Once again the weekly Macau numbers cannot be relied upon



According to the release, Macau generated HK$996m in average daily table revenue this past week, up 27% YoY, and bouncing back from last week’s daily of HK$886m. However, we believe both weeks were placeholders and cannot be relied upon.  Week 2 of May generated revenues of HK$6.2m - the most common placeholder amount.  This past week generated HK$6.975m which has also occurred too many times to be statistically random .  We pointed out the placeholder concept in many notes over the past year.  See "WE'VE BEEN PLACEHOLDERED!" from 04/29/14 for our latest thoughts.


Per usual when a month contains a placeholder week or two, the last week is volatile.  If the month to date numbers were accurate, May would be tracking to finish the month up mid teens YoY.  However, we expect a big catch up in the final week and still believe May could come close to our 20% growth target.


Anecdotally, we're hearing the Mass floors are busy and Premium Mass is doing well.  Mixed reports on VIP but overall, volumes appear decent.


In terms of market share, Galaxy is the only significant outlier with share well above recent trend.  MPEL and SJM remained below their respective 3 month average market share trend.






The People Are Aware

This note was originally published at 8am on May 12, 2014 for Hedgeye subscribers.

“There is hardly a part of the United States where men are not aware that secret private purposes and interests have been running the government.” –Woodrow Wilson


I had a fantastic Real Conversation (HedgeyeTV video here: with best-selling author Jim Rickards last week. Since he suggested we “quarantine the Princeton Economics Department”, I figured I’d quote the 28th US President (who was also President of Princeton).


The People Are Aware - 55


Princeton is a cool place; especially if you go there wearing Blue and White and crush their Tigers at the Hobey Baker rink. While that may be easier for more recent Yale Hockey teams to do, back in my day Princeton was as tough as any team in the league.


There was tough love for the Keynesians in my conversation with Rickards. We talked about the broken Fed model and how the US government doesn’t think about financial market risk the right way. The feedback on this video has been tremendous. Evidently this taps into a new reality – The People Are Aware.


Back to the Global Macro Grind


People in our profession are also very much aware of the real-time score on US Growth expectations falling, fast:


  1. Russell 2000 down another -1.9% last week to -4.8% YTD
  2. Nasdaq down another -1.3% last week to -2.5% YTD
  3. US Consumer Discretionary Stocks (XLY) down another -0.6% to -4.5% YTD


But, but, the Dow “hit an all-time high” on Friday (which puts it dead flat on the YTD #joy). So make sure you own everything in the Dow that is:


  1. Slow-growth
  2. Low-beta
  3. High-Yield


But you already have that on because that has been the strategy and asset allocation decision to make for the last 4.5 months. While that may not be trivial to someone who hasn’t evolved their process, in modern day markets real-time risk managers look at what we call Style Factors:


  1. Slow-growth stocks (Bottom 25% of the SP500’s EPS Growth is +5.2% YTD)
  2. Low-beta stocks are +6.1% vs High-beta up a paltry +0.4% YTD
  3. High-dividend-yielding stocks are +3.9% for 2014 YTD


“So”, what is driving slower-growth-hamster-on-the-wheel #YieldChasing? That’s too easy. It’s the Fed’s Policy to Inflate:


  1. So you buy inflation protections via TIPs
  2. Or you buy inflation by buying inflation itself (Oil, Food, Gold, etc.)
  3. Or you buy bonds and/or anything that looks like a bond as slower-growth-expectations drive down interest rates


Of course you’d have to let go of most academic ideologies that bonds don’t do well during #InflationAccelerating, and embrace that the Bernanke/Yellen Fed has 0% credibility on fighting inflation. I don’t know how many more times I can rant about this in print – that’s why I went to the video!


How about that stuff the Fed calls “non-core” (like ripping US rents and food) last week?


  1. CRB Foodstuffs Index up another +0.6% last week to +23.7% YTD
  2. Soybeans up another +1.1% to +11.6% YTD
  3. Corn up another +1.6% to +16.1% YTD


Yep. If you don’t like that definition of #InflationAccelerating, eat a REIT – and like it. Last week the MSCI REIT Index was up another +1.2% to +14.1% YTD, which means that you can bet your Madoff that rents are going higher in this country, not lower.


Oh, did I mention being long of US Housing in housing and/or related construction stocks terms (ITB) sucked wind again last week? For some reason this and most of the aforementioned market realities didn’t make it into Hyman’s weekly update. ITB (Housing) is down -6.4% YTD.


