Flash Call at 1:00pm: #Bubbles Or Bottom?


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Flash Call at 1:00pm: #Bubbles Or Bottom?  - HE M bubblesbottom


#Bubbles or Bottom? Join the Hedgeye Macro Team, led by CEO Keith McCullough, for a 15 minute flash call TODAY, October 17th at 1:00pm EDT. We remain bearish on both domestic and international equities. On the call we will highlight the best places to "hide out in" in order to weather the market volatility.  


Our industry-leading fundamental macro research and proprietary quantitative risk management systems suggest a heightened probability of a market crash over the intermediate term. When juxtaposed against the consensus narrative of, "where do I buy the dip?", we think this is a call no one can afford to miss.  


Ping  for more information.

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LEISURE LETTER (10/17/2014)



  • Oct 21:
    • Sand China Board meeting in Macao
    • IHG Q2 earnings
  • Oct 23:
    • PENN Q3 earnings 11 am
    • LHO Q3 earnings 11 am "LaSalle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am


BYI & SGMS (LVRJ) the merger could lead to a 21% reduction in the combined companies’ non-manufacturing and production workforce.The number of jobs eliminated would provide a cost savings of $83 million — 57% of the anticipated $144 million in reductions expected in the first year of the merger. Scientific Games employs just under 5,000 workers. Last year, the company more than doubled in size when it acquired slot machine maker WMS Industries for $1.5 billion. Bally has nearly 4,000 employees. The company added several new divisions last year when it bought table game provider and gaming equipment manufacturer SHFL entertainment for $1.3 billion.

Takeaway: Synergies is a nice word for job cuts


590:HK (Macau Business) Luk Fook Holdings (International) Ltd posted a 20% drop in same-store sales in Macau and Hong Kong in the three months between July and the end of September over that of a year ago. According to the group’s sales performance report filed with the Hong Kong Stock Exchange, in both Macau and Hong Kon the sales of gold jewellery witnessed the biggest decrease of 27%, followed by gold by weight that dropped 24% and gem-set jewellery, the sales of which decreased by 7%. Same-store sales in mainland China also dropped considerably by 30% in the three months in question over that of a year earlier. During the National Week holiday in Macau and Hong Kong, same-store sales increased by 3% with gold by weight being the most sought after item registering an increase of 23%. However, gem-set jewellery registered an 11% drop in sales compared to that of Golden Week a year ago.

Takeaway: Symptomatic of a consumer slowdown, but is the cause of the spending slowdown due to the Mainland government corruption crackdown or something more macro?


MGM – announced it entered into an agreement to sell the Gold Strike in Jean to JETT Gaming, a slot machine route company owned by the Herbst family. The news comes just over a month after MGM revealed plans to sell the Railroad Pass in Henderson

Takeaway: Given the lack of pricing disclosure, probably very low single digit EBITDA multiples.  Otherwise, MGM would likely tell investors about the valuation on sale. 


MGM & 2282:HK(GGRAsia) Chief Executive of MGM China Holdings Ltd, Grant Bowie, on Wednesday played down the idea that casino floor staff from the company had taken part in industrial action on October 3 and 4. Mr Bowie refuted the idea that the company’s current dialogue with staff was a reaction to Forefront of Macao Gaming’s recent campaign.  Separately, Mr Bowie confirmed that MGM Macau has had three smoking lounges operational since October 9. However, on October 10, the city’s Health Bureau issued a list of 17 gaming venues that were authorized to operate smoking rooms, but didn’t mention MGM Macau.

Takeaway: An attempt to play nice with workers and the labor unrest.


BEE – entered into an amendment (the “Amendment”) to the Employment Agreement, dated as of November 19, 2012 (the “Employment Agreement”), with the Company’s president and chief executive officer, Raymond L. Gellein, Jr. Pursuant to the Amendment, among other things, (i) the term of the Employment Agreement was extended until December 31, 2015, (ii) Mr. Gellein will receive an annual base salary of not less than $940,000 and (iii) Mr. Gellein will be eligible to receive an annual cash performance-based bonus between 60% and 240% of annual base salary, with a target bonus of 120% of annual base

Takeaway: The employment contract renewal was widely expected due to the disclosure following the investor meeting.


