SUBSCRIBE TO HEDGEYE.
“A squirrel is just a rat with a cuter outfit.”
-Sarah Jessica Parker
“So”, Obama and I were in NYC yesterday talking about inequality (at separate events, using separate explanations on the why – a 1500 sq/ft apt in midtown going for $3.47M has nothing to do with his Policy To Inflate – eat your ripping rents, and like it)…
And I came across an exhibition of sorts from some of de Blasio’s new city tenants. These dudes had few teeth and stunk to high-heaven, but still appeared to have the American Capitalist spirit. They’d spray painted a shopping cart full of rats and were selling pics to tourists.
I thought the pink ones with the fluorescent blue were cute. And evidently the high school girl who was posing for her Mom (with two live ones on her shoulders), thought so too. Everyone smiles until someone gets bit.
Back to the Global Macro Grind…
With the Russell 2000 down another -1.6% yesterday, US Growth Style Factors got bit again yesterday. Bond yields crashed to fresh YTD lows too. It was a great day for risk management. The CNBC “we’re at all-time highs” thing is cute and all, but still reeks like a rat.
As Detroit’s very own Lily Tomlin once said, “the problem with the rat race is that you’re still a rat.” And having been called more than a few names of this nature on the ice, I can sympathize with those who are forced to chase Wall Street’s performance bogeys.
But that doesn’t mean we have to be brain dead about it…
To review a very basic if, if, then statement in the Hedgeye Macro Playbook:
So easy a Mucker can do it, eh?
Congrats to the Montreal Canadians for keeping all the Canadian rink rat hopes alive by knocking the Boston Bruins out of the Stanley Cup Playoffs last night. Canadian Olympic Gold medal winning goaltender Carey Price proved that the best offense is a great defense.
I’m not sure why some people I talk to get so defensive about being long the defensive slow-growth playbook. Maybe it’s because they are losing. Maybe because it just doesn’t make sense. But maybe it does, and consensus is simply not positioned for it.
When people ask me where the proof is of inflation slowing US consumption growth, at this point I simply refer to the data. Don’t forget that US GDP growth was 0.1% in Q1, Retail Sales for April (Q2) missed this week, and US inflation (PPI yesterday) “surprised” to the upside.
Looking ahead at the calendar:
It wasn’t just the Russell Growth Index that got crushed yesterday. US Housing stocks (ITB) got sold to YTD lows too. For 2014 YTD:
But you already know that. And you know that I know that almost everyone I talk to says “well, I get it, but I can’t buy Utilities up here after this move.” Why not? I’m not trying to be a Kenny Linesman rat about this. I’m just trying to make and/or save you money by calling out Sector and Style Factors for what they are – huge competitive advantages in a performance chasing rat race that eventually forces everyone to buy what’s working.
We all make mistakes. But the biggest ones I have ever made in this game were doubling and tripling down on losers that kept going down. The Russell 2000 and Bond Yields are going down because consensus US growth expectations are – not because it’s different this time.
Don’t let your daughters pose with live pink rats and a toothless guy in NYC. That’s not different this time either.
UST 10yr Yield 2.54-2.61%
Brent Oil 108.41-110.36
Best of luck out there today,
This note was originally published at 8am on May 01, 2014 for Hedgeye subscribers.
“Basically, I’m for anything that gets you through the night – be it prayer, tranquilizers, or a bottle of Jack.”
Sinatra was a beauty, but he wasn’t a risk manager. And prayer isn’t a risk management process either.
I get it. There’s no need to bring our respective religions into this discussion…
So every time you hear a consensus Old Wall economist tell you to ignore the 0.11% US GDP bomb for Q1 (and that this sucker is going to magically accelerate to 3-4% growth from here), drink.
Back to the Global Macro Grind…
Imagine being me for a second… This morning I’ll be doing Institutional Investor meetings in my 4th state in 4 days (IN, MN, CT, and NY), and I get to hear all of it. I’ll hear about what all of our competitors selling macro research think. I’ll hear how all these sell side economists knew it was “all about the weather” (but they didn’t know the number would be so bad)… and how everything is really ramping (even though the data isn’t) …
On and on and on it goes…
Empathize with me people! I’ll be like the US Dollar (on its YTD lows post Q1 GDP disaster) and get down on my bloody knees and pray for your forgiveness for having my team think for itself. I must repent!
Serious question - should I, like the bond market (yields falling to 2.66% on the 10yr as growth slows), beg thy overlord at The Fed for an un-taper too? Or will that have to wait until the weather stops being the weather in Alabama this morning?
