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Nimble and Changing

This note was originally published at 8am on April 21, 2014 for Hedgeye subscribers.

“Small, nimble, fast changing.”

-Julia Lovell


That’s how Julia Lovell described early 19th century England (relative to China) in The Opium War. “While China’s slavish people had been homogenized into speaking one language … and sympathizing in the same manners.” (pg 79)


As a company or a country, you do not want to become 17-19th century China. You don’t want to be what Europe morphed into during the 20th century either. As a Canadian capitalist who came to this country in the 1990s, I often wonder what America’s 21st century will look like. It’s not what it used to be.


Sadly, the path of least resistance is one of a slower-growth bureaucracy. That’s not my opinion. That’s the history of countries who age. So don’t do that. Do what you can to put two-feet on the floor every morning and earn your keep; fight the tyranny of government groupthink; be nimble and changing.


Nimble and Changing - nimble


Back to the Global Macro Grind


If only because I finally took a vacation, watching the US equity market melt-up to lower-highs on no volume was interesting to watch, intermittently. But one week does not an intermediate-term TREND make. As a friendly reminder, it’s late April and most major US stock market indices are down year-to-date.


Inclusive of the Dow (which we are short in Real-Time Alerts via the DIA) and US Consumer Discretionary stocks (XLY) rising +2.4-2.5% last week, they are both still -1.0% and -4.6% for 2014. If you are long America thinking this is the 1990s #StrongDollar growth cycle again, that is not good.


Two of our most outside of consensus Global Macro Themes are:

  1. US #InflationAccelerating
  2. US #ConsumerSlowing

Both have continued to play out in April. While they are bearish from a cyclical and secular US consumption growth perspective (see our Q2 Global Macro Themes deck for details), there are obvious ways to play this from the LONG side:

  1. Long Inflation, explicitly, via Commodities (DBA, UNG, CAFE, etc.)
  2. Long Inflation, protection, via Treasury Inflation (stagflation) Protection (TIPs)
  3. Long #GrowthSlowing via Bonds (TLT) and any slow-growth Equity (XLU) that looks like a bond

Those speaking the Fed’s language (“there is no inflation”) and/or #OldWall consensus (“Wall Street Bond Dealers Whipsawed on Bearish Treasury Bets” –Bloomberg this morning) don’t get this, yet. But markets do.


Speaking of YTD market scores, how about those commodity markets!

  1. CRB Food Index up another +2.7% last week to +21.6% YTD
  2. Coffee and Soybean prices up again last week to +77% and +19% YTD, respectively
  3. Natural Gas +2.6% last week to +15.8% YTD

I know, I know. As long as you don’t eat and/or plan on running the air conditioning in your house this summer, those food and utility bills (according to those speaking one language in Washington) are “non-core” to what you really need to be spending on – a $600-700 iPhone 6 upgrade!


Nimble and Changing - Chart of the Day


While I was in the pool with my kids Thursday, our long Natural Gas (UNG) and Coffee (CAFE) buy-signals in Real-Time Alerts ripped. But don’t tell the Fed that. They’re still saying what US consumers had to pay (front-month) to heat their homes this winter was “transient.”


Sure, almost every “fundamental” analyst in the Federal League can tell you that there is an “over-supply of Natural Gas” in America. But most of them won’t tell you there is an over-supply of people who were long the Dow and social media stocks on January 1st.


The YTD score doesn’t lie though; those saying there is no inflation do.


Into the belly of US “earnings season” (and away from the aforementioned asset allocations to commodities and bonds), how does all of this look from a Hedgeye Style Factoring perspective (in US Equities) in the last month?

  1. Top 25% Sales Growth Companies (Top Quartile of SP500 Companies) are -2.2% (vs. the bottom 25% being +2.2%)
  2. Top 25% EPS Growth Companies are -1.3% versus the bottom quartile being +2.6%
  3. High Beta Equities are -0.2% versus Low Beta +1.8%

Since it’s also NHL Playoff season, as Herb Brooks said in Miracle, “Again!”


