Takeaway: No change to our mid teens decline projection for September

Slightly better weekly results but still down YoY



Through September 21st, table revenues were HK$15.99 billion.  Average daily table revenues (ADTR) for the week (Sept 15-21) was HK$794 million, -9% YoY when compared with last year’s ADTR of HK$874 million for the period Sept 16-30, 2013.  For the full month of September, we continue to expect gross gaming revenues (GGR – includes slots) to fall 13-17% from last year which would represent the largest YoY decline since June 2009.


We’re hearing that the normalization of Mass hold the past week may have led ADTR +7% week-over-week.  Sands China may have held very low in the Mass segment in the 1st half of September (single digits) but has since normalized.  There is a little bit of urgency in Macau as various management teams are discussing new mass marketing strategies including 1) moving more VIP tables to mass; 2) increasing reinvestment rates on loyalty club promotions by lowering entry points on packages.


Market VIP win % appears fairly normal but volumes remain weak but steady.  




In terms of market share, Galaxy continues to lead the way, with MGM and MPEL also producing above trend.  LVS, SJM, and WYNN‘s share remain below trend.


We think Galaxy is holding well in VIP, while SJM may be holding low.  


Many eyes are rightly focused on the upcoming smoking ban.  We believe Sands China could be the culprit behind yesterday’s warning by the Macau Health Bureau of an operator who did not completely separate the smoking areas from the mass market gaming areas.



Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT

Takeaway: ICSC remains strong, but trendline reading (2-yr) decelerates for the third consecutive week. Head scratcher marketing campaign from UA.



Tuesday (9/23)

BBBY - Earnings Call: 5:00pm


Thursday (9/25)

NKE - Earnings Call: 5:00pm


Friday (9/26)

FINL - Earnings Call: 8:30:am




Takeaway: This week's ICSC reading was a double edged sword. On one hand, we saw 4.1% growth, which is in-line with the stratospheric readings we've grown accustomed to since July. But on the flip side, the 2-year run rate, which we think is a much better gauge of the health of the retail space, decelerated for the third consecutive week. One datapoint rarely means much to us. Two makes us raise an eyebrow. Three has our full attention.


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart2


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart3





UA - Product Spotlight

Maybe 'Performance Chinos' will end up being a great category for UA. Truth be told, the company has earned the benefit of the doubt based on its solid execution across almost all new product launches over the past year.  All that said, this category and product launch is a head-scratcher from where we sit.  You can take a basketball asset like Jennings off-court and put him in Chinos and call them 'performance'. But let's be real, the guy is pictured in a bar playing pool. That's fashion, not performance. We have no clue as to the customer that UA is targeting with this ad. As good of a player as Jennings is, he's not justifying his pay package with basketball shoe sales. UA has to try to make their money back somewhere.


Retail Callouts (9/23): ICSC Sales, UA, TGT, SHLD, WMT - 9 23 chart4





TGT - Target Faces Unique Challenges in Quebec



  • "Findings from a survey of 1,000 Canadian women by Headspace Marketing indicate that Quebeckers were significantly less familiar with Target than Canadians in the rest of Canada when it launched last year. Today, only a quarter (23.7%) of Quebec women have ever shopped at a Target store in the U.S. compared to more than half (54.4%) in the rest of Canada (and as high as 77% in Manitoba and 62% in B.C.)."


SHLD, TGT - Sears Canada auction flop darkens outlook



  • "Billionaire Eddie Lampert’s bid to sell Sears Canada looks like a bust — and that’s bad news for Sears at home."
  • "An auction of a majority stake in the Canadian retailer failed to attract any acceptable bids in its latest round, eliminating a potential near-term cash infusion for Sears Holdings that could have exceeded $750 million, The Post has learned."


KER - Kering Taps Carlo Imò



  • "Carlo Imò has been named head of Kering Asia-Pacific, effective Dec. 1. "
  • "Currently Kering’s vice president of human resources in Asia-Pacific, he is to oversee the international expansion of the French group’s brands in the region, which include Gucci, Bottega Veneta and Yves Saint Laurent. He reports to Jean-François Palus, group managing director."


WMT - Wal-Mart's Unusual Rewards for Employees Who Give to Its PAC



  • "Liberal groups and a union-backed Walmart worker group are asking the Federal Election Commission to investigate Wal-Mart Stores’ policy of rewarding contributions to its political action committee with donations to charity. Under the policy, every $1 an employee donates to Wal-Mart’s PAC, which supports such probusiness candidates as Ohio Republican House Speaker John Boehner, Texas Republican Senator Ted Cruz, and Arkansas Democratic Senator Mark Pryor, triggers a $2 donation to a charity for Wal-Mart employees in need."