CCLs & EBOLA(Huffington Post) a Dallas health care worker who handled a lab specimen from an Ebola-infected man from Liberia who died of the disease is on a Caribbean cruise ship where she has self-quarantined and is being monitored for any signs of infection. State Department spokeswoman Jen Psaki (SAH'-kee) says in a statement Friday that the woman has shown no signs of the disease and has been asymptomatic for 19 days. The government is working to return the woman and her husband to the U.S. before the ship completes its cruise. The White House says the State Department is working with an unidentified country to secure their transportation home.

Takeaway:  Just more bad luck and publicity for CCL. We understand the cruise ship is the Carnival Magic which is enroute from Belize to Cozumel where the Magic is scheduled to port today. The ship left from Galveston, TX.


RCL( reports that Royal Caribbean has to pay at least €600,000 in fines for violating labor rules and regulations while the Oasis of the Seas was in the Netherlands. The newspaper says that ship employees lacked proper residence papers and worked excessive hours. Some of the crew members worked "up to 16 hours per day" the inspectors found. The inspections reportedly revealed that at least 48 crew members did not have proper Dutch work permits. The majority of these crewmembers were from the Philippines and South America.


Viking River has discounts for spring Europe and 2015 Asia (Seatrade Insider)

 Through Oct. 31, Viking is offering an early booking discount for all Europe departures in March and April and all 2015 Southeast Asia departures, with up to two-for-one cruise fare and up to two-for-one international air pricing. 

Takeaway:  A rare promo for Europe and Asia


MSC gives a free Divina Caribbean cruise for an inclusive Med package (Seatrade Insider)

MSC Cruises USA is offering inclusive air/land/sea vacation package deals for MSC Divina while the line's ship dedicated to North Americans is in the Mediterranean, May 16 through Sept. 19, 2015.  As a special promotion, travelers who book the air/land/sea package before Oct. 31 will receive a free seven-night cruise on MSC Divina in the Caribbean for select sailings between now and the end of the year. A non-refundable $500 deposit by Oct. 31 on the Mediterranean package is required to get the Caribbean cruise, which may be transferred to family or friends.

Takeaway:  An aggressive promotion by MSC


Japan Casino Enabling Legislation

(Xinhua) Following revisions being made to a draft bill by cross-party lawmakers for the removal of a ban on gambling in casinos in Japan, Deputy Prime Minister Taro Aso threw his support behind the move Friday stating the revision could help boost tourism and the overall economy. But while Prime Minister Shinzo Abe's main ruling Liberal Democratic Party (LDP) are aiming to have the new bill on gambling ratified during the current Diet session, opposition to the bill has been voiced by the main opposition Democratic Party of Japan ( DPJ) and, more vocally, by the LDP's own junior New Komeito coalition ally. Both parties maintain that the opening of casinos here could have an adverse effect on society and create social problems such as gambling addiction and debt troubles, which could lead to the propagation of nefarious credit and loan companies, as well as loan sharks.


(Reuters) Japan's pro-casino lawmakers have agreed to consider setting limits on Japanese nationals' entry to casinos, bowing to pressure from opponents who threatened to block a legalization bill unless it addressed issues such as gambling addiction.


(GGRAsia) Any attempt to make Japan casino resorts for foreigners-only would be “constitutionally suspect” a cross-party panel of Japanese lawmakers reportedly heard on Thursday. Takeshi Iwaya chief secretary of what’s known as the IR Caucus – meaning Integrated Resorts Caucus – raised the constitutional issue and other questions during a meeting of the cross-party pro-casino grouping in Tokyo, said Akiyoshi Tsuruoka, general manager and chief editor for Gaming Capital Management Inc, who attended the meeting.

Takeaway: Slow process to step 1 - the integrated Resort legislation, given the debate of "step 1" legislation, we can only imagine the debate over step 2, the enabling legislation should the IR legislation finally become law.


Jeju Island Gaming Review – (Yonhap) Jeju Island governor Won Hee-ryong told local lawmakers he would push for a revision of gaming taxes and to establish a Singapore-style casino watchdog. Mr Won, speaking during a parliamentary audit on Thursday, said the goal is to improve transparency of the gambling industry and boost the local economy. He said the provincial government has been preparing to launch a casino regulator modeled after Singapore’s Casino Regulatory Authority (CRA), as a growing number of developers test opportunities for gambling resorts in Jeju Island. Mr Won, who took office in July, has for several times showed his concern about the opening of more casinos in Jeju Island. He has repeatedly vowed to tighten regulations and took issues with construction licenses issued by his predecessor. The governor of Jeju has also resisted the construction of a casino resort by Genting Singapore Plc. Genting is partnering with Chinese real estate developer Landing International Development Ltd to build the US$2.2 billion casino resort in Jeju.

