Just Charts – Summer Swings


The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

Just Charts – Summer Swings - 1


7/2/14 STZ Earnings Call 10:30am EST


Consumer Staples fell -1.2% week-over-week versus the broader market (S&P500) down -0.1 %.  XLP is up 3.9% year-to-date versus the SPX at 6.1%.


Positive Divergence:  THS 4.5%; BNNY 3.0%; CAG 2.8%; TSN 2.7%; KO 1.2%

Negative Divergence:  SODA -7.9%; PM -6.9%; LO -5.6%; MNST -4.7%; NUS -3.8%



XLP remains bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.

Just Charts – Summer Swings - 2


The Hedgeye U.S. Consumption Model shows 5 of the 12 U.S. Economic Indicators flashing green.

Just Charts – Summer Swings - 3


Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating, and Q2 2014 theme of #ConsumerSlowing
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.9x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, and remained unchanged at 37.1 versus the prior week

Just Charts – Summer Swings - 4

Just Charts – Summer Swings - 5

Just Charts – Summer Swings - 6


In the charts below we look at the largest companies by market cap in the Consumer Staples space from a quantitative perspective.


BUD – bullish TRADE and TREND w/ TREND support = 108.55

Just Charts – Summer Swings - 7


DEO – bearish TRADE and TREND w/ TREND resistance = 126.86

Just Charts – Summer Swings - 8


KO – bullish TRADE and TREND w/ TREND support = 40.22

Just Charts – Summer Swings - 9


PEP – bullish TRADE and TREND w/ TREND support = 85.61

Just Charts – Summer Swings - 10


GIS – bearish TRADE and TREND w/ TREND resistance = 53.61

Just Charts – Summer Swings - 11


MDLZ – bullish TRADE and TREND w/ TREND support = 36.25

Just Charts – Summer Swings - 12


KMB – bullish TRADE and TREND w/ TREND support = 109.41

Just Charts – Summer Swings - 13


PG – bearish TRADE and TREND w/ TREND resistance = 80.40

Just Charts – Summer Swings - 14


MO – bullish TRADE and TREND w/ TREND support = 39.67

Just Charts – Summer Swings - 15


PM – bearish TRADE (88.39 resistance); bullish TREND (84.72 support)

Just Charts – Summer Swings - 166



Howard Penney

Managing Director


Matt Hedrick



Fred Masotta


LEISURE LETTER (06/30/2014)



PENN (WFMZ) withdrew its proposal for a $480M Hollywood Casino Philadelphia at 700 Packer Avenue in the City's Sports and Entertainment District, which has been pending with the Pennsylvania Gaming Control board (PGCB) since November 2012.  CEO Wilmott said, "A contributing factor in our decision to withdraw our proposal was the city of Philadelphia's vocal support for a center city casino location, despite the fact that 2/3 of the profits from our proposed casino were dedicated to the city's education and pension fund liabilities."

Takeaway:  PA is reaching saturation so the opportunity would have been small.   A positive for shareholder ROIC. 


BYI – unveiled its newest slot machine offering "The Magic of David Copperfield"


BYI – announced it cut 270 jobs as part of a reorganization effort, half of the jobs eliminated were located outside the United States. 

Takeaway:  There will be a one-time reorganization charge in the quarter.


BLOOM:PM – Bloomberry Resorts and Solaire Resorts and Casino unveiled its latest marketing strategy the "Billboard in the Sky" - a brightly painted, logo-adorned Air Asia Airbus A320 which will traverse the skies over Malaysia, China and South Korea

Takeaway: A creative way to advertise gaming, without really advertising gaming - similar to Southwest Airlines fleet of "Shamu" aircraft.


IGT – signed an agreement with DLV to install IGT systems in 50 slot halls connecting approximately 1,000 machines in locations throughout Latvia over the next two years

Takeaway:  Good systems win for IGT


IHG.LN – the Board of Directors approved the payment of a special dividend of $2.93 (174.9p) per share or per ADS (as applicable) to shareholders on the Register as at 18:00 BST today (30-Jun) in pounds sterling and to ADR holders on the ADR register as at 16:00 ET today, in US dollars. The dividend is payable on July 14. 