But never mind what Old Wall economists who missed calling the Q1 08’ and Q1 11’ slowdowns in US consumption growth think. As the early response to my un-plugged video with Rickards reminds us, The People Are Aware now. And that’s progress.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.56-2.67%

SPX 1869-1889

RUT 1189-1117

USD 79.18-80.08

EUR/USD 1.37-1.39

Gold 1278-1314


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The People Are Aware - Chart of the Day


Takeaway: Current Investing Ideas: GLD, HCA, HOLX, LM, LO, OC, RH, and ZQK

Below are Hedgeye analysts' latest updates on our EIGHT current high-conviction investing ideas and CEO Keith McCullough's updated levels for each.


We also feature three research notes from earlier this week which offer valuable insight into the market and economy.



Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less


INVESTING IDEAS NEWSLETTER - Inflation.AvgAmerian5.22.2014 


GLD  We added Gold to Investing Ideas this past week. Click here to read the full report.

HCA –  Hedgeye Healthcare sector head Tom Tobin remains bullish on HCA Holdings, but has no new updates this week. 

HOLX ­­– We’re continuing to see a nice acceleration in facility conversions to 3D Tomosynthesis in our data.  The chart below shows the result from the update we ran earlier this morning.  Facility counts and the placement rate continue to climb.  The pace needs to pick up next month, however to hit our near term estimates, although the announcement of a reimbursement code should help if we’re right on what we think the agency does. Next week we are hosting a call with a leading expert in the field.  He has one of the most detailed perspectives on what CMS will decide for a reimbursement for 3D Tomosynthesis.  




LM –  Our weekly tracking of mutual funds flows from the Investment Company Institute remained defensive this week with the combination of taxable and tax-free bond funds having another strong week of production with $3.9 billion in inflow, well above the running year-to-date average for 2014 of $2.1 billion per week. Conversely, equity funds had only the third net outflow of the year with $1.0 billion leaving all equity mutual funds, well below the year-to-date average of a $3.1 billion inflow. This emerging defensive posture by investors is very favorable for Legg Mason with 55% of its assets-under-management in bonds, the largest exposure in the traditional asset manager group.




LO – Once again rumors swirled this week that Lorillard  is going to get taken out. We think the market is getting over its ski tips on an imminent timetable for a deal given acquisition challenges.


We maintain our Best Idea Long Call Lorillard (presented on March 4 of this year). We think investors are best served to ride out the rumor mill pushing the stock higher as we don’t expect an imminent deal, and maintain that LO is fairly valued as a stand-alone or takeout target at $80/share (more below).


We view a hypothetical deal (especially an imminent one) between RAI and LO as challenged on three main factors:

  • Our main flag is that a combined RAI + LO would own ~ 67% of U.S. menthol market, which we believe should trigger anti-trust flags.
  • Big tobacco is already a highly concentrated industry in the U.S. across the big three – MO has a leading ~51% of market share; a combined RAI + LO would equate to ~ 42% share.   
  • BAT may look to maintain or increase its ownership in RAI (for the remaining 58%), however it cannot act until July of this year when a 10-year standstill agreement between it and RAI expires.

A scenario suggests that RAI could look to divest such menthol brands as Kool, Winston and Salem (~5% total market share), which could serve to change the consideration of the FTC/DOJ, however all of this shopping would take time.


As part of the Best Idea’s thesis we did not consider a RAI + LO deal. We think the decision to replace CEO Daan Delen with Susan Cameron, who held the CEO seat for 7 years ending in 2011, is contributing fuel to the speculation that she wants to come out of the box “strong” with this deal. 


Our thesis is built on the superior fundamentals of the Lorillard portfolio:

  • We do not see Menthol Regulation Risk from the FDA over the medium term (1-2 years) and assign less than a 20% probability over the long term.
  • We expect blu e-cigs to benefit from first mover advantage and maintain leading market share despite competitive pressures from Big Tobacco’s entry into the category. Looking out 5 years to 2018, we model blu’s earnings contributing 31% to total LO, and accelerating earnings growth in the combined company.
  • We expect strong and stable menthol fundamentals driven by lasting consumer and demographic trends that differ from traditional tobacco.

We maintain a fair value $80/share target would equate to a price 30% higher than today’s, so we think it pays to hold on to LO amidst the rumor winds!

OC – While the US residential housing market appears to be softening, residential home improvement spending continues to rebound from its post financial crisis lows. Owens Corning  should benefit from tightening building codes and improved competitive dynamics in coming years.  Shorter-term, we suspect that the company may benefit from a bounce-back in activity from earlier weather-related weakness.




RH – William’s Sonoma (WSM) reported earnings on Wednesday (5/22) after the close and the company reported a 10.0% consolidated comp – 85% above consensus estimates. More importantly, WSM’s two flagship furniture banners, Pottery Barn and West Elm, posted 9.7% and 18.8% comps respectively.


