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A second Resorts World Sentosa (RWS) executive was dealt with on Friday for her part in misleading the Casino Regulatory Authority (CRA) over the issuance of freebies to gamblers who renewed their annual entry levies.  Sim Bee Ling, 31, who is also known as Chernie, was fined $20,000. She had pleaded guilty last week to instructing team leader Thien Lai Foo in mid 2011 to use correction fluid and erase all mention of the giving of Universal Studios Singapore (USS) tickets for annual levy renewals in a briefing book, which is used to communicate instructions to the next shift of employees.



Casinos and slot machine parlours that failed the most recent air quality tests have until tomorrow to submit plans to reduce the size of their smoking areas, the Health Bureau says.  The 16 gaming establishments that failed the second round of tests must trim their smoking areas by 10%.  The bureau is still awaiting proposals from 14 gaming establishments.

Understanding Markets

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

“Anyone who isn’t confused doesn’t really understand the situation.”

-Edward R. Murrow


That was the closing quote from David Einhorn’s most recent quarterly letter. I can’t think of one that better summarizes where we are right now in understanding markets. So I’ll leave it at that.


Back to the Global Macro Grind


While he’s been quite adept at not violating Rule #1 of investing (don’t lose money), that doesn’t mean Einhorn shies away from writing about where he could make more money. One of those areas is high short interest stocks.


From a Hedgeye Style Factoring perspective, last week was the 1st week of 2013 where SHORT INTEREST (as a style factor) diverged versus its TREND. We look at these style factors by quartile in the SP500:

  1. HIGH SHORT INTEREST (as a style factor) was -0.5% last week
  2. LOW SHORTS INTEREST (as a style factor) was +0.8% last week

In other words, if you’re short company that hedge fund consensus (high short interest) doesn’t like, the stock actually had a good chance of going down last week. Look at Tesla (TSLA). That’s new.


What wasn’t new vs. intermediate-term macro TRENDs last week?

  1. US stocks closing at another all-time high (SP500 = 1804, +26.5% YTD)
  2. #RatesRising on the 10 yr US Treasury Yield (+4 bps w/w to 2.74% = +99 bps YTD)
  3. Rate Sensitive “asset classes” (like Gold and REITS) going down on that

In fact, “rate sensitive” was really sensitive last week:

  1. MSCI REITS (real estate) Index lost another -2.2% going to FLAT 0.0% return for 2013 YTD
  2. Gold was down another -3.4% on the wk to -26.3% for 2013 YTD

And, to be clear, all those pundits who told you that #RatesRising (tapering) was going to spell the #EOW (end of the world) were dead wrong this year. Wrong is as wrong does.


Would you be wrong to buy anything “rate sensitive” on sale today? Buying any of Bernanke’s Yield Chasing Bubbles is not for the faint of heart. While he won’t acknowledge the mother of all global commodity inflations (2011-2012), history’s score will.


For the YTD here are your Top 5 Deflating of Bernanke’s Inflations moves:

  1. Silver -34.6%
  2. Coffee -33.0%
  3. Corn -29.6%
  4. Gold -26.3%
  5. Coal -20.3%

I know. I know. At the all-time high in world food prices (2012), there was NO INFLATION. More Jelly Donuts, please.


At the all-time high in commodity inflation expectations (2011), check out our Chart of The Day: the net length of the CFTC (Commodities Futures Trading Commission) non-commercial net long positioning in Gold spanning Bernanke’s tenure as Fed overlord:

  1. John Paulson launches his Gold fund 2010
  2. EXPECTATIONS PEAK = August 2nd, 2011 = +289,000 net long Gold contracts
  3. SPOT GOLD PRICE PEAK ($1900.20) = September 5th, 2011

Last week’s net long position in Gold fell below < 75,000 net long contracts for only the 2nd time since 2008. Down -15% week-over-week to +71,840 net long contracts, that’s down -75% from the expectations peak (not to be confused with the price inflation peak).


