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Client Talking Points


The Euro is ripping versus the US Dollar. Both US fiscal and monetary policy dovish versus ECB President Mario Draghi who is starting to understand that a #StrongEuro means Consumption Tax Cut. That is driving stronger European growth. Risk range is signaling a higher-high of $1.39 now. #EuroBulls


That shiny, yellow metal called Gold loves it when inflation slows real US growth. At +12.1% year-to-date, Gold is beating the inflating CRB Index which is currently up +10.1% YTD. #InflationAccelerating in the USA is crystal clear now.


Dr Raj (who raised rates to fight inflation) gets it big time. And now, India’s stock market is starting to get it too. It has risen +1.9% overnight to lead what was a wet Kleenex session for anything China. Sensex is up +3.7% year-to-date and is on Hedgeye’s bullish TREND list.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike. The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet. The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%. And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


COMMODITIES: continue to rip humanity a new one, +10% CRB Index YTD #InflationAccelerating @KeithMcCullough


"To conquer fear is the beginning of wisdom." - Bertrand Russell


Boeing has frozen defined-benefit pensions for 68,000 employees, including management and executives. From January 2016, the funds paid out by new Boeing pensions will be market-dependent. The switch affects non-unionised employees and follows a pension deal struck with unions in January. Boeing said the move would curb the "unsustainable growth" of its long-term pension liability. (BBC)

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Monday-Thursday, March 10-13

  • 2014 Cruise Shipping Miami Conference

Monday, March 11

  • CZR 4Q 2013 conference call:  5 pm
  • STN 4Q 2013 conference call:  4:30 pm  

Tuesday, March 12

  • MTN FY2Q 2014 conference call:  4:30 pm

Friday, March 14

  • Hyatt Investor Day


SJM – Lagerfeld to model 3rd tower at Lisboa Palace Macau Business Daily

The hotel will have up to 270 guestrooms and suites in its own 20-storey tower as part of the HK$30 billion (US$3.87 billion) Lisboa Palace.  It’s described as the first luxury hotel “fully designed” by Mr Lagerfeld, and is expected to open in 2017.  The entire project at Lisboa Palace is due to have 2,000 rooms.  


Takeaway:  SJM at a competitive disadvantage being the last Cotai project to open in this latest supply surge


CZR – the former Harrah’s Rincon Casino & Resort completed a $160 million renovation and expansion as well as changed its name to Harrah’s Resort Southern California in Valley Center.  The property features a new 21 story, 430 room hotel and a 55,000 sq ft casino with 1,600 slots, 59 table games and a poker room.  Total hotel rooms now include 1,065 rooms and suites.


Takeaway:  Strengthening the brand via management contracts, while expanding the Total Rewards network.


HLT – Hilton Grand Vacations and Strand Capital announced the development and sales launch of Ocean 22 in Myrtle Beach, SC.  Ocean 22 by Hilton Grand Vacations Club will be a 24 story tower, featuring 220 luxury 1, 2, and 3 bedroom ocean view and ocean front suites. The property is scheduled to open in the summer 2015.


Takeaway:  Another capital light timeshare development that will add incremental timeshare management fees.  Timeshare undervalued?  


China says no casinos for resort island Hainan Reuters

Luo Baoming, Hainan's Communist Party chief, and Wang Yong, the mayor of resort city Sanya said that casinos will never be allowed to operate there.  The decision may dampen investment appetite from scores of international and national developers betting on stellar profits in the southern province.


Takeaway:  A positive for Macau but not a surprise

Las Vegas Culinary Workers Union 226 – 10,000 union workers will vote to go on strike on March 20th over higher benefits cost – union members voted to adopt the Obamacare Health Plan but are now unhappy over the premium costs each member will pay under the new healthcare plan. 


Takeaway:  Even the unions are turning against Obamacare.  Margins could be under pressure with higher labor costs yet slot revenues not growing.


Palms Las Vegas – will offer the 1st 24-hour checkout resort accommodations in Las Vegas.


Takeaway:  Interesting guest feature, but we wonder if such a feature should be priced at a premium to rack rate


Queensland, Australia – The Queensland government announced it received 19 registrations to bid for the licenses for the integrated casino and hotel developments.  Twelve of the companies are looking to develop in/near Brisbane – including Echo and Crown Resorts.  Detailed proposals are due to the government later this summer.


Takeaway:  A large scale, integrated resorts sounds like a great idea, but let’s recall, despite Brisbane’s location on the northeastern coast of Oz, it is still more than 3,800 miles from Singapore and 4,300 miles from Hong Kong – and is thus, less frequent destination for Asian gamblers.



Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning 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.

