Correlation Risk

Client Talking Points


Got beta on that Correlation Risk? The Yen is down -0.3% and the Nikkei is up +1.9%. Yup, that’s the game you are in right now; so play it until these correlations burn off. This massive net short position in the Yen notwithstanding (currently -143,000 contracts), the risk range for USD/YEN is actually tightening. That’s bullish for the Yen, on the margin. We continue to watch this closely.


Stocks in Vienna lead European gainers up +1% this morning to +4.3% year-to-date. The reason I call that out is because that’s one of the top 2014 global equity performers. It's still early, but we will explain why parts of Europe should continue to follow Germany’s lead on tomorrow’s Q1 Global Macro Themes call. 


Oil is up +0.2% this morning, but it's still bearish from a long-term TAIL risk perspective ($109.39 is a wall of resistance). All the while, Natural Gas (up another +1.1% this morning) continues to diverge bullishly. We will be writing more about Oil verss Natty (and shale) in the coming weeks.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL. So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.


We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


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.

Three for the Road


I disagree with $GS's recommendation to reduce exp to developed markets today; less importing means a stronger dollar @hedgeyeJC


"Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in." -Isaac Asimov


Unseasonally cold weather in the U.S. has led to at least 21 deaths and resulted in freezing temperatures in all 50 states on Tuesday, according to reports.

January 8, 2014

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Following up on a blockbuster Q3, pricing and volume of hotel transactions were strong again in Q4.  Positive for HOT.



Upper upscale (UUP) & Luxury Transaction Trends for Q4 2013

  • Q4 2013 worldwide hotel transactions (UUP & Luxury brands) volume was a little more than $3 billion, roughly the same as last year’s quarter and below the monster $5 billion seen in Q3.
  • The number of US luxury/UUP hotel transactions (where price was disclosed) was 17 in Q4 2013 - flat sequentially and 8 more than in Q4 2012.
  • The number of non-US luxury/UUP hotel transactions (where price was disclosed) was 8 in Q4 2013 – flat sequentially and 5 more than in Q4 2012.
  • Relative to a two-year trailing average, US average price per key (APPK) in the UUP segment fell 42% to $155k due to HST’s bargain purchase of Times Square Marriott Marquis.
  • Luxury APPK was strong particularly overseas where there were several +$million APPK deals

GLL companies

Host Hotels

  • Bought Times Square Marriott Marquis at $10K APPK
  • Sold Dallas Addison Marriott Quorum for $101K APPK
  • Sold Philadelphia Marriott Downtown for $217K APPK
  • Sold Courtyard Paris La Defense West – Colombes for $165K APPK
  • Sold Portland Marriott Downtown Waterfront for $175K APPK


  • Sold Renaissance Chicago Downtown for $251K APPK


  • Sold Hyatt Key West Resort and Spa for $644K APPK


  • Sold Westin San Fran Airport/ Aloft San Fran Airport for $193K APPK





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Even if current levels of business are maintained but not increased, 2014 would still generate YoY growth +12%.


  • As can be seen in the chart below, we are projecting 2014 YoY GGR growth of +16%
  • Considering that YoY growth would still be 12% if Q4 2013 business levels are projected out throughout 2014 (seasonally adjusted) with no growth, our estimate may prove conservative
  • Our January and February YoY projections are likely well ahead of the Street (it’s just the math) so current stock momentum could continue


Introducing #Firefly Space Systems

“For man to truly understand himself, he must travel beyond the clouds”

– Socrates


When I saw my first Space Shuttle launch as a child, I knew I wanted to be an astronaut.


After I made my first real money selling PayPal/eBay stock, I bought a ticket on Virgin Galactic to go to space aboard SpaceShipTwo. I later bought a second seat on Space Expedition Corporation’s Lynx. As I became more involved in the Newspace community I began speaking at conferences and universities around the world – the topic being “The Potential for & Impact of Commercial Space & Space Tourism”.


Today, alongside my research and engineering team @Hedgeye, I am co-founding Firefly – a ground-based, small satellite launch company, with one of Hedgeye’s greatest supporters and fans, PJ King, as well as propulsion engineer extraordinaire, Tom Markusic.


With a Ph.D. from Princeton in Mechanical & Aerospace Engineering, Tom has conducted research on deep space propulsion systems and since 2006 has held senior leadership positions inside virtually every leader in the Newspace Industry: Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Galactic. Tom is Firefly’s CEO and from what I have seen, he will be a fantastic entrepreneur and business executive.


Lowering the cost of small satellite launches to Low Earth and Sun Synchronous Orbits will revolutionize broadband data delivery and earth observation missions. What used to cost hundreds of millions of dollars, is rapidly becoming available in the single digit millions.


While the leaders in the nascent and rapidly developing small sat industry (companies such as PlanetIQ, Skybox, Planet Labs, and numerous others) have raised VC funds well in excess of $100M in the last 1-2 years, there exists virtually no dedicated launcher capacity for these ventures to deliver their payloads to orbit.


With Hedgeye’s help, Firefly will change this.


We have rapidly received our seed funding commitments and are already in discussions with investors looking towards our Series A funding. Since our website launched and word of mouth has spread through the industry, we have been overwhelmed with resumes. We have established our headquarters in Austin, TX and research and development operations in Hawthorne, CA.


What we are setting out to do will be enormously challenging. It is difficult to make exact projections about schedule until we get further along in development, but the team has set itself a goal: To be in orbit in about three years.


Hedgeye has and will continue to support Firefly on a number of fronts: Josh Steiner (today he runs our Financials vertical but in the past he analyzed satellite operators) has worked with us on market sizing.


Jay Van Sciver, who leads Hedgeye’s Industrials team, has worked on valuation analysis for some of the private New Space players. Hedgeye will lend assistance in a variety of operational areas, ranging from finance and accounting to HR, facilities and IT.


We are not in the business of complaining about the 2008 crisis. We are in the business of cutting edge research, intellectual growth, and product innovation. So, I just wanted to take a few minutes this morning to thank you for your business – it’s helping us travel beyond the clouds.


Alongside our TREND duration view (bullish or bearish in brackets), our immediate-term Risk Ranges are now:


SPX 1 (bullish)

VIX 11.85-13.75 (bearish)

Pound 1.63-1.65 (bullish)

Natural Gas 4.20-4.51 (bullish)

Brent Oil 105.25-109.39 (bearish)

Gold 1186-1245 (bearish)


Onward and upward,


Michael Blum

President, Hedgeye Risk Management


Introducing #Firefly Space Systems - Chart of the Day


Introducing #Firefly Space Systems - Virtual Portfolio

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.