With EBITDA margins trailing the competition by an average of 500bps, some shareholder pressure should not be a surprise. But will the new Activist be successful?



We’ve long thought that BYD was ripe for activist shareholder involvement.  In fact, we’ve had discussions with such activists but the major push back has been major insider ownership - around 40%.  BYD is an operational underperformer and should either put the right management team in place or sell the company to a better operator.  Will Bill Boyd acquiesce or even sell?  That remains to be seen but he is in control.


The reality is that BYD underperforms its competition both at the company level in terms of EBITDA margin as well in each of its markets.  BYD’s property EBITDA margin trails the average competitor in most of the company’s markets by 200-800bps.  Moreover, gaming revenue per position also falls short of the competition by up to 10%.


With the right operating team in place, we estimate BYD could enhance EBITDA by $110 million to $150 million, or $8 to $10 of equity value.  BYD closed at $11.80 yesterday and while the stock will no doubt be up in the morning, considerable upside will still remain if operational changes are made and even more through the sale of the company.  We’re pretty sure GLPI would take a look.  


For an activist looking for BYD to pursue its own REIT split, we would view that as unlikely.  BYD's debt levels are too high and significant NOLs remain.  BYD is likely 3 years away from even considering that option


The following charts show BYD’s underperformance.  Note that the data used for this analysis covers 2013/2013.  Given the PNK acquisition of ASCA and the PENN/GLPI split, it seemed more comparable and easier to present.  We believe the margin differential hasn’t changed much.









Life and Light

“The life and light of a nation are inseparable.”

-James A. Garfield


That’s the opening quote to a fantastic US #history book I cracked open this past weekend: Destiny of The RepublicA Tale of Madness, Medicine, and the Murder of a US President, by Candice Millard of Kansas City, Missouri.


After serving only 200 days as President of the United States (MAR-SEP of 1881), Garfield was shot by a whacko loser by the name of Charles Guiteau. Not unlike many of us, Garfield never thought of himself as part of a “class.” While he was raised poor, he empowered himself with the light of self-education. He was one of the smartest Presidents America has ever had.


Being “smart” isn’t a big differentiator in this profession. On paper, I don’t really know anyone who is dumb. But thinking that an un-elected-central-planning-bureau can smooth our economic lives and provide us with a pre-18th century enlightenment is. While hope is not a risk management process, that’s all I have left that America’s currency finds her footing.


Back to the Global Macro Grind


As I alluded to in yesterday’s Early Look, 1 was one of the best economic periods in American history for a reason. The US understood the value of owning what was becoming the world’s reserve currency. There was no Federal Reserve to devalue it.


Life and Light - 567


Fast forward 100 years, and we have ourselves quite a scene to observe in global macro markets every day. Places like Argentina (who had the same standard of living as the US in 1920), missed having Presidential periods of sustained real (inflation adjusted) economic growth like 1 (Reagan) and 1 (Clinton) where the value of America’s currency rose with interest rates.


Our Global Macro Theme of 1H13 of #StrongDollar + #RatesRising is gone now. And, on many levels, that’s just a sad thing. It provided for what George Gilder recently coined as “information surprise” in the US economy. It was the life and light that the current @FederalReserve isn’t allowed to understand.


In case you are thinking about moving to another country, here’s what’s headline news around the world this morning:


1. New Zealand’s Prime Minister, John Key, is calling for a new country flag to represent the “end of the colonial era”

2. Swedish Consumers are enjoying #StrongCurrency Tax Cuts (Consumer Prices, CPI, -0.2% y/y for FEB)

3. UK Industrial Production #GrowthAccelerating to +2.9% y/y as the British Pound tests fresh 3yr highs


In other words, there is plenty of life and light in this world. You just have to stop navel-gazing politically in the US and realize that countries are racing against America as she always has against them.


But why do these headlines matter? What do these countries currently have in common?