Chart of the Day: Dollar Tail Risk Is On! | $USD


Chart of the Day: Dollar Tail Risk Is On! | $USD -  USD

Imperial Ignorance

“I implore Imperial Heaven to pardon my ignorance.”

-Daoguang Emperor


Reigning over the Manchu Qing dynasty in China from 1820 to 1850, even by modern central-planning-overlord measures, this guy Daoguang was a whack job. He, like some in Big Government today, thought he was put on this earth to bend economic gravity.


But, “in 1832, Daoguang’s fears of looming crisis converged in one defeat… the government forces were not used to the mountains… many of the troops from the coastal garrisons were opium smokers, and it was difficult to get any vigorous response from them… When nature began conspiring against the Chinese empire… panic was likely to set in.” (The Opium War, pg 49)


So, don’t panic. Blame the weather.


I heard on TV that #InflationAccelerating slowing real US Growth is different this time. And the echoes of Daoguang’s ignorance has the New York Federal Reserve’s back on that: “I, the son of Heaven, am Lord of this World. Heaven looks to me that I preserve tranquility.” (pg 50)


Back to the Global Macro Grind


Yep, things are getting weird. And the President of the NY Fed, Bill Dudley, is getting weirder. You won’t remember him for being a below-average at best Keynesian economist at Goldman Sachs (1). He’s infamous for his completely out of touch with reality comment in March of 2011 that food prices ripping to all-time highs didn’t matter because iPads were cheap.


No, CRB Foodstuff’s Index fans (which is up another +1.6% this week to +14.0% YTD), you cannot eat an iPad. With US #InflationAccelerating to another fresh YTD high yesterday (CRB Index +10% YTD and the USD hitting another fresh YTD low), you can’t eat Gold (+12.1% YTD) either.


Imperial Ignorance - ipa


But Dudley, who completely missed calling for the 2008 crash, is comfy that the current growth slowdown is all about the “weather” and that US GDP is going to start tracking right back to +3%. As for the Fed’s dual mandate to raise rates when either employment recovers or inflation accelerates, yesterday Dudley called that “obsolete.”


In other dial-a-Fed guy (or gal) to Burn Your Currency news:

  1. The US Labor market data continued its deteriorating @Hedgeye TREND this past week
  2. NSA (non-seasonally adjusted) rolling y/y claims only dropped -3.5% last week
  3. The last 7 jobless claims data points (most recent data point 1st) = -3.5%, -4.4%, -5.6%, -5.1%, -5.7%, -7.3%, -7.9%, -8.5%

In other words, as our all-star-non-Keynesian US Financials analyst Josh Steiner said yesterday, “since we’re looking at the rate of change in year-over-year initial jobless claims, a more negative number is better as it implies a faster rate of improvement.”


That’s also one of the main reasons why we didn’t start to get bearish on inflation slowing real US growth until 8 weeks ago – the slope of growth, or continued improvement, in the US employment cycle. *Note: employment gains peak at the end of a cycle


Yes, we were the US employment #GrowthAccelerating bulls for all of last year, primarily because the rate of change in both weekly and monthly US employment data (leading indicators) was improving. That’s why the Fed should have started to taper in July-September 2012. They didn’t – because they act on a lag to lagging economic data.


To review how the Fed 1913 Act was supposed to work – it was a dual mandate:

  1. Full Employment
  2. Price Stability

In English, that means that the Fed is supposed to:

  1. Get looser (cut rates) when the rate of change in employment is deteriorating and inflation is slowing
  2. Get tighter (raise rates) when the rate of change in inflation is accelerating and employment is improving

Instead, the Bernanke/Yellen/Dudley Fed:

  1. Is now changing the goal posts on what was their official 6.5% employment target – Janet, we hit it too soon; change it!
  2. Will never fight inflation, so the bond market assigns 0% credibility to the Fed raising rates with #InflationAccelerating

That’s why Dudley’s March 7th, 2014 comments about the Fed Act of 1913 being “obsolete” are very much consistent with his comments about inflation in March of 2011 – eat it.


He’s un-elected and un-accountable to the American people. So, for now, like a Chinese bureaucrat posing as our god, he can say and do whatever he damn well wants. And yes, that will affect the credibility of your currency and liberty, in real-time.


So enjoy your US jobs report day in what has become the no-volume-American stock market casino. And pray that the Fed’s imperial ignorance on the impact of price-fixing rates at 0% never perpetuates a panic.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.59-2.77%


VIX 13.01-15.65

USD 79.49-80.22

EUR/USD 1.37-1.39

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Imperial Ignorance -  USD


Imperial Ignorance - rta44

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%