  • "Tiffany & Co. announced the pricing of $250,000,000 aggregate principal amount of its Senior Notes due 2024  and $300,000,000 aggregate principal amount of its Senior Notes due 2044. The initial purchasers of the notes are Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., BNY Mellon Capital Markets, LLC, J.P. Morgan and Mizuho Securities. The coupon on the 2024 notes will be 3.800% per year from the date of issuance, payable semi-annually in arrears. The coupon on the 2044 notes will be 4.900% per year from the date of issuance, payable semi-annually in arrears."


Jimmy Choo Sets IPO Plan



  • "Jimmy Choo is pursuing an initial public offering on the London Stock Exchange next month, with the intention to float at least 25 percent of its equity, valuing the company at more than 700 million pounds, or $1.14 billion."


Tesco CFO Stewart Starts Early as Accounting Inquest Begins



  • "Tesco Plc said Alan Stewart will start today as chief financial officer after gaining his early release from Marks & Spencer Group Plc as the biggest U.K. grocer handles the fallout from overstating its profit guidance."


RSH - RadioShack in Talks With Supplier to Ease Restructuring



  • "RadioShack Corp., the electronics retailer trying to avoid bankruptcy, said it’s holding talks with a 'major vendor' that could help the company restructure its finances."
  • "The negotiations involve some of RadioShack’s largest creditors, the Fort Worth, Texas-based company said today in a regulatory filing. While no agreement has been reached, the talks are continuing, the retailer said."


UPS - UPS Store expands 3D printing to 100 additional locations



  • "Following the successful launch of 3D print in six markets across the country, The UPS Store announced it is is expanding 3D printing services to meet the growing demands of its small business customers to nearly 100 additional locations nationwide."

Russell Crushed With Liquidity a Concern

Client Talking Points


Russell 2000 has been absolutely crushed in the  two days since BABA’s birth = down another -1.7% yesterday (-3% in two days, biggest 2-day drop of the year) as small cap liquidity remains one of our biggest concerns (42% of stocks in the Russell are crashing, -20% of more from their 12 month peaks).



Bounce to lower-highs is met, once again, with bond buying on the long end of the curve (TLT +13.1% YTD vs. RUT -3%); UST 10YR Yield falls to 2.54% with immediate-term supports at 2.42%, then 2.32%. Federal Reserve Bank of New York President William C. Dudley was decidedly dovish at Bloomberg’s central planning event yesterday, talking down both rates and the U.S. Dollar.


Gold stopped going down when bond yields stopped bouncing to lower-highs. Gold also held where it started the year, at +0.8% this morning to +1.9% year-to-date as bombs fly in the Middle East. Immediate-term risk range = $1211-1256 after the net long position (CFTC futures/options) has been cut in half in the last month.

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


FSTE 100 down -1%, breaking @Hedgeye TREND support again



You must not fight too often with one enemy, or you will teach him all your art of war.

-Napoleon Bonaparte


iOS 8 had already been installed on some 46% of active iPhones and iPads by Sunday. The 10-month-old Android KitKat is still working its way toward the 25% mark.

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Takeaway: We’re Adding KSS to our Best Ideas list as a short. We’ll be hosting a call Wed. 9/24 at 11am ET to review our thesis. Call details below.

We’re adding Kohl's Corp. (KSS) to our Best Idea list as a short. We'll be hosting a call on Wednesday, September 24th at 11:00am EDT to review our thesis in depth (including some preliminary results of the department store consumer survey that we just completed).   


We have not liked this name for a while, but we're adding to our Best idea list because we think the recent 180 degree turn in sentiment and subsequent strength in the stock is simply unwarranted. Are estimates in check for the next two quarters? Probably. But the big issues are a) substantial risk to the model in 2015, and b) the duration of a 'new normal' for KSS at a lower EPS level.


Specifically, while the Street is looking for 10% earnings growth next year, we're modeling a -10% decline in earnings for the year. We think that 2014 will mark the last time for at least 4-5 years  -- barring a parabolic acceleration in the U.S. economy -- that KSS will earn anything starting with a $4. That's not good when the Street is over $5 two years out. Its operational misses should crimp its ability to buy back stock and financially engineer the P&L.


We'll have a very detailed slide deck analyzing key levers of the P&L and balance sheet, and will also delve into key e-commerce and real estate considerations.


Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 765136#

Materials: CLICK HERE

Crossing The Bubble

This note was originally published at 8am on September 09, 2014 for Hedgeye subscribers.

“First there is a mountain – then there is no mountain. Then there is.”

-Zen Proverb


Replace the word #bubble for mountain and you’ll be right where I think the US stock market is right about now. While April-May of 2014 (when social-cloud-bubble stocks were imploding) may seem so 4-5 months ago, if you want to review the risks, there they were.


The aforementioned quote comes from the beginning of chapter 2 in a Tech #bubble book I’ve been re-reading for the last week, Crossing The Chasm, by Geoffrey Moore. The chapter is called High Tech Marketing Enlightenment.


Originally written in 1991 and re-published in 1999, it was one of the first books that the Quatrone boys in the bubble department at CS First Boston told me that I had to read. So I did. And within 6 months, the entire thing went poof…

Crossing The Bubble - Hindenburg


Back to the Global Macro Grind


What we called the internet back then is now called the “cloud.” And my former employer (CS First Boston) is now called Credit Suisse. Their new head of investment banking ran the Alibaba #bubble road-show at the Waldorf yesterday. If you were there, congratulations – you were crossing the 3rd US stock market bubble I have seen in my career.




On our research desk yesterday I was using the term freely. Not having any conflicts of interest (banking, brokerage, advertising, etc. fees), it was kind of fun – you know, being honest and stuff…


“But Keith, Alibaba is a big company that makes money.”


At 27-30x revenues, imagine they didn’t? (Amazon came public at 10x revs in 1997)


BREAKING: Facebook’s Value Tops $200B –Bloomberg


Oh and today Apple (AAPL) is going to host an Obama-like rock star concert (U2, who I love, will be there!) today at the Flint Center (where Steve Jobs introduced the Macintosh in 1984) with larger screens, wearables, and stuff… #cool.


That stock is “cheap” though. Its market cap is only $600B. That’s with a B, as in bubble or beelion dollars, bros.


Since we’re throwing around billions in one hundred dollar clips right now, why shouldn’t Alibaba be worth $200B? Exxon (XOM) is only worth $400B (and they make money too!).


*PS. If you think I am nuts. Please re-read this 1 year from today.


In yesterday’s Early Look, for some reason this sentence got a lot of attention/feedback: “I haven’t been this bearish since the fall of 2007.” So I’ll reiterate that this morning with one caveat – I haven’t been this bearish on US stocks since yesterday.


In other news, the #bubble formerly known as Bitcoin dropped to $469 today.


And everyone and their brother seems to think that bonds are finally going to prove them right (going down). So I’ll reiterate the bullish on US #Q3Slowing call (bullish on the Long Bond, in TLT, EDV, and BND terms) too this morning.


Since no one on consensus TV will be watching anything but AAPL today, here are some Bond Market levels to monitor:


  1. Immediate-term TRADE risk range of the 10yr UST Yield has widened to 2.31%-2.51% (widening ranges are bearish)
  2. Intermediate-term TREND resistance line for the 10yr Yield = 2.81%
  3. Immediate-term TRADE risk range for the 30yr UST Yield has widened to 3.03-3.29%
  4. Intermediate-term TREND resistance for the 30yr Yield = 3.46%


That’s why I am taking our allocation to Fixed Income (Hedgeye Asset Allocation Model) to 91% of its max this morning. My “max” allocation to any asset class is one-third of total assets.


If I was running my hedge fund, what the 0% US Equity allocation implies is a net neutral (fully hedged on a beta-adjusted basis) book. And my net long position to International Equities would be 16% (and rising) on pullbacks to the low-end of my risk range.


If you’re at CS telling people it’s different this time – best of luck. Crossing the bubble is a big business, so make sure to get either a big allocation or commission! Forget 2007, the drawdown risk in billions of #bubble market cap terms is more epic than it was in 2000.


My immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.31-2.51%

SPX 1982-2007

RUT 1154-1179

VIX 11.34-13.56

EUR/USD 1.28-1.30

Pound 1.61-1.64

Gold 1251-1286


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crossing The Bubble - Chart of the Day

CHART OF THE DAY: Be LONG Mega Cap Liquidity vs. SHORT Small Cap Illiquidity

CHART OF THE DAY: Be LONG Mega Cap Liquidity vs. SHORT Small Cap Illiquidity - Chart of the Day


At 55x trailing earnings, and 42% of the names in the Russell 2000 crashing (-20% or more from their 12 month peak), the US stock market is “cheap.” Right.

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