Again, and again, and again… for centuries, big, fat, centrally planned countries who have devalued the purchasing power of their people in exchange for political safety have lost this war. It ends with inflation. And inflation slows both growth, and the multiples markets pay for them.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1833-1880

Nasdaq 3961-4149  

USD 79.11-80.03

Brent Oil 108.21-110.62

Natural Gas 4.46-4.78

Gold 1285-1330

Corn 4.94-5.11


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer

CHART OF THE DAY: 10-YR UST "Un-friending" US Growth


CHART OF THE DAY: 10-YR UST "Un-friending" US Growth - Chart of the Day

Un-friending US Growth

“There is no friendship in trade.”

-Cornelius Vanderbilt


Un-friending US Growth - facebook thumbs down


Forget about what Facebook (FB) did on Friday. In one of the more epic 2 hour moves I have ever seen, the US bond market un-friended the US growth bulls, big time.


At 8:30AM the lagging of all lagging economic indicators (the monthly US unemployment rate) was met with some of the funniest tweets my contra-stream has ever seen: “Boom!” (as in this is  great report), “Bye bye Bond Market”, “Stocks gonna rip!”, etc.


By 10:30AM, as you can see in the Chart of The Day, anyone who bought US growth stocks and sold what’s been working all year (Gold, Bonds, etc.) felt shame. #Tweetless


Un-friending US Growth - Chart of the Day


Back to the Global Macro Grind


To be crystal clear, with the 10yr US Treasury Yield -15% YTD to 2.58% and US GDP 0.11% in Q114, Mr. Macro Bond Market has completely nailed it in 2014.


Since everyone other than guys @ISI (who are trying to story-tell about 3-4% US Growth) understands the relationship between a rising bond market (falling bond yields) and falling growth expectations, the real-time price truth is on the tape.


With the Russell2000 (proxy for US Growth stocks) -3% YTD, what else is going on out there on the scoreboard?

  1. US Dollar down another -0.3% last week to $79.51 on the US Dollar Index (re-testing its YTD lows)
  2. The Currency Power Couple (Euro and Pound) were up another +0.3-0.4% last week to +1.9-3.0% YTD vs the Burning Buck
  3. European Stocks (EuroStoxx600) were up +1.3% last week (vs the Russell2000 +0.5%) to +2.9% YTD
  4. MSCI World Equity Index beat the Russell last week too, +1.2% = +1.8% YTD
  5. Canadian Stocks (TSX Composite Index) were up another +1.6% last week to +8.4% YTD

Blame Canada (who also had the “weather”, like the UK did – but didn’t spend the last 3 months blaming it like CNBC growth bulls have).


Now, if they can’t blame the weather for a 9-week high in US jobless claims (reported on Thursday, which isn’t a lagging jobs indicator), what precisely do you think they’ll start to blame as they cut their 2014 US GDP “forecasts”?


Alec, I’ll take US #InflationAccelerating for $500 (pre-tax!):

  1. Food Prices (CRB Foodstuffs Index) were up another +0.7% last week to a tasty +22.3% YTD
  2. Cattle Prices were up another +3.1% last week to +11.1% YTD
  3. Natural Gas Prices were up another +0.6% last week to +14.0% YTD

No worries though, the natural gas thing was all about the weather on the East Coast in February, right? If poor people being pulverized by food and shelter costs can’t afford the air conditioning this summer, tell them to go topless.


Cotton prices up another +1.1% last week to +12.3% YTD are prohibitive to wearing t-shirts anyway. After they eat an iPad, the median consumer in America (who makes $47,296.72 a year pre-tax and spends $42,996.83) can swallow Janet’s un-tapering reaction to slowing data, and like it.


Obviously this isn’t funny – an un-legislated Policy To Inflate (taxing 80% of Americans with QE on their cost of living) rarely is. Looking at the average American’s Spending Breakdown (slide 15 of our Q214 Macro Themes Deck):

  1. Housing = 29.2%
  2. Transportation = 17.6%
  3. Food = 12.5%

Yep, your un-elected Fed tells you all of that stuff is “non-core.” While food and shelter are primitive concepts for some, for most of us they are core costs. And since 30% of the country still rents, the all-time highs in US rents matters to real people with real costs too.


