Futures Ramp to All-Time Highs

Client Talking Points


Long the Pound Sterling was our way to play the No vote, and while we saw $1.65 vs. USD early this morning, this trade is now signaling immediate-term TRADE overbought within a $1.62-1.65 risk range on the news – book some.


The front-month VIX signaled immediate-term TRADE overbought in our Risk Range model (within its bullish TREND) on Monday 9/15 at 14.19, so now we’ll look for TREND support of 11.34 to hold before we start sending out the U.S. small cap (IWM) equity sell signals again.

S&P 500

Since we sent out the “Oversold” research note at 11:04AM on Monday, we don’t have to feel shame on this squeeze. Had a lot of feedback to keep shorts on down there, but that was not the playbook call to make – BUY the low-end and SELL the top-end of the Hedgeye risk ranges, rinse/repeat #process.

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


The bearish 80 page slide deck we released on $SBUX [yesterday] is titled the "Seven Year Itch" - Its been seven years since the famous memo!



The real test is how you behave when the crowd is roaring the other way.

-George Goodman


The Russian stock market is getting smoked again, down -1.7% to down -15.7% year-to-date.

LEISURE LETTER (09/19/2015)

Tickers: BYI, LVS, PNK, H


  • Sept 19: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 22: BEE 2 pm EDT Investor Day


BYI – announced Caesars Entertainment UK will install 108 SHFL Fusion terminals linked to SHFL Fusion Auto, i-Table Roulette, and live American roulette tables at "The Casino at the Empire" in London and its seven other casinos throughout the United Kingdom. The company will also install 57 ChipStar roulette chip sorters, which now have the ability to sort 43-mm chips. chips.

Takeaway: Caesars adopting the new Shuffle technology.

LVS & 1928:HK (Macau Business) A court in Israel has rejected a claim and ended 13 years of litigation by a former employee, Moshe Hananel, who sued for 12% of Mr Adelson’s holding in Macau casino operator Sands China Ltd. Mr Hananel, who worked for Interface Partners International Ltd, an Israeli company once owned by Mr. Adelson, had sued for breach of contract, alleging that Mr Adelson had agreed to give him share options in payment for drafting a casino licensing plan.

Takeaway: The termination of another "share the wealth" suit by former LVS business partners.


LVS & 1928:HK (Macau Business Daily) A Macau resident died on Monday while working in Sands Cotai Central. The male construction worker was 58 years old and died from an accidental fall while working on theater construction in the complex.

Takeaway: An unfortunate accident at SCC that could result in further construction delays at LVS properties. Some think that the last construction fatality at The Parisian led to the recent permitting delays. 


PNK – Golden Nugget Lake Charles began its pre-open marketing blitz with e-mails touting the properties 1,600 of the world's newest slots, 60 gaming tables, poker room, 740 luxury rooms and suites and more than 3,000 parking spaces, 30,000 sq. ft. of meeting space for up to 2,500 attendees and much, much more.

Takeaway: "Coming this Fall 2014"...very soon L'Auberge Casino Resort Lake Charles will have neighborly competition. Are the real estate PNK bulls ready for the hit?


CLDT & NRF – Inland American Real Estate Trust announced it entered into a definitive agreement to sell a portfolio consisting of 52 select service hotels with 6,976 rooms to a joint venture formed by affiliates of Northstar Realty Finance Corp. and Chatham Lodging Trust for approximately $1.1 billion. Inland American expects to realize approximately $480.0 million of net proceeds as a result of the transaction.

Takeaway: Another large select service hotel portfolio transaction.


H – announced a contract to sell a portfolio of 38 hotels for approximately $590 million consisting of 4,950 rooms (~$119,200/key) across tens sates and the Hyatt Place and Hyatt House brands with an estimated closing in November 2014. The buyer, Lone Star Funds, intends to invest  approximately $50 million in additional capital expenditures across the portfolio over over the next 24 months. Aimbridge Hospitality, LLC will manage the hotels for the Purchaser. 

Takeaway: Could more share repurchases be in the future?  A great sale considering many of the assets are in second and third tier markets and Hyatt acquired the 143-hotel AmeriSuites portfolio/chain from Blackstone in December 2004 for $600 million and then invested an additional $150 million in capex for an average all in cost/key of $41,666.  Hyatt sold a 10-hotel, 1,560 room portfolio to RLJ earlier this year for $313 million ($200,600k/key). We like H here.