Takeaway: Thus far, Mr. Won has not indicated his long-term objectives nor goals for gaming on Jeju Island.


Maryland Slots– The Maryland Board of Public Works has approved a contract renewal for the state to spend up to $200 million to lease and maintain slot machines over five years. The board voted 2-1 Wednesday, with Gov. Martin O'Malley and Treasurer Nancy Kopp voting in favor of the renewal. Comptroller Peter Franchot voted against it. Maryland law initially required the state to own slot machines at the state's five casinos. However, the law was changed in 2012. Next March, three of the state's casinos will acquire their own slot machines. The state will continue to lease and maintain slot machines for the casino at Ocean Downs near Ocean City and the casino at Rocky Gap in western Maryland.

Takeaway:  Good news for casino operators given strength of Maryland GGR.


US Hotel Construction Pipeline – According to the Smith Travel Research Pipeline Report, there are 3,291 hotels totaling 395,078 rooms Under Contract in the United States, a 14.3% increase in the number of rooms Under Contract compared with September 2013 and a 34.5% increase in rooms under construction. The Under Contract data includes projects in the In Construction, Final Planning and Planning stages but does not include projects in the Unconfirmed stage.   Among the Top 26 Markets, New York, New York, reported the most rooms under construction in September with 13,605 rooms, a 5.3% increase over September 2013. Four other markets reported more than 2,500 rooms under construction in September: Houston, Texas (4,504 rooms, up 143.6%); Washington, D.C. (3,036 rooms, up 5.9%); Chicago, Illinois (2,786 rooms, up 86.7%); and Miami-Hialeah, Florida (2,652 rooms, up 84.9%).

Takeaway: Construction increasing but new development still confined to limited service segment.


New York City Lodging & Airbnb– NY AG Eric Schneiderman issued a report that claims "widespread illegality across New York City listings on the Airbnb website, with data indicating that as much as 72% of Airbnb reservations over the last several years violated New York law". The report, based on four years of Airbnb-supplied data, stated commercial operators, not residents, are supplying more than a third of the units, predominantly in Manhattan, and generate more than a third of the revenue. The report also stated 6% of the hosts made 37% of the revenue — or $US168 million. The number of units they administered ranged from three to 272. One individual with those 272 units charged an average of US$358.19 a night, yielding US$6.8 million, the report said. The report also suggested Airbnb made US$40 million from these illegal rentals and New York City was likely owed US$33 million in unpaid hotel taxes from illegal short-term rentals. The report, "Airbnb in the City," is based on 497,322 private stays in 35,354 unique places that were rented for less than 30 days and did not involve a shared room. The report also indicated about 2,000 units are rented for six months or more. A dozen buildings had 60% or more of their units used as rentals for at least half the year

Takeaway:  More controversy surrounding AirBnB


Singapore Home Sales – ( According to URA, buyers returned to the private housing market in September, with sales of homes surging 48.3% from the previous month. Excluding executive condominiums, developers sold 648 new units last month, up from the 437 units sold in August and 511 units sold in July.


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottom up slowing in European cruise pricing in our monthly survey.  Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis.  To a lesser extent, HOT and HLT are also exposed to European weakness.


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.

Early Look

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Takeaway: Our Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and proprietary quantitative market context.

CLICK HERE to view the document. In today’s edition, we highlight:


  1. Why EM Equities are at risk of further forced selling
  2. Why we continue to like South Africa on the short/underweight side of emerging markets


Best of luck out there,


Darius Dale

Associate: Macro Team

Moving Onward

This note was originally published at 8am on October 03, 2014 for Hedgeye subscribers.

“I move onward, the only direction – can’t be scared to fail in search of perfection.”



If that isn’t a great thought for someone running their own business, fund, or money, I don’t know what is. You are going to make mistakes out there. The way to win in business, over time, is to not let your big mistakes ride. Moving on matters.


I’ve been writing a lot more about demographics and generations  this year. And I think I’m onto something #behavioral with that. Many of the problems you see in the political economy today are being perpetuated by the policies of one generation (Baby Boomers) trying to maintain its indebtedness to another (GI generation). If we don’t learn from these mistakes, we’ll fail.