1. NEW ZEALAND’s #StrongCurrency Policy (the Kiwi) has generated some of the strongest real GDP growth rates in the non-EM world. Consumer Confidence (which tracks the strength of a country’s currency) is testing all-time highs.

2. SWEDEN, while still recovering from its loss to the Canadian hockey team in the Gold medal game @Sochi, continues to reap the rewards of having a currency that can’t be devalued by some Japanese bureaucrat

3. UNITED KINGDOM continues to remind all those who followed in the footsteps of a raging Keynesian policy to devalue the Pound that real-inflation-adjusted economic-growth in the UK has accelerated alongside the purchasing power of its people


Don’t worry, all is not yet lost. But the US stock market’s volume could be. At the all-time highs in the SP500, volume has been as dead as a doornail. In both monetary policy and in market interest (CNBC ratings at all-time lows), the US is starting to emulate Japan. The land of the rising sun and “forward rate guidance” (Japan) saw its stock market volume hit 5 month lows last night too.


What if the life and the light were to just leave? And I mean literally. What if enough of us get what’s going on to simply not show up as the last lemming to buy the all-time bubble high from someone else who doesn’t call the all-time high price bubbly? What if all there is left is the last short seller covering his shorts high after shorting the January lows?


What if?


If, if, then statements aren’t new to evolution. Neither were they new (yesterday) to a part of this world (Latin America) that has tried, tried, and tried again to devalue its currencies as the best path to political power and prosperity.


Argentina, Brazil, Chile (Equities) were all down -1.2-1.6% yesterday as hedge funds continue to race to get net longer of a US stock market they got way too short of only a month ago (-80,000 net short futures/options contracts in Index +E-mini).


Latin American Equities (MSCI Index) are down almost -10% YTD as its people deal with unsustainable debt levels, deficit spending, and failed Policies To Inflate their way out of it via currency devaluation. The purchasing power and currency of The People are inseparable.


Our immediate-term Global Macro Risk Ranges are now as follows (Top 12 Daily Trading Ranges is a separate subscription product):



Bovespa 441

USD 79.38-80.11

Pound 1.66-1.68

Brent 106.93-110.61

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Life and Light - Chart of the Day


Life and Light - Virtual Portfolio

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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.


This note was originally published at 8am on February 25, 2014 for Hedgeye subscribers.

“To defeat the aggressors is not enough to make peace durable.  The main thing is to discard the ideology that generates war.”  

- Ludwig von Mises

Von Mises is considered by many to be one of the fathers of libertarian thought in the United States.  He wrote, lectured and taught broadly on many topics beyond economics, including sociology, philosophy, and engineering.  As his student F.A. Hayek said, he was “one of the best educated and informed men I have ever known.”


Despite von Mises massive amount of writing and incredibly influential friends and students, such as Jacques Rueff the monetary advisor to Charles de Gaulle, Italian President Luigi Einaudi, and novelist Ayn Rand to name a few, there were periods in his career in which von Mises work was largely ignored.  Nonetheless, his ideas remained durable.


Durability - 34


The animal kingdom has some profound examples of durability as well.   Three of the best examples of durability include:

  • Planarian worm – Can regenerate large portions of its body and if cut in half can become two separate functioning worms;
  • Cockroach – Has extreme radiation resistance  (likely to survive a nuclear war), can survive for weeks with its head cut off and can live for months without food; and
  • Rat – Fine swimmers, can chew through steel, can go for a couple of weeks with no food or water and can eat almost anything as a diet.

Luckily, living in the modern world doesn’t require us to go for weeks without food or chew through steel, but as stock market operators the first two months of the year have required durability.  Specifically, January started with an almost 6% dive in the SP500 and February has seen more than a hundred point positive recovery.   Obviously timing the markets is a much chagrined strategy, though an ability to do so would certainly have helped in the first two months of the year.


Back to the Global Macro Grind...