Oh yeah. I almost forgot to tie in the introduction of today’s note with the conclusion. Why is it that bond yields got slammed intraday on a “better than expected jobs report”? That’s easy. As opposed to being a backward-looking-editorial-passive-trend-follower, markets are forward looking.


My read-through on what both the bond and currency markets have been telling you for 4 months is that they’ll be telling you more of the same in the next 4 months. As growth slows, the Fed will get even easier à Dollar and Bond Yields fall further à  Inflation continues to accelerate, and real growth consensus is un-friended, faster.  


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


UST 10yr Yield 2.56-2.68%


RUT 1093-1133

USD 79.19-79.88

Gold 1

Corn 4.96-5.21


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer

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TODAY’S S&P 500 SET-UP – May 5, 2014

As we look at today's setup for the S&P 500, the range is 28 points or 1.12% downside to 1860 and 0.36% upside to 1888.                                               













  • YIELD CURVE: 2.16 from 2.16
  • VIX closed at 12.91 1 day percent change of -2.57%

MACRO DATA POINTS (Bloomberg Estimates):

  • 9:45am: Markit US Svcs PMI, April final, est. 54.5 (pr 54.2)
  • 10am: ISM Non-Manufacturing, April., est. 54.0 (prior 53.1)
  • 11am: U.S. announces plans for 4W bill auction


    • Democrats should boycott Benghazi select panel, Schiff says
    • Clinton sidesteps 2016 plans in accepting Illinois Lincoln award
    • House, Senate in session
    • Obama will host Djibouti President Ismail Omar Guelleh
    • 9:30am: Supreme Court releases list of cases it plans to consider; may issue opinions at 10am


  • China manufacturing gauge signals deeper slowdown risk
  • Buffett says likely to join with Lemann’s 3G on another deal
  • AstraZeneca rejects Pfizer, which may eye sweetened offer
  • Fed’s Fisher: Economy strengthening as private payrolls rise
  • EU reduces euro-area growth forecast as inflation seen slower
  • Ukraine unrest flares across country as Kiev’s control slips
  • Citigroup wins custody deal from world’s biggest sovereign fund
  • ‘Spider-Man’ leads N.A. box office, tho sales miss some est.
  • U.S. pump price hits 14-mo. high of $3.72: Lundberg survey
  • LightSquared makes closing arguments in bankruptcy exit hearing
  • Siemens said near deal to sell airport unit to Wilbur Ross
  • Twitter lock-up expires as shrs drop 47% from high
  • Swatch objects to authorities over Apple’s use of iWatch label
  • Nokia joins Musk to Google in investing in intelligent cars
  • Alibaba founders seek control with partnership alternative
  • B/E Aerospace puts itself up for sale, cancels investor mtg
  • Ackman, Einhorn speak at Sohn Investment Conference
  • Yellen Testimony, ECB, Bank of England: Wk Ahead May 5-10


    • Auxilium Pharmaceuticals (AUXL) 7am, $(0.22)
    • BroadSoft (BSFT) 7am, $0.11
    • Brookfield Infrastructure (BIP) 7:30am, $0.38
    • Hecla Mining (HL) 8am, $0.00
    • Occidental Petroleum (OXY) 7am, $1.70 - Preview
    • Orbitz Worldwide (OWW) 8:08am, ($0.03)
    • Pfizer (PFE) 7am, $0.55 - Preview
    • Realogy (RLGY) 6:35am, $(0.19)
    • Sysco (SYY) 8am, $0.40
    • Tyson Foods (TSN) 7:30am, $0.63
    • Westlake Chemical (WLK) 6am, $1.13


    • Alleghany (Y) 4:07pm, $8.16
    • American Intl Group (AIG) 4pm, $1.07
    • Anadarko Petroleum (APC) 4pm, $1.15
    • CareFusion (CFN) 4:02pm, $0.62
    • EOG Resources (EOG) 5:11pm, $1.19
    • Genpact (G) 4pm, $0.23
    • Integrated Device Technology (IDTI) 4:01pm, $0.13
    • Mindray Medical Intl (MR) 5pm, $0.38
    • Oasis Petroleum (OAS) 4:15pm, $0.63
    • Tenet Healthcare (THC) 4:30pm, $(0.15)
    • Vivus (VVUS) 4pm, $(0.34) - Preview
    • Vornado Realty Trust (VNO) 4:52pm, $0.53
    • YY (YY) 4:01pm, $0.49


