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At the end of 4Q, Macau gaming tables was 2 tables higher QoQ to 5,750. Slot count declined by 1,669 machines QoQ to 13,106.



Li Gang, the new Macau rep from China, took the opportunity to reassure listeners that he was not a ‘tough cop’ focused on some clampdown on the local casino industry, and also that there would be no ‘blind expansion’ of tourism to Macau.

“My role as a [discipline] commission member is to participate in the anti-corruption works in mainland China, and that does not have to do with the local gaming industry,” he added.


Li also said Beijing has no plans currently to expand the existing individual visit scheme allowing mainland residents from select cities to travel independently to Macau.  “Last year, there were 28 million mainland visitors coming here under the individual visit scheme,” Mr Li said on the sidelines of a cocktail reception for Chinese New Year. He added: “This number could exceed 30 million this year.”



Macau Legend Development said it raised about HK$1.35 billion (US$174 million) selling new shares, less than previously planned of US$300 million.  The company sold shares equal to about 2.9% of its enlarged share capital at HK$7.25 each to fund its proposed redevelopment of Fisherman’s Wharf casino complex in Macau.  Fisherman’s Wharf will focus more on mass-market gamblers instead of high-stakes bettors.



Bloomberry Resorts Corp, who operates Manila’s Solaire Resort and Casino, was suspended at the Philippine Stock Exchange after Global Gaming Asset Management LLC sold its 8.7% stake in the company.  Bloomberry told the exchange it had asked for trading to be suspended until next Thursday.  Bloomberry said it needed to confirm that the buyers of the shares would be unaffected by arbitration proceedings meant to settle its dispute with GGAM.


Bloomberry ended its management agreement with GGAM in September, saying GGAM had failed to manage the Solaire casino-resort. GGAM objected and asked arbitrators in Singapore to settle the argument.



Transportation Infrastructure Office (GIT) Director Lei Chan Tong said that the government was doing its best to ensure that the Taipa section of the Light Rail Transit (LRT) is in operation in 2016.  Lei said  the Taipa section should be completed by late 2015 or early 2016, after which the trains would make trial runs until the system’s official opening.  


Takeaway: JCP Board: your CEO is failing you, and the investors you represent. His time is over. Replace him – now – and earn our support and respect.

This note was originally published January 16, 2014 at 21:02 in Retail


The fundamentals have not changed nearly as much as JCP’s equity would suggest, but the reality is that the company is giving us very little reason to continue to support the name as the stock slides (note: recent announcements that; a) results are ‘in-line’ (but without any quantification whatsoever), and b) the company will be closing 33 stores and laying off 2,000 employees). The company might be one of the only retailers that is comping positive in this environment at a higher margin y/y, but that’s in stark contrast to its recent behavior. Recent announcements hardly match up with a company that has confidence in its future.


We’re still of the view that there is $1.50 in earnings power tucked away inside JCP, and for people that want to look out several years, we really don’t think that there’s any fundamental change to this story. That makes the company’s recent actions all the more ridiculous. The research has not changed, though the timing is questionable. We don’t like questionable timing. We’ll stomach it for a great company, or even a good one, but have less of an appetite when it comes to a company like JCP.


The reality is that we won’t continue to stick our neck out when Ullman seems to be doing his best to break it. There are too many great businesses that have gotten hit recently that are far more worthy of defending than JCP (such as RH, ZQK, WWW, and FNP). JCP was our only loser in 2013, and we won’t make the same mistake twice.


Management is failing – big. The answer here is for Ullman to jump ship (or get pushed off). The Board has to take action. The company needs a permanent leader. Ullman already made good progress to stabilize the company. We’ll give him that. Seriously. Golf clap for Mike. But it’s time for the next phase of JCP, and he’s not the guy to lead. Not by a long shot.  We’d like to think that accepting the role of Chair of the Federal Reserve of Dallas, and then being elected to the Board of the National Retail Federation is his way of moving off to the next stage in his career. The reality is that being CEO of JCP is easily two-full time jobs, and one of the most challenging roles in Corporate America. JCP’s board had to approve these outside assignments, and we can’t imagine that they’d do so if they thought he was going to be a long-timer.


That thought process certainly lends itself to the prospect of a CEO change over the near-term, but we have no edge on that timing. If you want to speculate on that one, it might be a good trade if it proves to be correct. But it’s not a trade we’re going to make.


Punchline: The Board needs to fire Ullman and hire a powerful and appropriate leader to unlock the value we know exists at JCP. When that happens, and we gain confidence that the new CEO sees the same earnings power we do, then we’ll support this name until the cows come home, because all of our research tells us that the value is there.  That’s true even if it means getting involved at $9 or $10, presuming we’ll see a pop on the CEO announcement.  The reality is that when someone is running the company that has a definitive long-term plan, and the earnings power we’re modeling becomes a reality (or at least earns a spot in the debate), this can be a big stock even a few bucks higher.