On the topic of durability, any investor that has put money into Brazil over the past four years has had to endure a halving (think Planarian worm) of the Brazilian stock market.  In part, which is highlighted in the chart of the day, this has been driven by the dramatic decline in Petrobras (PBR), the largest single component of the Bovespa.   As the chart of the day shows, from its peak PBR has lost more than 80% of its value.


This coming Thursday at 11am ET, we are going to host a conference call on Brazil with the explicit title, “Brazilian Equities Down -50% From 2011 Peak, Time to Buy?” On the call, we will review the bearish thesis, but take a more opportunistic look at getting long of Brazil.  At ~ 7.0x earnings versus a peer mean of ~12x earnings, PBR may be an interesting way to play a recovery in Brazilian equities.  If you aren’t currently a Macro subscriber, please email for details on how to access the call.


On the macro news flow front this morning, China is once again dominating.  While most global stock markets are either up or down small, the Shanghai Composite is down just over 2%.  There are three key factors that appear to be weighing on Chinese equities:

  • The Shanghai Property Index closed -2.2% and hit a fresh 8 month low;
  • Many of the major publicly traded developers continued to sell off, even as the major banks all said there was no change to real estate related loan policy and have not halted real estate financing operations; and
  • Finally, there was a report that an Executive Director of the Bank of China was arrested in a corruption probe.

The key benefit to Chinese investors of increasingly liquid stock markets is that they can get out of the way, and remain durable, by selling, which they did in spades in the last 24 hours.


Flipping back to the U.S. for a second, it is interesting to note that the SP500, and equities generally, have recovered nicely in February, the assets and sectors that are performing the best remain those that most embody slowing growth and accelerating inflation.  Specifically, while the SP500 is now down only -0.04% on the year, gold is up +10.9%, healthcare is up +6.9%, and utilities are up 6.5%.  So, yes, slowing growth and accelerating inflation endures!


Interestingly, from a stock perspective, the fact that lower yielding stocks outperformed last year actually benefited a number of short calls we made in the MLP sector.  Disappointing MLP fundamentals only added to the macro tailwind last year, which carried into this year when one of our Best Idea shorts Boardwalk Partners (BWP) got cut in half after reducing their distribution by 80%. 


The next big short on our horizon, and on our Best Ideas list, is Kinder Morgan (KMI).   Barron’s kindly quoted my colleague Kevin Kaiser and wrote this weekend:


“Kinder Morgan's valuation is crazy," says Kevin Kaiser, an energy analyst at Hedgeye, an independent Connecticut research firm and the company's most visible critic. "The distributable cash flow is overstated because the maintenance capital is understated." He thinks Kinder Morgan MLP units could drop below $50 and the GP below $20 -- both roughly 40% lower than the current quotes.”


Tomorrow, Kaiser will be discussing the durability of Kinder Morgan and MLP accounting in a conference call with energy accounting expert Julie Hannink from CFRA (email for details).   It’s not clear to any of us that MLPs or their distributions are durable enough to be starved of capital expenditures. 


Our immediate-term Macro Risk Ranges are now as follows:


SPX 1816-1853 

UST 10yr Yield 2.68-2.81% 

VIX 13.44-15.66 

USD 79.81-80.51 

Gold 1282-1345 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Durability - chartofday


Durability - virtual

March 11, 2014

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

As we look at today's setup for the S&P 500, the range is 27 points or 0.70% downside to 1864 and 0.74% upside to 1891.                                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.41 from 2.41
  • VIX closed at 14.2 1 day percent change of 0.64%

MACRO DATA POINTS (Bloomberg Estimates):

  • 5:30am: Bank of England’s Carney, others speak in London
  • 7:30am: NFIB Small Business Optim, Feb., est. 94 (pr 94.1)
  • 7:45am: ICSC retail sales
  • 8:55am: Redbook weekly sales
  • 10am: JOLTs Job Openings, Jan. (prior 3.99m)
  • 10am: Wholesale Inventories, Jan., est. 0.4% (prior 0.3%)
  • 4:30pm: API weekly oil inventories


