Muscle Hamsters

“Your job is to coach the team I give you.”

-Sonny Weaver Jr.


That’s a Kevin Costner quote from the new NFL movie my wife and I went to see on date night a few weeks back called Draft Day. The movie is somewhat contrived but, at the same time, somewhat real. Sort of like a nickname.


Imagine your nickname was the Muscle Hamster? As I was watching the actual NFL Draft last night with some of Hedgeye’s former college football boys (Casey Flavin, Darius Dale, and Ryan Fodor), they were trying to explain to me why they call him the hamster.


Like most things in life, I don’t totally get it until I see it. One pic of #22 RB for the Tampa Bay Bucs, Doug Martin, says 1,000 words. The dude is 5’9 and weighs 215lbs. He might not like the nickname, but he definitely looks like it.


Muscle Hamsters - 55


Back to the Global Macro Grind


If you’re a levered long high-multiple-growth-momentum-chaser, you may not like the complexion of the US stock market this year, but that doesn’t change what it’s become – a slow-growth-yield-chaser.


If we’ve shown you this pic 100 times in 2014, it probably feels like 1,000:


  1. Utilities (XLU) are +13% YTD
  2. Consumer Discretionary (XLY) stocks are -5% YTD


If you don’t like the Sector Variance that’s developing out there, here’s another pic:


  1. Russell2000 is -9.1% from its all-time-bubble-peak in March…
  2. Whereas the SP500 is only -0.8% from her all-time-twitter-muscles-but-but-the-market-isn’t-down-yet peak


Or you can #SnapChat some of the dirtier growth pics:


  1. Twitter (TWTR) -49%
  2. FireEye (FEYE) -37%
  3. Amazon (AMZN) -28%
  4. Yelp (YELP) -23%
  5. Zulily (ZU) -20%


No one likes to be called dirty. I know. I am sorry. But the truth is that some of these charts are filthy.


In reviewing all the tapes, the Draft Day Hedgeye Playbook remains the same:


  1. A Down Dollar Policy To Inflate ultimately drives #InflationAccelerating
  2. As real-world inflation accelerates, real (inflation adjusted) consumption growth slows
  3. And, as 71% of GDP (consumption) slows, US growth slows


“So”, if you want to win this year, you’re chasing the muscle-hamster-wheel that the Fed has trained you on and praying that no one knocks the entire cage of interconnected risk over. That would suck; especially since we’re all in this #YieldChasing thing together.


Yep, we’re all out in the open doing things we naturally wouldn’t do (hamsters are crepuscular, which means that if they weren’t centrally planned to run around in a cage, they’d stay underground in order to avoid being eaten).


And since doing what you shouldn’t naturally do only works if you genuinely believe that this time is different (try buying the company with no earnings at 15x sales again), you just have to get on that damn performance chasing wheel and run!


Run, muscle hamsters, run!


Because, as long as you can outrun the 80% of funds that can’t beat a bloated SP500 beta anymore, you will live to pay peak cost of living in America for another day!


Our immediate-term Global Macro Risk Ranges are now (today, in brackets I have our intermediate-term TREND signal as well):


UST 10yr Yield 2.56-2.64% (bearish)

SPX 1 (bullish)

RUT 1087-1118 (bearish)

Nikkei 14004-14348 (bearish)


VIX 12.96-14.52 (neutral)

USD 79.01-79.74 (bearish)

EUR/USD 1.37-1.39 (bullish)

Pound 1.68-1.70 (bullish)


WTIC oil 98.99-102.27 (bullish)

NatGas 4.52-4.81 (bullish)

Gold 1 (bullish)

Corn 5.05-5.25 (bullish)


Best of luck out there today,



Muscle Hamsters - Chart of the Day

Harmonious Submission?

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

“Confucius preached a philosophy of harmonious submission.”

-Julia Lovell


The Chinese world, he believed, would prosper not through violence, but through careful maintenance of hierarchy” (The Opium War, pg 84). Putin is not Chinese. And most American patriots don’t harmoniously submit to class hierarchy or what the government tells them about inflation either.


If you believe that a country’s monetary policy is not causal to both the value of its currency and the domestic inflation that is priced in that currency, you are submitting to one of the great academic frauds of the 21st century. 

Harmonious Submission? - poot

If Putin didn’t believe that the only way to stop the Russian Ruble from crashing further was to raise interest rates, why has he done that, twice, since March? Ruble down = inflation up = social unrest up. If you want someone to preach that, Chavez is dead.


Back to the Global Macro Grind


I know, what a cheery note to wake up to. After watching the social and biotech bubble stocks close down on the day yesterday, I’m all beared up and grumpy. Inclusive of the iSplit ugrade from AAPL yesterday, don’t forget the Nasdaq is still -4.8% from its 2014 bubble high.


