Takeaway: Our Risk Monitor is showing a roughly even mix of positives and negatives in the intermediate and longer-term trends.

Current Ideas:




Key Takeaway:

Our overriding message the last month has been one of caution. We overstayed our welcome on the short side by one week as the XLF had a nice (+3.5%) bounce last week, though that was following a 6.3% decline in the month leading up. The message from the summary table below is currently showing more green than red in the short-term and an even mix between red and green over the intermediate and longer-term durations. Based on this, we're taking the threat level down a notch this morning and characterizing the outlook as balanced based on our various risk monitor factors.


Financial Risk Monitor Summary


  • Short-term(WoW): Positive / 5 of 12 improved / 1 out of 12 worsened / 6 of 12 unchanged  
  • Intermediate-term(WoW): Positive / 5 of 12 improved / 4 out of 12 worsened / 3 of 12 unchanged  
  • Long-term(WoW): Negative / 3 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged



1. U.S. Financial CDS -  Swaps tightened for 24 out of 27 domestic financial institutions for an average decline of 6 bps. In fact, US financials are now tighter by 10 bps on the month. The biggest improvements came from BofA and MS (both were -6 bps w/w). 


Tightened the most WoW: AXP, MTG, MBI

Widened the most WoW: TRV, MET, UNM

Tightened the most WoW: ACE, ALL, CB

Widened the most MoM: TRV, MET, SLM




2. European Financial CDS - 31 of 37 reference entities in Europe tightened on the week by an average of 5 bps. While the month-over-month change is still +11 bps, on average, it has moderated notably with this last print.




3. Asian Financial CDS - Indian bank swaps tightened by an average of 10 bps on the week and are now tighter by 17 bps on the month. Japanese financials were little changed on the week. 




4. Sovereign CDS – Sovereign swaps were mixed last week with Italian swaps widening the most (+13 bps to 133 bps) and Portuguese swaps tightening the most (-6 bps to 190 bps). 








5. High Yield (YTM) Monitor – High Yield rates fell 19.7 bps last week, ending the week at 5.83% versus 6.02% the prior week.




6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 12.0 points last week, ending at 1866.




7. TED Spread Monitor – The TED spread rose 1.8 basis points last week, ending the week at 22.6 bps this week versus last week’s print of 20.8 bps.




8. CRB Commodity Price Index – The CRB index fell -0.4%, ending the week at 270 versus 271 the prior week. As compared with the prior month, commodity prices have decreased -3.2% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.




9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 2 bps to 7 bps.




10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 4 basis points last week, ending the week at 2.42% versus last week’s print of 2.46%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.




11. Chinese Steel – Steel prices in China rose 0.3% last week, or 10 yuan/ton, to 3,028 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.




12. 2-10 Spread – Last week the 2-10 spread widened to 188 bps, 6 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.




13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 1.2% downside to TREND support.




Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT



Germany Confirms #GrowthSlowing

Takeaway: Germany’s IFO Business Confidence survey declined again in October.

German IFO Business Confidence declined for a sixth straight month in the October reading to a level not seen since December 2012. 


This reading is not only in line with declining trends across the German economy over recent months but also remains an anchor to our Q4 Macro theme #EuropeSlowing.  


Germany Confirms #GrowthSlowing - chart2

Early Look

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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.

Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    



1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


The SOYBEANS, COTTON, AND GOLD markets experienced the most BULLISH relative positioning change in the CRB week-over-week

The ORANGE JUICE, SILVER, AND COPPER markets experienced the most BEARISH relative positioning change in the CRB week-over-week

  • Note that we are currently bearish on both copper and oil. On oil, we outlined our bearish case on in a few recent notes. Please see the links below for color:

OPEC's Next Move

  • To summarize, we consider formal production cuts out of OPEC’s November 27th meeting highly unlikely and think this expectation will disappoint as a bull catalyst.

Oil Has Further Downside Before the Bottom

  • The expectation for a supply/demand floor is not a near-term catalyst to backstop volatility-induced, real-time market moves.