Enough questions already. Time to show you the wood (US GDP data for Q114):
Pardon? (says the ragingly linear economist who missed last year’s US #GrowthAccelerating as both the US Dollar and rates rose too). Pardon the data, I guess – because it’s not cooperating with Keynesian academic dogma!
Before I get into more of the good stuff (data), consider the following relationships that are driving David (Blanchflower) @Dartmouth right batty right now:
Oh, and there’s this other thing going on in US Housing that Janet refuses to address:
Back to the tasty data that is both the US government and Fed’s definition of “inflation”:
So, do the math. If America was using anything in the area code of a real world cost of living proxy (let’s say MIT academic thought is acceptable to a Princeton or Yale economist) US GDP for Q1 of 2014 would have been DOWN over 2%.
But since we’re not going to play a game of gotcha with conflicted and compromised US government data, let’s pretend for a second that it’s the 16th century again and we haven’t learned a damn thing about economic gravity.
Yep, let’s go all Copernicus on the Catholics of Wall Street forecasting, and suggest there is a solar system!
To get real, or nominal, remains the question. And as long as we can monitor all of our proxy baskets for US inflation (food, rents, energy, education, wages, etc.) in real-time, even a Mucker can model this in the 21st century.
But you don’t need to take my or a dead Polish dude’s (Nicholas Copernicus died in 1543) word for it. You can ask Mr. Macro Market:
If you’re going to buy in May, please do more of what you should have been doing since January 1st – be it inflation protection (TIP), food commodities (DBA), or slow-growth-yield-chasers (XLU), it’s all working. If you have been buying Twitter (TWTR) the whole way down on the weather thing, drink.
Our immediate-term Global Macro Risk Ranges are now as follows:
UST 10yr Yield 2.63-2.73%
Natural Gas 4.61-4.85
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Tickers: SGMS, HST, MGM
Thursday, May 15
Tuesday, May 20 - Thursday May 22
MGM - MGM Resorts International CEO Jim Murren made public comments at the Japanese Gaming Congress pressuring legislators to legalize gambling resorts via the passage of a bill to end the ban on casinos in the current session of Japan’s parliament ending June 22 and thus provide development time prior to the 2020 Olympics.
Takeway: May we suggest a slow, steady and a quiet approach with lots of deep bows to the Japanese officials rather a loud, public Gaijin approach.
2282.HK, MGM CHINA - recorded a block trade deal for a total of 1.09M shrs. The shares were sold at HK$25.648 a piece or $27.92M in total.
Takeaway: Interest for a large block to trade, near recent price lows...panicked or forced seller?
CODERE - Win per day across Codere's key markets continue to be sluggish. April win per seat in Argentina fell 28% to €176.7 and Mexico fell 18% to € 38.8
Takeaway: Not a good sign for gaming suppliers with exposure to those markets.
THOMAS COOK GROUP - Current Summer trading
Takeaway: Mixed leisure picture in Europe
Japan Gaming - lawmaker Sakihito Ozawa sees 50-50 chance of casino bill passing in current parliament session.
Takeaway: Lower odds than investors are discounting but legislators are hardly handicappers. We do fear that strong language from the operators could be viewed as too bold to the Japanese legislators.
Macau Gaming - Top Rank chief Bob Arum set a time, date and venue for Manny Pacquiao’s next fight and it’ll happen on Nov. 16 at 12 noon at Cotai Arena in The Venetian in Macau.
Takeaway: The fallout between Arum and Jim Murren at MGM resulted in this outcome as we previously handicapped in our Leisure Letter.
Hotel Transaction - Thayer Lodging has agreed to pay about $550 million for the Westin Diplomat Resort & Spa in Hollywood. The transaction includes the 998-room resort’s country club, which alone is valued at roughly $150 million because of its potential for residential development. Average price per key: $551k.
Takeaway: Owned by rather the United Association of Journeymen & Apprentices of the Plumbing & Pipe Fitting Industry of the US & Canada (UA) which acquired the asset in 1997 so not a HOT owned asset. We've visited both hotels (Beach Resort and Country Club) many times since their reconstruction and reopening in 2002 and today we believe both assets are in need of a significant capex refresh. However, price per key was solid.
Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive.
Takeaway: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.
TODAY’S S&P 500 SET-UP – May 15, 2014
As we look at today's setup for the S&P 500, the range is 27 points or 0.77% downside to 1874 and 0.66% upside to 1901.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team