EXPE & AWAY – Expedia will list more than 115,000 HomeAway vacation rental listings on the U.S. version of 

Takeaway: A potential competitive threat to destination hotels.


Airbnb – Airbnb to collect 14% hotel tax in San Francisco: The peer-to-peer apartment-rental service will begin collecting taxes in San Francisco October 1, and those funds will be transferred to the city. 

Takeaway: Airbnb capitulating and will begin paying local hotel taxes. The next key market for tax payments will be NYC.


Unions Call for Total Smoking Ban in Macau (Macau Daily Times) Leaders of three casino employees unions affiliated with the Macau Federation of Trade Unions (FAOM) allege several casino operators are converting part of their mass gaming areas into VIP rooms. This means that guests will be able to smoke there even after the mass area smoking ban comes into force on October 6. The Unions are calling for a total smoking ban in all areas within a casino so that there will be no chance for operators to exploit any legal loopholes

Takeaway: More outcry for better work conditions for dealers and floor workers. Macau operators getting hit from all sides.


Macau Health Bureau to Enforce Smoking Ban (GGRAsia) The Macau Health Bureau will “rigorously” inspect the smoking lounges and smoking areas as well as “strictly enforce” the upcoming smoking ban for casino mass gaming floors. The Health Bureau’s statement comes after representatives from three casino labor activist groups expressed worries about what they think are likely working conditions once the smoking ban on casino mass floors goes into effect next month.

Takeaway: The Government defending its policy and enforcement actions.


China Employment Reforms (GGRAsia) The State Council of China shut down the National Holiday Office, a body responsible for scheduling the country’s national holidays. The office was disbanded after 14 years of operations and ahead of China’s major Golden Week holiday, which starts on October 1.


The office will be incorporated into a new, and in administrative terms more senior, ministerial joint conference that is led by Vice Premier Wang Yang.

The new body involves 28 ministries and has been asked to boost domestic tourism under what is referred to as a macro-strategic development plan, according to Chinese media. Currently, most Chinese workers are only eligible for the national statutory holidays – the so-called Golden Weeks – that have produced larger and larger crowds as the majority of the population travels during the same periods. That puts enormous pressure on transportation networks and certain popular destinations including Macau and Hong Kong.

Takeaway: Several news stories have indicated this is the first step towards China's adoption of privately scheduled, paid holidays and employee vacation time versus nationally scheduled holidays. Such policies would likely reduce the travel around Golden Week holidays as well as smooth the seasonality of Macau gaming revenues.


Typhoon Fung-Wong Batters Manila – Storm Fung-Wong caused widespread flooding in the capital, shutting government offices, financial markets and schools. The City of Manila and surrounding provinces of Rizal and Bulacan were under the highest red rainfall warning and severe flood warning. More than 300 millimeters (12 inches) of rain was forecast. Fung-Wong brought widespread rainfall of as much as 8 inches in Southeast Luzon and and Eastern Visayas, and has the potential to become a stronger typhoon threatening Taiwan, South Korea, and Japan. 

Takeaway: More heavy rain in and around Manila could lead to construction delays for the casinos currently under development - including City of Dreams Manila.

Maryland Casino Lifetime Ban (Baltimore Sun) The Maryland State Lottery and Gaming Control Agency might remove the lifetime self-ban option because of concerns that it is excessive and redundant. Gamblers still could register for a two-year exclusion. After two years, the state requires them to undergo an assessment if they want to be removed from the list. Otherwise, the ban remains. As of Sept. 5, 576 Marylanders had registered for the program, subjecting themselves to potential criminal penalties, including arrests and fines, for entering a casino.

Takeaway: When more states are implementing self-imposed lifetime gambling bans, Maryland appears set to drop such an effort.


US Lodging Cycle New Highs in 2014 – According Marcus & Millichap's Mid-Year 2014 National Hospitality Report, growing room demand is outstripping the rise in supply. The report suggests with the economy gaining momentum during the second quarter, little appears to stand in the way of the U.S. hotel sector attaining new highs in occupied rooms and room revenue in 2014. At midyear, the demand trend is rather straightforward. Specifically, the expanding economy and strengthening job market will spark additional spending by businesses and consumers, helping to fill more hotel rooms. Group demand is also positioned to increase and supply growth nationwide has been restrained.

Takeaway: More positive data of the lodging sector.


