LEISURE LETTER (11/06/2014)

Tickers: SGMS, H, RCL, CCL


  • Nov 6:
    • MPEL Q3 earnings 8:30 am , pw MPEL
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691
    • DIS Q3 earnings 5 pm , pin 38177041
  • Nov 10:
    • CZR Q3 earnings 4:30 pm , pin 20797507
    • SNOW FYQ1 earnings 5pm
    • SJM Q3 earnings
  • Nov 11
    • Galaxy Entertainment Q3 earnings: 3:15am
    • Genting Singapore Q3 earnings:  5am
    • Stations Casino Q3 earnings: 4:30pm


BLOOM:PM – Bloomberry Resorts Corp, the operator of Solaire Resort and Casino in the Philippines, said phase 1A of the casino resort would open by the end of November this year. The expansion is expected to provide an additional 66 VIP gaming tables and 223 slot machines and also include a 312-room all-suite boutique hotel tower and a 1,760-seat Broadway-style theater.

Takeaway: Manila gearing up for the opening of Solaire's phase 1A as well as City of Dream's Manila later in December.


034230:KS – 3Q revs increased by 5.1% YoY to KRW172.6 billion.  Growth was mostly supported by casino revenue, which grew by 7.1% YoY to KRW139.9 billion.  Paradise had a share of 49.6% of the South Korean market based on casino sales in the third quarter, up from 46% a year earlier, but down from a 54.9% share in the previous quarter.

Takeaway: Contrast to Macau, casinos revenues actually grew in 3Q.


SMGS – announced it was awarded the contract by the New Zealand Lotteries Commission to provide instant games for Lotto New Zealand. The seven-year contract began in September 2014 and includes a one-year extension option.


H – filed a Certificate of Retirement with the Secretary of State of the State of Delaware to retire 1,122,000 shares of Class B Common Stock. All 1,122,000 shares of Class B Common Stock were converted into shares of Class A Common Stock in connection with the repurchase by the Company of 1,122,000 shares of Class B Common Stock from selling stockholders. The Company has also retired all 1,122,000 shares of Class A Common Stock into which the Class B
Common Stock converted.  The total number of authorized shares of the Company is now 1,453,399,875 shares, consisting of 1,000,000,000 shares designated Class A Common Stock, 443,399,875 shares designated Class B Common Stock, and 10,000,000 shares designated Preferred Stock, $0.01 par value per share.

Takeaway: Hyatt buying back stock while also modestly simplifying the equity capital structure.


RCL– According to Dondra Ritzenthaler, Senior VP of Sales for Celebrity, Celebrity has launched "1,2,3 Go All-inclusive".  Guests between November 5 and January 4 that book Concierge and above [suites, Aquaclass] will get 1, 2, 3 Go All-inclusive. That includes beverage package, free gratuities, and up to $300 onboard credit for specialty dining."


In other news, Celebrity has launched some 2016/2017 itineraries, the earliest ever released for those far out itineraries.

Takeaway:  Celebrity getting a head start on promotions ahead of Wave


CCL – (Travel Weekly)  The battle for British cruise passengers is heating up, with P&O Cruises introducing a low deposit offer and more onboard spending money. The move to attract early bookings follows RCL putting its wave campaign on sale two months earlier than usual following a trade preview of new ship Quantum of the Seas in Southampton last weekend.  The P&O Cruises £50 deposit offer covers bookings made before November 30 including sailings over Christmas and Easter next year.

 Takeaway:  Price war?


RCL – (TTG)  Stuart Leven, UK and Ireland MD for RCL hinted there could soon be changes to shore excursions, including whether agents will start to be paid commission on them.  “Work is in progress. I don’t think it will be too long before we make any changes in that area," said Leven.


MSC Cruises recently announced plans to raise commission on its shore excursions from 5% to 15%. 

Takeaway:  More competition (3rd party providers) in the shore excursion space is leading cruise lines to increase incentives to agents.



Insider Transactions:

CHH - COO Patrick Pacious sold 33,947 shares of CHH stock on Monday, November 3 att an average price of $53.25 and now directly owns 99,211 shares of the company’s stock.


MAR - CEO Arne Sorenson sold 147,600 shares of MAR stock on Friday, October 31, at an average price of $75.72 and he now directly owns 420,618 shares.

