More Economic Cowbell

Client Talking Points


An (allegedly) big macro move yesterday (that didn’t actually occur) on the “big” ECB move. People thought the euro would go down, instead it went up. People thought bonds would go down, instead they went up. People thought gold would go down, instead it went up. If the euro holds our long-term tail line of support of $1.35 versus the dollar, you want to buy it. Long euros here, short the Dollar ahead of what we think is next downside catalyst for USD which is upcoming Fed meeting.


Simply put, this morning’s U.S. jobs report does not provide nearly enough economic cowbell. The jobs picture is not improving at an accelerating rate. Sorry. Bond yields have the story right. Yes – we reiterate being  bullish on bonds following this morning’s lackluster report. There’s no support really to 2.41%.


We didn’t put out the signal yesterday to re-short the Russell 2000—yet. As you know, we have not been short the S&P 500 from a signal perspective, but if the RUT is up today, in light of the jobs report, we will likely be sending out a sell signal. On an overbought signal, coupled with the jobs number, it’s a relatively easy spot to sell it. No support for the Russell to 1108; after that, no support to 1098.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


Probability of the US unemployment rate going 2% higher instead of lower (from here) = high @KeithMcCullough


"Change your thinking, change your life." - Ernest Holmes


The U.S. added 217,000 jobs in May, while the unemployment rate remains at 6.3%. (New York Times)

LEISURE LETTER (06/06/2014)

Tickers:  HT, IHG.LN, HTZ


  • Mon June 9: HTZ earnings
  • Tues June 10: HLT lock-up expiration
  • Tues June 10: Thurs June 12: Bally Systems User Conference
    Mohegan Sun
  • Thurs June 12: Blackstone Investor Day 8:00 am


SJM - (Macau Business) SJM CEO Ambrose So forecasts Macau GGR will grow 10% YoY in 2014 to MOP400 billion (US$50.09 billion).  So added that May's GGR growth of only 9.3% 'wasnt bad.'

Takeaway:  SJM historically have been conservative in their yearly revenue forecasts.  Maybe not this year.


ZNGA - CEO Don Mattrick said Zynga's audience has stabilized after many quarters of steep DAU/MAU losses.  The company is open to using part of Zynga's $1.1 billion cash on new acquisitions/partnerships.

Takeaway:  Social gaming have been the only bright spot recently for the slot suppliers.  While there are many growth opportunities, It remains a volatile, competitive environment.


HT – acquired the newly constructed Hilton Hotel in Manhattan for $85.2 million from lodging developer Sam Chang's McSam Hotel Group.

Takeaway: Another Manhattan asset for this Greater New York City focused lodging REIT.


IHG.LN – EU Commission clears Katara Hospitality's acquisition of joint control over 5 European hotels located in Amsterdam, Rome, Frankfurt, Cannes, and Madrid from InterContinental Hotels Group.  Katara Hospitality is owned Qatari sovereign wealth fund and owns, manages and develops hotels globally

Takeaway: As expected. 


HTZ – provided an update on the Company's accounting review and delayed Q1  Form 10-Q filing and disclosed new material weakness conditions over internal controls and financial reporting as of December 31, 2013.  Additionally, a thorough review of the company’s internal financial records is being conducted for fiscal years 2011, 2012 and 2013, and their impact, if any, on 2014.

Takeaway: We ponder the following - when were these issues discovered...during the prior CFO's tenure (Elyse Douglas who stepped down on Sept 23, 2013, during the interim period and prior to the appointment of Thomas Kennedy on Dec 9, 2013, or subsequent to Kennedy's arrival.  Recall, Kennedy was CFO at Hilton Worldwide until Aug 2013.


NCLH - (S-8 filing)  proposing to issue up to $2 million ordinary NCLH shares to be offered pursuant to the company's employee stock purchase plan.  The proposed maximum offering price per share would be $33.44, based on the average high and low prices of NCLH shares on May 30.


Insider Transactions:


HOT - EVP Jeffrey M. Cava sold 13,518 shares on Tuesday, June 3rd at an average price of $80.30 and he now owns 34,509 shares.


HST - VP Elizabeth A. Abdoo sold 50,000 shares on Wednesday, June 4th at and average price of $22.17 and she now owns 95,147 shares.


Japanese Gaming (Reuters) Tokyo Governor Yoichi Masuzoe today indicated that developing a casino in the capital was not a priority and that there had not been enough debate on money laundering and other potential problems that could arise should casinos be legalized in Japan. 

Takeaway: Tokyo has never really been a leading candidate.  


