Client Talking Points


EPI (WisdomTree India Earnings Fund) remains one of our top long ideas. India’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential (TREND and TAIL durations.)


We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble (TREND duration).


Purchase demand declined for a third week, holding below the 170 level for a 6th consecutive week, that is the longest such soft streak since August 1995. The Composite index gained 1.4% week-over-week, buttressed fully by refi activity, which was higher by 2.7%, while Purchase activity declined -0.4%.

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.


Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road


GMO labeling measure makes Colorado’s November ballot  via @washingtonpost $HAIN $WWAV $BDBD $BNNY



Really great people make you feel that you, too, can become great.

-Mark Twain quotes


Wal-Mart said it will sell the iPhone 5c for 97 cents and the 5s for $79, down from their regular prices of $99 and $199, respectively.

LEISURE LETTER (08/21/2014)



  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes


GTK:IM – said 14 banks have agreed to lend the Company up to $10.7 billion, in part to back its planned acquisition of U.S. slot machine maker IGT (International Game Technology).  The financing will be via a senior bridge loan and will be available to GTECH for 15 months, after which the company is expected to issue bonds to refinance the bridge loan.  GTECH said 45% of the bridge loan would be denominated in euros and the remainder in U.S. dollars. Credit Suisse, Barclays and Citigroup have arranged a syndicate of 11 banks to jointly finance GTECH. Other lenders involved include BNP Paribas, Credit Agricole, Deutsche Bank, Intesa Sanpaolo, JPMorgan Chase, Mediobanca and UniCredit.

Takeaway: Full support by all the investment banks.


BYD & MGM – Borgata Hotel Casino & Spa announced seven shows with Emmy and Golden Globe Award winning comedian Jerry Seinfeld, performing at Borgata's intimate 2,500-seat Event Center.  Seinfeld will continue his series through 2016, with tickets on sale this Friday (August 22) for his first show scheduled for Thanksgiving weekend – Saturday, November 29, 2014

Takeaway: Building a schedule of headline entertainment programming in an effort to draw more visitors - and hoping they gamble. 


MGM & 2282:HK (GGRAsia) Chief Executive of MGM China Holdings Ltd, Grant Bowie on Wednesday commented that the declaration by Macau’s Chief Executive that the city’s casino operators should provide housing for their migrant workers raises “complex” issues as the SAR struggles with lack of buildable land as well as where to locate such housing.

Takeaway: Mr. Bowie attempting to play nice with Macau's Chief Executive, labor, and shareholders.


9776:JP – Konami Gaming, Inc., announced that its award-winning casino management system SYNKROS® has been selected by Canyon Casino in Black Hawk, Colorado, to replace their existing system.  Canyon Casino has more than 400 slot machines, 100 of which operate as coin slots where guests can still appreciate the sound of coins falling into the trays. The casino's available table games include blackjack, craps, and roulette

Takeaway: A notable win for Konami. 


1680:HK – In its Q2 2014 financial results, Macau Legend Development indicated the Harbourview Hotel opening will be delayed from Aug 2014 until tentatively in Q4 2014. Additionally, the redevelopment completion of Macau Fisherman's Wharf will also be delayed by one or two quarters as the company awaits the issuance of the superstructure construction license which is expected in Q4 2014. The Legendale Hotel which was targeted for a Q1 2017 completion has yet to obtain Macau government approvals to begin construction.

Takeaway: More development, construction and opening delays and postponements. Galaxy Phase II looks good for its timetable but we have zero confidence that the other Cotai projects will open on time.


WYNN & 1128:HK – The Board of Directors of Wynn Macau Ltd approved an interim dividend of HKD0.70 (US$0.09) a share for the six months ended June 30, 2014. The dividend will be paid on September 23. Last year the company had declared an interim dividend of HKD0.50 a share.

Takeaway: With the interim dividend announced, attention will now focus on the size of the year-end special dividend.


CCL – starting in October 2015, Carnival will offer 10- to 14-night cruises, a first for the line, out of Baltimore on the 2,124-passenger Carnival Pride. Previously, Carnival only offered seven-night cruises from Baltimore.