LHO - CEO Michael D. Barnello sold 30,000 shares of PEB stock on Friday, October 31 at at an average price of $39.08 and now directly owns 181,331 shares.


Macau Construction Worker Wages Increase(Macau Daily Times) The average daily wage of construction workers increased by 2.3% quarter-to-quarter to MOP672 in the third quarter of this year, and the average daily wage of local construction workers was recorded as MOP883, up by 7%.

Takeaway:  Increasing wages not only in gaming


Hilton Prague Listed For Sale (Czech Happenings) Hilton Prague, the largest Czech hotel with 791 rooms, has been put up for sale, and its managerial contract with the Hilton chain will soon expire. Avid Asset Management, the current owner of the hotel, empowered JLL to mediate the deal whose price was not disclosed. Avid Asset Management has put over EUR50m in the modernization of the hotel since 2004. 

Takeaway: Another big European asset listed for sale.  We wonder if HOT is watching?


Boca Raton Resort & Club Listed For Sale– (Sun Sentinel) Blackstone Funds, the owner of the Boca Raton Resort & Club plans to put the property up for sale. The listing will be handled by JLL Hotels. The Blackstone Group has invested more than $250 million in the resort. JLL has begun to contact potential investors who might be interested in acquiring the resort.

Takeaway: Inside odds indicate Hilton Worldwide is the likely buyer given the Resort & Club's affiliation with the Waldorf Astoria collection.




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.

KATE – Better Than Feared

Takeaway: The numbers check out – revs, EPS, guide. Now it’s mgmt’s game to lose based on how it handles the call. More ways they can win than lose.

KATE quick take

1)  Headline EPS looked good. $0.02 – in line with consensus.


2) 15% comp was in line with our estimate – and about double what the company guided. Consensus was around 12% -- as best as we can tell.


3) 36% growth in revenue – or a 3% revenue beat. Not bad. New store productivity was off the charts. We expected this given the conversion of stores from Juicy to Kate (28 stores were pulled out of comp base during conversion.)


4) Raised EBITDA targets for the year by $10mm, to $130mm - $140mm. KATE (and its predecessors) is not known for taking up guidance – it’s been the opposite historically more often than not.


5) As expected, pushed out 2016 margin targets by a year. That’s 100% in line with what the company said last quarter. As we highlighted yesterday in our 40-page slide deck outlining our thesis on KATE, actual EBITDA dollars are likely to come in about 44% higher than an otherwise higher EBITDA margin target would suggest – given how far ahead the company is tracking with its’ top line.


Overall, we feel very good about these numbers – especially given the volatility we’ve seen out of KATE over time. We wish we could call it a day after looking at the numbers, but we can’t. We still need to hear what management says on the conference call – and we all know what happened last time. But that’s the same reason why we could hardly find a single soul to hit the bid on KATE over the past three months. People have been 1) Afraid of these numbers and this guide (which is a concern that is now proven unfounded), and 2) Afraid of what management will say when it opens up to investors on the call. That’s something that still concerns us. But like we said yesterday, we’re hard pressed to think of a whole lot that the company could say that would result in any more enemies in the investment community. This call is KATE’s game to lose. 

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TODAY’S S&P 500 SET-UP – November 6, 2014

As we look at today's setup for the S&P 500, the range is 73 points or 2.80% downside to 1967 and 0.81% upside to 2040.                                                                    













  • YIELD CURVE: 1.81 from 1.82
  • VIX closed at 14.17 1 day percent change of -4.84%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Challenger Job Cuts y/y, Oct. (prior -24.4%)
  • 7:30am: RBC Consumer Outlook Index, Nov. (prior 53.2)
  • 8:30am: Initial Jobless Claims, Nov. 1, est. 285k (prior 287k)
  • Continuing Claims, Oct. 25, est. 2.363m (prior 2.384m)
  • 8:30am: Non-farm Productivity, 3Q prelim., est. 1.5% (pr 2.3%)
  • 9:45am: Bloomberg Consumer Comfort, Nov. 2 (prior 37.2)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 10:40am: Fed’s Evans speaks in Chicago
  • 11am: U.S. to announce auction of 3M/6M bills, 1Y bills
  • 1:30pm: Fed’s Powell speaks in Chicago
  • 7:05pm: Fed’s Mester speaks in New York



