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Daily Trading Ranges, Refreshed [Unlocked]

Takeaway: This is a complimentary look at Daily Trading Ranges, our proprietary buy and sell levels on major markets, commodities and currencies.

This note was originally published August 13, 2014 at 07:11 in Daily Trading Ranges. Click here to subscribe and learn more about the service.

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Keith's Macro Notebook 8/13: EUROPE COPPER UST 10YR

LEISURE LETTER (08/13/2014)

Tickers:  SJM, CZR, SGMS, H, RCL


  • Aug 14:
    • GENTING SINGAPORE 2Q earnings
  • Aug 18:
    • REVEL auction


SJM –  Casino Grand Lisboa:  In the second half of 2014, work is being undertaken to add up to 14 more premium mass market tables on the mezzanine floor of the casino, to shift 7 tables from other areas to the high-yielding first floor and to add electronic table games on the second floor.

Takeaway:  More premium mass competition is coming.  We think margins may be shrinking in this prized segment.


EBAY – (pokerfuse) PayPal is considering servicing the US state regulated online gambling market. The payment processor is widely used outside the US for gaming deposits and withdrawals, but has so far refused to extend the option to its US customers.  In order to enter the market, PayPal will need to be licensed by the Nevada and New Jersey regulators - an accomplishment that PayPal's competitors NETELLER and Skrill have already achieved.

Takeaway:  Paypal would give online gaming a needed boost. 


CZR – Caesars Entertainment Corporation and Caesars Entertainment Operating Co. will purchase and retire $238M of Caesars Entertainment Operating Co. outstanding 2016 and 2017 notes held by third parties, with such notes representing 51% of each such class not held by affiliates of Caesars Entertainment Corporation. Caesars Entertainment Corporation also agreed to contribute to Caesars Entertainment Operating Co. for retirement $393M of Caesars Entertainment Operating Co. 2016 and 2017 notes currently held by Caesars Entertainment Corporation subsidiaries. The proposed transaction will reduce Caesars Entertainment Operating Cos debt by $548M and cut interest expense by $34M annually.

Takeaway: Still a heavily levered company with bad domestic demographics and increasing competition. 


SGMS – was awarded a new instant game contract for two years, subject to an additional two years, with the Taiwan lottery and will provide instant games, marketing services and licensed property.  The SGMS contract will begin in June 2014.

Takeaway: A good win for SGMS. 


H – (WSJ) In a story about next week's opening of the Park Hyatt New York, Hyatt is indicated the average daily rate for the 210 rooms is more than $900, which puts the Park Hyatt along side the Four Seasons, St. Regis and Mandarin Oriental as New York City's highest priced hotel rooms on a nightly basis.

Takeaway: A market leading hotel with similar rates. 


RCL – has extended its contract with ByoPlanet International and added $2 million to fund the company's disinfectant technology that prevents Norovirus on ships.

RCL bought 350 additional ByoPlanet sprayers to add to the existing 10-30 sprayers they have on each cruise ship.

Takeaway: Good headline but will not do much to prevent the prevalent risk


Ohio Limited Smoking while Gambling (Cincinnati.com) – The Ohio Casino Control Commission is reviewing proposals from Cincinnati's Horseshoe as well as Hollywood Casinos in Columbus and Toledo which have petitioned to add slot machines in designated smoking areas of the properties while keeping their main gaming floors smoke-free.  Horseshoe has petitioned to install about 150 slot machines and other gaming devices on a 10,000 square foot smoking deck.  Assuming each machine generates Horseshoe's average $175 revenue per slot per day, the casino could generate an incremental $10 million in gaming revenue and Ohio would collect one-third of the additional revenue via taxes.

Takeaway:  If approved, the main casualty would be Indiana.  Indiana struggled in July with GGR falling 12% YoY and higher promotional spending.


Singapore REVPAR (STR) – During July 2014, the Singapore hotel industry reported 3.9% RevPAR growth to SGD252.41/day based on a 2.5% increase in occupancy to 87.4% and a 1.3% increase in average daily rate to SGD288.95. During July supply grew 1.8% while demand rose 4.4%.

Takeaway:  Decent start to Q3 on the lodging side.


Macau Smoking Ban Update (Macau Business) The Macau Health Bureau is seeking additional information from some casinos about their proposals for smoking rooms.  Health Bureau director Lei Chin Ion says casinos must send his bureau floor plans for their smoking rooms by early September.  Mr Li says 40 gaming establishments have submitted proposals for smoking rooms and only one has not. The smoking ban is scheduled to begin on October 6 at which time smoking will be allowed in casinos only in smoking rooms with no gaming facilities, and in VIP gaming rooms.

