• run with the bulls

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Pity the Perma Fear Mongers

Client Talking Points


The S&P 500 is up +3.1% for October. It's up +21.5% year-to-date. The perma fear-mongers nailed it. Right? Moving on… now with a lot of hands forced to cover-and-chase, there’s a lot to do. In a Burning Bernanke Buck tape, we like being #EuroBulls more than buying more USA up here. Yes, it’s been a great year being long US growth stocks, lock more of that in.


We are not selling our long Germany (via EWG) position. We like European Equities more than USA (from this price) for the exact same reason we got bullish on USA in December 2012. #StrongEuro and #StrongPound increases European purchasing power and pulverizes the inflation tax. That is a very good thing for consumption and #GrowthAccelerating.


Shame on Ben Bernanke and Janet Yellen if they don’t put a consistent tapering expectation back on the table. And soon. On the margin, Down Dollar, Down Rates is going to slow real-inflation adjusted growth from this healthy +2.5% US GDP level. What to I do? I go out and buy Europe and China ahead of USA on that.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up. 


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


Google earnings up +36% (EPS $10.74 vs $10.36) as ad volumes rip - but "earnings season is a risk", eh? @KeithMcCullough


My goal is to get home every day in time for dinner with the family - and then we play with the kids for a while, and then I go to bed around the time they do and sleep from nine to three or nine to four. It's the same six hours everyone else gets. I'd just rather do my e-mails and my reading in the morning rather than late at night, that's all.
- David Einhorn 


JPMorgan Chase has sold the One Chase Manhattan Plaza skyscraper to Fosun International for $725 million, the latest in a series of New York real estate purchases by Chinese investors.

October 18, 2013

October 18, 2013 - dtr



October 18, 2013 - spx

October 18, 2013 - dax

October 18, 2013 - SHCOMP

October 18, 2013 - euro

October 18, 2013 - pound

October 18, 2013 - natgas 



October 18, 2013 - VIX

October 18, 2013 - dxy

October 18, 2013 - gold

October 18, 2013 - copper



Get Busy

"Get Busy Living or Get Busy Dying"

-Morgan Freeman, Shawshank Redemption


Earlier this week, I raced a 95 year old lady down the Merritt Parkway on my way home from work. 


Well, kinda. 


To review:  while driving north from our new HQ in Stamford, I watched in my rearview mirror as a navy blue Mustang darted back & forth between lanes before pulling up beside me, then speeding ahead. 


After racing to catch-up for a confirmatory, second look…90 is, apparently, the new 25.     


The age was undeniable, but there were no coke bottle glasses, no cautious, granny-fied 3 o’clock- 9 o’clock hand positioning, no squinty eyed lean forward, no Buick or Oldsmobile.


Just a sharp gaze and tangible life energy. 


The experience was a pleasant surprise and a welcomed contrast to the latest, consuming iteration of beltway brinksmanship – which, unsurprisingly, lacked both pleasantness and originality. 


Back to the Global Macro Grind…..


I don’t know granny’s life recipe for sustained physiological alacrity – but the ‘pleasant surprise’ of her apparent vitality dovetails nicely with one of our top 3 Macro Investment themes for 4Q:  #GetActive


Without giving away the full, institutional macro alpha thunder, our call for an increase in active investment management is predicated on a few key points:


1.   Big Government Intervention:  Our fiscal policy creation process remains a circus and the new golden boy in the monetary policy arsenal – the “communication tool” – remains in beta testing and breeding decidedly more market uncertainty than price stability at present.  Collectively, we expect policy intervention to continue to perpetuate Market/Currency/Economic Volatility.  Volatility breeds both opportunity and a heightened probability for an expedited drawdown in equities and …


2.   Active Management outperforms in down markets:  Historically, on average, the HFRX Equity Hedge index outperforms the SPX in down markets and that outperformance increases as the magnitude of negative monthly S&P500 performance increases.  At extremes of negative market performance, the HRFX has outperformed by ~800bps on a monthly basis.  Hedge funds apparently hedge after all.