    • Senate, House out of session
    • 8:30am: FTC Commissioner Maureen Ohlhausen delivers opening remarks at American Bar Assn’s Fall Forum on antitrust policy
    • 4:45pm: FTC Chairwoman Edith Ramirez delivers closing remarks
    • 9:30am: FDIC Chairman Martin Gruenberg speaks at Cities for Financial Empowerment Fund’s Bank On Conf.
    • 9:30am: Airlines for America releases forecast for Thanksgiving air travel
    • 1:15pm: Boehner press conference on results of midterms



  • Obama Said to Seek Added $3.2b to Fight Islamic State
  • Barclays CEO Sees Fewer Bankers Earning Top Pay on Overhaul
  • Banks Get More Flexible Tone From CFTC on Overseas Swap Rule
  • Tesla Projects Several Years of 50% Growth; Shares Surge
  • GM Asks Bankruptcy Judge to Bar $10b Ignition Claims
  • Palo Alto Networks Discovers of iOS, Os X Malware WireLurker
  • Costco Said to Weigh U.S. AmEx Breakup After Canada Switch
  • Genworth Posts $844 Million Loss on Long-Term Care Shortfall
  • EMC Gets Einhorn Investment Amid Pressure From Elliott
  • Dell, Silver Lake Said to Reap 90% Gain 1 Yr After Buyout
  • AIG Ex-CEO Willumstad Testifies Bailout Was Only Option
  • Confident U.S. Shale E&Ps Think They Can Outlast OPEC Moves
  • CBS Beats Analysts’ Estimates on Advertising From NFL Games
  • Airbus Gets China Aircraft Leasing $10b Order for Planes
  • U.S. Starts Money-Laundering Probe Against Timchenko: WSJ
  • October U.S. Comp. Sales May Miss Ests. on Weather



    • Advance Auto Parts (AAP) 8:30am, $1.88
    • AES (AES) 6am, $0.34
    • Air Canada (AC/B CN) 6am, C$1.45 - Preview
    • Akorn (AKRX) 6am, $0.25
    • AMC Networks (AMCX) 8:30am, $0.73
    • Ameren (AEE) 8am, $1.21
    • AOL (AOL) 7am, $0.52
    • Apache (APA) 8am, $1.38 - Preview
    • Apollo Investment (AINV) 7:30am, $0.23
    • BCE (BCE CN) 6am, C$0.77 - Preview
    • Broadridge Financial (BR) 7am, $0.29
    • Cablevision Systems (CVC) 8:30am, $0.19 - Preview
    • Calpine (CPN) 6am, $0.62
    • Canadian Tire (CTC/A CN) 7:40am, C$2.00
    • Carrizo Oil (CRZO) 6:30am, $0.64
    • Cinemark (CNK) 6:30am, $0.36
    • Coty (COTY) 6:30am, $0.28
    • Crescent Point Energy (CPG CN) 8am, C$0.31
    • DirecTV (DTV) 7:30am, $1.30 - Preview
    • EchoStar (SATS) 6:02am, $0.39
    • Federal Home Loan Mortgage (FMCC) 8am, $0.44
    • Flowers Foods (FLO) 6:30am, $0.20
    • Gartner (IT) 7am, $0.39
    • Generac (GNRC) 5:59am, $1.03
    • Hain Celestial (HAIN) 7:30am, $0.67
    • Hawaiian Electric (HE) 6am, $0.42
    • Henry Schein (HSIC) 7am, $1.30
    • Horizon Pharma (HZNP) 6:30am, $0.15
    • Hospira (HSP) 7:30am, $0.54
    • Houghton Mifflin (HMHC) 7:15am, $1.11
    • Huntington Ingalls (HII) 7:15am, $1.84
    • Inter Pipeline (IPL CN) 11:16am, C$0.30
    • Kate Spade (KATE) 7:40am, $0.02 - Preview
    • Keryx Biopharmaceuticals (KERX) 7am, ($0.26)
    • Laredo Petroleum (LPI) 6:59am, $0.17
    • Molson Coors (TAP) 7:30am, $1.48
    • Nationstar Mortgage (NSM) 7am, $1.11
    • NorthStar Realty (NRF) 7:30am, $0.36
    • Orbitz Worldwide (OWW) 8:03am, $0.13
    • Pacific Rubiales (PRE CN) 6am, $0.40
    • Perrigo (PRGO) 8am, $1.45
    • Pinnacle Entertainment (PNK) 8am, $0.47
    • Quebecor (QBR/B CN) 6am, C$0.50 - Preview
    • Saputo (SAP CN) 10am, C$0.39
    • Sarepta Therapeutics (SRPT) 7am, ($0.99)
    • Scripps Networks (SNI) 7am, $0.84
    • SNC-Lavalin (SNC CN) 8:43am, C$0.81
    • Solera (SLH) 7am, $0.73
    • Synta Pharmaceuticals (SNTA) 7am, ($0.24)
    • Telus (T CN) 6am, C$0.61 - Preview
    • Teradata (TDC) 6:55am, $0.66
    • Tri Pointe Homes (TPH) 6:30am, $0.16
    • Visteon (VC) 7am, $0.71
    • Wendy’s (WEN) 7am, $0.09
    • Windstream (WIN) 7am, $0.04



