The Buffalo Jump

“If I had a mind to rent pigs, I’d be mighty upset.  A man that likes to rent pigs won’t be stopped.”

-Larry McMurtry, Lonesome Dove


Lately I’ve been watching the famed late 1980s mini-series, “Lonesome Dove”, on Netflix.  It is based off of the Pulitzer Prize winning novel by Larry McMurtry of the same name.  The novel tells the story of two former Texas Rangers, Captain Augustus “Gus” McCrae and Captain Woodrow F. Call, who run a livery called the Hat Creek Cattle Company in the desolate Texas border town of Lonesome Dove.


The bulk of the plot involves the decision by McCrae and Call to leave the relative complacency of Lonesome Dove and drive a massive herd of cattle north to the Montana Territory.   On the way north, they encounter a plethora of adventures, including proverbial dust ups with the army, bandits, and Indians.


By far, the savvy plains Indians (Native Americans) are the most formidable challenge McCrae and Call face on their journey.   In reality, this is no surprise since the Natives occupied the land for thousands of years before the European settlers arrived and developed many proprietary ways of surviving off the land without the benefit of modern technology.


One such proprietary method of hunting was the Buffalo Jump.  


The Buffalo Jump - buffjump


It was a simple, but very effective method of collecting a massive amount of buffalo meat.   On horses or foot, the Natives would chase buffalo herds towards, and eventually over, a sharp cliff.  Tribesmen waiting below would finish off the buffalo and butcher the meat.   The key of course was that buffalo had no idea they were running towards, and eventually over, a cliff.


Back to the global macro grind . . .


While it is an apt analogy, we are not yet ready to say that the global economy is going over the cliff, but the fact remains that much of the data we’ve been collecting and watching is getting incrementally more negative.   Yesterday in our morning meeting, Hedgeye’s Asian Analyst Darius Dale emphasized that he is getting a little more cautious on China.


They key reason for his shift is that money market rates continue to back up.  This is a point that is emphasized in the Chart of the Day.   Further, while the government could choose to intervene, the People’s Bank of China is instead opting to let the markets settle on their own.  According to a February 8th PBOC report:       


“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that.  The market needs to tolerate reasonable rate changes so that rates can be effective in allocating resources and modifying the behavior of market players.”


In the long run, this is likely a positive for the Chinese economy.  In the short run, of course, higher money-market interest rate volatility is likely a headwind.   


The caveat on getting aggressively negative on China is that GDP comps are relative easy for China and seasonality should also be a positive in the reported numbers this quarter and next.  In part, this is likely why the Shanghai Composite is up +0.85% this morning and +3.5% this month – a move that may have some legs if the PBOC decides to cut the Reserve Rate Ratio (RRR) as is rumored this morning.


The novel Lonesome Dove is also somewhat apropos as newly minted Federal Reserve Chair Janet Yellen is scheduled for her debut in front of the House Financial Services Committee this morning, which will include Q&A.   Interestingly, there will be a second panel of witnesses that will react to Dr. Yellen’s testimony and will include:

  • Dr. John Taylor, Professor of Economics, Stanford University;
  • Dr. Mark Calabria, Cato Institute;
  • Abby McCloskey, American Enterprise Institute; and
  • Dr. Donald Kohn, Brookings Institution.

So, we will see soon enough if Dr. Yellen is a Lonesome Dove or as my colleague Keith McCullough called her in this video the "Mother of All Doves."   Either way, her commentary this morning is likely to have some impact on a stock and bond market that continues to be myopically focused on interest rates and Federal Reserve policy.


Speaking of headwinds, one of our Best Idea short positions Boardwalk Pipeline Partners (BWP) faced a few of them yesterday as the stock closed down -46%.  We obviously don’t get them all right, but our Energy Sector Head Kevin Kaiser nailed this one.  Interestingly, BWP didn’t miss its EBITDA estimate by all that much, but did cut its distribution by more than 80%.


A key tenet of our short call on MLPs in general is that their distributions are quite often an illusion as MLPs borrow money, issue equity and buy companies to maintain the distribution.   Investment bankers then “value” MLPs based on the yield, rather than the actual intrinsic value of the assets, and sell these financial products to unsuspecting retails investors.   This whole scheme works fine until the proverbial company goes over the Buffalo Jump and distributions get cut.