Expectations, as Shakespeare wrote, are the root of all heartache. And my guess is that those shorting Gold -1% this morning will have some heartache of their own when we get back from Thanksgiving. So get all wild and crazy today, and buy yourself some. It’s “cheap-(er)”!


What is not confusing about Gold is that it trades on expectations. When the market expected interest rates to rise into their YTD peak (January-July 2013), it went down; when the market expected rates to fall (July-September 2013 into no-taper), Gold went up.


Oh, and if you are confused as to whether or not our central planning overlords will allow #RatesRising (and Gold falling) from today’s time/price, join the club. Because, eventually, the Fed may very well lose control of that expectation too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.69-2.83%

SPX 1788-1810

VIX 11.85-13.62

USD 80.54-81.29

Brent 106.25-111.24

Gold 1226-1266


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Understanding Markets - Chart of the Day


Understanding Markets - Virtual Portfolio

JCP: Round 2 -- JCP/Dept Store Consumer Survey

Takeaway: Reminder - 2nd installment of the Hedgeye Retail Consumer Survey on JCP & the Department stores. Monday 12/9 at 1pm ET ***CALL INFO INCLUDED

As a reminder, the first iteration of this 1,000 consumer survey was a critical component of our call to be long JCP over the past three months, and to be short KSS into 3Q earnings (which it missed). We already know JCP's 10% November comp, but the purpose of this survey is to go much deeper in order to flush out key fundamental issues around the JCP story and store experience.  


JCP: Round 2 -- JCP/Dept Store Consumer Survey - jcp call



  1. First off, better than half of the questions will be identical to what we asked just three months ago, so not only will we see what consumers are thinking, but we'll be comparing to what they said last time to gauge incremental change.
  2. We'll provide an update on market share. We already think we know where it went (per our last survey), but now we'll verify (or challenge) our prior findings by re-polling Consumers.
  3. More importantly we'll now have a sense as to where JCP is stealing back market share from KSS, M, TJX, TGT, SHLD, others?
  4. We'll look at Private brands, which we think are critical to 600bp Gross Margin rebound, and the extent to which JCP is having success reintroducing these brands to consumers. Do people want them as much now as they did pre RonJon?
  5. In this survey, we placed a greater emphasis on JCP's online business. The company's results already show that it's rebounding, but we dive into what and who the specific drivers are.
  6. The company has introduced several new brands over the past three months. Do people care? Are they attracting incremental shoppers


  • Toll Free Number:
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  • Conference Code: 125175#
  • Materials: CLICK HERE (slides will download one hour prior to the start of the call)



For question please email 

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The Economic Data calendar for the week of the 9th of December through the 13th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




Takeaway: Current Investing Ideas: BNNY, CCL, FDX, FXB, GHL, HCA, MD, NKE, RH, SBUX, TROW and WWW

Please see below the latest comments from our Sector Heads on their high-conviction stock ideas.


BNNYAnnie's took a leg down in mid November on a secondary stock announcement in addition to broader underperformance overall within the sector. That said, BNNY is still up a tidy +4.5% since November 20th.


Our intermediate-term to long-term bullish thesis on the company remains intact. Our conviction in the company remains based on the company’s advantaged organic portfolio, strong retail positioning for growth, and easier top line and gross margin comparisons going into the back half of its fiscal year.



CCL On a slow bookings period over the Thanksgiving weekend, Carnival engaged in some aggressive promotional discounting with the Carnival brand in the Caribbean. It appears pricing recovered strongly after Cyber Monday, particularly for F2Q and F3Q. We look for bullish confirmation in our next pricing survey.


While F1Q 2014 will be CCL’s weakest quarter, we believe it is trending in-line with management expectations. CCL is an expectations story and we believe overall pricing trends are currently trending ahead of management saw in late September, ahead of the all important Wave Season starting mid-January.



FDX - In case you missed it on "60 Minutes," Amazon CEO Jeff Bezos held a successful publicity stunt this Christmas season, suggesting it was seriously looking at using drones for its package delivery. Amid this distraction, attention should continue to be directed at FedEx’s earnings release on December 18th.  In other words, avoid the drone distraction. Key issues around the Express profit improvement program at FDX should continue to drive its shares in this multi-year restructuring process.


