Player/Coach Debate: A Sneak Peak Behind the Scenes at Hedgeye

Here’s a peek behind the scenes at Hedgeye as we evaluated whether or not to remove Hologic (HOLX) from our Investing Ideas product this week. It was a debate between the coach (Keith McCullough) and player (Tom Tobin). Tobin is our Healthcare sector head and he authored this note.


Player/Coach Debate: A Sneak Peak Behind the Scenes at Hedgeye - research


[At a fund] I would be telling my portfolio manager to take down the position, but not eliminate it. Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.


Player: I am sitting on some good performance. I like the long term, but I see some short term risk. Data point 1, data point 2, etc….


Coach: Let’s book it. What I see from my seat doesn’t look good for the name.  I hate this market and want to take down long exposure.


Player:  But it could double from here! Be patient, you're overreacting.  I’m just covering myself by sounding an alarm.  I may be misreading how the street will react. And there’s always a chance I’m being way too worried about what other people think.


Coach: Relax. We’ll buy it back.


Player: That never happens.  If I am wrong, the stock will be up and you’ll wait for a pullback that never comes. All of my research will get wasted.  I put so much into this it will be heartbreaking to see us not participate.


Coach:  Okay.  Let’s sell half, more if it rallies into the number, less if it sells off.  You good with that?


Player: That sounds good. If they puke the quarter we can double down.  I’ll keep you posted as I update key data.

LEISURE LETTER (09/12/2014)



  • Sept 12: SNOW F4Q14 11:30 am
  • Sept 16: Trump Plaza closes
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept


2282.HK/MGM; 880.HK/SJM  (GGRAsia, Macau Business Daily) A group of casino workers from MGM China is reportedly meeting on Monday (September 15) with the city’s Labor Affairs Bureau to complain about the company’s pay policies.


Another protest by SJM employees will occur on Saturday. The gathering is set for 3:00pm, after which the demonstrators plan to march to the Lisboa and Grand Lisboa casinos.

Takeaway: Labor protests all over the place - labor costs will continue to rise


MAR – announced plans to expand its Autograph Collection portfolio in Europe with new additions in Zurich, Switzerland and Barcelona, Spain in the spring of 2015 with the new 245-room Kameha Grand Zurich and the 83-room boutique hotel, The Cotton House, Barcelona.

Takeaway: Growth via the lower management revenue affiliated properties channel. Barcelona remains one of the top global tourist destinations.


HOT –  announced plans to debut The Luxury Collection brand in California’s famed Napa Valley with Las Alcobas, a Luxury Collection Hotel, Napa Valley that will open in the fall of 2015 following a comprehensive multi-million renovation that will transform the former Grandview Hotel & Spa.

Takeaway: A good property and destination addition to The Luxury Collection for Starwood.


TVPT – Travelport files amended S-1; to offer 30M shares in range of $14-16/share through Morgan Stanley, UBS, Credit Suisse and Deutsche Bank. TVPT's principal shareholders include: Blackstone Funds and TCV Funds. 

Takeaway: "Redefining travel commerce"...more like an equity market bubble in our book. After all, what's new about yield management and SAAS?


MTN – announced that the company has acquired Park City Mountain Resort from Powdr Corp. for $182.5 million in cash, settled all aspects of the prior litigation with Park City Mountain Resort, and expects $35 million in incremental EBITDA in FY2015.

Takeaway: A great acquisition at a very inexpensive EBITDA multiple while also adding a new mountain to the EPIC Pass program.


Insider Transaction:

PNK – EVP, Secretary and General Counsel John A. Godfrey acquired 25,000 shares of the company’s stock (which were part of a stock option award) for $16.92 and then sold the same 25,000 shares for $27 on Tuesday, September 9. The transaction was part of a 10b5-1 plan adopted on March 13, 2014 and following the sale, Mr. Godfrey now directly owns 141,722 shares in the company and 50,000 additional options with an exercise price of $16.92/share that expire on May 16, 2015.


Las Vegas Old is New – Paragon Gaming told the Nevada Gaming Control Board, The Rivera Casino is considering a $100 million renovation. The Riviera opened on April 20, 1955 as the first high-rise and the ninth resort on the Las Vegas Strip. Today, The Rivera has over 2,100 rooms and a 110,000 sq ft of gaming space. Paragon has operated the property for more than a year, following the departure of several Riviera executives. Riviera's ownership group includes Starwood Capital Group. 

Takeaway: The renovation of the north end of the Strip continues. 


China Loan & Money Supply Growth

    • New yuan loans CNY702.5B vs CNY700B consensus and CNY385.2B in July
    • Loan growth +13.3% y/y vs +13.4% in July
    • Deposits +10.1% y/y vs +10.9% in July
    • Total social financing CNY957.4B vs CNY1.130T consensus and CNY273.1B in July
    • M2 +12.8% y/y vs +13.4% consensus and +13.5% in July

Takeaway:  Lending continues to be weak


China Auto Sales – According to the China Association of Automobile Manufacturers, Chinese drivers bought 1.5 million passenger cars in August, an increase from 1.35 million units in August 2013.


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.

Arena or Circus?

This note was originally published at 8am on August 29, 2014 for Hedgeye subscribers.

“Because there is no effort without error and shortcoming.”

-Teddy Roosevelt


That’s one of the best quotes from one of the best leadership speeches in American history – President Teddy Roosevelt’s “The Man In The Arena” (more formally referred to by political types as his “Citizenship in a Republic” speech).


I’m not much of a political type. I’m more of a Mucker in the arena type. Perversely, I love getting smacked around once in a while. I love to fight against consensus. Yes, it can get messy. But working alongside those of you whose portfolios are “marred by dust and sweat and blood” drives me.