Macau Suspicious Financial Transactions - The Financial Intelligence Office received 1,595 reports of suspicious transactions for 2013 -- 245 cases fewer than 2012, or 13.3 percent less, despite the city experiencing continuous growth in gaming revenues.  Similar to previous reports, about 70% of suspect transactions (1,138 cases) were reported by the gaming sector.

Takeaway: A positive trend despite pressures from the US Department of State to increase levels of scrutiny. 


Chinese World Cup Betting – China is expected to issue its first online sports betting licenses in time for the World Cup. The first licenses are likely to go to those already operating with the Finance Ministry’s approval under a pilot scheme -- recently the share price of NYSE traded rose on the news. By comparison, China’s two state sanctioned lotteries, the Welfare Lottery and the Sports Lottery, have seen rapid growth, with a combined wager of RMB309 billion ($49 billion) last year. However, the penetration rate remains low by international standards and estimates put the illegal market at some 10-20 times that of the legal business, suggesting huge growth potential.

Takeaway: Regardless the size, we expect World Cup Soccer which runs from Thursday June 12 through Sunday July 13 to modestly impact Macau GGR.


World Cup Betting (Hong Kong Standard) Police from Macau, Hong Kong and mainland China are stepping up enforcement action against illegal football betting as the World Cup nears. Police from both Special Administrative Regions and from Guangdong province have launched a month-long crackdown on illegal football gambling.  The 2014 FIFA World Cup in Brazil kicks off on June 12 with the final set for July 13. In June 2010, Macau’s casino revenue declined 20 percent from the previous month, a drop that was attributed by some financial analysts to the World Cup keeping some gamblers away from gaming tables and slot machines

Takeaway: During 2010's World Cup more than 5,000 people were arrested across China, Malaysia, Singapore and Thailand while a Chinese gang was busted for running an illegal online better network related to the World Cup that was alleged to have accumulated more than CY100 billion (US$14.8bn). 


World Cup Impact on Macau (Macau Business Daily) Grant Bowie, Chief Executive Officer (CEO) of MGM China, conceded that the World Cup might affect the industry but stressed that it was not possible to assess the impact it will have on gaming business. “The impact caused by the World Cup, if there is one, is that customers may be allocating more time to watching the World Cup rather than travelling to Macau,” he said.

Takeaway:  According to statistics we found, in 2006 Chinese soccer fans bet more than 500 billion Yuan on online gambling during during the 2006 World Cup finals in Germany. 


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.

Real World Education

This note was originally published at 8am on May 23, 2014 for Hedgeye subscribers.

“If I had learned education, I would not have had time to learn anything else.”

-Cornelius Vanderbilt


If you want to be humbled in this good life, study economic #history. The more I read, the less I realize I know. Given that our economy is centrally planned by people who have no financial incentive to un-learn failed policies and re-learn from the past, that often scares me.


Real World Education - 44


Then I’ll go back to a book, read some more, and find that light of American progress. While it may be dimming, it’s always there. We don’t put two feet on the floor for our families and firms every morning thinking about what government can do for us.


I think about what we can build to change a failed status quo. That’s not easy. I don’t want it to be. My education provides me with the context of its frailty. If I wasn’t paid to read and write to you every day, I wouldn’t be so optimistic that there’s a much better way.


Back to the Global Macro Grind


New ideas scare a certain type of people; especially people whose failed ideas you are challenging. “So”, let’s do that this morning and challenge 3 of the most widely held academic economic dogmas of America’s 21st century:


1. Money Printing (Dollar Devaluation and Debt Monetization)

2. The American Dream (everyone has to own one, right? #Housing)

3. Yield Chasing (you have to invest in bubbles, or you don’t get paid)


Fair Enough. You can go back to school and write a Ph.D. disproving each of these and I’ll see you in the 22nd century. In the meantime, you’ll have to use A) common sense and B) real-time market data:


1. Fed’s Balance Sheet (Money Printing) update – up +$929 beeelion dollars year-over-year to $4.3 TRILLION and now the NY Fed’s Bill Dudley (formerly of The Goldman Sachs, who helped bail out the banks) is saying $1.7 TRILLION of that (MBS –Mortgage Backed Securities) never has to be sold, unwound, etc. I’m still digging through the Constitution to find who made him god.


2. US #HousingSlowdown (The American Dream) update – post whatever the “weather bounce” was supposed to give us (oh, and rates falling, fast), both supply and demand numbers released for April Housing were not good yesterday.