Incidentally, the S&P 500 is up 20% since we added FDX to Investing Ideas. Shares of FedEx are up 35%.



FXB - The British Pound remains the Hedgeye Q4 Macro Theme (#EuroBull) champ. The heart our call is a bullish position on the GBP and EUR versus the USD.

  • Central Bank Intervention: We expect Janet "Mother of All Doves" Yellen to remain the uber dove on policy and push out any QE taper expectations to at least late in Q1 2014. This should burn the Greenback lower. 
  • BOE “Hawks”: We expect Mark Carney and the BOE to remain on hold with interest rates and the asset purchase target, built on improving UK fundamentals, which should encourage the British Pound higher.
  • Island Insulation: The UK was the first country to issue austerity in Europe. We are seeing the threw-put of that decision with fundamentals improving ahead of its European peers. We maintain a bullish bias on UK equities (etf EWU).


GHLThe mergers and acquisitions (M&A) market continues to under-earn with flat activity levels over the past 3 years, despite positive fundamentals. M&A activity is poised to increase with corporate cash balances continuing to build up globally and continued low funding costs to finance new deal activity.


Our research also shows that environments with low volatility have also been fortuitous for M&A and the current VIX levels in the U.S. have settled into a new low range, which should slowly break the corporate depression mentality to avoid deal making.


Greenhill, with a change in merger activity, would greatly benefit as solely an advisory firm with good balance across the globe. Also, recent M&A levels have shown some green shoots with distressed activity in Europe picking up slightly and also some renewed M&A activity in the U.S. with cash flush private equity firms that have investor money that needs to be invested. 



HCA - Healthcare Sector Head Tom Tobin says we're fully baked on a really crappy ACA roll out, so as the site gets better, people sign up, it's all upside from here for hospitals and HCA. The bigger risk we see is the continued comments about getting subsidy payments from the government out to the insurers, who will surely be paying some hefty claims come January.  If too much money is flowing out, and no money is coming in, then that could actually could spell the end of the program.  Nothing like losing money on a massive scale to bring the ACA's problems into focus. In the meantime, employment is getting better, Medicare is comping out of a weak 2013, and there appears to be plenty of upside to surgical and outpatient volume in the coming year.



MD - We're presenting our research Monday following the sixth month of our monthly OB/GYN survey.  For Mednax, maternity trends continue to look slow so far in Q413.  With MD showing negative trends in NICU patients in Q313, it shouldn't be too much of a surprise this quarter.  Fortunately, acquisitions and patient volume can drive revenue growth too, as well as the new payment parity rates MD has slowly been collecting more of in recent months. 


Bottom line is we can model flat growth in 2014 for maternity and still come in ahead of consensus.  If maternity finally reaccelerates after the worst decline in 40 years, then number, and the stock can get out of hand to the upside.



NKE There were a few noteworthy product updates coming out of Nike this week. (Also - If you are interested in NKE’s Black Friday/Thanksgiving sales this year, please refer to the chart below in the WWW update.)

1)      On Monday, Digitimes reported that Nike is on track to release a new smart watch sometime in the first half of 2014. You could have seen this coming from a mile away. The company channeled its digital accessory R&D into an updated Nike Fuelband, which came out on November 6th. But while it did this, Adidas came out and launched a new sports watch at $399. Nike's existing watch (a partnership with Tom Tom) retails for only $169. Surely, the product gurus in Beaverton can concoct a product to tap our wallets for $400. As with the new Fuelband, we'll be first in line with a pre-order to wear-test it. (Aside from the fact that the new band looks much better, the old Fuelband is better from a functionality standpoint, by the way -- better battery life, and easier to rack up Fuel points).


