• run with the bulls

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    of hedgeye free


Sorry, America

Client Talking Points

US Dollar

A solid comeback this morning for the US Dollar right to my TREND line of $81.39 resistance. So will it hold? If it does, and Janet Yellen loses Bernanke’s (perceived) control of the bond market, this is going to get really gnarly. Fast. #StrongDollar + #RatesRising is what I loved for all of 2013. (Gold loathed it). That was until Bernanke opted for the epic no-taper blunder.


Look at the divergence born out of a #StrongDollar move. Over in Japan, the Nikkei loved it. It was up +2.2%. Why? Because it loves Burning Yen vs USD. And Emerging Asian Markets like India (-1%) and Indonesia (-1.4%) didn’t like it at all. Don’t forget what a pervasively #StrongDollar got you in July – a currency crisis in some of these Emerging Market markets (and inflation).

MBS Bubble

2008 Oil Bubble... 2011 Gold and Foreign Currency Bubbles... 2012 Food Bubble... 2013 stock market bubble... Just how many bubbles can Ben Bernanke foment under his Fed watch? The next one to pop is the one no one can get out of...MBS. And that’s why this Andrew Huszar Wall Street Journal Op-Ed article is so timely. Finally! Someone explaining the truth of Too Big To Fail bond positions.

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


At the $SPY high yesterday volume had almost vanished; breadth was bad too @KeithMcCullough


Failure is not fatal, but failure to change might be. -John Wooden


Obamacare has reached only about 3% of its enrollment target for 2014 in 12 U.S. states where new online health insurance marketplaces are mostly working smoothly, according to a new report. States with functioning exchanges have signed up 49,100 people compared with the 1.4 million people expected to be enrolled for 2014, according to Avalere Health. (Reuters)






A Russian newspaper, Kommersant, reported on November 7 that Oleg Drozdov had been detained for investigation by Russian law enforcement.  It’s reportedly regarding alleged malpractices by a business called OOO Vladivostokservis and relates to the construction of a solid waste treatment facility in Vladivostok in the Russian Far East.  The investigation relates to events in 2009 and 2010 and is said to involve 367 million roubles (US$11.2 million, or 89.72 million patacas). 


Summit Ascent - a company controlled by Lawrence Ho - said it was paying US$9.02 million for 46% of Oriental Regent Ltd, a holding company that currently owns 50% of First Gambling Company of the Far East LLC.  First Gambling in turn has a gaming licence in Primorye, the Russian Far East province of which Vladivostok is the capital. Melco International Development Ltd – which also holds a stake in MPEL – would pay US$980,392 for a 5% stake in Oriental Regent.

Drozdov is an indirect minority shareholder in Oriental Regent. He controls 30% of it via Elegant City Ltd, a British Virgin Islands company that is in turn wholly owned by Mr Drozdov.


The estimated total investment for the first phase of the casino resort complex to be constructed at an ‘Integrated Entertainment Zone’ in Primorye – next door to China’s northeastern Heilongjiang province – is about US$130 million.  It will have a 119-room hotel, approximately 800 slot machines, 25 VIP gaming tables and 40 mass-market gaming tables.



Macau CEO Fernando Chui said the government would push large companies, including the six gaming operators, to promote more residents to management positions.  He did not set any minimum ratio for Macau residents in these posts.  The government will continue to “firmly” ban migrants from working as casino dealers.  Chui did not clarify if the government is planning to ban non-local croupiers by law, as requested by several labour unions.


Macau SMEs will get some help in expanding to Hengqin Island, as there are plans to create an area only for Macau businesses at the new Chimelong theme park, scheduled to open next month.


The cash handout scheme will continue in 2014, handing even more money to both permanent residents and non-permanent residents.  Permanent residents will receive a record MOP9,000, while non-permanent residents will get MOP5,400. Last year, permanent residents received MOP8,000 and non-permanent residents MOP4,800.

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Indian Givers

This note was originally published at 8am on October 29, 2013 for Hedgeye subscribers.

“The new coins helped to wash away the old aristocratic order.”

-Jack Weatherford


That, of course, is not what the 16th century European aristocracy had in mind. As my man Jack Weatherford explains in an excellent chapter of Indian Givers, “Silver and Money Capitalism”, “the silver coins at first promised to strengthen the feudal order…” (pg 19). Never blindly believe what the government promises you.


Weatherford first penned Indian Givers in 1988 (then updated it in 2010) after writing about the history of porn in Japan in 1986. His writings are some of my favorites in economic history because his narratives are fully loaded with the inconvenient truths about government plans versus outcomes.


You can only lie to The People about policies that aren’t working for so long. In the end, the history of markets, money, and businesses are marked-to-market. And even though it may take a long-time for bad policy (like burning your currency) to fail, I thoroughly enjoy the thought of my son or daughter reading about how the 2013 Fed sucked in so many group-thinkers.


Back to the Global Macro Grind


There’s another Indian Giver making headlines this morning:


BREAKING: Rajan Raises Key Rate to Fight Inflation –Bloomberg


Booyah! That’s right, yo. India’s got a new central banker in the house- and he goes both ways (on rates). This is the 2nd interest rate HIKE in 2 months for Governor Raghuram Rajan. And the Indian stock market absolutely loved it, closing up +1.65%!


Huh? I thought that the other 90% of Bloomberg/CNBC headlines have been implying that if the US, Europe, or any country were to raise rates that the world as we know it would end?