Takeaway: Curious and interesting timing of the special dividend, especially in light of the recent takeover commentary.


IKGH (Macau Business) says it has applied to list its shares on the main board of the Hong Kong Stock Exchange. The company announced the exchange will review the application for three days, and if the HKSE accepts IKGH's application, the HKSE will pose post additional information on the exchange’s website.

Iao Kun has VIP gaming rooms in the StarWorld, Galaxy Macau, Sands Cotai Central, City of Dreams Macau and Le Royal Arc casinos.

Takeaway: The next step in the listing by introduction. 


PNK – L'Auberge Casino Resort unveiled 60 refurbished suites last week with the completion of phase two of its $20-million renovation project. The renovated rooms include spruced up Luxury Rooms and the newly added Royale Suites and Marquis Suites, which offer views of the resort's golf course.  In September, L'Auberge completed renovations of 754 of its almost 1,000 rooms. 

Takeaway:  L'Auberge is preparing for increased competition as this winter will mark the opening of the new Golden Nugget Casino and Hotel immediately adjacent to L'Auberge.


CCL Westerdam sailing resumed (Seatrade Insider)

Holland America Line's Westerdam sailed at 10 a.m. Sunday after returning to Seattle Saturday night following a boiler room fire that was quickly put out.  No injuries were reported.  The fire broke out in one boiler room at approximately 5:15 p.m. Saturday, after Westerdam had departed at 4 p.m.  As a result, Westerdam will miss its planned call in Sitka.  Passengers will receive an on-board credit of $250 per stateroom as well as a future cruise credit equal to 25% of the cruise fare.

Takeaway:  An unfortunate event over the weekend 


Package Tours and Hotel Occupancy Rate for May 2014 (DSEC)

Visitor arrivals in package tour increased by 21% YoY to 925,000 in May 2014.  Attributable to the Labour Day holidays, visitors from Mainland China (734,000) recorded an increase of 25%, with 240,000 coming from Guangdong Province.  Visitors from Taiwan (62,000) surged by 50% and those from Hong Kong (33,000) increased by 3%; meanwhile, visitors from the Republic of Korea (27,000) decreased by 2%. 


There were 99 hotels and guesthouses operating at the end of May 2014, providing 28,000 guest rooms, down by 1% YoY; 5-star hotels accounted for 66% of the total supply, with 18,000 rooms.  The average length of stay of guests was 1.4 nights, up by 0.1 night YoY.  The average occupancy rate of hotels and guesthouses increased by 7% points YoY to 86%, with 4-star hotels leading at 88%. 

Takeaway:  Hotel visitation, occupancy steady


Okada in talks with possible partners for $2b casino (Reuters)

Okada is in talks with several listed companies as a possible local partner for its $2 billion casino project in the Philippines.  


New Jersey Sports Betting – the State legislature passed bills allowing sports betting at casinos and racetracks. Gov. Chris Christie now has 45 days to sign or veto the bills. They would take effect immediately upon his signature.

Takeaway:  Long shot


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.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Client Talking Points


U.S. Dollar down for 2 straight weeks (and not bouncing this morning) following the Fed getting easier in terms of both its growth forecast and timing on rates; this is not a position for the faint of heart as #InflationAccelerating is already slowing U.S. consumption growth.  


UST 10YR yield down another 7 basis points last week (-49bps year-to-date) to 2.53% and not bouncing this morning; Yield Spread (10yr – 2yr) compressed 8 basis points to +207 basis points wide; inflation slowing U.S. growth into Q3 remains our out-of-consensus call; bond market agrees.


EuroStoxx600 -1.8% last week and not seeing much of a bid into month-end today either; both the DAX and Italian MIB Index have broken our immediate-term TRADE lines of support; this relative weakness is new and noteworthy if it were to continue.

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


DUBAI: back into crash mode, -4.5% this morning (-23% since the beginning of June)



“Nobody's a natural. You work hard to get good and then work to get better. It's hard to stay on top.”