Takeaway:  Unsurprisingly, a slow process.  October 6th  may be pushed back.


California Online Gaming – California lawmakers have shelved bills that would have created a legal Internet poker system for players within California, making this the fifth year in a row in which they’ve publicly flirted with the idea without casting a vote.

Takeaway:  No online gaming expansion this year.

Vietnam Gaming Expansion – (GGRAsia) Vietnam’s Ministry of Finance will put forth "Casino Decree for Table Games" which may subject to additional provisioning allow Vietnamese nationals to gamble in casinos in Vietnam. According to the draft decree, casinos would be open to Vietnamese nationals aged 21 and over, who would still have to meet certain background and financial criteria that the government will define at a later date. Vietnam’s Prime Minister, Nguyen Tan Dung, would be responsible for selecting which casinos could become open to local gamblers. Vietnam has a population of around 92.5 million. The country has seven table game casinos; however, current law prohibits Vietnamese punters from gambling at home, unless they hold a foreign passport.

Takeaway: Another potential alternative gaming market for Chinese gamblers. 


Chinese Consumer Spending in July - (ChinaNews) According to UnionPay China, the Bankcard Consumer Confidence Index was up 0.06 from a month ago to 85.33 points after expenditures increased.  According to the data, the transaction value at hotels and airline ticket offices climbed 13% and 34.3% respectively as summer holiday is usually a peak season for traveling. Card holders' transaction size at domestic travel agencies and major scenic spots also increased 59% and 62%, respectively. Transactions at home appliances retailers rose 4.2% versus June 2014.  Additionally, higher gas price pushed up transaction value at gasoline stations, which increased 9% year-over-year.

Takeaway:  A positive for the mass gaming segment. 


China July new yuan loans -  CNY385.2B vs consensus CNY745B and CNY1.08T in June

  • Loan growth +13.4% y/y vs +14.0% in June
  • Deposits +10.9% y/y vs +12.6% in June
  • Total social financing CNY273.1B vs CNY1.97T in June
  • M0 +5.4% y/y vs +5.3% in June
  • M1 +6.7% y/y vs +8.9% in June
  • M2 +13.5% y/y vs consensus +14.3% and +14.7% in June

 Takeaway:  Way below expectations. Negative sign for VIP.

Japan Macro - Japan's GDP contracted at 6.8% annualized rate during April through June.  This was the largest contraction since the March 2011 earthquake and the result of the April sales tax increase to 8%.  Japan's economy is forecast to grow an annualized 2.9% according to a recent Bloomberg survey.  The government aims to raise the sales tax to 10% in October 2015 from 8% now. Abe will decide whether to proceed with the plan by year-end, based on the economy’s strength.

Takeaway: Slower Japanese growth simply provides greater support for casino gambling legislation.  


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.

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Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA

Takeaway: Decent quality miss from M, sort of. AMZN’s traffic trends annihilating EBAY. CAB shows how gun retailers deal with looting.



Wednesday (8/6)

M - Earnings Call: 10:30am


Thursday (8/7)

WMT - Earnings Call: 7:00am

KSS - Earnings Call: 8:30am

JCP - Earnings Call: 4:30pm

JWN - Earnings Call 4:45pm




Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart1 8 13 2014


Takeaway: The bifurcation between AMZN and EBAY is startling -- whether you look at a 1-year or 2-year trend. The fact that AMZN's numbers have accelerated sequentially every single month thus far in 2014 is simply remarkable. Too bad we're not seeing this from brick & mortar retailers as well.




M - 2Q14 Earnings


Macy's missed by $0.06, but truth be told, the quality of the quarter was really not that bad (and we're Macy's bears, mind you). Comps of 3.4%, EBIT growth of 6.9% and EPS growth of 10.7% is not a bad financial algorithm for a department store -- particularly with inventories and the cash conversion cycle well-controlled versus last year. If there's anything we'd poke a hole in it is that the SG&A ratio of 32.3% is the lowest EVER for Macy's in a 2Q in the history of the company. Not sure how excited we can get about an #oldeconomy zero square footage growth retailer driving earnings growth via leveraging SG&A.


Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart4 8 13

Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart5 8 3

Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart6 8 3


CAB - The Hazelwood (St. Louis) Cabela's dealing with the riots while remaining open



With all the unrest and rioting in St. Louis due to the Police shooting of an unarmed 18-year old, the local Cabela’s responded in a draconian — yet socially responsible way. Check out the photos below.


Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart2 8 13


There are only long guns on display, safely behind the counter. All handguns have been removed from the glass display cases to protect against flash mob-style smash-and-grab attempts. Specific firearms customers want to see are brought out one at a time from storage off the sales floor.


Retail Callouts (8/13): M, AMZN, EBAY, TGT, PETM, BABA - chart3 8 13 2014


The usually accessible racks of long guns leading toward the gun library have been emptied.




TGT - New head of Target Canada plots his course to a turnaround



"The new boss of Target Canada has drawn up a detailed plan to fix its raft of problems – from too many items jammed in its warehouses to pricing that is too high because 1,000 of its products failed to go through the retailer’s price comparison checks."

"Mark Schindele, who took over as Target Canada president in late May, said the U.S. discounter’s hasty launch of 124 stores and three warehouses last year 'led to some unintended consequences that we’re unwinding now.' They include bare store shelves and some prices that were higher than the same product at arch-rival Wal-Mart Canada Corp."


PETM - JANA Partners Issues Statement to PetSmart



"JANA Partners LLC and other shareholders have called upon PetSmart, Inc. to conduct a review of all strategic alternatives, including a sale, to maximize value following years of underperformance for shareholders."

"So far, PetSmart has resisted such a fulsome review and has instead proposed standalone options that are unlikely to generate as much value as a sale given its numerous operating and strategic challenges, and unsuccessfully attempted to convince the market that there is lack of interest from potential buyers. Now it appears that the board of directors is redoubling its efforts to avoid a genuine strategic review of all options to unlock value for shareholders."


BABA - Alibaba Gears Up For Sept. IPO



"The Chinese e-commerce company is weighing a plan to start marketing the share sale to investors on Sept. 3, with management traveling across Asia, Europe and the U.S. before an initial public offering in the middle of the month, people with knowledge of the matter said."

"The schedule, put forth by banks managing the IPO, would have meetings begin in Hong Kong and Singapore before executives travel to London and eventually host their first U.S. event in New York on Sept. 8, the people said, asking not to be identified discussing private information. The timeline has Alibaba targeting a Sept. 16 trading debut, the people said."


AMZN - Amazon.com builds brick-and-mortar presence with card-swiping device



"Amazon.com Inc. unveiled a $10 credit-card reader and mobile app for brick-and-mortar businesses on Wednesday, marking the latest step by the U.S. online retailer to expand its presence in the physical world."

"The move pits Amazon against a slew of rivals, including startup Square, which popularized a payments dongle that allowed small- and mid-sized businesses like food trucks, coffee shops and personal trainers to quickly accept credit and debit cards."

"The new point-of-sale system, called Amazon Local Register, would give Amazon crucial data on how U.S. consumers shop offline. More than 90 percent of U.S. retail sales still take place in physical stores, according to U.S. government data."


APP - American Apparel Posts Preliminary $15 Million Net Loss



"American Apparel Inc., the clothing retailer whose founder is fighting to regain control of the company, posted a preliminary second-quarter net loss of $15 million as it failed to boost sales."

"The loss, which the Los Angeles-based company disclosed yesterday in a filing, is narrower than its $38 million loss a year earlier. Sales were little changed at about $162 million, according to the company, which said it’s delaying its official quarterly report because of the recent overhaul of its board."


Takeaway: Housing demand is now down 5.3% QoQ thus far in the third quarter, continuing the trend of lower lows and lower highs.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


DEMAND CONTINUES TO DROP IN 3Q14 - Compendium 081314


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.



Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 8th.

The Composite index fell -2.7% WoW as refi activity was weaker by -4.0% on the week and purchase demand slid -1.0% sequentially.


The anemia extends to August as purchase apps hold the 160 level for a 5th consecutive week and are now running -5.3% QoQ and at the lowest quarterly ave reading since 2Q 1995. 


  • Lower Lows in Purchase Demand:  The Purchase Index slid yet again to 164.8 on the index, down from 166.5 last week - marking a second week of decline and the 5th consecutive week at the 160-level.  As it stands, purchase demand continues to sit just above the 10Y lows recorded during the peak weather distortion trough in February while average purchase demand for 3Q to-date is currently tracking at its lowest level since 2Q of 1995.  
  • Refi & Rates:  Refinance activity declined -4% WoW with rates on the 30Y FRM contract static at 4.35% in the latest week.  Refi activity remains down -38.4% YoY and continues to improve as we traverse through the easiest 2013 comps. 