Those of you who didn’t get run over buying the tops of the 2000 and 2007 US stock market bubbles get where I am coming from. We are going to do this all over again. And while this time may be different, we know “the triumph of high achievement” … and if we fail, at least we’ll do so “while daring greatly.”


Arena or Circus? - tr


Back to the Global Macro Grind


I obviously love that speech, but I don’t think our call for US #GrowthSlowing as inflation accelerated (from 3 year lows) in 2014 was much of a dare at all. It was a playbook modeling call. Amidst all of the storytelling out there, the easiest US Macro positions to take were:


  1. Long Inflation Assets in 1H 2014 (JAN-JUN)
  2. Long Slow-Growth all year long (Long Bond and anything Equities that looks like a Bond)
  3. Short US Domestic Growth (Russell 2000)


Score: Long Bond (TLT) +17.2% vs. Russell 2000 0.0% YTD #timestamped (10yr yield = 2.34%)

*that’s pre-reinvesting dividends if you are long the 30yr UST Bond, the absolute return is even better


But you won’t hear that on Old Wall TV. You probably won’t read that in the paper either (I certainly haven’t – mainly because I don’t read newspapers!). Instead, you’ll hear something from the cheap seats like, “look at the Dow – its above its 50-day moving avg.”


The Dow, btw, is up less than 3% for 2014. Thanks for coming out.


If you’re a hard core perma growth bull, where you should really be long is India. Unlike the Russell 20000, India’s stock market (BSE Sensex) closed the month at its YTD highs, +27.7% YTD. Inflation is falling there – and real consumption growth is accelerating. Sound familiar?


It certainly doesn’t sound like Europe.


European central planning bureaucrats (who are just like the un-elected ones we have here at the Fed) live in perpetual fear of what the general population wants (hint: lower cost of living). Read their conflicted and compromised media headlines this morning:


  1. “Eurozone deflation risk at its highest level since 2009”
  2. “Draghi hints at more stimulus”


This isn’t the arena of real life where real players have a real scoreboard. This is a joke.


For those of you who recall what the Keynesian finance newspaper (The Economist) was trumpeting last year (Abenomics), only 1-year after implementing 60-70 TRILLION Yen in incremental “easing”, here’s what Japan reported for July 2014:


  1. Japanese inflation +3.4% y/y
  2. Japanese Household Spending -5.9% y/y
  3. Japanese Housing Starts -14.1% y/y


In Hedgeye rate of change speak, “y/y” means year-over-year (or what it is now versus last year). And in Japan it’s just plain sad to watch. If you’re blowing up on the golf course this weekend, try it yourself – just keep doing the same things, over, and over, and over again. But don’t expect different results.


“So” Europe definitely needs to do that… definitely, right?


Right, right. And as US growth continues to slow from this fanciful Q2 headline Obama was trying to trumpet yesterday (newsflash: it’s Q3), guess what your central planning committee at the Fed is going to do in the face of that? Must do moarrr easing…


With a few Hedgeye Best Short Ideas going against us (like YELP) right now, I have plenty of issues of my own to deal with, but a broken process is not one of them. If I had a broken process, I would either get fired or mocked.


Where I grew up, they call the place where people who get paid to get mocked a circus. That’s the perfect place for a bunch of unaccountable people who are bought and paid for by governments policies to perform.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.32-2.39%

SPX 1972-2009

RUT 1138-1175

Shanghai Comp 2181-2280

VIX 11.34-13.90

EUR/USD 1.31-1.33


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Arena or Circus? - COD

Daily Trading Ranges

20 Proprietary Risk Ranges

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

September 12, 2014

September 12, 2014 - Slide 1



September 12, 2014 - 2

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September 12, 2014 - 5

September 12, 2014 - 6 

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September 12, 2014 - 8

Bernanke: Yep, He’s Back

Client Talking Points


Yep, he’s back – speaking for fees and making comments that are in line with his forecasting track record on growth #reckless. Allegedly (at a Morgan Stanley lunch yesterday) Bernanke said growth was going to surprise on the upside and he was surprised that the UST 10YR was still < 3%. We think he’ll be dead wrong on this forecast.


We weren’t there, but looking at the intraday, we have no doubt Bernanke was somewhere saying something like that. It’s sad, but we have to risk manage this until Yellen tones it down next week – immediate-term risk range has widened (that’s dangerous – leading indicator for bond market volatility) to 2.33-2.58%.


Basically everything macro is one big correlation trade all of a sudden to Up Dollar, Up Rates (i.e. Down Oil, Down Gold, Up SPX, etc.) – with 30-day correlations vs. USD close to +/- 0.8, there’s huge TREND reversal risk now across macro markets if/when this Bernanke thing is proven wrong and/or Yellen backs the market off the higher rates expectation.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


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.


Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road


FX Volatility is officially on again thanks to Draghi and Bernanke



You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.

-Buckminster Fuller


China remains bullish in our model, the Shanghai Composite is up another +0.9%  to 2014 highs of +13.6% year-to-date.

CHART OF THE DAY: The New Fundamental Analysis: Front-Running Fed Leaks!

CHART OF THE DAY: The New Fundamental Analysis: Front-Running Fed Leaks! - Chart of the Day


Bernanke allegedly (and recklessly) told a group of investors during a secret lunch yesterday that US GDP growth was going to surprise to the upside (i.e. be better than 3% consensus) and that he could not believe the 10yr was still trading under 3%. In Fed whisper speak, that’s code for Janet is going to get more hawkish (look at the intraday chart, post lunch) … but is she?

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