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A draft of a bill legalizing casinos was approved by a panel of lawmakers from Japan's ruling Liberal Democratic Party.   “We are now able to move forward,” said Ryosei Akazawa, head of the party’s transport panel, who said he had now been placed in charge of shepherding the legislation through the approval process.  The next step will be to take the bill to the party’s policy panel for official backing.

A cross-party group of lawmakers headed by LDP deputy Secretary General Hiroyuki Hosoda has said it’s preparing to submit the casino legalization bill to parliament in the current session, which ends Dec. 6.  It is unclear whether junior coalition partner New Komeito will agree to support the bill.  Generally legislation submitted under Abe’s administration has been backed by both parties.


“We just listened to the arguments today,” Komeito lawmaker Kiyohiko Toyama said after a meeting on the bill. “We haven’t decided anything as a party.”



Visitor arrivals increased by 2% YoY to 2,394,195 in October 2013.  In October 2013, visitors from Mainland China increased by 5% YoY to 1,514,373, coming primarily from Guangdong Province (708,375) and Fujian Province (64,801); Mainland visitors travelling under the Individual Visit Scheme totaled 677,292.  Moreover, visitors from Taiwan, (89,248) and the Republic of Korea (38,632) increased by 3% and 12%, while those from Hong Kong (543,580) registered a 4% decrease.  The average length of stay of visitors held stable from a year earlier, at 1.0 day in October 2013.





Macau Legend Development David Chow Kam Fai expects the redevelopment of Fisherman’s Wharf to be completed in 2016.  The work began in August.  Chow said the redevelopment will cost HK$6.8 billion (US$877 million).  The redeveloped Fisherman’s Wharf will have three new hotels, a dinosaur pavilion and a technologically advanced cinema.


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

As we look at today's setup for the S&P 500, the range is 20 points or 0.60% downside to 1785 and 0.51% upside to 1805.                                                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.50 from 2.51
  • VIX closed at 12.66 1 day percent change of -5.52%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:40am: Fed’s George speaks in Paris
  • 10am: JOLTs Job Openings, Sept., est. 3.840m (prior 3.883m)
  • 11am: Kansas City Fed Mfg Activity, Nov., est. 6 (prior 6)
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 12:15pm: Fed’s Tarullo speaks in Washington
  • 1pm: Baker Hughes rig count


    • President Obama hosts King Mohammed VI of Morocco at White House
    • 10:15am: Sec. of Defense Chuck Hagel meets with Canadian counterpart Rob Nicholson to discuss defense relations, sign Canada-U.S. Asia-Pacific Defense Policy Cooperation Framework


  • J&J said to narrow bidder list to 3 for diagnostics business
  • Robin Hood conf. continues today w/ Ackman, Druckenmiller
  • Paulson changes tone to say he won’t add more to gold fund
  • Apple recoups most Samsung damages cut from 2012 verdict
  • Gap’s profit forecast signals holiday quarter may disappoint
  • EMA monthly CHMP announcements today from 7am NY time
  • Novartis to buy back $5b in stock, add business segments
  • German business confidence rises in sign recovery on track
  • Apple supplier Foxconn to invest $40m in Pennsylvania
  • Party City readies for IPO in early 2014, Reuters says


    • Ann Inc. (ANN) 7:45am, $0.87
    • Foot Locker (FL) 7am, $0.66 - Preview
    • Hibbett Sports (HIBB) 6:30am, $0.65
    • PetSmart (PETM) 9:05am, $0.86 - Preview
    • Sirona Dental Systems (SIRO) 6:30am, $0.80


  • Paulson Changing Tone Said to Say He Won’t Add More to Gold Fund
  • Gold Analysts Most Bearish Since June on Fed Taper: Commodities
  • Codelco ‘Optimistic’ on China Copper Demand on Middle Class
  • Gold Swings Near Four-Month Low as Investors Weigh Fed Tapering
  • WTI Crude Set for First Weekly Gain in Seven; Iran Deal Falters
  • Taylor, Jamison Outpace Commodity Hedge Funds Seeing Losses
  • Aluminum Fees in Japan Seen Near Record in First Quarter on Abe
  • Copper Poised for Weekly Gain on Stockpiles, China: LME Preview
  • Rebar Caps First Weekly Gain in Three on Mill Price, Inventory
  • Western Bulk Says China Minor-Bulks Rose 19%; Supramaxes to Gain
  • Shale Boom Pits U.S. LPG Against Mideast in Asia: Energy Markets
  • South African White Corn Climbs to Highest in More Than 7 Months
  • Gold Option Wagers on Surge to $3,000 Was Most-Active Yesterday
  • German Gold Assets Drop 0.1% in October in First Cut Since June
  • Copper Gains Amid Signs Recovery Picking Up as Stockpiles Shrink


























The Hedgeye Macro Team














November 22, 2013

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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Tough Questions

“Computers are useless; they can only give you answers.”