A) Housing Demand – existing home sales released by the NAR (National Assoc. of Realtors) were down -6.8% year-over-year in April (vs. -7.5% y/y in March) and the Northeast (which was really supposed to have the weather bounce) saw existing home sales down -6.3% in April vs. -4.8% in March.

B) Housing Supply - #drumroll… saw its biggest sequential (month-over-month) ramp, ever. Yes, by our proprietary calculations, ever is a very long time. In percentage terms, existing homes inventory ramped +16.8% in April versus March. I’ll circle back on this colossal failure of the government trying to reflate a bubble that already blew up once at the end of this note.


3. Fixed Income vs. Equity Fund Flows (#YieldChasing) update – since the un-elected and unprecedented ideology that “rates on savings have to be 0% forever” has many unintended consequences, let’s just focus on the most obvious one – forcing investors to chase a yield (a rate of return to live on) greater than the risk free rate (of 0%).


A) Fixed Income Fund flows accelerated to +$3.9B in weekly INFLOW (versus the YTD weekly avg of $2.1B)

B) Equity Fund flows saw their 3rd wk of OUTFLOW in 2014 at -$1.0B (versus the YTD weekly avg INFLOW of +$3.1B)


“So”, in hash tag-less English that an “educated” person can’t obfuscate with big words:


1. Money Printing – the Policy To Inflate (but not calling it that) causes US consumption growth (71% of the economy) to slow

2. Yield Chasing – i.e. buying bonds and anything that looks like a bond (selling growth stocks) takes hold as the economy slows

3. The American Dream – yeah, baby!


Oh, yeah, baby!


Damn those free-market American Capitalists (Vanderbilt, Carnegie, Rockefeller, etc.) of the 19th century and/or anything that looks like them – and go lever yourself up and buy an unproductive asset (a house). Then sit on it, and rotate, until the Fed bubbles its price up.


Janet Yellen is having a bird right now because The American Dream that she and her boy Barney (Frank) drew up just isn’t working. As interest rates fall and the redo of the housing bubble takes hold… newsflash: first time buyers can’t afford to buy a house.


First time buyers of US homes represented 29% of demand in April. That’s down from 30% in March and testing 10 year lows. Rents, meanwhile, are hitting all-time highs in America. I know – that’s not inflationary. It’s not the American progress they planned for either.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.45-2.61%

SPX 1865-1897

RUT 1086-1121

VIX 11.84-14.01

WTI Oil 102.45-104.36

Gold 1285-1305

Copper 3.10-3.20


Best of luck out there today and enjoy your long weekend,



Keith R. McCullough
Chief Executive Officer


Real World Education - No Bounce

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Call Today with Professor Charles Hill: Foreign Policy Risks & Market Impacts

Call Today with Professor Charles Hill: Foreign Policy Risks & Market Impacts - HE MAC fprisks charleshill



  • Toll Free Number:
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  • Conference Code: 843981#


The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting an expert call featuring Professor Charles Hill TODAY, June 6th at 10:30am EDT.  Professor Hill is a diplomat in residence at Yale University where he teaches Grand Strategies. 



To gain a better understanding of the key foreign policy risks on the horizon that may have an impact on global markets.


Professor Hill is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz.  He also served as a special advisor to U.N. Secretary General Boutros-Boutros Ghali.



  • What's next for Vladimir Putin in Ukraine?
  • How will Putin's strategy evolve beyond Russia? Will there be a broader influence?
  • What is the most imminent threat facing the West?
  • How real is the nuclear threat from Iran, particularly for Israel?
  • The Arab Spring has come and gone, what's next?
  • What does the election of Bashar Hafez al-Assad in Syria mean for the West? 
  • How has U.S. foreign policy evolved under the Obama administration?



Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz. Dr. Hill has been a fellow at the Harvard University East Asia Research Center, a Clark fellow at Cornell University, and is currently a research fellow at the Hoover Institution.


He served as special consultant on policy to the secretary-general of the United Nations from 1992 to 1996. Dr. Hill has collaborated with former U.N. Secretary General Boutros Boutros-Ghali on Egypt's Road to Jerusalem, a memoir of the Middle East peace negotiations, and Unvanquished, about U.S. relations with the U.N. in the post-cold war period. He is also the editor of the three-volume Papers of U.N. Secretary-General Boutros-Ghali, published by Yale University Press.


His book "Grand Strategies: Literature, Statecraft and World Order" is published by Yale University Press. His "Trial of a Thousand Years: Islamism and World Order" is published by the Hoover Press, Stanford University. He received an A.B. degree from Brown University in 1957, a J.D. degree from the University of Pennsylvania in 1960, and an M.A. degree in American studies from the University of Pennsylvania in 1961. 