    • Alliant Energy (LNT) 6pm, $1.38
    • Allscripts Healthcare (MDRX) 4:01pm, $0.10
    • American Equity Investment (AEL) 4pm, $0.50
    • Bonanza Creek Energy (BCEI) 4:18pm, $0.52
    • Bruker (BRKR) 4:01pm, $0.15
    • Computer Sciences (CSC) 4:15pm, $1.01
    • Concur Technologies (CNQR) 4:15pm, $0.22
    • Consolidated Edison (ED) Aft-Mkt, $1.45
    • Credicorp (BAP) 7pm, $8.13
    • Darling Ingredients (DAR) 4:30pm, $0.19
    • DaVita HealthCare (DVA) 4:32pm, $0.90
    • First Solar (FSLR) 4:05pm, $0.64 - Preview
    • Globalstar (GSAT) 4pm, ($0.03)
    • Great Plains Energy (GXP) 5:12pm, $0.97
    • Great-West Lifeco (GWO CN) 4:10pm, C$0.63 - Preview
    • International Game (IGT) 4:05pm, $0.30
    • King Digital (KING) 4:01pm, $0.47
    • Kodiak Oil (KOG) 4:05pm, $0.20
    • Lions Gate Entertainment (LGF) 4:06pm, $0.15
    • Medivation (MDVN) 4:10pm, $0.83 - Preview
    • Monster Beverage (MNST) 4:05pm, $0.67
    • MRC Global (MRC) 4:35pm, $0.46
    • National Fuel Gas (NFG) 5:05pm, $0.58
    • Nektar Therapeutics (NKTR) 4:10pm, $0.41
    • Northeast Utilities (NU) 4:15pm, $0.75
    • Northern Oil (NOG) 4:01pm, $0.26
    • Nvidia (NVDA) 4:20pm, $0.35
    • Prospect Capital (PSEC) 5pm, $0.28
    • Rovi (ROVI) 4:01pm, $0.40
    • Salix Pharmaceuticals (SLXP) 4:01pm, $1.55 - Preview
    • Sapient (SAPE) 4:20pm, $0.22
    • Skyworks Solutions (SWKS) 4:15pm, $1.07
    • Spectrum Pharmaceuticals (SPPI) 4pm, ($0.05)
    • Sprouts Farmers Market (SFM) 4:05pm, $0.16
    • Stifel Financial (SF) Aft-Mkt, $0.66
    • TMX (X CN) Aft-Mkt, C$0.97
    • Transocean (RIG) 4:15pm, $0.81
    • Ubiquiti Networks (UBNT) 4pm, $0.52
    • Walt Disney (DIS) 4:15pm, $0.88 - Preview
    • Zogenix (ZGNX) 4:05pm, ($0.15)
    • Zynga (ZNGA) 4:04pm, ($0.01)