Bear Depression

This note was originally published at 8am on January 03, 2014 for Hedgeye subscribers.

“In 1893, the most serious depression the nation had yet experienced settled over the land.”

-Doris Kearns Goodwin (The Bully Pulpit)


Today is not 1893.


While they let some of the 2013 US stock market bears out of their caves yesterday (BREAKING NEWS: “SP500 Falls To Start Year Lower For 1st Time Since 2008” –Bloomberg), I suspect the blizzard will send them right back to where they came from.


This is not 2008 either.


Sure, there’s plenty to concern yourself with (like a market that got pinned up at an all-time high at year-end) in terms of this raging bull market being overbought and both sentiment and flows chasing it, but let’s get real here and get on with our risk managed day.


Back to the Global Macro Grind


Oh, and by the way, in 1893 we didn’t need a bunch of bureaucrats at the Fed to save us from themselves either. The bear depression of the late 19th century was one born out of this thing we call a cycle. Companies back then overbuilt rail capacity and over-extended themselves with bank loan leverage (sound familiar?). This is what happens at cycle tops (like 2007).


Globally (especially in Europe) we aren’t in the area code of a peaking 1893 or 2007 piggy cycle either. In the US we don’t think we’ll be seeing consecutive 4% handles on GDP, but that certainly doesn’t mean fear and panic is going to break-out across the land. With so many still whining about the last war, I say you get yourself a shovel and a smile this morning - move forward.


Back to the business cycle (where companies build inventories, shhh), lets dig through some fresh US economic data:


1. USA’s ISM Manufacturing PMI for DEC was reported yesterday at 57.0 vs 57.3 in NOV

2. The ISM’s New Orders component of the report accelerated to 64.2 DEC vs 63.6 NOV

3. The ISM’s Employment component of the report was steady at 56.9 DEC vs 56.5 NOV


For me, this was a surprisingly strong read-through on the US economy as the data was almost as good as it could get (sequentially) in Q3 of 2013. So to see follow-through in December was a good thing for growth (as an investment style) and bad for bonds.


Employment is a fun one to watch people complain about because:


1. The monthly BLS data is a lagging economic indicator (the one CNBC has dudes guessing on every month)

2. The only coincident to leading indicators (ISM’s, weekly Jobless Claims, etc) are poorly understood

3. NSA rolling 4-wk jobless claims (see Chart of The Day) fit the 10yr US Treasury Yield’s 12 month TREND like a glove


I’ll give you 5:1 odds that if you ask your run-of-the-mill TV pundit what the consequence is of using the NSA # to probability weight the direction of the bond market that they think you are talking about the National Security Agency.


*NSA = non-seasonally adjusted. And the reason why we use the NSA rolling-claims data series on a year-over-year basis is simply because that’s what Josh Steiner (Managing Director of our Financials team) found that Mr. Macro Market cares about.


Who seriously cares that, on very light volume (-14% vs @Hedgeye TREND), it was the 1st market down day “since 2008” when it has no back-test or relevance to the market we have in front of us in 2014? Here are 3 more things to think about:


1. US Initial Jobless Claims of 443,513 (NSA) were down -9.5% y/y yesterday (vs. down -8.2% in the wk prior)

2. US 10yr Treasury Yield held my most immediate-term TRADE line of 2.96% support yesterday; 3.07% = resistance

3. Gold is signaling immediate-term TRADE overbought this morning within a bearish @Hedgeye TREND


So, rather than try to get cute with some Hedgeye panic and depression propaganda yesterday, here’s what I did:


1. Took our Cash positions down from 50% to 40% in the Hedgeye Asset Allocation Model

2. Moved from 5 LONGS, 5 SHORTS on 12/31’s close to 8 LONGS, 4 SHORTS (bought and covered on red)

3. Shorted Gold (GLD) and bought some US Equity Beta (TSLA)


That doesn’t mean I am going to be right. It simply means there’s a process behind every sequence of macro market timing decisions my team and I make. There’s nothing depressing about that.


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


UST 10yr Yield 2.97-3.07%

SPX 1809-1856

VIX 11.91-14.91

Gold 1185-1235


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bear Depression - Chart of the Day


Bear Depression - Virtual Portfolio

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

A Picture Is Worth 1,000 Basis Points

Takeaway: It's a great macro tape for country picking equities.

#GrowthDivergences (one of our Q1 Macro Themes) is actually pretty obvious from a Global Equity market read-through perspective.


In our model, it's all about the rate of change. And it's relative too.


Take a look around... Greece, Portugal, and Denmark are all up between 6-11% year-to-date. Now take a look at China, Japan and Brazil down... all 3-4% year-to-date.


A Picture Is Worth 1,000 Basis Points - drake


It makes for a great macro tape for country picking equities.


