Hedgeye Financials Speaker Series Call Today - Is FICC Fixable? A View From The Trading Desk

Takeaway: Please join us today, August 7th at 11 am EST for a call with the Head of Credit Trading at TCW to discuss bond trading trends.

Our financials team led by Josh Steiner and Jonathan Casteleyn is hosting a conference call today, August 7th at 11 am EST with Jerry Cudzil, the Head of Credit Trading at TCW. This call aims to help us understand, from the view of a major buy-side trading desk, the trends in Fixed Income, Currency, and Commodity trading (FICC). Specifically, we'll be focusing on:


  1. Cyclical or Secular?: The buy-side's perspective on whether FICC weakness is secular or cyclical.
  2. Share Shifts: Market share shifts that are occurring amongst the broker-dealer community in various markets.
  3. The Fed: How a post-QE bond market may look and the risk/reward setup in fixed income currently.


This call will be helpful to investors in broker dealer stocks and volume-related market structure companies: GS, MS, JPM, BAC, C, PJC, RJF, CME, ICE, NDAQ


CLICK HERE to add this call to your Outlook Calendar or simply dial:


Toll Free Number:

Direct Dial Number:

Conference Code: 919219#


Jerry Cudzil's Bio:

Mr. Cudzil is head of U.S. Credit Trading at the Trust Company of the West (TCW), overseeing the U.S. Fixed Income group’s trading of corporate and high-yield securities and derivatives. Prior to joining TCW in 2012, Mr. Cudzil was a high yield bond trader for Morgan Stanley and Deutsche Bank, specializing in project finance, aviation, and energy securities. He was previously a portfolio manager for Dimaio Ahmad Capital, managing the multi-strategy credit fund and aviation fund and leading the firm’s risk management team. Mr. Cudzil began his career as a corporate bond trader for Prudential Securities and has also traded investment and high yield debt for Credit Suisse and Goldman Sachs. Mr. Cudzil earned a BA in Economics from the University of Pennsylvania.


Another Macau company reports a disappointing quarter. Stock buyback announcement a positive but not enough.




  • 2Q Luck-adjusted property EBITDA:  $345m 
    • CoD:  +$20m, brings margins to 31%
    • Altira: +$10m, brings margins to 13-13.5%
  • Expanded market share in mass segments in 2Q
  • Started large development (luxury precinct) on CoD; will be ready in 2016
  • MSC:  will open in mid-2015; will top off the hotel in September
  • CoD Manila:  will open later in 2014
  • Approved $500m stock repurchase program and will be able to pay out special dividends
  • 2Q EBITDA margin:  26.4%
  • CoD:  Unfavorable revenue mix btw revenue and rc sharing programs. 
  • EBITDA margin impacted by $10m due to wage increases
  • Additional labor expense in $10m in 3Q and 4Q 2014
  • Draw down studio city term loan in July
  • 3Q guidance:  D&A: $95-100m; corp expense: $30m; consolidated net interest expense: $35m ($10m CoD Manila, $24m cap interest)


Q & A

  • 2Q CoD:  low hold and negative VIP mix.  Utility/maintenance fees of $5m that was not capitalized.
  • Mass slowdown:  mass has held up relatively well; but perfect storm coming - harder comps
  • Feel better about August - early August compared with early July, there is definitely an uptick - Hedgeye notes that August is a seasonally stronger month than July
  • Blames July performance on World Cup
  • No issues on filling up their rooms
  • Premium mass:  healthy business
  • Volumes:  not overly promotional but operate in highly competitive environment.  
  • $500m stock buyback:  similar to how US companies have operated this type of program
  • Investigation: Taiwan branch indicted for banking/foreign related offenses. Will defend vigorously.
  • MSC:  have received construction permits.  Do not need any other construction permits.  Firing at full speed.
  • MSC tables:  will get fair share, may find out table count 9 months ahead of opening; can accomodate 500 tables

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds

Takeaway: U.S. stock funds put up their 14th consecutive week of outflow with bond fund inflows holding steady

Investment Company Institute Mutual Fund Data and ETF Money Flow:


In the most recent 5 day period, the combined equity mutual fund complex eked out a slight $205 million inflow with steady International stock fund subscriptions rescuing now the 14th consecutive week of outflow in U.S. stock funds. Aggregate bond funds conversely, including both taxable and tax free products, netted another $1.7 billion in new money making it 24 of 25 weeks of taxable bond inflows with 28 of 29 weeks of positive subscriptions into tax-free or muni bonds. 