3.   Sector Picking will Matter:  As the Chart of the Day below illustrates, the variance in sector performance this year is near a historic low Put differently, it hasn’t really mattered what sector you bought  – beta has been the new alpha and simply buying the market was the best allocation decision.  Over the intermediate term, a mean reverting breakout in the variance of sector returns is almost a guarantee.  Consider the performance delta between Financials  and Utilities in the quasi-analogous post-1994 period, after Greenspan began his rate raising campaign.  Financials returned 50%, 32%, and 45% in 1995, 1996, and 1997 respectively.  Utilities returned 25%, 0%, and 18% over that same period.  A 3Y CAGR of 42% for Financials vs 14% for Utes. 


In truth, #GettingActive is really just an investment euphemism for Trading.   


Trading generally gets a bad rap because it doesn’t fit the canonical ‘stocks for the long-term’ dictum, it doesn’t market well and, well, it’s hard – the recent multi-year trend in collective hedge fund benchmark underperformance hasn’t been a siren song for incremental actively managed AUM either. 


Keith has actively managed market risk in the Hedgeye portfolio for 5+ years, actively manages the Hedgeye HFT (High Frequency Tweet) machine and is probably more” active” than constrained in opining on markets, policy and policy makers.


To the latter point, sometimes I think the punditry of the Early Look prose occasionally belies the reality of our risk managed positioning. 


For instance, while we were highlighting an increased likelihood for a policy induced deceleration in domestic growth back on Oct 9th/10th, at the same time, we were taking up both our gross and net long positioning into the back end of the 4% market correction. 


From a process perspective, our conviction level rises and we typically get louder about an idea when both the research (fundamental) view and the quantitative risk management signal are both in agreement. 


But what if there is no fundamental data?


The gov’t shutdown the last two weeks has served as an illustrative example of how our risk management process works in practice – primarily because  there was no incremental fundamental data to inform our marginal macro view,  leaving the risk management signal as our principal signaling mechanism for driving portfolio decisions.


Contrasting yesterday’s price signals and subsequent allocation decisions with those made a week ago exemplifies the process.  


What were the market and price signal dynamics back on Oct 10th and why did we buy the dip:

  1. $USD – V-bottomed off its long-term tail line of support at 79.21
  2. VIX – was breaching its TREND support level of 18.98 on the downside
  3. SPX – recaptured TREND support at 1663
  4. 10Y Treasury – Held TREND support of 2.58%
  5. U.S. Stocks moving towards immediate term oversold, down for 11 of the prior 15 days

With all the price signals in agreement, the highest probability swing was to get longer and play for the 24 handles of immediate term upside. 


Yesterday’s price signals were very similar:

  1. 10Y Treasury – 10Y was back to flirting with a TREND breakdown through 2.58%
  2. $USD – The dollar was moving back towards testing TAIL support at 79.21.

Down Rates + Down Dollar + Rising Policy Uncertainty is not a factor setup we want to be long of over the intermediate term, but we kept the portfolio unchanged at 6 Longs, 3 short into the close. Why?

  1. SPX – higher highs are bullish and equities were not signaling immediate term overbought
  2. VIX – Debt Default fear remained for sale with the VIX continuing in free fall
  3. Squeezage – with  hedge fund short positions as YTD highs there’s room to let the squeeze rally breath a bit.
  4. Hilsenrath’s mid-afternoon proclamation that Oct-Taper is officially a no-go & Bernanke/Yellen risk remains acute juices the immediate term downside risk for both the dollar and interest rates. 

So, we didn’t buy the rip or tighten up net exposure. 


What will we do today?  I don’t know – and that’s largely the point.  As always, we’ll let the market signal tell us which way to lean.


Does timing matter?  Implicit in allocations to active strategies is a belief that it does.


As Keith queried on twitter yesterday afternoon:


“If timing didn't matter, why are you watching Twitter right now?”


Similarly, are markets efficient or irrational and reflexive? 