Takeaway:  For the Caribbean, the longer-dated itineraries have done better than the shorter itineraries this year.  


Insider Transactions:

HST – President & CEO Ed Walter sold 190,000 shares on August 19th at an average price of $22.6115/share and directly owns a remaining 116,568 shares.  Additionally, an Limited Liability Corporation indirectly owned by Mr. Walter also sold 10,000 shares on August 18th at an average price of $22.6489/share and the LLC now owns 90,000 shares.  Beyond the outright 116,568 owned shares, Mr. Walter beneficially owns 436,895 restricted stock share as well as 230,803 non-qualified stock options with expiration dates from January 20, 2022 through January 22, 2024. 


CHH – Stephen P. Joyce exercised employee stock options on 11,659 shares of the company’s stock and immediately sold the 11,659 shares on Monday, August 18th at an average $50.69/share via a 10b5-1 program.  The options expiration date was May 2, 2015. Following this transaction, Mr. Joyce now owns 125,763 shares of the company’s stock.  

Takeaway: This was Mr. Joyce's second sale within seven calendar days.  He sold 44,463 shares on August 11, 2014.


Japanese Gambling (Japan Times) – According to research published by the Japan's National Hospital Organization Kurihama Medical and Addiction Center,  4.38 million men, accounting for 8.7%, and 980,000 women, or 1.8%, are suspected to suffer from gambling problems, totaling 5.36 million people or 4.8% of the adult population in the country. The research was conducted along with a survey for alcohol dependence in July 2013. The team interviewed 4,153 adults nationwide chosen on a random basis, and conducted research on gambling and Internet addiction based on international standards.

Takeaway: Suspect timing of this dated study results - seemingly just ahead of the Diet integrated resort legislation debate this fall. 


Increased Asian Regional Gaming Competition (GGRAsia) In reaction to the escalating crackdown on official and business corruption across mainland China, several jurisdictions neighboring China, including Japan, Vietnam, South Korea as well as Cambodia and the Philippines, appear to be increasing their efforts and attempts to either enact or liberalize laws to encourage foreign direct investment by casino operators.

Takeaway: The proliferation of gaming across new international markets continues.   


Macau Inflation –  According to the Macau Statistics and Census Service, higher rents and the cost of eating out were key contributing factors to Macau's July inflation report of +5.92% year-over-year. On a month-on-month basis, from June to July, prices increased 0.37%.   

Takeaway: Such reports unfortunately give a voice to the labor unions rather than calling on the Macau Government to support policies which support lower inflation.


China Economic Slowdown (redux)(WSJ) Highlighted the start-stop nature of China's economy despite Beijing's efforts to intervene with lower interest rates, project approvals and infrastructure spending to keep the economy growing. Yet, the portion of the economy that is most at risk of falling out of the government's control is the property market. Property prices and construction activity continue to fall, posing risks to the banking system, personal wealth and local government finances. The relaxation of curbs against property speculators, already implemented in several cities, may yet have a positive impact. More moves, including easier credit for mortgages and developers, appear likely.

Takeaway: Not all of China macro is looking better.


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.

CHART OF THE DAY: Intl. Idea Flow

CHART OF THE DAY: Intl. Idea Flow - Asia COD


"For those of you who with the ability to invest capital internationally, we thought we’d create the table below to help synthesize and hold accountable our investment ideas across the Asia, LatAm and EM space, which is my primary coverage responsibility for the team. In addition to updating you on the active recommendations therein, we are also taking this opportunity to provide post mortem on our closed ideas over the TTM." - Macro analyst Darius Dale in today's Morning Newsletter

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.

Idea Flow

“I don’t really make decisions, I go with the flow.”

-Nicole Kidman


For most, Academy Award-winning actress Nicole Kidman requires no introduction; in this analyst’s humble opinion, her role as Dr. Chase Meridian in Batman Forever should forever be remembered as one of cinema’s all-time great damsels in distress.