If you are invested in MLPs and / or looking for good shorts, I’d highlight recommend you subscribe to our Energy Sector research.  Anyone on our sales desk, , can help get you signed up.  The best risk management is to avoid blow ups like BWP and we seem more MLPs on the horizon that are headed for the cliff.


Our immediate-term Global Macro Risk Ranges are now: 


UST 10yr Yield 2.60-2.76%

SPX 1 

VIX 14.06-20.41 

USD 80.33-88.08 

Gold 1


Keep your head up and stock on the ice,


Daryl G. Jones

Director of Research


The Buffalo Jump - Chart of the Day


The Buffalo Jump - Virtual Portfolio






“There were a lot of people but business is not as good,” So said of SJM's revenue in January.  So said that the slowed-down growth was “nothing to worry about” as there was no drop in the amount of gaming chips bought by customers, pointing out that casinos look at the win percentage to determine their revenue.  Last month's slowed-down growth rate, So said, was nothing to worry about as he believed it won’t be a trend.



Macau Jockey Club (MJC) is planning to reopen its casino following a ten-year absence.  Jockey Club CEO Thomas Li Chu Kwan confirmed that the casino is now being redecorated and will be reopened as soon as government approval arrives.  There is currently no timetable for the casino’s reopening, and neither are there specific numbers on gambling tables and slot machines to be set up.



Bloomberry Resorts Corp has raised privately US$253.4 million (MOP2.03 billion) to expand its Solaire Resort and Casino in Manila’s Entertainment City.  The casino-resort operator had sold corporate notes to BDO Unibank Inc, China Banking Corp, Robinsons Bank Corp and United Coconut Planters Bank, among others.  The Phase 1-A expansion of Solaire will include 200 more slot machines and 65 gaming tables, a 300-room hotel, mixed-use space, a 1,800-seat theatre and a nightclub.


TODAY’S S&P 500 SET-UP – February 11, 2014

As we look at today's setup for the S&P 500, the range is 80 points or 3.66% downside to 1734 and 0.79% upside to 1814.                                                










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.37 from 2.36
  • VIX  closed at 15.26 1 day percent change of -0.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Sm. Biz Optimism, Jan., est. 93.5 (prior 93.9)
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 9am: Fed’s Plosser speaks in Del.
  • 10am: JOLTs Job Openings, Dec. (prior 4.001m)
  • 10am: Wholesale Inventories m/m, Dec., est. 0.5% (pr 0.5%)
  • 10am: Fed’s Yellen testifies to House Fin. Services Cmte
  • 4:30pm: API weekly oil inventories
  • 8pm: Fed’s Lacker speaks at Stanford University
  • 8pm: Fed’s Fisher speaks in Dallas


    • 9am: Obama and Hollande hold state arrival ceremony, 9am; State dinner begins 8:30pm
    • 10:15am House Ways and Means Committee marks up H.R. 3865 which would delay IRS rules on 501(c)(4) organizations
    • 10:30am Senate Budget Cmte hears from CBO Director Douglas Elmendorf on economic outlook through 2024
    • House Republicans plan Feb. 12 vote to boost debt limit until March 2015, restore cost-of-living raises for military retirees


  • Fed’s Yellen testifies to House Financial Services Cmte
  • KKR to close two funds targeting individual investors
  • Obamacare delayed until 2016 for businesses w/ <100 workers
  • Ackman sells General Growth shrs to exit holding in mall owner
  • Barclays to cut up to 12,000 jobs as 4Q profit falls
  • L’Oreal to pay $8.2b to buy back 8% of its stock from Nestle
  • Blankfein says EMs in better position than during 1998 crisis
  • SEC majority wants to review exchanges’ oversight status
  • GM’s China sales rise 12% to record in January on Buick demand
  • General Motors to invest 1.5b Zloty in Polish plant: Dziennik
  • Porsche to exceed 200,000 in deliveries in 2015 on Macan
  • Wall St. vets may be removed from arbitration panels: Reuters
  • North Carolina agency may delay own deal with Duke Energy: AP
  • Virgin America said to pick Barclays, Deutsche for IPO: FT
  • Glencore Xstrata’s 4Q copper output increases 32%
  • China auditors plan to file appeal of 6-month U.S. ban