We’ll be hosting a call tomorrow with an analysis of production costs for North American shale plays. In short, we believe consensus underestimates the rapid technological advancement in oil and gas extraction from shale resources. See the link below or email for access to the call:




Commodities Weekly Sentiment Tracker - chart1 CFTC Sentiment


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The CORN, WHEAT, AND COFFEE markets are positioned for HIGHER PRICES near-term
  • The COTTON, RBOB GASOLINE, AND LEAN HOGS markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis


3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The CORN, SUGAR, AND WHEAT markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1Yr basis


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest         


Ben Ryan





Monday Mashup: BWLD, BJRI and More

Monday Mashup: BWLD, BJRI and More - 11


Recent Notes

10/20/14 Monday Mashup: DRI, EAT and More

10/21/14 CMG: Dip Presents Buying Opportunity

10/21/14 EAT: Earnings Recap

10/23/14 MCD: Millennials Aren't the Problem

10/24/14 Invite | Ebola Forecasting & Containment Call with Dr. Jeffrey Shaman


Events This Week

Monday, October 27th

  • DENN earnings call 4:30pm EST
  • BWLD earnings call 5:00pm EST

Tuesday, October 28th

  • DIN earnings call 11:00am EST
  • KONA earnings call 5:00pm EST

Wednesday, October 29th

  • PNRA earnings call 8:30am EST
  • IRG earnings call 5:00pm EST

Thursday, October 30th

  • SBUX earnings call 5:00pm EST


Chart of the Day

Cheese block prices are up 14.4% YTD and 23.8% YoY.


Monday Mashup: BWLD, BJRI and More - 2


Recent News Flow

Thursday, October 23rd

  • BJRI Wayne L. Jones, Executive VP and Chief Restaurant Operations Officer, announced he will be resigning his position with the company effective November 7, 2014 in order to pursue a new, undisclosed, opportunity in the restaurant industry.

Friday, October 24th

  • BWLD was upgraded to buy from hold at Feltl and Company.


Sector Performance

The XLY (+3.8%) underperformed the SPX (+4.1%), as both casual dining and quick service stocks, on average, underperformed the XLY.

Monday Mashup: BWLD, BJRI and More - 3

Monday Mashup: BWLD, BJRI and More - 4


XLY Quantitative Setup

From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.

Monday Mashup: BWLD, BJRI and More - 5


Casual Dining Restaurants

Monday Mashup: BWLD, BJRI and More - 6

Monday Mashup: BWLD, BJRI and More - 7


Quick Service Restaurants

Monday Mashup: BWLD, BJRI and More - 8

Monday Mashup: BWLD, BJRI and More - 9


Howard Penney

Managing Director


Fred Masotta


LEISURE LETTER (10/27/2014)

Tickers: ISLE, LVS, MGM, MAR


  • Oct 28:
    • HEDGEYE EBOLA CALL 1 pm , code 651216#
    • GLPI Q3 earnings 10 am
    • HOT Q3 earnings 11:30 am , code 10325720
    • WYNN Q3 earnings 4:30 pm , pw 16870074
    • MAR Q3 earnings 5 pm , ID 59390131
  • Oct 29: H Q3 earnings 11:30 am code 95150754
  • Oct 30:
    • HST Q3 earnings 10 am
    • NCLH Q3 earnings 10 am
    • MGM Q3 earnings 11 am , pw 6307991
    • BYD Q3 earnings 5 pm , pw 8021592
  • Oct 31: HLT Q3 earnings 10 am , ID 11936190
  • Nov 3:
    • BEE Q3 earnings 11 am , pw 37266467
    • SHO Q3 earnings 12n , ID 75906336
  • Nov 4: RHP Q3 earnings 10 am
  • Nov 6:
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691


Trump – Trump Entertainment has dropped its November 13 deadline to close the Taj, its last remaining casino, but CEO Bob Griffin says it still might close this year.

Takeaway:  The posturing continues. Our bet is that the Taj will not permanently close


ISLE (Waterloo Cedar Falls Courier) The Isle Casino Hotel Waterloo has settled a long-running dispute over the value used to set its property tax bills. The settlement covers the 2011, 2012, 2013 and 2014 assessment years and slashes the assessed value on the city's second largest taxpayer from $64.8 million to $54.4 million retroactively to 2011. The Isle's current $2.5 million annual property tax bill will drop to $2.1 million. The city of Waterloo alone stands to see this year's tax revenue from the casino fall more than $178,000 on top of the estimated $551,700 it may be responsible to cover for the past three years of over payments.