Shawn Carter (Jay-Z) isn’t a boomer. He’s a 44 year old GenX guy who built himself up from nothing and absolutely crushed it. That’s why another successful GenX guy, Ben Horowitz, cites Jay-Z in The Hard Thing About Hard Things (pg 39). That’s how a lot of guys my age think. For the first 15-25 years of our adult lives, we’ve seen a lot of mainstream thinking fail.


Moving Onward - j1


Back to the Global Macro Grind


Thinking from another generation’s perspective is not easy. That’s why I read so many #history books. It helps me at least try to walk in other people’s shoes, and learn from their collective experience.


Writing about markets and economies is relatively easy when I compare it to my day job (running a company). That’s where I have to constantly remind myself to not react emotionally to other people’s perspectives. Empathizing with them matters.


Looking at the world through such different prisms helped me separate facts from perception… I learned to look at alternative narratives and explanations coming from radically different perspectives to inform my outlook.” –Ben Horowitz


Hopefully our Q4 Macro Themes call yesterday helped inform your outlook too.


Since we’d been working on the content side of the slide deck for the last few weeks (which is really just a cumulative update on what we’ve been writing about every day), the investor feedback to yesterday’s call is what mattered most to me.


The most contested points of the presentation were:


  1. US Dollar – if the Dollar is strong and commodities are deflating, why not buy consumer stocks?
  2. #Quad4 - how can you say the setup is like Q3 of 2008? that was a once in a lifetime event.
  3. #Bubbles – a series of questions that basically implied it’s different this time.


(We will have video of the Q&A portion of the call available later today.)


My answers graze the surface on what I am thinking right here and now. Obviously with time and price, my answers should and will change. But, in summary, the main takeaways are as follows:


  1. Dollar Up, Rates Down = #Quad4, and that’s deflationary for both Energy (XLE) and Consumer Discretionary (XLY) stocks
  2. #Quad4 happens. In rate of change terms, that is. Because it’s 1 of 4 places you eventually traverse during a cycle.
  3. And on #Bubbles, I don’t think it’s different this time.


In other news, Yodlee (a financial apps company) is going to raise $75M in an IPO today. Love #apps. But seriously.


Back to the real world, both the market reaction and economic news has apparently “frustrated” another one of these un-elected men (Draghi) that God put on earth to centrally plan the business cycle.


Put another way, Mario Draghi’s Drugs proved to be impotent in yesterday’s real-time market voting session. Germany’s DAX closed down -2% on the day. That puts every major European Equity market index in bearish TREND signal mode @Hedgeye.


Not surprisingly, our #EuropeSlowing Theme was not contested. That’s the thing about markets. Sometimes they move downward, fast. And when they do, the search for research perfection in explaining the alternative narrative gets a lot easier.


Our immediate-term Global Macro Risk Ranges are now (my Top 12 daily risk range callouts (with intermediate-term TREND overlay) are in my Daily Trading Range product – just math – ask to trial it):


UST 10yr Yield 2.39-2.51%

SPX 1938-1963

RUT 1081-1134

France (CAC) 4232-4377

USD 84.47-86.39

Gold 1206-1240


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Moving Onward - Chart of the Day

Another Selling Opportunity

Client Talking Points


Our non-Demark count had Total U.S. Equity Market Volume up a whopping +2% vs. its 1 month average yesterday; if they don’t bounce them, we crash – so that’s the good news; bad news is most are still levered to the #bubble in U.S. equity beta.


And the +3.5% bounce in the Russell 2000 (after 6 straight down weeks and a -13% draw-down since the all-time #Bubble peak); don’t forget you have to “bounce” +15% just to break-even! We have shorting the open and scaling that hedge up to 1105 as the playbook, especially if you covered some at the low end of the current 1041-1105 risk range.



And the bounce in Europe… within the crash for Greece and Portugal (both still down -21-22% year-to-date), but a bounce on more money printing hopes nevertheless. Oil bouncing (after crashing 25% since June) too. #Fun, but fade it.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


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


GOLD: still the only commodity we care on (long side); risk range = $1205-1251



Without ambition one starts nothing.  Without work one finished nothing.  The prize will not be sent to you.  You have to win it.

-Ralph Waldo Emerson


The Executive Director of the IEA reported this week that 98% of crude oil and condensates from the U.S. have a breakeven oil price below $80/barrel. She followed up with the estimation that 82% of these companies have a breakeven at $60 or less.

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