    • CAE (CAE CN) 8:22am, C$0.18
    • CVS Caremark (CVS) 7am, $1.11 - Preview
    • Dean Foods Co (DF) 7:01am, $0.18
    • Entergy (ETR) 7am, $0.83
    • HCP (HCP) 8am, $0.56
    • Health Net/CA (HNT) 8:15am, $0.29
    • Henry Schein (HSIC) 7am, $1.40
    • Huntsman (HUN) 6am, $0.37
    • Ingersoll-Rand PLC (IR) 7am, $0.61
    • IntercontinentalExchange Group (ICE) 7:30am, $1.95
    • LPL Financial Holdings (LPLA) 6:05am, $0.59
    • Marsh & McLennan Cos (MMC) 7am, $0.56
    • Mosaic (MOS) 7am, $0.43
    • National Retail Properties (NNN) 8:30am, $0.28
    • Omnicom Group (OMC) 7am, $1.14 -
    • PG&E (PCG) 9:02am, $0.42
    • Regeneron Pharmaceuticals (REGN) 6:30am, $2.09 - Preview
    • Reynolds American (RAI) 6:58am, $0.80 - Preview
    • Sprint (S) 7am, ($0.36)
    • Zoetis (ZTS) 7am, $0.34


    • Arch Capital Group (ACGL) 4:01pm, $0.96
    • Brookfield Residential Properties (BRP CN) 4:09am, C$0.84
    • CNO Financial Group (CNO) 4:03pm, $0.29
    • Conversant (CNVR) 4:02pm, $0.57
    • Covanta Holding (CVA) 4:01pm, $0.22
    • DaVita HealthCare Partners (DVA) 4:01pm, $0.98
    • Energen (EGN) 4:30pm, $0.82
    • FireEye (FEYE) 4:05pm, ($0.37)
    • Fossil Group (FOSL) 4:01pm, $2.43
    • Packaging of America (PKG) 5pm, $0.89
    • PHH (PHH) 4:03pm, $0.08
    • Sangamo Biosciences (SGMO) 4pm, ($0.11)
    • Seattle Genetics (SGEN) 4:05pm, ($0.24) - Preview
    • Service International (SCI) 4:05pm, $0.24
    • Trimble Navigation (TRMB) 4:05pm, $0.37
    • TripAdvisor (TRIP) 4pm, $0.21
    • Western Union Co (WU) 4:01pm, $0.32
    • Willis Group Holdings PLC (WSH) 4:41pm, $0.49


  • Natural Gas Rebounds From Three-Week Low on U.S. Winter Storm
  • Gold Advances to Highest Price Since November as Dollar Weakens
  • Rhodium Bust Ending as Car Sales Fuel Mine Deficit: Commodities
  • Sugar Traders Split as Brazil Dryness Weighed Against Surpluses
  • Aluminum Trades Near a One-Week High Before Yellen Testimony
  • Rebar Touches 17-Month Low as Inventory Gains After Holiday
  • Soybeans Extend Losses After USDA Raises Global Supply Outlook
  • China Eyes Poultry Consolidation as Bird Flu Cuts Consumption
  • Wheat Crop Seen Third-Biggest by Australia on Western Supply
  • California Wildfires Erupt Early in Risk to Homes and Vineyards
  • Transnet Fights BHP to Win Coal Port Access for Black Miners
  • Strong Chinese Steel Demand May Fail to Absorb Iron Ore Glut
  • Chinese Coal Firms’ Debt Concerns Sink Shares: Chart of the Day
  • WTI Trades Near Six-Week High as U.S. Fuel Supplies Seen Falling


























The Hedgeye Macro Team














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February 11, 2014

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Chinese New Year (CNY) is off to a great start for the Macau casinos following a softer than expected January (hold issues in Jan?).  Daily table revenues averaged $1.464 billion, up 78% over comparable period last year.  The more appropriate comp is 3rd week of February last year when table revs averaged HK$1.107 billion – so peak CNY is up about 32%.  We should see one more week of fairly strong revenues related to the CNY celebration before the seasonal slowdown.  All in, we continue to project February YoY growth of around 20%, which could prove conservative.


For market shares, LVS is crushing it this month with MTD market share well ahead of trend as is Galaxy.  Those market share gains are coming at the expense of SJM, MGM, and MPEL.  While variances from normal hold are no doubt causing most of the share volatility this early in the month, we expect LVS primarily and Wynn secondarily, to be volume share gainers, with LVS showing the longer tail.  Indeed, the anecdotal feedback from the ground suggests terrific volumes at the LVS Cotai properties.