To review what every population since the beginning of, well, time has been beared up about:

  1. DOWN currency
  2. UP inflation
  3. DOWN real, inflation adjusted, economic growth


Now, to be fair, if you are long of either cost of living (inflation) and/or the output of Americans getting paid nominal (slow growth), you are absolutely crushing it for 2014 YTD. Here’s the Global Macro asset allocation that is putting a smile on that grumpy Mucker face:

  1. Long Inflation via inflation (commodities and/or companies, like Energy (XLE +6% YTD), who benefit from inflation)
  2. Long inflation via inflation protection (TIPs)
  3. Long inflation slowing growth via Gold, Bonds – or anything that looks like a bond (Utilities, REITS, etc.)


But, if you are long growth (real, not nominal) in countries like:

  1. Japan
  2. USA
  3. Russia


You are not smiling. Countries attempting to have their people submit to the broken promise of currency devaluation via debt monetization being the best long term path to income disparity… not good.

  1. Japanese Equities -10.9% YTD
  2. US Consumer Discretionary Equities (XLY) -3.5% YTD
  3. Russian Equities crashing -22% YTD


Putin’s issues are much more visible than Japan’s right now (BREAKING: “Tokyo Inflation Quickens To Fastest Since 1992” –Bloomberg), because most humans (not you!) are too economically illiterate to know the difference between nominal and real growth, until it’s too late. So you just need to front-run them.


For a market based economy, when is it too late?

  1. When your currency is crashing and local inflation starts to rip your people a new one
  2. Then your stock market starts to crash…
  3. And finally, your bond market starts to care about the causal currency and inflation risk factors, all at once


Right now, that’s Russia. Putin’s 10yr $10B bond auction effectively failed earlier this week, so this morning (after raising rates from 5.5% to 7% last month) he had his boys raise rates from 7% to 7.5% in order to “protect the people from inflation.”

Harmonious Submission? - poot1

I‘m hearing he bought Russia’s largest social media company (and probably had a few fingers lopped off a few Ruskies who weren’t cooperating harmoniously with his narrative too), but that’s just a rumor!


Putin gets paid in Petro Dollars. So I wouldn’t be surprised if he tries to solve for the aforementioned trifecta of sovereign risk (Russian CDS up to 282 bps wide now – a 2 yr high) by firing up the geopolitical risk news flow. That, and team Krugman/Japan/USA printing more moneys than god could, tends to be bullish for oil.


It’s too bad US Consumers can’t get an iSplit at the pump. Submitting to ideas like that would require Michael Lewis and Janet Yellen to team up on 60 Minutes Sunday night, and announce that US monetary policy is broken, and we need to raise interest rates to protect the purchasing power of the “little guy.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.59-2.71%

USD 79.34-80.03

Brent Oil 109.12-110.86

Natural Gas 4.55-4.81

Gold 1271-1325

Corn 4.95-5.12


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

Harmonious Submission? - Chart of the Day

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TODAY’S S&P 500 SET-UP – May 9, 2014

As we look at today's setup for the S&P 500, the range is 27 points or 0.78% downside to 1861 and 0.66% upside to 1888.                                              













  • YIELD CURVE: 2.22 from 2.23
  • VIX closed at 13.43 1 day percent change of 0.22%


MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: JOLTs Job Openings, March, est. 4.100m (prior 4.173m)
  • 10am: Wholesale Inventories m/m, March, est. 0.5% (prior 0.5%)
  • 11am: Fed to purchase $1.5b-$2b notes in 2020-2021 sector
  • 1pm: Baker Hughes rig count
  • 12pm: Fed’s Fisher speaks in New Orleans
  • 8:10pm: Fed’s Kocherlakota speaks in St. Paul, Minn.


    • 12:50pm: CFPB Director Richard Cordray speaks at Federal Reserve Bank of Chicago’s conf. on Bank Structure & Competition
    • 12:55pm: President Obama speaks on energy efficiency in Calif.
    • U.S. ELECTION WRAP: Benghazi Political Risk; Bitcoins for PACs


  • Apple said near buying Beats Electronics for $3.2b
  • Apple to move up iPhone 6 sales date by a mo.: Eco. Daily News
  • Omnicom, Publicis abandon $35b plan for advertising merger
  • Mitsubishi UFJ said to weigh offer for BNY corporate trust unit
  • Key Senate Democrats said to reject Fannie Mae overhaul measure
  • Marchionne to locate Fiat Chrysler headquarters in London
  • Winklevoss twins seek Nasdaq listing for Bitcoin exchange fund
  • RadioShack will close fewer stores as it contends with lenders
  • Twitter COO Rowghani sells part of stake as IPO lockup expires
  • U.S. administration reviewing ban on crude oil exports: FT
  • Telefonica earnings miss estimates as demand in Spain falls
  • Vestas beats ests., posts unexpected 2nd straight qtrly profit
  • Man Group assets increase 1.7% to $55b on GLG gain
  • China’s inflation decelerates to slowest pace in 18 months
  • U.S. Retail Sales, Yellen, BOE, Japan GDP: Wk Ahead May 10-17


