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Buying British Pound on a Correction (FXB)

This morning we issued a buy signal on the GBP/USD (via the etf FXB) in our Real-Time Alerts with the cross reaching our immediate-term TRADE oversold level ($1.67) within our bullish long-term TAIL view (support = $1.65).

Buying British Pound on a Correction (FXB) - z. gbpp


The GBP/USD has corrected -2.2% M/M and took a leg down this morning (~50bps) following the BoE’s release of its August Inflation Report. We believe today’s weakness reflects:

  • UK wage growth that fell -0.2% in Q2 Y/Y (the first decline since 2009)
  • BoE Governor Mark Carney rhetorically pushing out expectations for a rate hike to at least late 1H 2015 (though no specific guidance was given)

That said, the GBP/USD is up +12% since it troughed on 7/5/13 and continues to be supported by healthy underlying fundamentals that we expect to persist in 2H (and especially versus the Eurozone – click here for more on our negative outlook on European equities and the EUR/USD):

  • UK unemployment rate fell 10bps M/M to 6.4%, the lowest level since 2008, and is now expected to drop below 6.0% by year end
  • The Bank revised up its expectation for near-term growth to 3.5% in 2014
  • CPI of 1.9% Y/Y is managed toward 2.0% target

Buying British Pound on a Correction (FXB) - zz. unemploy


Further, we expect a more dovish policy response from the ECB and Fed versus the BoE over the intermediate to longer term that should be supportive of the Pound versus the USD and EUR:

  • Janet Yellen’s commentary suggests she remains an uber dove: (See Reuters article yesterday with current and former Fed officials indicating that Yellen and core decision-makers at the U.S. central bank are determined not to raise interest rates too early and risk hurting the fragile U.S. economy). We’ll be watching her Jackson Hole commentary beginning August 21 for a confirming dovish outlook.
  • ECB’s Mario Draghi looks poised to issue QE over intermediate term. Following the June announcement of the issuance of the TLTRO programs to unlock lending, come Fall he may begin QE-lite purchases (via ABS). A hike in rates (after cutting in June) appears highly unlikely over the next year plus given underlying weak fundamentals and inflation expectations that are likely to miss on the downside. 

Matthew Hedrick

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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

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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.

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


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%