Takeaway: One time gain for ISLE during Q4 2014 as well as a small reduction in overhead going forward.


LVS & 1928:HK – announced David Fleming, the firm’s secretary and general counsel, will retire with effect from April 1, 2015. Mr Fleming, 67, has served in these roles since January 2011. Mr. Fleming is also the authorized representative of Sands China and the alternate director to Michael Leven since 2011. Sands China said it would engage Mr Fleming as a consultant from July 1, 2015.


MGM – The Harmon Hotel defects trial is set to begin in Nevada District court and the trial is expected to last nearly one year. The case stems from the construction of CityCenter, MGM Resorts International’s 67-acre development on the southwest corner of the Strip and West Harmon Avenue. The Harmon Hotel is the only portion of the $9 billion project that was never completed. Work stopped on the Harmon after construction defects were found in 2008. A structural engineer hired by MGM Resorts determined the building was unsafe and could topple if an earthquake of a magnitude of 7.7 were to hit Las Vegas. Construction on the planned 47-story tower was stopped at 26 floors.


NagaCorp 3918:HK– Mark Brown, who was appointed chief operating officer of NagaWorld in December 2013, has tendered his resignation as chief operating officer of NagaWorld Ltd with effect from October 26. Naga indicated Mr Brown “has confirmed that he has resigned to pursue other opportunities”, but gave no further details. Prior to his move to NagaWorld, Mr. Brown was senior vice president for strategic development at Wynn Resorts Ltd’s Encore Las Vegas facility. From April 2006 to April 2009, Mr Brown, headed Las Vegas Sands Corp’s operations in Macau, Mr. Brown's recent responsibilities at NagaCorp included overseeing the initial stages of NagaCorp's casino project near Vladivostok, in Russia.

Takeaway: Could there be a delay in the opening of  Naga's Vladivostok casino?


MOHEGAN (The Columbian) In a pivotal development in a years long fight to build a casino in Clark County, the Cowlitz Tribe was notified Wednesday they’ll receive 152 acres west of La Center in January or within 30 days of a federal court ruling in their favor, whichever comes first.


In April, a tentative tribal-state compact was released by the state gambling commission.  The compact allows for two gaming facilities. One could have as many as 75 gaming tables, and a second could have up to 50 tables. Initially, the wager limit would be set at $250, but after a year the limit could increase to $500. The tribe could also have as many as 3,000 “tribal lottery player stations,” with as many as 2,500 in one facility.  Any terminals beyond the tribe’s allotted 975 terminals would have to be leased from other tribes, however.

Takeaway:  A 2017 event for the slot suppliers if the hurdles are crossed.


MAR – plans to expand its footprint in India with an additional 49 hotels, which will take the total operational properties to around 70 by 2018. 

Takeaway: Building it's global footprint.


China's Corruption Crackdown to Never End(Xinhuanet) Senior leader of the Communist Party of China (CPC) Wang Qishan said the CPC's anti-graft campaign and its efforts to build a clean government will never be concluded.

Takeaway:  We expected full enforcement efforts to continue - which is a headwind for Macau GGR. 


Macau Smoking Ban Enforcement(GGRAsia) At least 41 people in Macau had been fined for smoking on casino main floors by October 24. The Health Bureau’s statement added that among those fined, 30 were tourists. The bureau said that since the new rules were enacted, it conducted over 61 site inspections to a total of 40 gaming venues, including casinos and slot-machine parlors.

Takeaway: The Department of Health steps up enforcement efforts.


Macau Health Bureau Weighs in on Premium Mass Smoking (Macau Business) The Health Bureau says it is worried by reports that some casinos are allowing smoking in areas reserved for premium mass-market table gaming. The bureau issued a written statement saying it is “very concerned”.

Takeaway: We understand the DICJ recently approved smoking in one City of Dream's previously designated premium mass rooms (Grand Hyatt) with the condition that premium mass tables were "converted" to direct VIP.  A turf battle could be in the works between the DICJ and the Department of Health. When we were in Macau we heard the Bureau was responsible for the last minute smoking ban in premium mass.