-Paul Coffey


$42.6 million, the amount of money Miami Heat guard Dwyane Wage would have earned over the next two years had he not opted out of his current contract.

Time's Inner Logic

“Without cycles, time would literally defy any kind of description.”

-The Fourth Turning


From a performance reporting perspective, it’s both month and quarter end today. As William Straus and Neil Howe recently reminded me in The Fourth Turning, “The words year and hour come from the same root as the Greek horos (solar period)… and the word month is a derivative of moon.”


Time and price put more pressure on us than most things in this profession. We just need to take a few deep breaths every once in a while to contextualize both. “We need to recall that time, in its physical essence, is nothing but the measurement of cyclicality itself.” (The Fourth Turning, pg 13)


After one of the lowest volume months in US equity market history, where are market prices within the context of the future? What is the US economic cycle (and bond market) telling you vs. the US stock market’s last price? Does history matter?


Back to the Global Macro Grind


Straus/Howe do a good job arguing that most academics who are trying to become famous in the social sciences with “it’s different this time” are disrespecting time and space. “This scholarly rejection of time’s inner logic has led to the devaluation of history throughout our society” (pg 12).


While it might work in disruptive technologies, devaluing history, time, and cycles rarely works in Macro… “so”, let’s embrace the uncertainty born out of these measurable risk factors and get on with Q3.


One of the Top 3 Global Macro Themes we’ll roll with for Q314 (we’ll be hosting our Institutional Investor conference call next week) is simply going to be #Q3Slowing. US growth slowing, that is.


Nope, God didn’t call us this weekend. Here’s where we’re finding conviction in this out-of-consensus view:


  1. The Currency Market
  2. The US Bond Market
  3. The US Equity Market




  1. FX – US Dollar Index (down for 2 straight weeks) remains below both our TREND ($80.84) and TAIL ($81.19) risk lines of resistance
  2. TREASURIES – 10yr Yield -7bps last week (-49bps YTD) remains below both our TREND (2.81%) and TAIL (2.65%) risk lines of resistance
  3. US EQUITIES – slow-growth Utilities (XLU) were up another +1% last week to +15.6% YTD (Consumer Discretionary is still down YTD)


And those are just the quantitative signals (time/price) augmenting our baseline research views that:


  1. The Fed is perpetuating inflation via its #DownDollar Policy To Inflate
  2. As the Dollar declines, #InflationAccelerates and real-consumption growth slows
  3. As real-growth slows, inflation + slow-growth #YieldChasing strategies (long Bonds, Utilities, etc.) #win


Who cares if an ideological and un-elected central planning committee doesn’t get paid to acknowledge time and space? All you have to do is listen to Mr. Macro Market’s inner logic and you’ll beat your peers in generating risk adjusted returns.


Food prices (CRB Foodstuffs Index) were up another +0.5% to +23.5% YTD last week. Cattle led the charge on that front, closing up another +3.6% on the week to +25.9% YTD. Being long of that and short Del Frisco’s (DFRG) cost of goods sold (and traffic slowing) works for us.


Or how about being long the lover of all things slow-growth-#YieldsFalling, Gold?  Gold was up another +0.3% last week to +9.6% YTD (vs. the Dow +1.7% YTD). But, after 4 consecutive up weeks, you want to be buying ze #GrowthSlowing Gold on red, not green!


In a Fed Easing, Down Dollar, and #InflationAccelerating environment, there are so many places to put your money that I’ll run out of time and space in this morning’s rant. To recap, here are some of the bigger asset allocations we continue to like:


  1. Fixed Income (still loving TIPs and Treasuries)
  2. Foreign Currencies (still loving the Canadian, Mark Carney, at the Bank of England #StrongPound)
  3. Commodities (Gold, Oil, Food, etc.)
  4. International Equities (India, Brazil – i.e. most of the markets we didn’t like last year)
  5. US Equities (Utilities, Energy Stocks, Healthcare Stocks, Semis, etc.)