2)      On Thursday, Nike released the Kobe 9. Under regular circumstances we wouldn’t call this out, Nike releases new shoes all the time (and makes over 300 million pairs per year), but this one is notable for one key reason. The Kobe 9 is the first professional grade basketball sneaker to use Nike’s new FlyKnit technology, which assembles the upper part of the shoe on a machine similar to a cotton loom rather than thru traditional practices. This is important because of the new Nike ID customization product that will be rolled out to stores in the future. Nike has the technology and the product, while its competitors don’t. That is a serious differentiator.


3)      On Friday, the WSJ ran an article on Lebron James. No, this one wasn’t about his return to Cleveland or his love of designers watches, but instead focused on what he’s been wearing on his feet. It turns out that Lebron has being wearing the Lebron X’s during the majority of games this season. Apparently the big man doesn’t like the way his newest shoe the Lebron 11 fits. While it’s a black eye for a company that prides itself on innovating for its top end athletes, we’ve got to think that Nike is laughing all the way to the bank. Consumers don’t seem to care that the shoe, which retails at a +$200 price point, hurts LeBron’s feet because it’s been flying off the shelves.



RH Restoration Hardware will report 3rd Quarter 2013 earnings on Thursday, December 12th.  Here are a few of our expectations going into the print.


Some key factors we’re looking out for…

1)      Retail comp – We expect the retail comp to improve sequentially. 26% last quarter would have been great for any retailer not named Restoration Hardware. We expect that number to come up this quarter well into the 30s, as RH should finally have ample inventory to fulfill consumer demand.


2)      Real estate update – The company has announced plans for 5 design galleries in the following cities: Greenwich, Los Angeles, NYC, and Atlanta. We expect management to provide progress reports on these 5 existing projects and announce 2-3 more. These things take time, and we don’t expect to see that initial big ramp in new doors until 2015. But once we see stores open more aggressively, we should see square footage growth go from -5% to +33%.


3)      RH Direct – RH Direct consists of e-commerce and catalog, with a heavy skew towards e-commerce. We expect more of the same from this channel of the business. Growth rate in the mid to high 30’s, which means direct makes up about 45-50% of total company revenue. To put that into context, WSM has 595 total company doors, and WSM Direct makes up 49% of total company revenue. That’s at the very top of retailers, in terms of e-commerce penetration. We don’t expect RH to have that same sales mix once the company’s real estate portfolio catches up to consumer demand. The key point here is that there is concern this quarter that the company will take a hit on RH Direct sales because RH eliminated the colossal Fall source book. We take the other side of that argument. We think that RH Direct won’t miss a beat – showing investors that sending a 5 pound 900-page catalog simply does not drive business. We estimate that the company saved about $35mm by eliminating the 900 page catalog; the cost savings far outweigh any sales loss risk because of one key reason, the Inter-webs.


SBUX - Starbucks just announced it's bring back its $450 metallic gift card for the holiday season.  The laser-etched card includes $400 in credit and automatic enrollment in "My Starbucks Rewards Gold-level status."  Only 1,000 cards will reportedly be sold, making it a very exclusive offering. Of course, this won’t exactly drive meaningful, incremental sales, but it is a newsworthy item and yet another example of Starbucks staying relevant and in-touch with consumers. 


SBUX has taken a breather lately, underperforming the S&P 500 by -3.1% over the past month.  However, Managing Director Howard Penney maintains that the fundamental story is intact and the coffee tailwind remains a key driver of margin expansion.  Coffee prices are down -3.7% over the past week and down -36.2% on a year over year basis. this obviously continues to provide the company with commodity cost relief. 


For those interested in owning the name, the stock’s recent pullback has made it more attractive from a valuation perspective.  Trading at a P/E of 30.2x and 15.7x EV/EBITDA on a NTM basis, Yes, like its $450 Holiday card, Starbucks continues to be an expensive stock. We believe its premium valuation is warranted.  



TROW T Rowe Price continues to be squarely in the center of surging equity mutual fund flow with 2013 year-to-date weekly stock inflow averaging over $3.1 billion per week. This is a complete reversal from the $3.0 billion in outflow per week averaged in 2012. In the most recent 5 day period, investor funds continue to pour out of the bond market with another $4.7 billion being redeemed in fixed income funds, now the 22nd negative week out of 26 for taxable bonds, and the 26th consecutive week of outflows for tax-free or municipal bond products. With this drastic redemption ongoing in bonds, leading equity managers including T Rowe Price stand to benefit handsomely with continued incremental demand for stocks at the expense of fixed income.