Idea Flow - forever08


Lacking adequate contextualization for her quote above, we thought we’d spend some time this morning discussing “flow” in a more relevant context: investment ideas.


Be it the Surf Lodge in Montauk or the White Briar/Princeton combo in Avalon, NJ, I’ve done my fair share of “going with the flow” this summer. In fact, how I’ve approached social life in my late-twenties is not unlike how I’ve approached generating investment ideas – by remaining open-minded and gravitating towards those destinations that others are also likely to find most attractive.


That’s easier said than done, however, especially in the context of investing. How does any investor – fully equipped with his or her confirmation biases – remain open-minded enough to consistently and presciently spot those attractive destinations? While I’m sure asking 20 different analysts and portfolio managers will net about 19-20 different responses, my answer to that omnipotent question is simple: by doing the same thing each and every day.


Back to the Global Macro Grind...


My repeatable process commences each morning by writing down 186 unique, color-coded quantitative signals into my notebook. These signals can be anything from the MoM delta in India’s OIS spread, to the SPY’s Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) score per our Tactical Asset Class Rotation Model (TACRM), to the top-20 and bottom-20 VAMDMI scores across the universe of global macro ETFs. It culminates with absorbing all of the relevant economic data and policy rhetoric in my geographical coverage area and categorizing the deltas as sequential accelerations, decelerations, tightenings and/or easings.


While this process is far from perfect, it does tend to afford me a consistent opportunity to kick the tires on many developing investment themes and ideas. From there, we apply a healthy dose of “secret sauce” to determine whether or not a particular theme or idea is worthy of communicating to our subscribers.


For those of you who with the ability to invest capital internationally, we thought we’d create the table below to help synthesize and hold accountable our investment ideas across the Asia, LatAm and EM space, which is my primary coverage responsibility for the team. In addition to updating you on the active recommendations therein, we are also taking this opportunity to provide post mortem on our closed ideas over the TTM.


Active Long Ideas:


  • FXI: We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble. (TREND duration)
  • EPI: If we could LBO a country, India would be our top choice. The country’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential. (TREND and TAIL durations)
  • EEM, EMB, EMLC and CEW: When we were making the opposite call ~18M ago, there were not a lot of investors who agreed with us that US monetary policy was the driving factor behind capital flows, monetary conditions and asset prices in emerging markets. Now everyone gets it and the fundamentals (i.e. US #GrowthSlowing) and quantitative signals (see slide #4 of TACRM deck above) support remaining long of EM assets here. (TREND duration)
  • EIDO: Definitely long in the tooth as it relates to Jokowi hoopla, but the comps in our GIP (i.e. Growth/Inflation/Policy) model portend a favorable investing environment for at least the next 2-3M. (TREND duration)


Closed Long Ideas (TTM):


  • ARGT: Booking the loss here. Loose fundamental thesis on our part with even looser results.
  • EWT: Great trade. Semiconductor stocks (SOX Index) have done nothing but go straight up over the past two weeks; a failure to make a higher-high would auger negatively for the consensus storytelling about a sustained recovery in CapEx.
  • ENZL: Decent timing on booking the gain. It’s been lower-highs and lower-lows for New Zealand for ~3M now amid marginally dovish monetary policy.
  • EWZ, BZF and PBR: Great [near] bottom-tick back in FEB; booked the alpha too early amid fears of a growing probability of a Rousseff reelection. Silva’s entrance into the presidential race throws a wrench in the trade, but we think Brazil is setting up to be a nice short heading into 2015 if either of the female candidates emerges victorious.
  • FXY: Not much to see here; we merely traded around what we saw as likely consolidation amid a fiscal and monetary policy vacuum in Japan.
  • CQQQ and CHIQ: Great trade. Our long “New China”/short “Old China” theme would’ve returned +1,154bps on an equal-weighted basis.
  • EPI: Booked substantial alpha ahead of the election, fearing consternation. Rotated back into it a few weeks later and haven’t looked back since.
  • DXJ: Calling for Japanese equity reflation to occur concomitantly with aggressive yen debasement back in 4Q12 remains one of the hallmark calls of my analytical career.


