new IPads at Oct. 22 event
  • J.P. Morgan said planning to cull business clients: WSJ
  • South Korea suspends some U.S. beef imports on additive: WSJ
  • Carlyle joins bid for Li Ka-Shing’s Parknshop chain: WSJ


    • Family Dollar Stores (FDO) 7am, $0.84 - Preview
    • Fastenal (FAST) 6:50am, $0.41 - Preview
    • Helen of Troy (HELE) 4:01pm, $0.72
    • Jean Coutu Group (PJC/A CN) 7am, C$0.25
    • RPM International (RPM) 7am, $0.71


  • Tin Smelters in Indonesia Furlough Staff as Rule Curbs Trade
  • Codelco Spends to Back View Copper Set for Rebound: Commodities
  • Commodity Prices Wrong as Often as 27% of the Time for Traders
  • Copper Falls for Third Day Amid Deadlock Over U.S. Debt Ceiling
  • Soybeans Fall for Second Day as Weather Aids Harvest in U.S.
  • Gold Drops in London Trading as Investors Assess Stimulus, Debt
  • Robusta Coffee Falls Before Record Vietnamese Crop; Cocoa Rises
  • WTI Crude Oil Fluctuates as U.S. Debt Limit Impasse Continues
  • Alcoa Earnings Top Estimates After Gains at Aerospace Segment
  • Rebar Closes Near 3-Month Low as IMF Cuts China Growth Outlook
  • Metal Prices Unresponsive to Economic Surprise Index Surge
  • Captain Phillips’s Ship Helmed by Tom Hanks at Risk in Shutdown
  • Shale Drillers Offered Water Cheaper Than U.K. Residents: Energy
  • Gold Imports by India Slump as Curbs Reduce Demand for Jewelry


























The Hedgeye Macro Team













WWW: McGough Reiterates High Conviction Buy

Takeaway: Hedgeye Retail Sector Head Brian McGough reiterates his high conviction thesis on WWW.

We wanted to make sure you saw the following brief HedgeyeTV video Retail Sector Head Brian McGough recorded today discussing Wolverine World Wide (WWW).


In case you missed it, WWW’s exceptionally strong earnings report this morning didn’t surprise McGough. As an “Investing Ideas” subscriber, you know that he has been one of the lone Wall Street bulls on the company.

Here's a link to the video.

You can also click here to read McGough’s full research report on WWW released in April detailing his bullish take on the company. 

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 80.51%
  • SHORT SIGNALS 78.32%


Takeaway: Below we rank our top read notes from September. Click the note title for access.


  1. 9/23/13 – SSS Monitor: Spotting Trends In The Restaurant Industry
  2. 9/10/13 – MCD: U.S. Sales Disappoint
  3. 9/11/13 – MCD: Long-Term Picture Tells A Story
  4. 9/26/13 – PNRA: No Quick-Fix Recipe
  5. 9/06/13 – MCD: Sales Preview
  6. 9/12/13 – QSRs: Stepping Their Game Up
  7. 9/25/13 – MCD: Signs Of Life? Maybe (Maybe Not)
  8. 9/11/13 – KKD: On Track
  9. 9/10/13 – The Boomer/Millenial Convergence
  10. 9/04/13 – KKD: Room To Run


Feel free to contact us if you have any questions, or would like to discuss any of our work in more detail.



Howard Penney

Managing Director



Takeaway: Macau momentum continues and we'll stick with LVS, the market share gainer

+21% growth bested pre and end of the month Street projections but September was even better than the headline



September was a darn fine month for the Macau operators.  We knew that.  What we didn't know was that Mass would be up 36% YoY and Rolling Chip Volume would also be up double digits.  VIP hold percentage was actually a little below normal and last year.  We will try, but it’s hard to poke many holes in this fabulous month.  Even slots were up 13%.  For October, we’re thinking that the high end of our GGR forecast of 20-25% might be the right number.  As a market share gainer, LVS remains our favorite Macau play.





General / Market

  • Compared to our detailed top down forecast, VIP volumes came in a lot better, mass volumes were a little better while slots were a little weaker.
  • Raw hold for TTM declined for the first time in a while to 3.19% from 3.21%. Trailing 24M remained at 3.18% while historical stayed at 3.12%
  • Even slots participated, posting the 3rd highest monthly YoY growth of the year
  • LVS properties exhibited the best market growth in VIP and slots. MPEL had the best growth in Mass, and SJM & MGM bested LVS for VIP RC growth


  • VIP hold % was slightly below normal but well above last year - 2.80% vs. 2.26%
  • The LVS properties grew faster than the market in all facets of the business:  Mass, Junket volume, VIP volume, and slots
  • GGR share dipped from July and August but that was hold related; junket volume share was the 2ndhighest ever for the company
  • Mass share was the lowest in 6 months
  • Junket volume share was the 2nd highest since Jan 2010. 