Alternative Lodging Portals (HotelsMag) Room Mate Hotels announced the launch of, a new travel service that promises to combine the amenities of a hotel with the privacy and convenience of an apartment. Launching with 2,500 apartments in 10 cities across Europe and North America, including New York City, Miami, Florence, Mexico City and Amsterdam, all BeMate apartments are within walking distance of a Room Mate or partner hotel. Hotel services offered to guests include housekeeping, airport transfers, babysitting, breakfast, luggage storage and late checkout. accommodations range from studios to four bedrooms and include apartments and houses, all with private kitchens.'s team approves each accommodation and owner, and guests booking a BeMate apartment arrange their entire trip through the company rather than the apartment owner. said it has plans to expand to 200 cities by the end of 2015 and will launch a mobile app for iPhone and Android users this year.

Takeaway: A new competitive entrant for Airbnb.

Hotel Transaction

The Sofitel hotel in Midtown is being sold to an Asian real estate investor for $272 million. A partnership composed of Accor Group, Goldman Sachs Group and GEM Realty Capital will sell the 398-room hotel at 45 West 44th Street to the Hong Kong-listed firm Keck Seng Investments. Goldman Sachs and GEM paid $255 million for a 75% stake in the Midtown hotel and another Sofitel property in Philadelphia in 2006.

Takeaway: At $683,400/key for mid-town New York, this seems like a bargain price for the buyer.


More Go Private Transactions in the Future? – Blackstone Group is looking to create a seventh fund, Blackstone Capital Partners VII, to raise approximately $16 billion, “roughly in line with a predecessor fund that wrapped up fundraising in 2012.

Takeaway: New support for the the REIT and real estate valuations as the fund could deploy nearly $50 billion of purchasing power when fully levered.


Chinese Loan Demand - (Xinhuanet) a survey by the PBoC showed total loan demand dropping to its lowest level in 13 quarters in Q3. The survey put the country's total loan demand index at 66.6% for Q3, down 4.9% from Q2. Among the respondents, 56% said the current macro economy is normal, up 5.2%, while 42.8% considered it relatively cool, down 4.6% points from Q2.


Singapore Resident Income vs. Expenditures – Based on data compiled by Singapore's Department of Statistics, average monthly household income from all sources rose by 5.3 per cent per annum in nominal terms between 2007/08 and 2012/13 while households at all income levels expenditure rose 4.4 per cent a year on average over the five year period between 2008 and 2013. Employment income accounted for 79% of total household income from all sources in 2012/13, with business income and income from non-work sources contributing 11% and 10% respectively. 


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.

Gunning For Tepper

This note was originally published at 8am on September 05, 2014 for Hedgeye subscribers.

“Too close for missiles, I’m switching to guns.”

-Top Gun


As a Thunder Bay boy with a lot of testosterone growing up in the 80’s, there weren’t many movies that beat Top Gun. Admittedly, I’m a little competitive, so pardon my passion this morning – “Goose, it’s time to buzz the tower.”


“The son of a bitch cut me off!” in telling the world my call on the Long Bond (TLT) is wrong yesterday.  I don’t know the guy, so it’s not personal. I just flat out disagree. That guy, you know – the New Jersey Consensus TV folks love him. His name is Tepper.


Tweeters say that David Tepper A) has a lot more money than me and B) has killed it on the levered long side since 2009. He also flamed out in 2008 (down -29.61%), so on his rising rates call, I think he’s beatable. “I think I’ll go embarrass myself with Goose now.”


Gunning For Tepper - tg1


Back to the Global Macro Grind


What we need in this game is more head to head debate. Pro to pro. When someone flips me off with the other side of my position, I want to crush him. I don’t care how much he’s worth or what he’s wearing. I wear a $29.99 watch from WalMart, and I like it.


While I’d love to debate Tepper live on interest rate risk (which I still think is to the downside), the reality is that probably won’t happen. (if you know him and he’s game however, I have a nice little 2.0 studio in Stamford called @HedgeyeTV).


Debating big macro topics isn’t personal. It’s what those of us who want to be the Top Gun wake up thirsting for at the top of every risk management morning. Last year I was making the call that rates would rise alongside both US growth expectations and the Fed being forced to taper. This year I reversed the call saying that rates would fall as y/y #inflationAccelerating slowed real US growth.


Yeah, sweet call Mucker. “Take me to bed or lose me forever.”




God didn’t call me with the rates call. My team and I made this call the old fashioned way, using our own models and process. When it comes to what other players out there think, we respect their airspace, but when we get in tight in a dog fight like this, we aren’t going to back down.


