Hedgeye Risk Management CEO Keith McCullough weighs in with his latest thoughts on the markets and why the US Dollar looms large in his notebook. 


Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

Dollar hits three-week high (via Reuters)

U.K. Mortgage Approvals Rise to Highest Since March 2008 (via Bloomberg)

Japan seeks biggest defense budget rise in 22 years (via Reuters)

Age-Related Forgetfulness Tied to Diminished Brain Protein (via Bloomberg)


Morning Reads on Our Radar Screen - usd1


Todd Jordan – Gaming

Naming and shaming: Macau website targets deadbeat gamblers (via Reuters)


Jonathan Casteleyn – Financials

Treasuries Head for Fourth Monthly Loss Amid Fed Taper Prospects (JC note: The only way to stop the continued losses in the Treasury market is to close the market for Labor Day … via Bloomberg)


Josh Steiner – Financials

Bank of America lays off 1,000 in Beachwood; bank closes 3 mortgage offices in Ohio (via

New York to Seattle Buyers Tap Brakes After Rates Rise (via Bloomberg)


Howard Penney – Restaurants

Potbelly files for $75 million IPO (via NRN)

Chipotle Mexican Grill names Kimbal Musk to board (via Sacramento Bee)

Taylor Farms, Big Food Supplier, Grapples With Frequent Recalls (via NYT)


On Wednesday, September 4th at 11:30am EDT, please join the Hedgeye Macro Team for a ~15min conference call titled “Paddling Upstream?: Navigating #EmergingOutflows”. On the call, Senior Analyst Darius Dale will host a live Q&A session regarding recent developments in EM financial markets and our outlook for those asset classes and the economies that underpin them.



  • We think a protracted tightening of global credit conditions driven by sustained USD appreciation and a back-up in US interest rates will weigh on growth in EM fixed investment via an inflection(s) in portfolio and FDI flows. That same tightening will also weigh on growth in EM consumption via an inflection in purchasing power as overvalued EM currencies continue to mean revert lower.
  • Moreover, we think global asset allocators in developed markets are simply running out of places to direct marginal investment flows and growth assets priced in a strengthening USD are one of the few places that remain attractive on a go-forward basis. The resurgence of European capital markets and a resumption of JPY-induced Japanese equity reflation also supports a continuation of the DM vs. EM bifurcation that we have seen accelerate in 2013. Thus, our #EmergingOutflows thesis should continue to play out in spades.
  • Lastly, we think the impact on China’s secular economic slowdown will weigh heavily upon EM economic growth, as China’s credit-fueled fixed assets investment bubble has been a primary driver of marginal demand for many/most of the larger emerging market economies’ exports. In particular, the policy-induced unwind of said bubble should sustainably slow export and FDI growth across key commodity-producing countries.


CLICK HERE to download today’s 80-slide presentation; we look forward to fielding any follow-up questions you might have on next week’s call.




  • CONFERENCE CALL & PRESENTATION: Q2 2013 MACRO THEMES (4/16): #EmergingOutflows: Consistent with our call for continued U.S. dollar strength and commodity deflation, we think the very early innings of the next round of emerging market crises is upon us. Sustained USD appreciation exposes EMEs to a variety of economic risks that asset allocators have not had to appropriately discount for over a decade.
  • CONFERENCE CALL & PRESENTATION: EMERGING MARKET CRISES: INDENTIFYING, CONTEXTUALIZING AND NAVIGATING KEY RISKS IN THE NEXT CYCLE (4/23): We currently see a pervasive level of risk across the emerging market space at the country level and have quantified which countries are most vulnerable. As such, we find it prudent for investors to reduce their allocations to emerging market equity and currency risk in favor of US equity and US dollar exposure. #StrongDollar and commodity price deflation have been and should continue to be key catalysts for EM underperformance.
  • EXPERT CONFERENCE CALL & PRESENTATION: WILL CHINA BREAK? (4/29): We co-hosted a conference call with our Industrials Team, led by Managing Director Jay Van Sciver, featuring Carl Walter, co-author of Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise (2012). The Party’s use of state owned banks to drive economic growth through fixed asset investment has left the financial system loaded with bad assets. The bad assets mirror bad investments in the real economy. They also can limit the ability of Chinese banks to make new loans.
  • CONFERENCE CALL & PRESENTATION: ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET? (6/12): We think the outlook for Chinese credit growth is structurally impaired. Moreover, we anticipate that growth in non-performing loans will accelerate sustainably over the long term. Lastly, we believe that net interest margins across the Chinese banking industry face immense regulatory headwinds that may ultimately have dire consequences for China’s fixed assets investment bubble.
  • CONFERENCE CALL & PRESENTATION: Q2 2013 MACRO THEMES (7/15): #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.




  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 125514#
  • Materials: CLICK HERE



For questions regarding this call or to schedule a 1x1 discussion with Darius directly, please email .   


Enjoy the long weekend with your respective families. Best regards,


The Hedgeye Macro Team

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Tough comps suggest red ink for the Strip in July



Based on slightly lower airport traffic and taxi trips YoY, we estimate Strip gaming revenues may have declined 8-12% YoY, assuming normal hold for slots and tables.  Last July, slot hold was 7.8%, slightly higher than normal due to an accounting adjustment related to the calendar.  July 2012 also contained one extra Sunday.  Baccarat comps will be particularly difficult as July 2012 baccarat volumes rose 29% YoY on a high hold of 16.1%.  


We remain optimistic that normalized growth will resume.  Remember that rolling 12-month gaming revenues and slot volumes still have ample room to grow - 14% and 10% below the 2006-07 peak, respectively.  With housing continuing to improve, the macro looks better for Las Vegas. 


While gaming struggled in July, we're seeing good growth in room rates.  Vegas should outperform the regional gaming markets for the rest of the year with housing potentially providing an extra boost to the locals market.


Here are our projections for July on the Las Vegas Strip:



Watch That Strong Dollar

Client Talking Points


What's going on with the US dollar is of paramount importance. This could be the 1st, 2nd and 3rd most important thing in my notebook. It is up for the thirdconsecutive week now. It's holding its higher-lows vs June and knocking the Yen solidly back into a Bearish Formation. Here's the Hedgeye formula: #StrongDollar + #RatesRising = good things for the TREND that is growth stocks rising in the USA.


You visit Dr. Copper lately? Because the Doctor no likey the #StrongDollar bounce. Copper is down -3.3% for the week after failing, big time at Hedgeye's TREND resistance of $3.39/lb. It banged the top of of the range and failed miserably.


This has to be the surprise gainer of the week. It broke out from our Hedgeye TREND resistance line of 1890 yesterday and had a full +1% of follow through again last night to 1926. South Korean economic data supported that move this week too. Look, Asia needed a bone. It's a potentially a bullish signal for tech and industrials. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

Three for the Road


When whining about Syria ends, what's the next End of the World #EOW bear call? @KeithMcCullough


“Everybody has a plan until they get punched in the face.” - Mike Tyson


Despite the recent rip in oil prices, Russian stocks are still getting crushed down over -12% year-to-date. Sorry Putin.

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