  • Lowest growth of 6 concessionaires
    • Worst Mass growth
    • Worst RC volume growth
  • Held well above normal on Rolling Chip but only a little higher than last September’s hold
  • Rolling Chip share was one of the lowest ever at 11.3%, down 110bps sequentially - 70bps below the all-time low of 10.6% in September 2007, and 70bps and 50bps below their 6M average and TTM average share, respectively
  • Mass share increased 110bps sequentially but was in-line with the 6 month and TTM average


  • Held high but had a difficult YoY comp
  • Best Mass growth of the 6 concessionaires, offset by the worst VIP growth driven by YoY declines in RC volume at Altira
  • Mass revenue share was noticeably below recent trend - 60bps below the 6M and 20bps below TTM trailing average. Although in MPEL’s defense, this kind of dip (1.3%) isn’t unusual.  Interestingly we have seen dips in MPEL’s mass share with rebounds in October since 2008
    • 1.0% decline April with a 1.5% bounce back in May
    • 2.2% decline in Jan with a 2.6% jump in Feb
    • 1.8% decline in Sept 2012 with a 1.1% increase in October 2012
  • While up sequentially, junket volume share continues to trend lower compared to the 6 and 12 month trailing average
  • We are becoming increasingly concerned with share losses in mass and Junket volume
  • MPEL gained the most slot market share this month and has remained the distant 2nd in terms of market share behind LVS in this category for 4 consecutive months and for 11 of the last 14 months


  • Held well below normal on junkets play and YoY comparisons were exasperated by high hold comparisons last September
  • MGM’s junket volumes took the top prize for growth in September and at 49% marketed the properties’ best growth rate in 2 years.
  • At 12%, Junket RC also set a record for all-time high market share
  • Mass growth at 22% decelerated from the prior 6M and 12M TTM rates of 33% and 31, respectively


  • Hold was normal but ahead of last year’s September
  • Galaxy was the largest MoM market share gainer, but market share was in-line with their trailing 6M and 12M average
  • YoY GGR grew 24% YoY, the 2nd highest in the market
  • Galaxy’s slot growth went negative for the first time in 32 months



Total table revenue grew 21% YoY.  Mass market maintained its high growth at 36%.  VIP volume rose 19% while VIP revenue gained 16%.



LVS led the market in table win at +51%.  Mass revs soared 51% while VIP RC grew 23%.  Including direct play, we estimate that LVS held at 2.8% in September, higher than last September's 2.3%, assuming direct play of 17% vs. 22% last year.  

  • Sands fell 16%, similar performance to August 2013
    • Mass grew 16%
    • VIP revenue fell 34%, while RC fell 37%
    • Sands held at 3.3% vs 3.3% in the same period last year.  We assume 10% direct play in September 2013  vs 8% in September 2013.
  • Venetian grew 42% 
    • Mass increased 29%
    • VIP revenue grew 57%, reversing two months of declines
    • Junket VIP RC gained 40%
    • Assuming 28% direct play, hold was 3.1% compared to 2.6% in September 2012, assuming 30% direct play 
  • Four Seasons gained 68%, best performance since September 2012
    • Mass revenue soared almost 146% on a comp of -27%
    • VIP revenue grew 52% and junket RC rose 14%. September hold (assuming 15% direct play) was 2.5% vs 1.85% in September 2012 when direct play was 16%.
  • Sands Cotai Central rocketed 157% higher for the 2nd consecutive month
    • Mass jumped 126% 
    • VIP revenues grew 184% 
    • Junket RC gained 61%
    • If we assume that direct play was 10%, hold would have been 2.6% vs 1.4% in September 2012 when direct play was 9%. 


MPEL gained 18% in table revenues.  Mass growth continued to excel at 71% while VIP growth was 4%. We estimate that MPEL held at 3.1% vs 3.2% last September.  Estimated direct play was 11%, in-line with last year, but up sequentially.

  • Altira table revenues fell 8%, 1st decline since Feb 2013
    • VIP revs dropped 11%
    • VIP RC fell 6%
    • Mass gained 25%
    • We estimate that hold was 3.3%, compared to 3.3% in the prior year
  • CoD table revenues grew 30% YoY
    • Mass increased 77%, continuing its impressive streak of strong YoY double-digit gains since the property opened
    • VIP win grew 12%, while RC grew 15%
    • Assuming a 16% direct play level, hold was 3.0% in September compared to 3.1% last year (assuming 15% direct play)


Wynn table revenues grew 8%

  • VIP revenues and RC both grew 7%
  • Wynn held at 3.4% (assuming direct play of 8%) vs 3.3% last September (assuming direct play of 10%)
  • Mass revenues gained 15%


MGM table revenues grew 19%

  • We estimate that hold was 2.6% adjusted for direct play of 7% vs hold of 3.1% last year assuming 8% direct play
  • VIP RC and Mass grew 49% and 22%, respectively


Galaxy table revenues grew 24%.  VIP revenues gained 19% while RC volumes grew 10%.  On the bright side, Mass growth was strong at 42%.  Hold was 3.1% in September 2013 vs. 3.1% last year.