In The Race!

“A horse never runs so fast as when he has other horses to catch up and outpace.”  



There are many great metaphors in life and business.  However, tomorrow we have the opportunity to witness a world-class achievement - the Triple Crown of Thoroughbred Racing - when California Chrome runs in the 146th Belmont Stakes.  If successful, California Chrome will become only the 12th winner of the Triple Crown. 


In The Race! - hedrick


The Triple Crown is a test of speed, strength, and stamina.  Winning the Triple Crown takes a special combination of horse, trainer, jockey, owner and veterinarian.  It is incredibly difficult to win the Triple Crown – win the Kentucky Derby at 1 ¼ miles, followed by winning the Preakness Stakes at 1 3/16 mile a mere two weeks later and then a massive 1 ½ miles (a distance not often run in horse racing) three weeks later at the Belmont.  The Belmont Stake will feature a field of 11 thoroughbreds with 10 challengers seeking to unseat the contender California Chrome. 


If you were jockey Victor Espinosa what would be your game plan – break away early and lead from the front, play it slow and keep something in the tank for the grueling one and one-half mile race, or simply let the race unfold as it happens, be flexible and nimble, taking advantage of number 2 post position near the rail, while keeping an open mind to anything that can and will happen – knowing all the while the other 10 jockeys are looking to run you down and spoil the party?


I am old enough to vaguely remember Secretariat win the Triple Crown in 1973. However, I more clearly remember Triple Crown winners Seattle Slew in 1977 and Affirmed in 1978.  My paternal grandmother loved to bet the ponies and she love to gamble as well.  Maybe that’s why I became an analyst covering the gaming industry.  My first horseracing experience occurred in the mid-1970s when I joined my parents and my grandmother for a day at the races on the Club Level Terrace at Arlington Park, now called Arlington International Racecourse.  Ever since then, I love to watch horseracing! 


Back to the Global Macro Grind...


A similar metaphor and strategy can be applied to managing money, and trust me I know, I’ve held the title “Portfolio Manager.” The one thing I learned as an equity analyst and I’ve carried through to my career as a PM is how to filter out the noise while also reading as much topical, salient and actionable literature, data, and related content.  More important than reading, I also spent as much time thinking about what I read – as such I remained flexible and adaptable to new information, new data and changed my outlook, strategy and holdings accordingly.  I did this while running as hard and fast as possible… Similar to Keith McCullough, Hedgeye’s CEO, and most of us on the Hedgeye team, I also hate to lose!


So here we are almost half-way through the race, mid-year 2014, Mr. PM what do you do?  Read more? Think more?  Are you open to new insights and a new strategy? 

The Hedgeye Macro and Industrials team will host a thought leader call today with foreign policy expert, Charles Hill.  Charles Hill is a diplomat in residence and lecturer in International Studies at Yale University. He is a career minister in the U.S. Foreign Service, serving in a variety of roles such as Deputy Assistant Secretary and Chief of Staff for the Middle East at the State Department, and executive aid to former U.S. Secretary of State George P. Shultz.


I am sure Victor Espinoza has a strategy in mind for running California Chrome in Saturday’s Belmont Stakes.  However, I am also sure he remains open to changing and adapting his strategy as the race unfolds.  Likewise, most PMs are suffering under the heavy hand of Mr. Market this year with the S&P 500 +5%, the NASDAQ +2.9% and the Dow Jones Industrials +1.6% –  by comparison nearly any asset class with above average yield are outperforming, namely:  REITs (IYR or VNQ) +15.6% (during my PM years I ran a REIT and Real Estate Fund), Utilities (XLU) +13.8% and Energy (XLE) +8.5%.


In The Race! - Mr Market


Did you know California Chrome’s dam is Love the Chase – a fitting name for our business! Personally, I remain bullish on REITs and I also like California Chrome to win the Belmont Stakes and thus become the 12th Triple Crown Winner because the colt has already outrun six ponies he faces on Saturday and others appear to simply be spoilers. 


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr yield 2.41-2.61%


RUT 1108-1155 

Nikkei 14

VIX 11.20-13.46 

USD 80.17-80.79 

EUR/USD 1.35-1.37

Pound 1.67-1.69 

Brent 108.13-110.87 

NatGas 4.58-4.78 

Gold 1 

Copper 3.04-3.12


Have a great weekend!


David Benz

Director - Gaming, Lodging & Leisure



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