Newsflash: it would.


But like during the 17th century enlightenment, it would end for the better! #EndofBackwardness


Indian Giver giveth to The People of India the following via a rate hike:


1.   #StrongerCurrency

2.   Lower currency adjusted inflation

3.   Breakout in Indian stock market




And yes, everything in the land of causal currency policy action is relative, but consider the alternative model (which Bernanke, Yellen, and most French Bureaucrats are begging for – Down Currency, Down Rates):

  1. India’s Rupee was in freefall in Q2 of 2013, having its biggest down days ever (yes, ever is still a long time)
  2. India’s Consumer Price Inflation (yes, calculated in Rupees!) hit new highs as the Rupee crashed
  3. India’s real-inflation-adjusted economic growth slowed and its stock market hit its YTD lows in AUG 2013

Then, Rajan raised rates (twice) and:

  1. India’s Rupee stabilized
  2. India’s Inflation slowed
  3. India’s growth stabilized

The Keynesian-anti-dog-eat-dog-currency-debauchery-department at Dartmouth better get on this. This Indian Giver is going off the reservation versus what they’re teaching undergrads for $63,282/yr.


It’s hockey season, so it’s a good time to take a shot at Dartmouth’s Big Green Keynesian mouthpiece-in-chief, dogmatic Danny Blanchflower. He’s the guy you may have seen recently on Twitter with his jersey yanked over his head by @HedgeyeSnakeye and @DanHannanMEP (Todd Jordan and Hedgeye fav Daniel Hannan).


Blanchflower was the guy who warned that British austerity was going to mean #EOW (end of the world) for the UK economy a few years back. He’s also of the ideology that a #StrongEuro and #StrongPound is bad for “exports”, or something like that.


In other news…


The slope of UK economic growth just clocked a 3-year high and both the British Pound and British stock market (FTSE) are breaking out to new highs as the world comes to realize that ending Mervyn King’s QE Pound Getting Pounded experiment hath ended.


Sound familiar?

  1. Currency Up (Pound has ripped from $1.49 vs USD to $1.61 in the last 3 months)
  2. Rates Up (10yr British Gilt Yield of 2.59% are up +81 basis points year-over-year)
  3. UK GDP #GrowthAccelerating to a 3yr high

No, I’m not saying that India and the UK are seeing economic growth booms. I’m simply reminding you that this is the only way out of a Down Currency, Rate Repression government policy.


No, the aristocratic order of Big Government Intervention doesn’t like paying The People instead of plundering them via currency devaluation taxes. And I for one like that very much.


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


UST 10yr Yield 2.40-2.57%

SPX 1746-1770

BSE Sensex 20132-21279

VIX 12.46-14.92

USD 78.38-79.58

Pound 1.60-1.62


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Indian Givers - Chart of the Day


Indian Givers - Virtual Portfolio

[video] Penney Talks $MCD on Yahoo! Finance


Implications of the upstate NY gaming expansion



What’s passed?

  • Voters approved Proposal 1
    • The proposed amendment to section 9 of article 1 of the Constitution would allow the Legislature to authorize up to seven casinos in New York State for the legislated purposes of promoting job growth, increasing aid to schools, and permitting local governments to lower property taxes through revenues generated.
  • 4 casinos in 3 upstate locations:  Catskills (2 casinos likely), Albany/Saratoga Springs, Southern Tier near Binghamton
    • The location for the other three casino licenses has not yet been determined, but upcoming legislation prohibits the award of a license in New York City for at least 7 years
  • 2 slots parlours on Long Island (up to 1,000 VLTs each)
    • Legislation allows for two struggling Long Island offtrack betting companies in Nassau and Suffolk to each open slot parlors with as many as 1,000 machines

Who’s interested?

  • Catskills:  CZR, Empire Resorts, Mohegan Sun, Foxwoods, Navegante, Louis Capelli, Genting partnership
  • Albany/Saratoga Springs:  CZR, Saratoga ((VLT expansion into full-scale casinos
  • Southern Tier near Binghamton:  Tioga Downs (VLT expansion into full-scale casino)

What’s the opportunity? 

  • 1,000-1,500 slots at 4 casino locations plus up to 1,000 slots at 2 slot parlors, translates into roughly 6,000-8,000 new slots between mid 2015 through 2017 
    • Slot parlors will be regulated by the NY Lottery and should come online first in mid-2015
  • Slot operators will benefit from this expansion, especially Bally’s who will also benefit from the table placements due to the SHFL acquisition.  An incremental 1,000 units has about 14 cents of impact on BYI’s EPS.  Currently, BYI has north of 50% share in New York and it's likely that the new parlors will be tacked onto the existing agreement for ship share.

What are the obstacles?

  • Given that the legislation has passed the NY legislature and the voters have approved the legislation, it will be implemented.

Who’s affected?

  • 5 current NY full-scale casinos operated by Native American tribes
  • 9 slot-machine parlors operated by racetracks.
  • Atlantic City/Pennsylvania/Connecticut markets

What’s next?

  • The next step in the process is for NY State Gaming Commission to form a five-member Facilities Location Board that will decide where casinos go.  
  • The board cannot be legally seated until the proposal above becomes law on Jan 1, 2014.  Once a three-person majority has been named, the Location Board has 90 days to issue a request for applications from potential casino operators.

investing ideas

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