  • Wheat Rises to Highest in Year as Ukraine Boosts Supply Concern
  • Iron Ore Seen Slumping Below $100 as Surge in Supply Widens Glut
  • Hedge Funds Reduce Gold Bets to Lowest in 11 Weeks: Commodities
  • Gold Extends Climb to Three-Week High as Ukraine Spurs Demand
  • Brent Rises to Near 6-Day High as Ukraine Offsets China Slowing
  • Copper Declines as China Manufacturing Gauge Misses Estimates
  • Platinum Mines’ Union Bypass May Disrupt Industry, AMCU Says
  • Speculators Cut Bullish Oil Wagers on Record U.S. Supply: Energy
  • ARA Gasoil Supplies Rose 4.5% in Week to April 25, Genscape Says
  • Palm Oil Output in Indonesia Seen Hurt by Golden Agri on El Nino
  • U.S. Gasoline Rises to 14-Month High, Lundberg Survey Shows
  • Palm Oil Drops to Three-Week Low as Malaysian Output Seen Rising
  • Competition Means New GrainCorp Bid May Win Approval, UBS Says
  • Libya Crude Exports Dropped 36% in March, National Oil Says

























The Hedgeye Macro Team














May 5, 2014

May 5, 2014 - Slide1


May 5, 2014 - Slide2

May 5, 2014 - Slide3

May 5, 2014 - Slide4

May 5, 2014 - Slide5

May 5, 2014 - Slide6

May 5, 2014 - Slide7

May 5, 2014 - Slide8 


May 5, 2014 - Slide9

May 5, 2014 - Slide10

May 5, 2014 - Slide11
May 5, 2014 - Slide12


Despite cautious commentary, big beat on higher VIP volumes in Q1




  • Best performing RC Volume ever
  • 2014 will have a challenging macro economy; Chinese economy unstable; cautious view
    • Indonesia - two elections coming up
  • Mass revenue:  flat in the past two years; will be flattish in the next few months.
  • Macau Junket incident:  must have some repercussions in the Macau market.  Will not know for sure in the next 2-3 months.  Will not significantly affect Singapore since that market doesn't use junkets.
  • VIP RC volume share:  59%
  • VIP revenue share:  55%
  • VIP breakout:  Chinese still most important.  Indonesia and Thailand also a big segment.
  • Japan:  gaming bill may pass in Lower House at end of May.  Will go to Upper House some time in early June - will be more challenging because ruling party does not have majority there
  • Number of high rollers have increased due to improvement in regional logistics
  • VIP win rate %:  3.0%
  • Mass share:  44%
  • Have not seen much impact from Malaysia/Korean incidents
  • Stronger Singapore $:  affects mass market (esp Malaysia); number of trips remain the same but bet per trip has gone down.  Eventually will affect number of trips too.
  • Chinese macro will affect premium mass market
  • Hold-adjusted EBITDA is same as reported EBITDA since they use 3.0% as normal
  • GGR win breakout:  62%VIP,  Mass 38%
  • Higher 1Q receivables impairment:  case by case basis.  
  • Jeju:  will receive building permit by end of June.  Will have groundbreaking event June/early July. 
    • No comment on Landing (their partner).  thinking of acquiring a separate small casino in Korea
    • Have not finalized submission plans; will build a 2,800 room hotel
  • Quite optimistic on Jeju Island - Chinese nationals do not need a visa to travel to Jeju, as opposed to traveling to Seoul;  Jeju only 1 hour flight from Shanghai. Northeast China has 800 million (no more than 2 hour flight).
  • VIP rolling volume grew 19% QoQ and 10% YoY
    • Extended reach of customers
    • 10% YoY growth sustainable?  It will be challenging.
  • 16k visitation breakout:  60% visitation USS, 40% visitation to Marine Life Park;  average spending USS $85, average spending MLP $33
  • Capex guidance:  
    • Jeju:  US$1 billion 
    • Jurong hotel: S$200 million (1Q/2Q 2015 projected opening), most of capex will be done in 2014

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