Fama won the Nobel prize for “proving” the former.  At the same time, Shiller won for proving the latter.  Seems about right. 


Activity/Variety is both the spice of life and nature’s most potent cerebral exfoliant. 


Take a different route to work in the morning, eat dinner with your left hand, simplify a few radical expressions,  invest some incremental capital in the growth inflection happening across the pond, turn down CNBC and turn on #tweetshow today at 3pm.  


Switch it up, Get Busy. 


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.55-2.67%


VIX 12.61-15.24

USD 79.21-80.31

Euro 1.35-1.37

Pound 1.60-1.62


Enjoy the Weekend. 


Christian B. Drake

Senior Analyst 


Get Busy - Get Active


Get Busy - z. vp 10 18


TODAY’S S&P 500 SET-UP – October 18, 2013

As we look at today's setup for the S&P 500, the range is 50 points or 2.20% downside to 1695 and 0.68% upside to 1745.        










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.25 from 2.28
  • VIX closed at 13.48 1 day percent change of -8.36%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8am: Fed’s Lacker speaks on orderly resolution in Washington
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2043 sector
  • 1pm: Baker Hughes rig count
  • 1pm: Fed’s Tarullo speaks on orderly resolution in Washington
  • 2pm: Fed’s Evans speaks on economy in Chicago
  • 3:40pm: Fed’s Dudley speaks
  • 4:30pm: Fed’s Stein speaks in Boston


    • 8am: Fed conf. on “Planning for Orderly Resolution of a Global Systemically Important Bank”
    • 8:30am: CMS Deputy Administrator speaks at America’s Health Insurance Plans State Issues conf.


  • Barclays, Citigroup FX traders’ msgs said to be scrutinized
  • LG Display leads Apple supplier gains on Morgan Stanley report
  • Morgan Stanley must face group lawsuit by Singapore investors
  • KKR sues Halliburton to enforce $256m arbitration award
  • Royal Brunei in talks with Airbus, Boeing to buy planes
  • China GDP growth rebounds after Li stimulus to meet target
  • Hedge funds seek to trade in comfort as bankruptcy insiders
  • JPMorgan sells Chase Manhattan Plaza in NYC to China’s Fosun
  • U.S. video-game sales jump in Sept. on ‘Grand Theft Auto’
  • U.S. Government, IPads, Ford, U.K. GDP: Wk Ahead Oct. 19-26


    • Baker Hughes (BHI) 6am, $0.78 - Preview
    • Celanese (CE) 5pm, $1.15
    • First Horizon National (FHN) 7am, $0.19
    • First Niagara Financial (FNFG) 7:15am, $0.19
    • General Electric (GE) 6:30am, $0.35 - Preview
    • Genuine Parts (GPC) 8:49am, $1.20
    • Honeywell Intl (HON) 6:30am, $1.24 - Preview
    • Ingersoll-Rand (IR) 7am, $1.10
    • Interpublic Group (IPG) 7am, $0.18
    • Kansas City Southern (KSU) 8am, $1.11 - Preview
    • Laboratory Corp of America (LH) 6:45am, $1.80 - Preview
    • Morgan Stanley (MS) 7:15am, $0.40 - Preview
    • Parker Hannifin (PH) 7:30am, $1.47
    • Schlumberger (SLB) 6:30am, $1.24 - Preview
    • SunTrust Banks (STI) 6am, $0.68
    • Textron (TXT) 6:30am, $0.47


  • Asian Gold Demand Seen Surging by HSBC on Elevated Inflation
  • Wheat Bears Prevail as Demand Slows for Record Crop: Commodities
  • Copper Heads for Biggest Weekly Gain in Four on Chinese Growth
  • Iron Ore Futures Debut in Dalian as China Seeks Pricing Power
  • Wheat Climbs as Demand for U.S. and EU Supplies Seen Sustained
  • WTI Crude Set for Second Weekly Decline, Nearing $100 a Barrel
  • Palm Oil Advances a Second Week as Exports From Malaysia Climb
  • Natural Gas Futures Set for Weekly Loss on Ample U.S. Stockpiles
  • Gold Swings as It Heads for Best Week Since August on Stimulus
  • Chinese Steel Products Output Up 16.3% Yoy on Stimulus: BI Chart
  • Stevens Silent as Commodities Spur Aussie Rise: Chart of the Day
  • WTI Crude May Fall After U.S. Inventories Climb, Survey Shows
  • Railroads Shipping Oil Face New Rules After Quebec Fire: Energy
  • Goldman Sachs Cuts Arabica Coffee Forecasts by 7.7% on Weather


