Active Short Ideas:


  • FXA: While his latest guidance on rates isn’t necessarily supportive of our view, it’s clear that RBA Governor Glenn Stevens wants a lower Aussie dollar, citing Australia’s deteriorating labor market. Just wait until Aussie CPI decelerates for the next 1-2 quarters, which is something our GIP model currently identifies as the most probable outcome.
  • General commentary: You’ll note that there aren’t a ton of active short ideas here. That’s by design, as both the bottom-up fundamentals and top-down quantitative signals continue to support a long bias towards EM assets at the current juncture.


Closed Short Ideas (TTM):


  • KRW: Booking the loss here. We couldn’t have been more right about South Korea’s deteriorating GIP dynamics or the aggressive spate of fiscal and monetary easing we’ve seen in recent months. Conversely, inflows from international equity investors have buoyed the won – likely well above where the BoK and Finance Ministry want it to trade.
  • EWA: Booking the absolute return loss/relative return alpha here. The glass half-empty reads: we underestimated the resiliency of the Aussie housing market and the Aussie consumer. The glass-half full reads: Australia’s substantial underperformance relative to global equities highlights some of the structural headwinds we were calling for back in mid-2012.
  • DXJ: Good trade. As we predicted, Japan did not participate in the rally across global equities from the early-FEB lows through our late-MAY note to stop fading consensus on the “Abenomics Trade”.
  • CHIX and CHXX: See commentary above RE: CQQQ and CHIQ.
  • EPHE: A bad play by us that could’ve been much worse. The EPHE ETF has appreciated +15.5% since we turned broadly positive on EM assets earlier this year – inclusive of backing away from the short side of Filipino equities.
  • CLP: A decent play by us that could’ve been much better, had we stuck with it. The Chilean peso has declined an additional -5% versus the US dollar since we backed away from it on the short side.
  • EWZ: Outstanding call. Not much more to be said.
  • EEM, EMB, EMLC and CEW: This round of #EmergingOutflows was far less severe than the first (see below).
  • FXY: This is the centerpiece of the aforementioned Abenomics Trade (i.e. short yen/long Nikkei) and one of the best calls of my analytical career. We more-or-less top-ticked the all-time lower-high in the Japanese yen. It’s been mostly straight down ever since – and by a lot!
  • CHIX: Great thesis; terrible timing. Reminded us of the one thing many investors forget when they ponder Chinese tail risk: China is a state-run economy. At the drop of a dime, they can manufacture both liquidity and economic growth. While reflation policies are obviously unsustainable over the long term, they can be a lot more sustainable over the near-term than the P&L of anyone trying to short China at such favorable turns in policy.
  • EEM, EMB, EMLC and CEW: Another one of the hallmark calls of my analytical career. Turning bearish on EM assets when we did was greeted with a substantial amount of disbelief and contempt from investors – until after they went down in price… by a lot!


Obviously the nuggets above are intended to be brief, so please feel free to reach out if you’d like additional color on anything you see above.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.34-2.46% 

SPX 1 

RUT 1120-1167 

VIX 10.83-15.52 

USD 81.48-82.39 

Gold 1 


Keep your head on a swivel,




Darius Dale

Associate: Macro Team


Idea Flow - Asia COD

Chance of a Crash?

This note was originally published at 8am on August 07, 2014 for Hedgeye subscribers.

“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost.”

-Raghuram Rajan


Crash? Yep. My man Dr. Raj doesn’t consider it improbable. Do you? The aforementioned quote comes from an interview the former Chief Economist of the IMF (2003-2006) and now Governor of the Reserve Bank of India just gave to the Central Banking Journal.


“Investors are counting on easy money – they put the trades on even though they know what will happen as everyone attempts to exit positions at the same time… there will be major market volatility if that occurs.”


I can assure you that “everyone” has not attempted to get out of the US stock market, yet. Just think, all we needed was a 2% down day (and a -3.5% correction from the all-time bubble highs), and volatility (VIX) ripped +65%! That’s called some wicked asymmetry.