    • Bloomin’ Brands (BLMN) 7am, $0.47
    • Broadridge Financial (BR) 7am, $0.25
    • Chiquita Brands (CQB) 8:01am, $0.14
    • EchoStar (SATS) 8am, $0.03
    • Enerplus (ERF CN) 6am, C$0.26
    • EW Scripps (SSP) 7:30am, $(0.12)
    • Hilton Worldwide (HLT) 6am, $0.09
    • HMS (HMSY) 7:30am, $0.16
    • Horizon Pharma (HZNP) 6:30am, $(0.02)
    • Magnum Hunter Resources (MHR) 7am, $(0.14)
    • NorthStar Realty Finance (NRF) 7:30am, $0.23
    • Ralph Lauren (RL) 8:01am, $1.63 - Preview
    • Sirona Dental Systems (SIRO) 7am, $0.78
    • Stratasys (SSYS) 5am, $0.40
    • TMX (X CN) 6am, C$1.04



  • Nickel Set for Biggest Weekly Gain Since 2010 on Supply Concern
  • WTI Heads for Weekly Gain as Crude Stockpiles Drop; Brent Rises
  • Biggest Iron Ore Bounty Locked in Spat Eases Glut: Commodities
  • Wheat Extends Drop Before USDA Report on Global Supply Outlook
  • Gold Heads for Second Weekly Drop on Ukraine to Stimulus Outlook
  • Record Beef, Pork Prices Mean Pricey Barbecues: Chart of the Day
  • Palm Imports by India Seen Rising First Time in Four Months
  • Iron Ore Slumps to Lowest Since 2012 as Global Surplus Deepens
  • Russia’s Exports Unhindered by Putin’s Incursion Into Ukraine
  • Tumble in Fuel Sales Adds to Evidence of China Slowdown: Energy
  • Norway Sees Stable Russia Gas Supply to EU Beyond Ukraine Crisis
  • Oil Producer Pleas Snubbed by Norway as Offshore Costs Surge
  • Russian Gas Bypass Forces Ukraine to Develop Domestic Resources
  • Cocoa Extends Drop in London on West Africa Crops; Sugar Rises

























The Hedgeye Macro Team















Grim statistics on product sales and replacements  



  • WMS new product sales down:  reflect lower GGR in many domestic gaming jurisdictions.  Many customers have reduced their capital spending.  Their ship share decreased modestly from Dec Q.
  • Blade games continue to perform well, compared with casino average.  At end of March, launched 3-reel Blade.
  • WAP/premium:  New Clue game; New Willy Wonka 3-reel mechanical game
  • UK govt intend to increase commission tax on net win from 20% to 25%.  In addition, will take effect in Oct 2014, there will be additional player restrictions.  Will negatively impact UK customers.
  • Soft launch:  GoldFish social slots has been successful.  In current quarter, expanding distribution and growing player database.
  • JackpotParty:  new daily record revenues in April
  • Average installed base decline of 57 units:  decline in non-WAP offset by growth in WAP units
  • Average yield:  $70.13 highest since 2010 
  • Average DAU: 1.3 vs 0.6 in previous year quarter
  • ARPDAU from $0.26 to $0.23:  change in the reporting of Facebook payment process.  Impact is $6m
  • Product sales:  decline in replacements attributed to tough GGR and modest decline in ship share
  • Offering new CPUNEXT3 system and less expensive hardware than Bluebird 2 units to customers
  • Higher international lottery product sales, benefit from new lottery contracts (NorthStar NJ venture and Panama)
  • Renewed 3-yr contract for French national lottery
  • Awarded 6-yr instant games contract for Washington lottery
  • New contract with LottoQuebec will be in Q2; will be smaller than previous contract
  • Full launch instant games in Greece tomorrow. 
  • Instant product price-per-unit decline of $2.4:  attributed to quarterly changes in launch of marketing programs and other programs.
  • Lottery systems:  Higher sales in international markets grew product sales.  
  • WMS:  $157m EBITDA vs $178 EBITDA in previous year quarter
  • Cost synergies:  Elimination of duplicate corporate costs, lower compensation costs (reduced headcount by 4%- SG&A areas), lower employee costs, manufacturing, procurement savings, exiting interactive gaming ops in Belgium/UK and exiting certain lottery operations
    • Weighed more heavily to 1st half of year
  • Free cash flow:  +$24m; +$60m operating cf

Q & A

  • FCF:  does not include sell of Sportech, cash used to buyback shares
  • NJ lottery contribution:  important but not material contribution
  • Growing WAP footprint to generate higher yields
  • Leverage target:  no target to become investment grade
  • Replacement cycle:  server-based gaming business in UK had to get upgrades.  Innovations in cabinets/softwares will drive casino performance, not really just replacing machines that have considerable wear-and-tear issues.

Video: Conversation with YUM CFO Pat Grismer

YUM continues to be our favorite LONG in the big cap QSR landscape.


In case you missed it, earlier this week we held a call with Yum! Brands CFO Pat Grismer.  Our wide-ranging conversation ran the gamut from succession planning, business in China, Taco Bell breakfast and much more.  We learned a lot and we think you will too.


Here’s the full video from our call.  If you have any additional questions don’t hesitate to ping me. 




Video: Conversation with YUM CFO Pat Grismer - 5 8 2014 3 23 22 PM




Howard Penney

Managing Director


Fred Masotta




Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%