WWW Below is a chart that breaks out the Athletic Footwear point-of-sale data for the all-important Black Friday week from 11/24 through 11/30 and compares those numbers to the similar time period in 2012. By Black Friday we now mean Thanksgiving Day, Black Friday, and Thanksgiving Weekend.




As you probably heard, sales during the four-day period were down 3% for the entire retail sector compared to last year. Athletic footwear, on the other hand was up 2.4%. This data has similar limitations to the athletic apparel data we showed you two weeks ago, but it does offer a pretty large snapshot of the market in total. It’s interesting to note that while the entire retail sector was classified as highly promotional during the Black Friday Week/Weekend athletic footwear held steady with average sale prices falling just 0.6%


Wolverine World Wide was paced by strong growth in Merrell and Wolverine. Sperry is irrelevant in this discussion because no one goes running in boat shoes (less than 5% of Sperry’s sales are represented by this data). Overall, the growth in Merrell continues to be promising. While sales at Saucony look disappointing, one thing to keep in mind is that we are working off a pretty small base. Brands like Saucony are at their peak selling season during the later parts of July and early parts of August. We’d always like to see a positive year/year change number in the sales column, but this isn’t Saucony’s season as much as it is for brands like Merrell and Wolverine whose assortments feature more seasonal items.




Please see below two timely, topical and potentially profitable investment ideas that we sent out recently to our institutional clients. Click on the title to unlock the content.


Just Charts - #EuroBulls

The heart of Hedgeye's #EuroBulls call is a bullish position on the GBP and EUR versus the USD and a bullish position on UK and German equities, built on a few central factors.




JCP: The Bear Case Lacks Intellectual Integrity

We're surprised at how many people are hanging on to the stale bear case on JCP. Seriously, at least acknowledge that things are improving.




#BTDB (Still) Paying the Bills

Takeaway: Buying-the-damn-bubble #BTDB may not be chicken soup for your soul, but it has certainly paid the bills this year.

Editor's note: This is an excerpt from Hedgeye CEO Keith McCullough's "Morning Newsletter" from yesterday morning. If you would like more information on how to subscribe click here.


#BTDB (Still) Paying the Bills - bubb5


Buying-the-damn-bubble #BTDB may not be chicken soup for your soul, but it has certainly paid the bills in 2013. From a behavioral market practitioner’s perspective, I have developed an affinity for doing precisely the opposite of how I think this ultimately ends. Weird, but it works.


To review, the multi-disciplinary triad of our Global Macro Research Process, there are 3 big parts:

  1. History
  2. Math
  3. Behavioral Psych

History provides us context (economic/market patterns, mean reversion risk, etc.); math (fractal dimensions and risk ranges) signals timing; and behavioral, well, that’s a learning process.


How else would you define what it is that you do? Other than Embracing Uncertainty and constantly re-evaluating your position relative to the information surprise (price, volume, volatility) of the day, is there an alternative to mental flexibility? There isn’t for me. I’m not smarter than the market. And it took me a good long while to accept that.


In terms of our current strategy, quite simply put in our Q413 Macro Theme of #GetActive, it’s to do just that. Unaccountable and un-elected @FederalReserve policy making means we need to engage in unconventional market strategies.


In practice, in our Hedgeye Asset Allocation Model, what does that mean?

  1. At the US stock market highs we moved to 58% Cash (last Friday)
  2. After a 4-day US stock market correction we moved back to 42% Cash

Don’t lose the message of mental flexibility in the absolute numbers. If you want to be in 90% cash or 10% cash makes no difference to the point I am trying to make. It’s how you move on the margin that counts. I call it Fading Beta.


* * * * * * * 


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#BTDB (Still) Paying the Bills - Morning Newsletter


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