Total equity mutual funds put up a slight inflow in the most recent 5 day period ending July 30th with $205 million coming into the all stock category as reported by the Investment Company Institute. The composition of the inflow continued to be weighted towards International stock funds with $1.4 billion coming into the category offset by the ongoing 14 week redemption in domestic equity funds which totaled a $1.2 billion redemption. This drawdown in domestic equity funds has now totaled a $37 billion outflow over the past 3 1/2 months. The running year-to-date weekly average for equity fund flow is now a $1.6 billion inflow, which is now below the $3.0 billion weekly average inflow from 2013. 


Fixed income mutual fund flows had another positive week of production with $1.7 billion coming into the asset class. The inflow into taxable products of $1.1 billion made it 24 of 25 weeks with positive flow for the category. Municipal or tax-free bond funds put up a $687 million inflow making it 28 of 29 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.1 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 


ETF results were broadly positive during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a robust $9.1 billion subscription, making it 8 of 10 weeks with significant inflows, while fixed income ETFs put up a slight $764 million inflow. The 2014 weekly averages are now a $1.7 billion weekly inflow for equity ETFs and a $822 million weekly inflow for fixed income ETFs. 


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $6.8 billion spread for the week ($9.3 billion of total equity inflow versus the $2.5 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $4.8 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 


Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - final recap




Most Recent 12 Week Flow in Millions by Mutual Fund Product:


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 2


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 3


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 4


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 5


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 6



Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 7


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 8



Net Results:


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $6.8 billion spread for the week ($9.3 billion of total equity inflow versus the $2.5 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $4.8 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 


ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 9 




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG

Takeaway: Spawn of LULU’s Chip starts new apparel venture. People don’t care about AMZN same-delivery but they will. Good stats on Soccer endorsement.



LULU - Lululemon Founder's Wife, Son Launch New Clothing Line In Vancouver



  • "The son and wife of Lululemon founder Chip Wilson have launched their own clothing line of street wear they say can perform like athletic wear."
  • "JJ Wilson and his mother, Shannon Wilson, sell Kit and Ace out of a freshly opened store of the same name in Vancouver's trendy Gastown neighbourhood."
  • "The pair have created an interesting luxury fabric blend called qemir, which is made up of 81 per cent viscose, nine per cent cashmere, and 10 per cent elastane. The material is used for the company's women's line."


Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG - chart1 8 7

Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG - chart2 8 7 14


Takeaway: This new concept is distinctively LULU, from the layout and presentation down to the little rippable tags. Chip can't be involved owing to his non-compete, which is unfortunate because if there is one thing that this guy has proven that he can do, it's build a brand. He's in print talking about how frustrating his transition out of management has been for both him and his wife, and we think that's one of a whole host of factors that ignited his decision to hire Goldman Sachs. Bottom line - Chip wants to be in the drivers seat, whether that's at Lululemon or another entity all together. Two likely outcomes to Chip's activism 1) he sells his shares and starts a new brand, or 2) he works with a strategic buyer to sell LULU outright and reinstates himself into a leadership position within the company. Either way it's a positive event for the stock.


NKE- Nike has most Europe soccer deals, Adidas the most lucrative: study



  • "U.S. sportswear group Nike will supply shirts to more teams in the top five European soccer leagues this season than Adidas, but the German firm has cornered the most lucrative clubs, a study showed on Wednesday."
  • "Sports marketing research group Repucom said Nike had outpaced Adidas in Europe for the first time since the 2009/10 season to supply 26 of the region's top clubs, up five compared with last year. Adidas is supplying 18, down four from last year."
  • "Although it has been a serious player in soccer only since 1994, Nike is now threatening Adidas's leadership in the sport. At the World Cup in Brazil, it supplied more teams for the first time and put its boots on more than half the players."