    • President Obama to attend Democratic National Cmte, Democratic Senatorial Campaign Cmte events in New York
    • Vice President Biden meets with Colombian President Juan Manuel Santos before attending inauguration of Chilean President Michelle Bachelet in Santiago
    • 12:25pm: OMB Director Burwell speaks at Economic Club of Washington on Obama’s proposed FY15 budget
    • 11am: John Brennan delivers remarks on 1st yr as CIA director
    • 4pm: Sec. Jeh Johnson before House Homeland Security panel on agency’s 2015 budget proposal
    • U.S. election wrap: Florida primary tomorrow


  • Blackstone said to plan $5.5b Gates Global bid with TPG
  • Lloyds trader said to tip off BP on $500m currency deal
  • Ackman to show internal documents in Herbalife China webcast
  • SoftBank’s Son vows "price war" if T-Mobile deal approved
  • Russia holds firm on Crimea as Ukraine bolsters its defenses
  • Malaysia widens search for missing jet to Malacca Strait
  • Microsoft’s Titanfall game is being released
  • Bank of Japan sticks to easing plan as sales-tax bump looms
  • Sean Combs is said to bid $200m for MSG’s Fuse TV network
  • Jimmy Iovine’s Beats Music is said to raise up to $100m
  • House panel to probe GM recall of vehicles on ignition switches
  • Repo fire-sale proposal said within reach
  • Insurance cos. attempt to escape U.S. bank capital requirements
  • Honda makes Acura stand-alone division to boost luxury lineup
  • Energy Future said to hold last-minute talks to ease bankruptcy
  • Blackstone buys majority stake in Accuvant for $150m: WSJ
  • Wells Fargo reverses ban on staff making P2P loans, FT reports
  • Apple said to seek exclusive iTunes releases: L.A. Times


    • American Eagle Outfitters (AEO) 8am, $0.26 - Preview
    • Arcos Dorados Holdings (ARCO) 8am, $0.16
    • Dick’s Sporting Goods (DKS) 7:30am, $1.11 - Preview
    • John Wiley & Sons (JW/A) 8am, $0.85
    • Springleaf Holdings (LEAF) 7:30am, $0.45
    • Synta Pharmaceuticals (SNTA) 6:45am, ($0.30)
    • Transcontinental (TCL/A CN) 10:30am, $0.34


    • Caesars Entertainment (CZR) 4pm, ($1.52)
    • Diamond Foods (DMND) 4:01pm, $0.08
    • Furiex Pharmaceuticals (FURX) 4:05pm, ($1.06)
    • Inter Parfums (IPAR) 4:05pm, ($0.17)
    • NCI Building Systems (NCS) 4:01pm, ($0.01)
    • VeriFone Systems (PAY) 4:01pm, $0.27


  • Iron Ore Bear Market Deepens Amid China Credit, Surplus Concerns
  • WTI Trades Near 3-Week Low as Supplies Seen Rising; Brent Stable
  • Nickel Pioneer Shut Out as China Cuts Smokestacks: Commodities
  • Copper Rebounds as Barclays Says Worst Selling May Have Passed
  • Corn Extends Slump to One-Week Low as USDA Signals Ample Supply
  • Gold Climbs Toward Four-Month High as Ukraine Spurs Haven Demand
  • Indonesian Exchange Sets Daily Suggested Opening Bid for Tin
  • Corn Extending Rally With Wheat for CBH on Ukraine Supply Risk
  • Rebar Rises After Biggest Three-Day Decline Since October 2011
  • Japan’s Giant Tsunami Wall Fails to Stop Atomic Power Fears
  • Palm Oil Drops as Prices at 18-Month High Seen Cutting Demand
  • Ukraine Crisis Endangers Exxon’s Black Sea Gas Drilling: Energy
  • Record Bullish Oil Bets May Deepen Any Slump: Chart of the Day
  • Tin Shipment Seized by Indonesian Navy En Route to Singapore

























The Hedgeye Macro Team














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.