Summarily, the high frequency housing data continues to corroborate the sea of red currently blanketing our housing compendium.  As we’ve highlighted repeatedly, we’re inclined to remain bearish on the housing complex until the slope of HPI deceleration inflects.


DEMAND CONTINUES TO DROP IN 3Q14 - Purchase Apps Qtrly   YoY TTM


DEMAND CONTINUES TO DROP IN 3Q14 - Purchase Apps Qtrly Ave


DEMAND CONTINUES TO DROP IN 3Q14 - Purchase Apps LT w summary stats


DEMAND CONTINUES TO DROP IN 3Q14 - Purchase Apps 4wk rolling Ave






DEMAND CONTINUES TO DROP IN 3Q14 - Composite Index LT w summary stats





About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake


Fleeting Emotions

This note was originally published at 8am on July 30, 2014 for Hedgeye subscribers.

“Fleeting emotions tempt us to make decisions that are bad in the long term.”

-Chip & Dan Heath


That’s another important quote from the recent #behavioral book I finished this week – Decisive, by Chip & Dan Heath.


How do you overcome your short-term emotions in markets? Does loss aversion drive your decision making? How does mere exposure to something going against you affect your #process?


The Heath boys suggest that “our decisions are often altered by two subtle short-term emotions: 1. Exposure to what’s familiar to us; and 2. Loss aversion.” (pg 174) Both 1 and 2 sound like a market’s last price to me.


Fleeting Emotions - 4v


Back to the Global Macro Grind


Real-time prices are very familiar to us. Unless you’re someone who doesn’t do #timestamps (in Independent Research terms) or have a buy-side P&L, so is loss aversion. Which brings me to the one major macro position that is currently going against me – the US Dollar.


If you pull up a 2 year chart of the US Dollar Index, you’ll note that:


  1. It made a long-term higher-low in Q4 of 2012 around $79 when we made the US #GrowthAccelerating call
  2. It made a #GrowthAccelerating cycle peak around $85 in Q3 of 2013 (Q313 GDP = +4.1%)
  3. As #GrowthSlowing took hold from Q413 to Q214, it retraced all of those gains back to $79 and change


If you only look at a 6-7 month (YTD) chart of the US Dollar Index:


  1. It dropped from $81.5 in January back down to $79.5 in May
  2. Then it bounced hard off that May low when Draghi devalued the EUR/USD
  3. And now it’s right back to where it was in January


In other words it really hasn’t done anything. That said, it could go up or down a lot from here. If it continues to track both Fed Policy and the rate of change (slope of the line) in US Growth, there’s no reason why it can’t go straight back down to $79.5.


But what if US growth continues to slow, the Fed gets incrementally dovish, and Draghi gets even more dovish? Unfortunately, God didn’t call me this morning with that answer – so I don’t know.


Rather than be wed to any particular macro theme, I’ll let Mr. Macro Market give me hints as to what I should do next. If the Fed does what consensus has been looking for all yr (continues to taper/tighten), and USD heads higher, that would be bearish for Commodities (and bullish for the US consumer). Everyone in America (other than the guys running #YieldChasing MLP schemes) should want that.


In other news that is un-related to my current macro mistake:


  1. Industrial Stocks (XLI) were -1.3% yesterday (-2.2% for July) and are now signaling bearish TREND @Hedgeye
  2. Equity Volatility (VIX) was up again yesterday to 13.28 (+19% since 1st wk of July) = bullish TREND @Hedgeye
  3. Both the Russell 2000 and UST 10yr Bond Yield continue to signal bearish TRADE and TREND @Hedgeye


What’s most interesting to me about the Industrials (XLI) joining the US Consumer and Housing stocks (XLY and ITB are down 2014 YTD too) is that some of them are classic early-cycle indicators.


“So,” setting aside my own personal US Dollar baggage, what if the bigger picture here is that the entire US economy is heading into an early cycle recession? Wouldn’t that be just peachy?


Don’t forget that we are 62 months into a US economic “expansion.” Both that and the SP500 not having had a 10% correction in 33 months (hasn’t happened since 1990) might just be a tad longer in the tooth than a 2-3 month US Dollar dead cat bounce.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.44-2.54%

SPX 1960-1978

RUT 1131-1154

VIX 11.94-14.41

USD 80.61-81.39

EUR/USD 1.33-1.35

Gold 1292-1321


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fleeting Emotions - Chart of the Day

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