  • World Food Prices Drop a 7th Month in Longest Slide Since 2009
  • Gold Most Expensive to Silver Since 2009 Shows More Pain Coming
  • China’s Parched Plains End Run of Record Corn Crops: Commodities
  • Brent Oil Falls With WTI as Libya Says Sharara Field to Restart
  • Gold Advances After Biggest Retreat This Year as Dollar Weakens
  • Nickel Advances for Second Day as U.S. Job Growth Strengthens
  • Port Hedland Engineers to Strike, Risking Iron Ore Export Delays
  • OPEC’s Weakest Links Feeling Pain That U.S. Shale Producers Seek
  • Corn Falls With Soybeans as USDA May Boost U.S. Crop Forecast
  • Copper Premium in Europe Said to Fall to Lowest Since March 2013
  • Rebar Rebounds From Record Low as Traders See Buying Opportunity
  • American Eagle Silver Coins Sold Out at U.S. Mint on Demand Jump
  • Tepco Has Secured Enough Lean LNG ‘For Now,’ Co. President Says
  • Libya’s Biggest Oilfield to Resume Output Soon, Official Says



























The Hedgeye Macro Team




















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


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)




  • Great Spot to Buy Bonds: Nearing the top end of our 2.21% to 2.38% risk range, this most recent lower-high in the 10Y U.S. Treasury bond yield is signaling to us that this is a great spot to increase exposure to fixed income – in Treasury bond (TLT and EDV) and Muni (MUB) terms. Buy side consensus remains bearish on Treasuries to the tune of a -18.4k net short position in the futures and options markets, but their misguided focus on valuation and/or expectation for a sustained pickup in U.S. GDP growth leaves us anticipating mass capitulation over the intermediate term.  Remember, we want you to continue to avoid the bulk international fixed income exposures like the bubonic plague. Specifically, 18 of the 30 ETFs comprising the Fixed Income & Yield Chasing primary asset class in our Tactical Asset Class Rotation Model (TACRM) have a negative VAMDMI readings. Furthermore, 27% of the total have VAMDMI readings below -1x, which indicates a clear trend of negative volume-weighted average price momentum across multiple durations. PIMCO having to blow out of Bill Gross’ PIIGS paper or the #StrongDollar impact on EM sovereign and corporate debt remain key overhangs.
  • Short Energy on the Bounce(s): Yesterday, we added the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) to our highest-conviction short ideas list up top. Specifically, our fundamental analysis of the outlook for marginal supply (i.e. stable), marginal demand (i.e. global growth slowing) and momentum (i.e. bearish TRADE, TREND and TAIL) portends further downside. We see a [soft] floor of $65/bbl. [and falling] over the intermediate term – especially in the context of the BoJ adopting a more aggressive mindset in response to the global currency war. A weaker yen is dollar-bullish, which is bearish for the price of crude oil; the correlation between the USD and Brent spot prices since the May 6th YTD low in the DXY is -0.90.


***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Oil: More Downside? (11/5)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Top Ten Reasons to Stay Short the Euro (11/5)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


Early Look: Write It Down (11/4)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.


Don't Be Intimidated

This note was originally published at 8am on October 23, 2014 for Hedgeye subscribers.

“We will not be intimidated.”

-Stephen Harper


I drove up to Maine in the rain yesterday. My ride was a metaphor for macro markets in the last six weeks. I got in the car in the late morning – equities were up, on decelerating volume. There was a faint bid to European equities and Oil. There was some low-conviction selling in the bond market too.


“So”… I did the opposite (in Real Time Alerts) – going right back to our #Quad4 playbook, sending out buy signals in Munis (MUB) and sell signals in stocks with energy price related risks (MLPs like Linn Energy, LNCO). #Bubbles that bounce to lower-highs on no volume don’t intimidate me.


As I drove through New Hampshire in the early afternoon, the US equity markets picked up on the intraday drop in oil prices – and bonds caught a bid. I flipped through a few of the manic media’s channels – they all blamed Canada.


Don't Be Intimidated - EL chart 2


Back to the Global Macro Grind


While it would be nice if we could boil down intraday, weekly, and monthly macro market moves to a single factor like ebola or Canada, that is not how a non-linear and interconnected ecosystem (the market) works.


That’s why we spend so much time grinding through both multi-factor and multi-duration analysis. We will not write to you about risks in the rear-view. We will not be whipped around by newsy headlines either. Our Global Macro risk management process will not be intimidated.