We view the event as a ‘State of the Union’ on the high-income consumer. There has been some trepidation surrounding the US consumer, much of it warranted in light of the less than positive 1Q earnings season to date. But, the concepts skewed towards the high-income subset have been resilient, i.e. KATE, TIF, and WSM. This gives us stronger conviction in our 1Q Restoration Hardware  estimates which call for a 15% retail comp compared to the street at 10%.


ZQK –  Quiksilver had a 9% rally over two days for one reason and one reason only – the company announced its quarterly reporting date of June 2. The company has had a wall of silence since the second quarter ended last month and gave zero indication to the Street as to when it would release earnings. That might be acceptable for a $10bn market cap company that actually earns money, but in this market it is certainly not acceptable for a company like ZQK. This is a company that has to be massively shareholder-friendly – and the fact is that it is not. It has to seriously upgrade its investor relations/communication program. Most notably, the Street perceives the announcement as an indication by ZQK that it will not tank the quarter. Presumably, if the company were to preannounce, it would have done so alongside the announcement of its earnings date.  We still think that ZQK is just emerging from its darkest hour. After 1.5 years of a new management team making all the tough decisions, we should start to see margin improvement and top line growth in 2H. As we’ve stated all along, we think it will be acquired at a double digit price sometime over 24 months.


*   *   *   *   *   *   *

Click on each title below to unlock the institutional content.


YELP: Chat with the CFO

Internet & Media analyst Hesham Shaaban had an honest and forthcoming conversation with YELP CFO Rob Krolik but is reiterating the short.


LINN Makes 1st Permian Trade & Nothing Changes

Energy analyst Kevin Kaiser analyzes LINN Energy and ExxonMobil's announcement of an asset swap.



DRI: Simply Egregious

Restaurants sector head Howard Penney explains why he is still stunned by the sheer arrogance of Darden management.


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The Week Ahead

The Economic Data calendar for the week of the 26th of May through the 30th of May is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 05.23.14 Week Ahead

Stock Report: SPDR Gold Trust (GLD)

Stock Report: SPDR Gold Trust (GLD) - HE GLD T 5 23 14


We are adding Gold on the long-side to investing ideas. The quantitative set-up is what we call a Bullish Formation (i.e. bullish on all 3 of our core risk management durations, TRADE, TREND, and TAIL).


Back on our Q2 Macro themes call we highlighted our #consumerslowing theme by showing a visual of the annual income and expenditure picture for the average American. Reiterating some notable statistics since hosting the call on April 8th, the average American spends more than 20% of after-tax income on food and utilities and nearly 30% on housing. One-Third of Americans rent and as Keith McCullough noted in today’s morning look:


“On US rents (34% of Americans have to rent, and like it) and cost of living hitting all-time highs this week, this is what one of the most uninformed members of the US Federal Reserve, Bill Dudley, had to say:


"prices look likely to firm, somewhat"


Taking the New York Fed president’s word to heart, the wealth-effect must finally be “trickling” down to rescue the consumer. Unfortunately, the average American only gets 1.38% of income from interest, dividends, and other property related income (although 34% spends on inflated rent). Adding to the pain, wage growth is nowhere to be found (which we have been told signals that inflation is non-existent)


How does this have anything to do with Gold?


Consumption is 70% of GDP, and on what items do Americans spend their depreciating dollars?


  • The CRB food index is up +21% YTD
  • WTI Crude Oil, which is now in a bullish trade and trend set-up, is +5% YTD
  • Coffee: +64% YTD
  • Orange juice: +17% YTD
  • Wheat: +9% YTD


When commodity inflation squeezes the consumer, a spending slowdown ensues which is a leading indicator of economic activity. When consumption slows on the margin, growth slows. In turn GDP, one of the most-anticipated measures of economic activity globally, surprises to the downside:


  • Inflation: Core PCE  for Q1 surprised to the upside printing at +1.3% vs. consensus expectations of +1.2%
  • Growth: Q1 Annualized Q/Q GDP printed at +0.1% vs. expectations for +1.2%.


The bond market, a proxy for the growth expectations, reflects this change. Once the slope of forward expectations turns downward (2nd derivative negative), linear growth expectations many periods into the future become very unrealistic when you take this convexity into account. Gold remains highly sensitive to monetary policy and tightly negatively correlated with the USD. As growth surprises to the downside, the problem is met with an increase (relative to expectations) in the money supply. This is a fact of global central planning today.