Here are 10 things to think about in terms of why rates are going lower (bonds higher) from here:


  1. US GDP growth slowing sequentially in Q3 vs Q2 of 2014
  2. US GDP growth continuing to slow, year-over-year, in 2014 versus the Q3 2013 #GrowthAccelerating top
  3. US GDP entering an early cycle slowdown (bearish on Housing, Consumer, Regional Banks)
  4. US Housing demand not responding to the downside surprise in interest rates
  5. All of Europe slowing in 2H 2014
  6. Japan slowing Q4 2014
  7. Japanese and German 10yr yields of 0.53% and 0.96%, respectively
  8. Institutional Fund Flows reverting back to their slow-growth mean (into bonds, out of stocks)
  9. US 10yr Yield immediate-term TRADE resistance = 2.51%
  10. US 10yr Yield intermediate-term TREND resistance = 2.81%


The biggest differentiator in our models versus those who were bearish on rates in 2013 (and bullish on them in 2014) is our rate of change forecasts on both growth and inflation.


I have stopped calling it our Growth, Inflation, Policy Model and renamed it our PIG model (same factors, in reverse). Why? Because un-elected central planners are pigs when it comes to devaluing the purchasing power of The People in exchange for asset inflation.


To review how all 3 (Fed, ECB, BOJ) of these central planning committees think:


  1. When growth slows, they get easier (print money, or threaten to do “whatever it takes”)
  2. As they get easier, their currencies fall, and the real cost of living in their countries rises
  3. As cost of living rises, real consumption growth falls faster, and they ease again


Sound familiar?


Top 2 headlines on Bloomberg (Economy Go!):


  1. “Draghi Sees Almost 1 Trillion in Stimulus”
  2. “Aso Signals Japan Prepared To Boost Stimulus”


Aso, as in the one who tore the Japanese people a new one via the Abenomics Policy To Inflate that took Japanese Real Wages to -4-5% year-over-year. Then they blamed the weather. #Nice


If the USA shows as much as a sniffle in this morning’s jobs report, what do you think Yellen’s response is going to be? Tighter or easier? We’re one or two bad labor headlines away from the US doing exactly what Draghi just did.


Unlike Tepper, I fly commercial. But I can still change my position whenever I want. For now, if I am right on growth slowing and the Fed’s proactively predictable reaction to it, Janet is going to be my Japanese wing-woman on bonds.


Out immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.32-2.46%

SPX 1977-2006

RUT 1151-1181

VIX 11.34-13.65

EUR/USD 1.29-1.32

Gold 1261-1289


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Gunning For Tepper - Chart of the Day

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CHART OF THE DAY: Cracks Remain Across Europe

CHART OF THE DAY: Cracks Remain Across Europe - d cod


As the ugly equation of declining growth + high unemployment + low and deflating inflation comes home to roost, the ECB’s newest response is to lever up its balance sheet (ECB President Mario Draghi has indicated the willingness to increase it by €1Trillion) and extend QE as the “elixir” to inflect weak and declining fundamentals across the region. 

Scottish Independence Squashed

“Every human has four endowments - self awareness, conscience, independent will, and creative imagination. These give us the ultimate human freedom... The power to choose, to respond, to change.”

-Stephen Covey


As of early this morning the vote is in:  the Scots squashed independence and with it the 307 year old union with England remains intact… at least for now.  The vote was 55% NO to 45% YES.


And did Pound Sterling ever bounce on the outcome, rising as high as $1.65, and currently is settling in at $1.64!   We were positioned long the GBP/USD (via the etf FXB) ahead of the event (we added it on 9/8 to our Real-Time Alerts) with a succinct thesis:


A NO vote leads to a relief rally (see the chart below) and a YES vote leads currency traders to assess the United Kingdom’s fiscal health without Scotland as much improved, which leads to a long term tail wind for the Pound.


 In effect, a win-win situation. And we didn’t even have to use our crystal ball!


Scottish Independence Squashed - hed


Back to the Global Macro Grind


In some sense the Scottish independence vote felt like another Greece moment during the thralls of the Eurozone crisis. There were many ways to interpret what was the “best” outcome.: Greece in or out of the union?   And what prevailed was politicians fear mongering on the consequences of a breakup and impressing how the whole is stronger than the sum of its parts – and so Eurocrats quelled the Greek urge for self-determination outside of the Eurozone.


It appears that in Scotland, like Greece, the more rational perception of economic wellbeing (along with the fear of myriad uncertainties associated with independence) won over the emotion of nationalism.


But is economic wellbeing in Scotland, like Europe, a myth?