Takeaway: Nothing groundbreaking here, but one of the better articles we've seen with facts and figures on the soccer endorsement landscape. It's worth a read.


AMZN - Amazon Same-Day Delivery Expanding - “Get It Today” Available in Six More Cities



  • "Amazon Same-Day Delivery available for customers in Baltimore, Dallas, Indianapolis, Los Angeles, New York City, Philadelphia, Phoenix, San Francisco, Seattle and Washington DC metro areas. Customers can order as late as noon, seven days a week and get things like popular movies, video games, last-minute travel needs, back-to-school supplies and family necessities delivered to their home the same day. Prime members pay $5.99 for all the same-day delivery items they can order."


Takeaway: Not sure how important it is for the average consumer to get DVDs, Video Games, and 3-ring Binders on same-day delivery terms. But the need certainly increases when it comes to household items -- especially consumables. AMZN is still in the infant stages of building out this infrastructure. But regardless, the value proposition at $5.99 is pretty tough to beat. That's about how much people would otherwise spend on gas to hit all the different stores to get the items -- not to mention the implied cost of consumers' time.  This is a bit of a sleeper strategy for AMZN, in that nobody really cares about it now, but they'll be forced to in a few years' time as AMZN builds up density.




AMZN - Amazon Picks Favorites With Brands in ‘Pay to Play’ Move



  • " Inc. is giving special privileges to companies that sell their wares directly through its online store, according to a new study."
  • "Companies such as Burberry Group Plc and Levi Strauss & Co. that partner with Amazon have scored unusual deals that let them control how their merchandise is sold through the world’s largest online retailer, according to a study by market researcher L2 to be released this week. The companies have been able to limit the sale of goods from third-party resellers, a practice Chief Executive Officer Jeff Bezos has traditionally let run unimpeded over objections from some brands."


AdiBok - Adidas Launches New Selena Gomez Collection



  • "Selena Gomez introduced her new collection to her 12 million Instagram followers last night."
  • "Pictured wearing silver high-tops with black pants, a printed sweater, denim jacket and a beanie, the 22-year-old actress spread the word about her latest collaboration with Adidas Neo faster than any marketing campaign."


M - Macy’s launches omnichannel wedding promotion



  • "Macy’s is launching an online wedding promotion in partnership with TV host and fashion consultant Clinton Kelly. Known as 'Weddings with Clinton Kelly,' the promotion will include an online wedding hub with a collection of articles and videos to help build the perfect registry, as well as advice from Kelly."


ELY - Callaway Golf Company Declares Dividend And Announces New $50 Million Stock Repurchase Program



  • "Callaway Golf Company announced today that the Board of Directors has authorized the Company to repurchase up to $50 million of the Company's common stock in open market or in private transactions.  The Company will assess market conditions, buying opportunities and other factors from time to time and will make strategic repurchases as appropriate.  The repurchases will be made consistent with the terms of the Company's credit facility which defines the amount of stock that can be repurchased."

Getting Out Of The Way

This note was originally published at 8am on July 24, 2014 for Hedgeye subscribers.

“Why would we ever predict when we can know?”

-Dan Heath


Great question. I guess that’s why some people like to trade on inside information.


In Global Macro Risk Management, there is no inside information. Or at least not the hard core stuff like Galleon used to get. Maybe there was back in the day when someone could literally call their boy at the Bank of England and just get the next rate move prior to it being announced. But even the biggest bureaucrat on the planet is scared of orange-jump-suit-risk #accelerating at this stage of the game.


As the game changes, our #process does. We believe that the best prediction of the future is based on what we already know. I’ve spent a lot of time talking to investors about how our models work. Sometimes at least 2/3 of our forecast is based on what we already know. In other words, we use real-time data and measure its rate of change vs. historical data in order to gauge a forward looking probability.


Getting Out Of The Way - wallstreet 120370032


Back to the Global Macro Grind


Thinking in rate of change (slope) and probability terms works a heck of a lot better than the ‘I’m smart and it feels like’ this is going to happen approach. Most of that spew anchors on what already happened – not on the measurable factors underneath the hood that could cause whatever happened to undergo a phase transition.