Silent Apprehension

This note was originally published at 8am on January 28, 2014 for Hedgeye subscribers.

“Wall St. was a street of vanished hopes, or curiously silent apprehension, and a sort of paralyzed hypnosis.”

-New York Times


Imagine that was the header for @NYT on the eve of America’s central economic planner in chief’s State of The Union. Newsflash: it’s not. That was the front page of the New York Times on the day after the 1929 US stock market crash.


John Coates cites the aforementioned headline in chapter 1 (The Biology of a Market Bubble) of The Hour Between Dog and Wolf and goes on to remind us that “research on body-brain feedback, even within physiology and neuroscience, is relatively new.” (pg 28).


So how are you feeling this morning? While you know that hope is not a risk management process, apprehension and paralysis are all part of the game. While it’s hard to sell`em on green and buy`em on red, fading your emotional state is often the precise action to take.


Back to the Global Macro Grind


I don’t know about you, but in the heat of the decision making moment I fade how I feel about markets a lot. Through 15 years of trial and error, I’ve learned to increasingly rely on multi-factor, multi-duration, risk management signals amidst the research noise.


Since I don’t have a dog (or wolf) in the fight in marketing a perma bullish or bearish position, I use the TRADE versus the TREND in order to tone down my testosterone. Yep, I’m a dude – keeping that under control matters!


To review our process lingo:

  1. TRADE is 3 weeks or less in duration
  2. TREND is 3 months or more in duration

The reason why I use “more” or “less” is because time in my model (days) varies inversely with volatility. In other words, if front-month volatility ramps +50% in a week, the number of days in my TRADE model falls, fast – and, if implied volatility (looking out on the curve) doesn’t confirm that immediate-term information surprise, I keep an above average amount of duration (time) in the TREND model.


That may or may not make sense to you. So to put it more simply:

  1. When both front-month and implied volatility are signaling lower-highs and lower-lows, a monkey can buy stocks
  2. When both front-month and implied volatility move from bearish to bullish TRADE and TREND, monkeys get killed

Momentum monkeys, I mean.


I know, I know. Every time I call someone a monkey, I trigger an emotional response. But, please, don’t be offended. I am a monkey too – I’m just one that tends to learn from the cage door being slammed on my fingers.


Volatility, of course, is the #1 risk factor that every major fund manager who has fallen from grace has messed up. Even the world’s best messed this up in bonds last June. Many more have already messed this up in Japanese and Emerging Market Equities YTD.


This is basically why I completely disagree with the concept of being an active “long-term investor” who doesn’t use an implied volatility risk management overlay. While it would be nice to wake up to sun and bananas at the zoo every day, reality is that every once in a while a storm rips the cages open and the tigers, who have been putting up with monkey-bull chirping for a year, are hungry.


Back to the actual levels, to keep this simple, let’s just focus on the inverse relationship between the SP500 and VIX:

  1. TRADE – SPX 1837 momentum support broke as 13.81 VIX resistance became immediate-term support
  2. TREND – SPX 1779 support was tested intraday yesterday (and held), but VIX 14.91 TREND is firmly intact

And here Mucker the monkey was covering oversold shorts (and buying one long, LVS) into the close as 1779 SPX held (which would be called a high-probability gamble - dealer shows a 6 in #BlackJack)… and the minute I saw Apple (AAPL) guide down, I thought it was going to be a gamble I’d pay for today (and deserve it).


But, the US Equity Futures are up 8-10 handles and I’ll play lucky on the open today instead. I won’t, however, confuse that with the next leg up in this market ripping to fresh all-time highs. Provided that 1837 SPX TRADE resistance and 14.91 VIX TREND support remain intact, I’ll be a seller again this morning on green (like we were in #RealTimeAlerts on the open yesterday).


I know that playing the game across durations isn’t for everyone. But this is what I do. And I like it. I can assure you that the longest of “long-term” investments you can ever make is starting your own company with all of your own money. And for me at least, that investment requires absorbing 24/7 risk management, apprehension, and pain – if you want the long-term to last longer, that is.


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


SPX 1758-1822

VIX 14.91-20.41

USD 80.18-80.79

Pound 1.64-1.66 (bullish)

NatGas 4.58-5.15

Gold 1240-1272


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Silent Apprehension - Chart of the Day


Silent Apprehension - Virtual Portfolio

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.