In other words, without embracing the uncertainty of where we are going in the macro cycle, my writing to you every market morning would literally be useless. #History teaches us that knowing where you are going in markets requires contextualizing where you’ve been.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.51-2.60%


BSE Sensex 242

USD 80.01-80.37

Pound 1.69-1.71

WTI Oil 105.16-106.99

Gold 1

Copper 3.12-3.20


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Time's Inner Logic - Chart of the Day

Messi Week

This note was originally published at 8am on June 16, 2014 for Hedgeye subscribers.

“Something deep in my character allows me to take the hits and get on with trying to win.”

-Lionel Messi


First and foremost, happy belated Father’s Day to all the Dads out there who do what they do when no one is looking. As most of the young men playing in the 2014 World Cup will attest, doing the best that you can do out there, every day, is a grind.


For those of you who didn’t know who Messi was until your Dad’s Day dinner last night, what a gem this guy is in the arena that is soccer. Selfless, hard working, and talented, he is everything that the largesse of Argentina’s government is not.


At 26 years old, Messi is the Captain of Argentina’s hopes in Brazil. Like many athletes who represent their country, his maturity and leadership are beyond his years. On money, he said it “doesn’t thrill me or make me a better player… I’m just happy with the ball at my feet.”


Messi Week - messi


Back to the Global Macro Grind


With both the NHL and NBA seasons officially over (congrats Kings and Spurs!), it’s time for some World Cup Soccer while you attempt to risk manage what are becoming very thinly traded all-time-bubble-highs in US Equities.


In order to look forward, let’s take a step back. Unless you were long #InflationAccelerating last week, it was messy:


  1. SP500 and Dow were down -0.7% and -0.9%, respectively, last week (Dow barely up YTD at +1.2%)
  2. Russell 2000 resumed its bearish intermediate-term TREND at -0.1% YTD and -3.8% since March
  3. Industrials (XLI) led losers at -1.5% on the week as energy prices (producer costs) ripped


US Consumer Discretionary stocks (XLY) are still -1.6% YTD and continue to eat #InflationAccelerating:


  1. CRB Commodities Index (19 Commodities) was up another +1.5% last week to +10.6% YTD
  2. WTI Crude Oil led inflation melt-up at +4.2% on the week to +10.8% YTD
  3. Natural Gas and Coffee prices were up another +1% last wk to +14.8% and +50.6% YTD, respectively


While Total US Equity Market Volume was down -34% (vs. the 3 month average) on Friday’s +0.3% SPX negative breadth up-day, we finally got some real equity and commodity market volatility last week:


  1. Oil volatility (Oil VIX) was +34.3% last week to 19.47
  2. US Equity volatility (VIX) was +11.8% last week to 12.18


From a risk management perspective, rate of change in our model always matters – but it really matters when that directional rate of change (2nd derivative) signal occurs off its most asymmetric long-term TAIL risk point.


That’s where US Equity Volatility (VIX) was when it closed at 10.73 on June 6, 2014. While the perma-bulls on US GDP growth may think “it’s different this time”, it’s not. The VIX has never stayed below 10 – ever. And, as you know, never-ever is a very long time.


As gas prices rage higher alongside an all-time high in US rents (34% of the country rents and shelter is their #1 cost of living), prepare for another messy week of Consensus Macro expectations meeting their maker (bond market signaling growth is slowing):


  1. TUESDAY: US Consumer Prices (unlegislated taxes) for May should continue to accelerate
  2. WEDNESDAY: The Fed should talk down its US Housing and GDP forecasts now that they’re wrong on growth (again)
  3. THURSDAY: Uruguay plays England at 3PM EST #WorldCup


If England plays like they did against Italy, that could get messy too. As Spain learned against the Dutch, at first risk happens slowly – then all at once.


UST 10yr Yield 2.45-2.64%

SPX 1914-1951

RUT 1124-1175

VIX 10.73-13.21

Brent Oil 109.87-113.11

Natural Gas 4.65-4.83

Gold 1257-1286


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Messi Week - chartofday

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.