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CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends

Takeaway: CPI accelerated in Dec..kinda, Initial Claims improved sequentially..sort of, and Consumer Confidence worsened while Bus Confidence improved


There are always a host of ways to spin the Macro #Storytelling and this week’s data offers an illustrative case study.


Consider the Retail Sales numbers earlier this week:  


Headline Retail Sales growth decelerated on a MoM basis in December, but was flat on a YoY and accelerated on a 2Y.  Further, the Control Group (which feeds into GDP) accelerated on a MoM, YoY and 2Y, but the complexion of that strength from an industry level perspective wasn’t particularly inspiring and middling wage growth is unlikely to support equivalent gains going forward.   So, good on balance, but not the stuff incremental, levered allocations are made of. 


From a TREND perspective, the preponderance of fundamental data remains favorable.  The labor market continues to improve, credit growth is accelerating, capacity utilization and productivity are up alongside strength in the manufacturing base, confidence is rising and the bipartisan accord on the federal budget is consumption friendly on the margin. 


On the flip side, capex spending and wage growth have yet to really accelerate and housing market activity is set to slow into 1H14 with home price growth decelerating from the low-teens to the mid-single digits over the next few quarters (our expectation).  


The Economic Indicator table below provides some summary context for the latest macro data with respect to Trend averages. 


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - Indicator Table


STRATEGY:   This weeks data has been consistent with our current view on the direction of sequential growth domestically and serves as a solid microcosm for the broader macro data.  Reported growth isn’t really accelerating sequentially, but its not getting materially worse either and, from a GDP accounting perspective, we’ll go from ‘very good’ to just ‘good’ in 4Q. 


Certainly, the currently prevailing sentiment and price/growth dynamics make it a tougher call here in 1Q14 than in 1Q of last year when our macro models were explicitly signaling a positive inflection in growth while strategists and economists were taking down estimates alongside a 0% 4Q12 GDP print. 


But with decent macro fundamentals, positive fund flow support,  favorable seasonality through 1Q14 and the lack of a discrete negative catalyst in the immediate term, we still like U.S. equities – just not as much as we did over the TTM. 


Summarily, Stocks Up, Dollar Up, Rates Up remains the price factor constellation we’d like to see trend to drive a convictional (re-) increase in our exposure to domestic, pro-growth equities. 


Please see our 1Q14 Macro Investment Themes presentation for a detailed view of our current thinking on global macro asset allocation >> 1Q14 Macro Investment Themes


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - Inv Conc



INITIAL JOBLESS CLAIMS:  Steady as the Distortions Ebb

Successive distortions (technology upgrades, Sandy comps, calendar/holiday shifts) in the initial claims series over the last two months of 2013 made garnering a clean read on the direction of the domestic labor market increasingly difficult.


Despite the volatility, we’ve held that the positive improvement that characterized most of 2013 has largely persisted as divergences from trend, stemming from the aforementioned distortions, have repeatedly been followed by a subsequent re-convergence to the high-single digit, Trend rate of improvement. 


While year-end/holiday seasonality will persist in the data for a couple more weeks, the last two weeks of relatively clean data are signaling a return to trend with both the 2-wk and 4-wk rolling averages in YoY non-seasonally adjusted claims reflecting a ~8.5% rate of year-over-year improvement.  


We continue to expect ongoing improvement in the reported labor market data as seasonality builds as a tailwind into March before again reversing to a tailwind over the March to August period.  


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - NSA 011613



Headline CPI accelerated on both a MoM and YoY basis with the month-over-month increase driven primarily by the jump in energy prices.  Core Inflation decelerated 10bps MoM and was flat at +1.7% YoY while price inflation for services decelerated modestly on both a YoY and 2Y. 


As we highlighted in our 1Q14 Macro themes call last week, the dollar has driven commodity inflation over the last 10 years and headline CPI follows the slope of food and energy inflation. 


With the dollar currently in no man’s land from a quantitative perspective - below TREND resistance ( 81.12) and above TAIL support (80.72) - a breakdown or breakout for the dollar will be critical input in determining how we manage our asset/geographical exposures from here.     


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - CPI Table


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - CPI Services


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - USD vs FE CPI


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - Headline CPI vs FE Sequential


CONFIDENCE:  NFIB small business confidence improved in December making unanimous the post-government shutdown resurgence observed across the primary survey’s to close the year (see December data in Table Below). 


Meanwhile, Bloomberg’s weekly read on consumer comfort deteriorated sequentially in the second print for 2014.  Notably, most of the weakness was concentrated in the higher income brackets while the lowest income bucket posted its best reading since June of 2008 and the penultimate bucket improved for a fifth consecutive month. 


With Consumer Confidence and the USD moving in lockstep over the last year, it makes sense to continuing ball-hawking the price signal in the dollar.


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - Confidence wkly


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - USD vs Confidence


CPI, CLAIMS, CONFIDENCE: Kinda, Sorta, It Depends - Confidence Table 011613



Christian B. Drake



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