Macau Secretary for Economy & Finance to Retire –Francis Tam Pak Yuen announced he will step down as the Secretary for Economy and Finance once Chief Executive Chui Sai On’s first term in office ends in December. Lionel Leong Vai Tac, a well-known businessman here and an Executive Council member, is rumored to be one of the likely candidates to take over the post. One of the biggest challenges Mr. Chui and his administration face during his second term in office is the renewal of casino concession licenses, which are up for discussion next year.

Takeaway: Tam was a "friend" of the gaming industry. With a new Secretary for Economy & Finance, could the Macau government make greater demands on the gaming operators to give back to their employees? 


Changi – Singapore's Changi airport passenger movement fell 0.6% YoY in September to 4.256m.

Takeaway:  Singapore's mass visitation continues to be flat this year.


LEISURE LETTER (10/27/2014) - c

Pacquiao To Fight in Macau( Boxing promoter Bob Arum said Manny Pacquiao will fight at the Cotai Arena because boxer likes the Arena as well as the the significantly lower tax rates.


Mainland China Lottery Sales(GGRAsia) Lottery sales in mainland China rose 25.2% in year-on-year terms to RMB32.25 billion (US$5.3 billion) in September.  During September, sales of welfare lottery tickets stood at RMB17.47 billion, up by 19.6%, while sports lottery sales rose by 32.5%, to RMB14.78 billion.

Takeaway: As the corruption crackdowns continue, it would seem Chinese punters are challenging luck more with the lottery than at casinos.


Vietnam Graft Crackdown – Police in Vietnam have arrested a prominent businessman and one of the country’s richest men on suspicion of lending fraud, as authorities step up their crackdown on financial crimes in a bid to clean up the debt-ridden banking sector. Ha Van Tham, former chairman of the board of the private Ocean Bank, was taken into police custody in Hanoi on Friday for “violating lending regulations,” the Ministry of Public Security said on Friday.


Sri Lanka Casino (GGRAsia) Sri Lankan President Mahinda Rajapaksa has proposed to impose a US$100 entrance fee for the country’s casinos and raise the gaming levy to 10% (up from 5%) of turnover. The proposals were set out in the 2015 budget announced on Friday. The budget document did not give any further details on the casino entry levy, including whether it would apply only to Sri Lankan residents or also to foreigners. Crown Resorts Ltd, chaired by Australian gambling tycoon James Packer, plans to build a casino resort in Sri Lanka. 

Takeaway: Sri Lanka with a 5% tax on GGR seemed too good to be true.


Las Vegas McCarran Airport Traffic – passenger traffic increased 2.7% in September versus +3.4% during August.

Takeaway:  McCarran passenger growth has risen for 13 straight months.


Montage Hotels Lifestyle Brand – announced the launch of Pendry Hotels, the company's new lifestyle brand that will marry the culture of service for which Montage is renowned with an inspired, fashion-forward and design-driven approach to hospitality. Pendry Hotels will sit at the crossroads of lifestyle and luxury hospitality. Pendry San Diego, which broke ground on October 8, is scheduled to open in 2016 and will feature 317 guest rooms, including 36 suites, a rooftop pool, two uniquely designed restaurants, an ultra-lounge, a beer hall, a spa and energizing fitness facility, and over 22,000 square feet of meeting space. In launching Pendry Hotels, the company intends to significantly expand its portfolio of hotels and resorts which today includes five distinctive Montage-branded properties in Laguna Beach and Beverly Hills, California; Deer Valley, Utah; Kapalua Bay, Maui, Hawaii; and Palmetto Bluff, South Carolina.

Takeaway: Feels to us like the lifestyle brand could ultimately push supply up similar to what happened in the late 1990s with the limited service/extended stay construction boom.



Macau (Un)Employment Rate & Earnings - According to Macau's Statistics and Census Service indicated that both the unemployment rate (1.7%) and the underemployment rate (0.3%) for July-September 2014 held stable as the previous period (June-August). Total labor force increased to 398,700 and the labor force participation rate reached 74.0%. Median earnings of those engaging in Gaming and the Construction sector amounted to MOP17,000 and MOP13,000 respectively. 


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 bottoms up slowing in Europe 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. 


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.

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