  • Starworld table revenues gained 16%
    • Mass soared 70%
    • VIP gained 8%.  
    • Junket RC rose 17%
    • Hold was 2.7% vs 3.0% last year
  • Galaxy Macau's table revenues jumped 27%
    • Mass had another great month at 44% growth
    • VIP gained 21%
    • Hold was 3.5% vs 3.2% last September


Total table revenue grew 11%, with mass and VIP growth of 20% and 6%, respectively.  RC volume gained 25%.  SJM held at 2.6% vs 3.1% last year.



SEQUENTIAL MARKET SHARE - September relative to August (property specific details are for table share while company-wide statistics are calculated on total GGR, including slots):



Market share slipped 70bps to 22.0%.  September’s share is above its 6-month average of 21.8% and better than its 2012 average share of 19.0%. 

  • Sands' share gained 60bps to 3.2%.  For comparison purposes, 2012 share was 3.9% and 6M average share was 3.1%.
    • Mass share gained 50bps to 5.0%
    • VIP rev share gained 70bps to 2.3%
    • RC share lost 10bps to 1.9%
  • Venetian’s share was unchanged at 8.6%.  2012 share was 7.9% and 6 month trailing share was 8.4%.
    • Mass share decreased 150bps to 13.0%
    • VIP share increased 110bps to 6.6%
    • Junket RC share gained 50bps to 4.7%
  • FS gained lost 70bps to 3.1%.  This compares to 2012 share of 3.7% and 6M trailing average share of 3.4%
    • VIP fell 110bps to 3.4%
    • Mass share was unchanged at 2.4%
    • Junket RC was unchanged at 3.5%
  • Sands Cotai Central's table market share fell 60bps to 6.7%, which compares to the 6M trailing average share of 6.6%.
    • Mass share fell 60bps to 8.6%
    • VIP share fell 70bps to 5.7%
    • Junket RC share gained 30bps to 6.3%, its highest share ever


MPEL lost 60bps in share in September to 13.8%.  Its 6 month trailing share is 14.4% and their 2012 share was 13.5%.  

  • Altira’s share gained 10bps to 3.4%, below its 6 month trailing share of 3.6% and 2012 share of 3.9%
    • Mass share rose 10bps to 1.2%
    • VIP was unchanged at 4.4%
    • VIP RC share fell 60bps to 4.1%
  • CoD’s share lost 80bps to 10.3%, above the property’s 2012 and 6M trailing share of 9.4% and 10.7%, respectively.
    • Mass market share lost 130bps to 11.6%
    • VIP share lost 50bps to 9.6%
    • RC share gained 110bps to 8.4%


Wynn GGR share was 11.4%, down 20bps MoM.  2012 average share was 11.9% and their 6M trailing average share has been 10.8%.

  • Mass share jumped 110bps to 7.4%
  • VIP share lost 90bps to 13.4%
  • Junket RC share dropped 110bps to 11.3%


MGM’s market share lost 70bps to 9.6%, above its 6M and 2012 average of 10%

  • Mass share was flat at 6.9%
  • VIP share fell 120bps to 10.6%
  • Junket RC gained 40bps to 12.0%


Galaxy's share gained 130bps to 18.4%, below its 2012 average and 6-month average share of 19.0% and 18.5%, respectively

  • Galaxy Macau share was unchanged at 10.7%
    • Mass share fell 60bps to 9.7%
    • VIP share rose 30bps to 11.2%
    • RC share lost 40bps to 9.9%
  • Starworld share gained 120bps to 6.7%
    • Mass share gained 70bps to 3.9%
    • VIP share gained 140bps to 8.1%
    • RC share slipped 10bps to 9.2%


SJM share gained 80bps to 24.7%, below their 2012 average of 26.7% but back above their 6M trailing average of 24.4%

  • Mass market shares jumped 170bps to 28.2%, the biggest gainer in the market
  • VIP share gained 50bps to 23.9%
  • Junket RC share rose 10bps to 28.3%


Slot Revenue


Slot revenue grew 13% YoY to US$136MM in September

  • LVS had the best YoY growth at 42% to $47MM
  • MPEL gained 13% to $26MM
  • MGM gained 7% to $20mm
  • WYNN lost 3% to $15MM
  • GALAXY lost 6% to $15MM  
  • SJM had the worst YoY slot performance for the 3rd consecutive month, -8% to $13MM