There’s a great complexity theory quote in the WWII #history book I am in the middle of reading that summarizes how the American, British, and Canadian men acted when storming the beaches of Normandy on June 6th, 1944:


“Beset by mischance, confounded by disorder, they had mostly done what they were asked to do.”

-Rick Atkinson, The Guns At Last Light (pg 53)


And while I try to not feel anything when communicating #timing decisions in markets, I do want our analytical troops to feel confident that, instead of being glued to the screens and emotions of the moment, they can do what they were trained to do. #Process


To be clear, the process is dynamic and flexible. That means that if the economic facts and/or market read-throughs change, we are both equipped and tasked to change alongside those changing factors. If they don’t change, we double down on the #process.


In asset allocation terms, here’s what we did (before the morning part of that drive!) yesterday:


  1. CASH – took it down small, deploying assets to a region of the market that likes #Quad4 (Municipal Bonds – MUB)
  2. FIXED INCOME – took it up, in kind, to a 26% allocation (which is 78% of what I consider my max, 33%, to any asset class)
  3. EQUITIES – stayed the course with the “net zero” exposure, adding to the bear side of energy related shorts like LNCO


For those of you who are new to reading my rants, the Hedgeye Asset Allocation Model is basically like my p.a. (personal account). It’s not what a long-only fund with a mandate to be fully invested has to do. It’s not a hedge fund either. It’s simply what I would do with my money - not being intimidated!


“So”, when I say “net zero” that means that if I had to be in something like US Equities, at a minimum, I’d hedge (with alpha oriented shorts) out the market risk and have a beta-adjusted net exposure to that asset class of 0%.


That’s why, on the morning of October 17th, in the Early Look you saw an asset allocation to US Equities of +3%. After a stiff selloff, I signaled “buy” in #RealTimeAlerts in 1 of the 2 S&P Sectors that are LONGS in our #Quad4 playbook – Consumer Staples (XLP). Then I took us back to net zero, on the bounce.


I know. It’s not easy trying to communicate a process that the Old Wall doesn’t use.


Commercializing how I think about risk has been as much a communication learning process for me as it has been for those of you trying to learn it alongside me. I appreciate your open-mindedness. These are still the early days of our changing parts of a profession that needs changing.


Back to what is really crushing market expectations (it’s not Canada – it’s #Quad4 deflation):


  1. Oil prices got smoked for another -2.8% loss yesterday, taking WTI to down -18.2% YTD
  2. Bullish to Bearish Phase Transitions in both Energy prices and their related stocks/bonds is #on because Oil is crashing
  3. Alongside a -25% drop in WTI Crude since June, the Russian stock market has crashed (-25.8% YTD)


That’s also why the Canadian Stock Market (TSX) went from bullish to bearish TREND @Hedgeye. Not because some whacko loser started killing people in Ottawa yesterday. In chaos (or complexity theory) speak, that was simply the grain of sand that knocked over the interconnected sand-pile.


In our playbook, terrorism doesn’t have a quadrant; #deflation does. If our quantitative signal is right, and the price of oil remains in an intermediate-term TREND risk range of $64.67-86.11:


  1. Both Oil & Gas (XOP) and Energy (XLE) related equities are going to be bearish TREND
  2. MLP related stocks and bonds are going to start discounting distribution (dividend) cuts
  3. Kevin “The Bear” Kaiser is going to look really right on his Best Short Ideas!


Instead of listening to more than 3 minutes of market spew on the radio yesterday, on that same drive up to Maine’s coast, I smoked  a cigar (don’t tell my wife!) and listened to Kaiser’s Institutional Research call on MLPs from 1-2PM. It was awesome.


And I’m not just saying that because the man is on my team. I am telling you what it is to hear a world class analyst not be intimidated by institutional group-think and stay with a fundamental call that companies who don’t have the cash flow to pay out future promises are shorts.


Stocks that he doesn’t like (VNR, LNCO, etc.) got hammered intraday. If you’d like access to the replay of his call and 40 slide deck, please ping


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.34%

SPX 1830-1948

RUT 1037-1119

VIX 15.09-28.26

WTI Oil 79.43-82.63

Natural Gas 3.59-3.79


Best of luck out there today,



Don't Be Intimidated - Chart of the Day

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