There are those two thermodynamic risk management words again – phase transitions. To put that in the most simpleton speak I can, there are two types of phase transitions I really care about:


  1. Bearish to bullish TREND reversals
  2. Bullish to bearish TREND reversals


While always considering our intermediate-term TREND duration within the context of our other durations (TRADE and TAIL) is critical, when something undergoes a phase transition on our TREND duration, that something often ends up becoming the best calls we make.


Don’t forget that if you go both ways like I do (don’t think dirty – think hockey: back-check, fore-check, paycheck), sometimes the most important call to make is to get out of the way.


How do you do that?


  1. If you’re short and something is going from bearish to bullish = COVER
  2. If you’re long and something is going from bullish to bearish = SELL


If you’re a longer-term investor, just cover or sell some. Only average players take coaching personally.


If you analyze your P&L across your entire career, what you’ll realize is that your performance distribution has big tails (i.e. your biggest losers kill you). Since risk management Rule #1 is don’t lose $$, that makes getting out of stuff really important.


Who gets you out?


We know who gets you in. Every bank, broker, and buds out there is trying to get you into what they get paid on next. This is Wall Street don’t forget. But getting you out of your “best idea” (might be your marriage too!) before it’s about to go really bad, #priceless.


I didn’t know what I was going to write about this morning (I usually don’t – I have 45 minutes to write something before it gets edited), so I certainly hope you can poke holes at this. I can.


I can poke holes at every single idea we have; especially if my intermediate-term TREND signal is reversing versus the desired direction of the position. Maybe that’s why a lot of PM’s ask me to scrub their portfolios (we call it a Ticker Scrub). It’s so easy a Mucker can do it.


What looks greasy dirty out there right now? (i.e. what is signaling a bearish to bullish TREND reversal):


  1. Chinese Stocks (Shanghai Comp) which closed up another +1.3% last night after China’s best PMI in 18 months
  2. Copper prices are up another +1.2% this morning to $3.24/lb after breaking out above @Hedgeye TREND
  3. US Equity Volatility (VIX) as the front month makes a series of higher-all-time-lows


Greasy? Yeah, you know – like when I score a goal in men’s league hockey off my elbow. I’m getting older and slower, so I love those. And I really love seeing something breakout for fundamental reasons that neither I nor my analysts can see. Those are beauties.


Is there anything better in this business than that? When all of the super smart people in this world are all wrong, at the same time, for the wrong reasons? Most of the time no super duper slide deck can arrest gravity.


Embrace the uncertainty out there. I can guarantee you’ll be really wrong less times. And you’ll smile more often too. After all, playing this game is a lot more fun when you can know how to be right by not being really wrong. You just have to know when to get out of the way.


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 2.45-2.51%

SPX 1964-1992

RUT 1134-1164

Shanghai Comp 2051-2099

VIX 10.32-12.51  

WTI Oil 101.75-104.15

Gold 1286-1324

Copper 3.17-3.28


Best of luck out there today,




Keith R. McCullough
Chief Executive Officer


Getting Out Of The Way - Chart of the Day


Client Talking Points


Vladimir Putin trying to steal Mario Draghi’s thunder this morning by banning U.S. and EU (even Canadian!) food imports. The Russian stock market doesn’t like it, down another -1% to -17.3% year-to-date #TrainWreck.


Either European stocks know Mario Draghi isn’t going to deliver more cowbell, or everyone will be surprised when he does. The EUR/USD hasn’t budged and Portugal is down another -1%. The DAX has no bid (yet) either.


Oil continues to break down (both Brent and WTIC) as the #InflationAccelerating consumption tax of 1H 2014 loses some of its momentum – doesn’t mean U.S. CPI is going to collapse; just goes up at a slower rate as U.S. GDP #Q3Slowing continues.

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


While Mass deceleration has been our theme for the Macau stocks since 6/13/14 we were definitely surprised it happened so drastically



I am not a product of my circumstances. I am a product of my decisions.

-Stephen Covey


The secular decline in Casual Dining continues July same-store sales -1.1% (2YR down 90 bps to -2.5%) July Traffic -3.2% (2YR dwn 110 bps to -4.2%).

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.