The Hedgeye Macro Team
















In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • BETTER: LVS reported a solid beat on the back of better margins in Macao driven by stellar growth on yielding up mass win per table. On the capital side, LVS raised their dividend and bought back a lot of stock. What's not to like? 


  • BETTER:  Mass win per table per day increased 117.7% YoY while mass table, slot and ETG win per day climbed to $4.3 million, an increase of 174.3% YoY, significantly beating estimates.  In the spring, they will bring 75 more mass games.  SCC still has room to grow. 
    • "SCL mass table games has grown 60% in the last year to $920 million from $577 million a year ago in this segment and the margin is still mid-40s, 45%, 46%, 47%."
    • "Upside in this segment comes from the organic growth in the Macau market, specifically in Cotai, our ability to leverage our hotel and retail asset base in Macau and in Cotai, in particular, to drive much higher win per unit, we're just in a unique position to improve dramatically and see SCL's mass table growth grow to $4 billion to $5 billion, $6 billion years ahead."


  • BETTER:  Over 60 tables now in the premium mass segment at Four Seasons.  Four Seasons mass drop was outstanding, up 146% YoY - blowing away estimates.
    • "As we move more into this premium mass business there, I think the numbers will get better and the hold percentage will be what it's going to be. We know with that kind of volume, the hold percentage pretty much stays flattish when it's all said and done."


  • BETTER:  Recurring annual dividend will be increased to $2.00 per share, or $0.50 per quarter, for FY 2014, an increase of 42.9%.  LVS repurchased approximately $299.6 million of common stock (4.6 million shares at a weighted average price of $65.18) during 3Q.  In the future, they expect to buy back >$75MM/month until the remaining $1.65BN authorization is used up.  
    • "We publicized last year that our dividends would increase by a minimum of 10% per year, most of the market expectations are that we'll do actually more than that. But there is a dividend bias in the company to continue to increase the yield on our stock, the stock has gone up, so that means we have to increase our dividends to keep the yield at where it should be. We have announced a $2 billion buyback of stock. We are progressing with that buyback and we'll continue to do that until the $2 billion is taken care of."


  • LITTLE BETTER:  Based on current schedule, LVS is targeting a late 2015 opening, but may be able to open a few months ahead of schedule.  Expect building permit will be given on a timely basis.
    • "Based on our current construction schedule, and subject to timely government approvals, we are targeting the opening of the Parisian Macao for late 2015."


  • SAME:  RC volume rose 17% to $13.8BN.
  • PREVIOUSLY:  "We've been pretty consistent in the range of $12 billion to $16 million roll per quarter. I think that will remain intact for the foreseeable future."


  • SAME:  3Q EBITDA of $87.1MM was in-line with expectations.  Table games drop decreased 6.4%
    to $544.3 million reflecting lower baccarat drop.  Slot handle both grew 2.6% YoY.
    • "On the gaming side, we are very dependent on high-end premium Asian players who come here. And although we've participated, we've done very well in that segment, we're happy to be in it, the entire town doesn't share equally in that.  Slot and mass tables continue to be mediocre. I wouldn't call it a head fake as much as it's just a challenging market that will slowly get better, but I wouldn't look for rapid improvement in the next few quarters."
    • "Win per unit per day on the pure mass in Las Vegas is very challenging. The premium mass, the better customer who comes in for special events, fights, high frequent, out of Southern California, that is getting better."

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 80.48%
  • SHORT SIGNALS 78.35%