-Pablo Picasso


Amen to that, Pablo. It’s amazing how much time and effort we all spent at school and currently spend at work learning strategies and techniques for finding the right answers compared to how little time we spend learning to ask the right questions.


Implicit in any commitment to discovering the truth is a commitment to systematically asking ourselves tough questions – the answers to which may not be derivable from reported data that is inherently backward-looking in nature.


Furthermore, such questions extend well beyond the typical, “Where can I be wrong?”, instead opting to traverse the realm of, “Where am I not even looking?”


With respect to the latter question, we are in a unique position to help. In meetings with clients, it’s clear that our commitment to remaining truly independent (no banking, trading or asset management) helps us foster a level of trust with our clients that does not appear to be abundant in this industry. Having a senior roster loaded with meaningful buyside experience doesn’t hurt either.


Getting right into it, Keith, Ryan Fodor and I spent much of this past week up-and-down the west coast visiting with clients and prospective clients from various strategies and disciplines.


As usual, the topics of discussion ranged far and wide, but if there was one central theme throughout all of the meetings it would’ve been the general lack of conviction and/or answers with respect to the three most important factors in macro risk management. Below we introduce the relevant debates and where we currently stand, recognizing that we need to and will do more work on certain topics:



  1. Where does domestic economic growth go from here? We think the trend in US growth data will be negative (2nd derivative) over at least the next 3-6M.
  2. What are the catalysts for #GrowthSlowing? Fundamentally speaking, we think monetary and fiscal policy uncertainty (mostly monetary policy uncertainty) will weigh on consumer and business confidence. Furthermore, GDP comps get difficult as CPI/GDP deflator comps get easier, at the margins.
  3. Regarding the equity market, will growth-related style factors continue to work? Not likely. We would sell/underweight over-exposed names.


  1. Where does inflation go from here? We think domestic disinflation is now a rear-view phenomenon as easy comps and a weak dollar provide upward pressure on CPI and PPI readings. We would expect both TIPS and Gold to make higher-lows (to all-time lower-highs) in this scenario.
  2. What about declining energy prices? That’s a major offset to our Growth Slowing as Inflation Accelerates (i.e. Quad #3) call and a primary reason we’re not more explicitly negative on so-called “risk assets” more broadly. We’re not wed to the aforementioned fundamental view and would happily change our minds if we saw material declines in the crude oil market – something we do not expect to see as long as the USD remains bearish from a TREND perspective.


  1. When does the Fed taper? Probably not one week before Christmas (the FOMC meets DEC 17-18). In fact, we are increasingly of the view that the Fed is aware of the systemic risk present in the bond market and is potentially setting up to never commence tapering. They will likely accomplish this by setting far-too-aggressive targets for GDP growth and shifting their focus to combating a perceived risk of deflation, at the margins.
  2. What happens if the Fed does taper? If Janet Yellen isn’t as smart as we’re giving her credit for and she thinks the bond market can withstand a shock to the system, we think tapering will be short-lived (think: $85B per month down to $75B per month back up to ~$100B per month). Credit markets need two-way flows to function property and QE is really the only source of meaningful liquidity amid bond mutual fund and ETF outflows (-$7.3B in the most recent week). The Street’s inability to take on meaningful inventory means: A) most of the risk has been transferred to buy-side balance sheets; and B) buy-siders are ultimately forced to sell to each other during market routs. That invariably leads to gaps down in prices when macro fundamentals (i.e. the flows) change. Think about what happens to bond prices when levered-long bond fund A tries to unwind its illiquid positions at the same time Bill Gross (MBS) and Michael Hasenstab (EM) are trying to unwind theirs…
  3. How will tapering – if any – affect the stock market? We continue to think the great rotation out of debt and back into stocks is: A) still on; and B) will provide a structural bid to the equity market. That said, however, we now think that bid could be from lower prices as proxy hedging activity from distressed fixed income investors (not to be confused with investors that invest in distressed debt) weighs on broader asset prices in the interim.
  4. What happens if the Fed is still engaged in LSAP when we slip into the next recession? To be clear, we aren’t calling for an “R-word” here, but that’s definitely something to think about. Implicit in the current prices of many so-called “risk assets” is the assumption that the Fed can “smooth” the economic cycle and/or do away with credit risk altogether. What happens to those asset prices when everyone figures out they (i.e. the Fed) can’t – all at the same time? Next year will mark the fifth year since our last recession ended; the average length of time between the 12 recessions since WWII has been just that.

We’ll obviously be focused on answering these questions in greater detail in our research notes and presentations in the coming weeks and months; please feel free reach out to us in the interim if you’d like to discuss anything in real-time.


Going back to our opening discussion, there’s really only two ways we can add value with a business model like ours:

  1. Making you money
  2. Making you think

Hopefully today we did our job with respect to the latter category.