Our macro team has been making a call for growth slowing in Europe these last months (we’ve recommended shorting Eurozone equities (EZU), France (EWQ), and the EUR/USD (FXE) throughout the quarter), as Eurozone GDP rolled over in Q2 and everything from confidence figures to industrial production and retail sales fell across most European countries over the last 3-6 months.


In recent weeks, and in classic lagging fashion, we’ve seen confirmation of this descent in the form of numerous European central banks, countries, and economic organizations revising down their economic expectations for the year:

  • The ECB revised down its 2014 Eurozone GDP projections to 0.9% vs 1.0% in June
  • The Swiss National Bank cut its 2014 GDP projection to 1.5% vs 2% previously forecast
  • Italy’s 2014 GDP projection was cut to 0.4% by the OECD vs the government forecast of 0.8%
  • France’s Finance Minister cut 2014 GDP projection to  0.4% vs 1.7% initially forecast
  • Sweden’s Riksbank cut 2014 GDP projection to 1.7% vs 2.2% forecast in July

Additionally, when we evaluate “health” at the country level based on unemployment rates, it appears that the crisis in Europe has hardly passed. The Eurozone unemployment rate is elevated at a sticky 11.5%, almost double the U.S. at 6.1%. Moreover, when you look at unemployment for people under the age of 25 the numbers are staggering:

  • Spain 53.8%
  • Greece 51.5%
  • Italy 42.9%
  • Ireland 25.1%
  • France 22.5%

Now while it’s plenty easy to push back on these figures and say we’ve mostly cherry-picked the weakest countries (well, France is the 2nd largest economy of the Eurozone), or that there’s no merit in the way unemployment rates are calculated (possibly fair, but the European figures here all come from Eurostat), the point we’re making is that there will be generational TAILs from what some have call this “lost” generation of youth that cannot or will not find a job/establish a career and will rely even more heavily on state support throughout their lives.


As the ugly equation of declining growth + high unemployment + low and deflating inflation comes home to roost, the ECB’s newest response is to lever up its balance sheet (ECB President Mario Draghi has indicated the willingness to increase it by €1Trillion) and extend QE as the “elixir” to inflect weak and declining fundamentals across the region. 


As Keith mentioned in yesterday’s Early Look:


“When it comes to central planning limits, there are none (yet). And that’s making your job as a Risk Manager all the more challenging. No matter what you think the Fed, ECB, and BOJ should do, you have to operate within the paradox of what they will do.”


Our view on the impact of ECB policy and the direction of Eurozone fundamentals remains decidedly bearish; here’s a look at how we’ve sized up the latest actions since the ECB’s last meeting on Sept 4th:

  • While QE has proven to put a floor in equities in the past, QE is far from the elixir to inflect weak and declining fundamentals across the region.  Witness Japan’s failed efforts with QE!
  • While on the margin Draghi’s credit easing programs should help to encourage lending and therefore growth to the real economy, the failure of past LTROs to improve lending conditions are fresh in memory. This time the TLTROs may in fact not be different. Interestingly, the first TLTRO tranche yesterday saw take-up by the banks of only €82.6B, well below consensus estimates of €150B
  • We reiterate that inflation (via currency debasement) is not growth, even if Draghi showers us with QE
  • From here our proprietary GIP model (growth, inflation and policy) for assessing economies suggests the Eurozone economy will land in the ugly quads #3 and #4 in 2H, representing growth slowing as inflation decelerates/accelerates (see the chart of the day below)


Don’t forget that a full 45% wanted Scottish independence. Certainly some significant percentage of this group’s thinking also anchored on the hope that a vote for independence would benefit their personal stead. But interestingly it appears that this camp was not favored by a youth presence (today’s vote included age 16 and above). In fact, a poll by TubeMogel ahead of the vote asked 16-18 year olds their preference and 57% selected NO.


And this actually makes some sense: the life of this group has been so influenced by the global recession and impacts from the Eurozone crisis on slower growth and joblessness (if not for them directly, then their parents and others around them) that their highest priority for this vote was limiting future economic uncertainty.


While Scotland is not Catalonia and France is not Greece, there remain many cracks across Europe, economic and cultural alike. We suspect these cracks are here to stay and that even the mighty Draghi QE wand can’t fix them. 


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.36-2.63%



USD 83.78-84.69

EUR/USD 1.28-1.30

Pound 1.62-1.65


Have a great weekend!


Matthew Hedrick



Scottish Independence Squashed - d cod

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