Chance of a Crash? - EL chart 2


Back to the Global Macro Grind


I have no love lost for those who think that they can centrally plan things like gravity, economic cycles, etc. But if I had to pick one modern central planner to help me run money, it would be Dr. Raj. When it comes to real-time interconnected market risk, sorry Janet, but you wouldn’t make it past the first interview at a performance based fund.


Not only did Rajan tell linear-economist Larry Summers to go flower himself circa 2006 (Summers called Rajan’s views of market risks “misguided”), but he’s taken India on a path that American, European, and Japanese bureaucrats seemingly do not have the spine to traverse – that of raising interest rates in order to tone down the real cost of living (inflation).


India’s stock market (one of our favorite long ideas in 2014 – the Wisdom Tree India Earnings Fund (EPI) in Real-Time Alerts) not only took the rate hikes and inflation fighting policy from Dr. Raj in stride, they celebrated them. India’s BSE Sensex is up another +0.4% this morning to +23.2% for the YTD as these wacky things called investment and capex cycle expectations in India take hold.


Raising rates?


Sadly, if we’re right on both US Housing and GDP continuing to slow here in Q3, there isn’t a chance on this side of central planning hell that Janet Yellen is going to raise interest rates in the 1st half of 2015.


Being the bear on both US growth and rates this year, I get a lot of questions on Fed timing. I spent all of yesterday seeing Institutional Investors in NYC (8 meetings) and by the end of the day I came to the realization that the biggest risks to our current views are:


  1. We aren’t bearish enough on US growth
  2. We aren’t bullish enough on long-term Treasuries


Sounds a little crashy, but just fyi, markets do crash after making all-time bubble highs on no-volume.


Again, what I just wrote is that the risk to our current view is that we’re not bearish enough on the US stock market. Since we don’t do the “year-end bonus-target” thing for stock and bond market levels, here’s that current view:


  1. US Treasury 10yr Yield tests 2.21-2.41%
  2. SP500 corrects towards 1829


Yeah, on that 2.41% level for the 10yr, I know. What a leap that forecast is with the 10yr at 2.45% this morning! As my friends from Thunder Bay would say though, “the thing of it is” we’ve been looking for 2.41% since the 10yr was at 3%.


On the SP500 though, my current views are finally shifting to the bear side.


As most of you who have been following my team and my levels know, I have been more focused on having you sell the Russell 2000 than the SP500 YTD, primarily because the SP500 has many more slow-growth #YieldChasing components that I like(d).


Provided that the SP500 remains bearish on my intermediate-term TREND signal (1930 resistance), I see my long-term TAIL risk line of 1829 support as probable. What does probable mean in risk management speak? Well, it doesn’t mean improbable.


Other than a certified train wreck for whoever bought SPX 1987, what would 1829 look like?


  1. A -4.7% correction from yesterday’s closing price of 1920
  2. A -8% correction from the all-time high (1987) – the Russell 2000 has corrected -7% since July 7th


Oh, and about 1987… if you want to go all crashy in your investment meeting today, how ominous of a date/level is that?


If I am right in that I am not bearish enough on the SP500 (yet), and my long-term TAIL risk line of 1829 snaps. Oh snap, they will. That’s the point about my definition of TAIL risk – once it’s on, the only support strategy (level) I’ll be recommending is prayer.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.43-2.53%

SPX 1899-1929

RUT 1107-1131

India’s BSE Sensex 25236-26311

VIX 14.92-18.59

Gold 1281-1314


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Chance of a Crash? - Chart of the Day

August 21, 2014

August 21, 2014 - Slide1



August 21, 2014 - Slide2

August 21, 2014 - Slide3

August 21, 2014 - Slide4

August 21, 2014 - Slide5



August 21, 2014 - Slide6

August 21, 2014 - Slide7

August 21, 2014 - Slide8

August 21, 2014 - Slide9

August 21, 2014 - Slide10

August 21, 2014 - Slide11

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.