On an unrelated note, if any of you plan to be in New Haven this Saturday for The Game, shoot us a quick email and we can meet up for a beer at the tailgate.


Our immediate-term Risk Ranges are now as follows:


UST 10yr Yield 2.63-2.83%


VIX 11.85-13.61

USD 80.42-81.39

Brent 105.88-110.29

Gold 1


Keep your head on a swivel,



Darius Dale

Associate: Macro Team


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Sick and Tired

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

“I’m getting sick and tired of doing anything half-way.”

-Knute Rockne


Forget about these unaccountable bureaucrats that bombard your #OldMedia channels every day and take some real advice from one of America’s real legends. Got growth and progress? Rockne gave American football the forward pass. God bless his soul.


I’m not sure what I am going to write about this morning. So I guess I’ll just keep writing and see what happens. As you know, I’m sick and tired of these half-baked econ PhDs trying to centrally plan our lives.


The ECB cutting rates and devaluing The People’s currency as European growth is accelerating (not a typo) took my level of disgust up another notch yesterday. I didn’t think that was possible. I guess I thought wrong.


Back to the Global Macro Grind


Like the Fed, the European central planners thought that cutting rates was going to “stimulate growth”, or something like that. Meanwhile, the market’s reaction to yesterday’s European rate cut “news” was global #GrowthSlowing.




Yes. Much like the “growth” style factor being for sale in US Equities ever since the Fed’s unaccountable decision not to taper (Financials down, Staples/Telcos straight up), that’s precisely how Mr. Market voted, worldwide, after the ECB rate cut:

  1. US Growth Stocks got killed yesterday (Nasdaq -1.9%); Russell2000 now -3.7% from its YTD high
  2. European Growth Stocks stopped going up (yes, we sold everything on the ECB “news”)
  3. Asian Stocks continued lower overnight – China and Japan down another -1.1% and -1.0%, respectively

Actually, since the Fed’s slow-growth-no-taper decision and ECB rate cut, from their recent highs:

  1. China’s Shanghai Composite Index is -6.7%
  2. Japan’s Nikkei is -4.7%
  3. US Growth Stocks like Facebook (FB) and Tesla (TSLA) are -12% and -27%, respectively

But don’t tell any of these academic wonks of the Keynesian empire that. They fundamentally believe that Deflating The Inflation (from the world record inflation they perpetuated via currency devaluation in 2011-2012) is now the world’s greatest threat.


No. To be clear, their most recent policy moves are the new threat. Deflating The Inflation is not “DEFLATION!” The 2-stroke engine of 1. #StrongCurrency and 2. #RatesRising stimulates consumption growth via a consumption TAX CUT.


How else do you want to explain the recent Q313 rip in US #GrowthAccelerating from 0.14% in Q412 to +2.84%? Up until Bernanke decided to interrupt the 2-stroke engine (also known as economic gravity) with a no-taper, Down Dollar, Down Rates move, the US economy had its best sequential (3 quarter, 9 month) move in half a decade!


And now guess what the market thinks might happen next?

  1. US Growth’s GDP slope slows from 2.84%!

Do you need another exclamation mark? Are you sick and tired of reading this yet? Or are you Fed Up with waking up in the morning to these politicians trying to fear-monger you about “default risk” and “deflation”?


Now I know what I am writing about.


I’m writing about what real people in the real world are talking about – not this Keynesian/Marxist central-planning-anti-dog-eat-dog-gravity-smoothing crap.


As Ben Stiller recently said, “there’s always an element of fear that you need to work until people get sick and tired of you … or that you finally figure out that you are a fraud after all.”


Are these un-elected people at the Fed and ECB frauds? Or are they just completely bought and paid for by the Bond Bull Lobby and currency debauchery camps?


I don’t know. But I do know that Draghi worked at Goldman. And I also noticed that Goldman just had the worst FICC (Fixed Income, Currency, Commodity) quarter in the Federal League…


Was Goldman’s prop and/or FICC team choking on too much illiquid bond and currency bubble paper that they finally had to start taking some marks?


Why is Goldman’s Hatzius such a raging dove? Why is he trying to scare the hell out of the Fed on #RatesRising when his own desk is saying the opposite? Why is he all of a sudden lobbying for the Fed to change the goal posts on a lower “unemployment” target?


Who can really get out of any of these bubbles (MBS, REITS, etc.) that Bernanke backstopped? How will it end? Or are they trying to convince you, like they did in late 2007, that nothing could possibly go wrong?


I’ll stop writing and end with a message sponsored by both Republicans and Democrats who have empowered the Fed (and encouraged the BOJ and ECB) to devalue your hard earned currency:


“If you’re sick and tired of the politics of cynicism… come and join this campaign.”

-George W. Bush


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


UST 10yr Yield 2.49-2.70%

SPX 1737-1763

DAX 8970-9079

USD 80.32-81.36

Euro 1.33-1.35

Pound 1.60-1.62


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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