Stock Report: SPDR Gold Trust (GLD) - image002


Gold historically has a -.65 correlation to arithmetic mean of the USD-UST 10-year dating back to 1980. The correlation becomes stronger as growth expectations decrease. 


INTERMEDIATE TERM (TREND) (the next 3 months or more)

To explain the behavioral expectation for fed tapering moving into 2014, net long-short futures and options positions in the ten-year treasury market as reported from the CFTC showed a net short position of -175,641 contacts on 12/31/2013. Going into this week the market was now net long +23,948 contracts.


Stock Report: SPDR Gold Trust (GLD) - Slide3


As growth slows (with the bond market confirming this slowdown), the expectation for the monetary response/dollar devaluation increases over the intermediate-term.


The market was net long +58,316 Gold futures and options contracts on 12/31/2013 and moving into this week was now long +119,077 contracts. As expectations for more dollars infiltrating into the system (lower chance of tapering than consensus expected), the Gold market stays true to its historical sensitivity to monetary policy. The fed model gets easier and easier when growth surprises to the downside.


The market has confirmed this inverse correlation in our quantitative set-up. The ten-year yield broke its TAIL line support of 2.60% while Gold broke out above its previous TREND line and now sits in a bullish formation. In a note from last week we highlighted this broken level on the ten-year: 


Stock Report: SPDR Gold Trust (GLD) - Slide2



LONG-TERM (TAIL) (the next 3 years or less)

Unless an ideological change manifests at the Federal Reserve, the predictable policy response to growth slowing data points will continue from our viewpoint. As growth slows, the fed becomes more dovish and perpetuates the cycle, creating more and more inequality between those who benefit from the “wealth-effect” and those who get squeezed (the average American consumer).


Ironically, we have continuously shown that the classes of people who are modeled to spur demand and spend more money in the Fed’s Keynesian framework ultimately get squeezed. Our long-term directional stance is always subject to change, but our view on Gold’s interaction with the U.S. Dollar via the treasury market as growth surprises on the margins continues to drive our macro process.   


Stock Report: SPDR Gold Trust (GLD) - HE GLD C 5 23 14

The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.


Jim Lacamp, portfolio manager at Macroportfolio Advisors at UBS, discusses the Fed, U.S. economy, and how Keynesian economics is leading the U.S. down the Road to Perdition with Hedgeye CEO Keith McCullough.


Here's the question-and-answer portion from our daily institutional Morning Call hosted by Hedgeye CEO Keith McCullough and Senior Macro Analyst Darius Dale. Keith answers questions on markets, hedge fund performance and even youth hockey.


Hedgeye CEO Keith McCullough walks us through what the markets are telling us about growth, inflation, yield spreads and more.


Click here to subscribe to Cartoon of the Day. 

While lies about inflation in Washington can most definitely live, they can’t live forever.

The Best of This Week From Hedgeye - Inflation.AvgAmerian5.22.2014


We’ve been hitting you with this DOWN-volume-UP-day thing square in the head this year.

The Best of This Week From Hedgeye - volume cartoon 5.20.2014 


The Best of This Week From Hedgeye - Chart of the Day 


Oil prices are surging – meaning higher prices at the pump – just in time for Memorial Day weekend when Americans are being taxed six-ways to Sunday from rent to food. It’s just another sign of#InflationAccelerating. So while every car-owning American who fills up the tank may be feeling the pinch, we wanted to know how it’s affecting your holiday. Click here to view the poll and results.

 The Best of This Week From Hedgeye - oil gas prices 108930849


10 More Signs of #InflationAccelerating

The Best of This Week From Hedgeye - cartoon

US rents (34% of Americans have to rent, and like it) and the cost of living hit all-time highs this week, so alongside #RentRipping, here’s more year-to-date #InflationAcclerating data. Click here to continue reading.



Hedgeye Energy: Why $BPT Is A One Dollar Bill Selling For Two

The Best of This Week From Hedgeye - 424 10 slick operators

I'll pay you $1 per year for the next 8 years.  The payments are not guaranteed, they have equity-like risk.  How much would you pay me today for this deal?  A BPT long would give me $10. Click here for more.


Mortgage Demand Falls Again This Week

 The Best of This Week From Hedgeye - alg mortgage refinancing jpg

Wednesday’s MBA mortgage purchase application data shows housing demand dropped for a second week in a row in spite of falling rates. Click here to read more.


Hedgeye Retail: Target Execs Should Be Afraid For Their Jobs | $TGT

The Best of This Week From Hedgeye - 12

Normally we wouldn't characterize the opinion of one disgruntled employee as indicative of the corporate culture, but the fact that Target's CMO, Jeff Jones, personally addressed the anonymous letter in public is telling. Click here to continue reading.


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