Keith's Macro Notebook 4/4: USD UST10YR GOLD

LEISURE LETTER (04/04/2014)



Monday, April 7

  • Las Vegas - National Association of Broadcasters six-day convention and trade show with more than 90,000 people from 156 countries attending. 

Tuesday-Thursday, April 8-10

  • Mid-America Gaming Congress (Columbus, OH)

Wednesday, April 9

  • SHO Investor Day

Thursday, April 10

  • HST Investor Day



CZR - the Caesars Windsor casino shut down Thursday night as a result of a labor disruption - all gaming ceased at 8 p.m.  

TAKEAWAY:  A stroke of bad luck for Caesars. 


MGM – will now charge a $10 service fee when booking a room over the phone with an MGM Resorts hotel.  According to MGM Resorts International “modernized its policy, implementing a small fee on bookings utilizing the personalized, one-to-one customer service offered by our trained phone agents.” 

TAKEAWAY:  Another way to drive incremental room revenue without raising actual room rates. 


LVS – is increasing scrutiny of Macau junket operators according to comments made by LVS Company spokesman Ron Reese.

TAKEWAY:  Sheldon appears to be placating demands by the US Department of State and Treasury. The Asian based operators might have a leg up here not having to face the same scrutiny as the US companies. 


LVS - recently acquired a G450 to make a 17 aircraft fleet. Las Vegas Sands Corp. now operates 17 luxury jets, used primarily for transportation of the company’s executive officers and VIP guests of its properties. Most of the aircraft in the Las Vegas Sands fleet are owned by and registered to Las Vegas Sands Corp., and a few are registered to Interface Operations, LLC, a Massachusetts-based company owned by Sands CEO Sheldon Adelson

TAKEAWAY:  The fleet of aircraft both in the US as well as Southeast Asia continues to increase to meet the growing VIP segment demand. 


SGMS – inked a three year contract extension, beginning in February 2015, with the Delaware Lottery to provide lottery and central monitoring systems as well as a minimum 450 WMS VLTs at charitable gaming organizations across the state.

TAKEAWAY:  Synergy deal for SGMS


Stations Casino – today kicks off its $ 1million scratch & win promotion, which runs every Friday and Saturday in April.  According to their campaign, “Every scratch card wins. Guaranteed!”  Prizes range from cash, free slot play, bonus points, free buffets and more.

TAKEAWAY:  The competition for Las Vegas locals is fierce and we expect will increase as Stations Casino likely positions itself of an IPO. We'll have more commentary on this market next week when we're in Vegas.


LHO – acquired the 200-room Hotel Vitale, located in San Francisco, for $130 million. The 200-room hotel is the sixth San Francisco property acquired by LaSalle. 

TAKEAWAY:  Growth in occupancy and average daily rate across California (San Francisco) continues to outpace other markets.


RCL – while disembarking from St. Kitts, Independence of the Seas reported that two dock worker were killed when the ship was disembarking.  According to local reports, the wake from the ship’s azipods swamped a small tender and threw the two dock workers into the water.

TAKEAWAY:  Another mishap for RCL, but not likely to have any impact given the nature of the accident.


INDUSTRY NEWS            

Singapore Tourism – Following the negative publicity from the missing Malaysia Airlines flight 370, Asia Travel Group is reporting a 40% drop in the number of Chinese group tours for Singapore.  SIngExpress Travel is reporting an “obvious drop” in their sales of Malaysia/Singapore tour packages whiles Super Travels Agency also reported a very sudden 20% decline versus last year.

TAKEAWAY:  A decline in Chinese tour travel to Singapore would be troubling, particularly for Genting Singapore 


Online Poker - Global online poker traffic has fallen 15% on a year-on-year basis during the first three months of 2014 despite the introduction of new regulated markets in the US, according to the latest set of figures from the PokerScout website. The lower first-quarter figures have also been accompanied by results that show global poker traffic has now fallen for seven weeks in a row, although the latest drop was reported to be less that the 3% and 4% declines recorded over the past two weeks.  PokerStars continues to lead the market with a seven-day average of 21,000 cash game players, while 888poker (2,300), PartyPoker (2,000) and the ipoker network (2,000) accommodate the next top positions. Full Tilt Poker completed the top five with 1,900 cash game players.

TAKEAWAY:   Could online poker interest be waning?                                     

Fight Night – the much awaited Pacquiao-Bradley rematch bout scheduled for April 12 at the MGM Grand is drawing near.

TAKEAWAY:  Interesting to us, rooms are still available at the MGM for Saturday, April 12th with rates starting at $260.


Eastern Massachusetts License Delayed - The state gambling commission will undertake a nearly month long process to determine how much influence the City of Boston will have over two casino proposals on the city’s border, potentially pushing the awarding of the Greater Boston resort casino license back to August or later.  Yesterday, the commission scheduled a hearing for May 1 on Boston’s status.  At stake is whether Boston qualifies under the 2011 casino law as a “host community” to a Wynn Resorts casino plan in Everett and a Mohegan Sun casino proposal at Suffolk Downs in Revere.  Host communities have the power to decide the fate of casino projects through binding referendum.

TAKEAWAY:  Delays probably good for PENN.


Kentucky – The Kentucky Horse Racing Commission unanimously approved applications by both Keeneland and the Red Mile to operate Instant racing (slot-like) devices at separate facilities at their Lexington locations. Keeneland’s application requested permission to operate 600 devices while Red Mile petitioned for 500 machines.

TAKEAWAY:  The Kentucky legislature continues to show no support for giving racetracks the authority to operate slot machines. These machines are the same ones at Kentucky Downs and Ellis Park.


Iowa Gaming Expansion – the Iowa Racing and Gaming commissioners visited Cedar Rapids Iowa on Thursday to hear the pitch by local developers for the proposed Cedar Crossing Casino.  The Iowa Racing and Gaming Commission recently received two studies both of which recommended the IRGC not issue any additional gaming licenses.  Iowa currently has 18 commercial and 3 tribal casinos operating across the state.  Both IRGC studies indicated ISLE’s Waterloo property would experience GGR cannibalization of between $9.2 million and $10 million. 

TAKEAWAY:  In our opinion, Iowa does not need an additional casino; however, this is politics and we have not idea how to handicap this outcome given the Argosy Sioux City events. 


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. 

Equity Flows? Not Looking Good

Client Talking Points


There was a big overbought signal yesterday, so we signal buy EUR/USD again here. In the absence of a jobs print somewhere north of 230,000, I say you short USD and buy the long bond again today as US growth slows. Incidentally, we’re keeping a close eye on US domestic equity fund flows. They’ve seen outflows for two straight weeks with inflows into taxable bond funds for more than seven weeks.


The UST 10-year yield’s TREND resistance is now 2.82%. So the setup is simple. On a jobs whiff, I’d look for the US Dollar down, bond yields down – no support for the 10-year yield to 2.66%. Consensus expectations on these jobs numbers are high.


Gold is up +0.4% early this morning, making a series of higher-lows after holding Hedgeye TREND support of $1,270. Being long Gold (+7.4% year-to-date) or the Commodities (CRB Index up another +0.6% yesterday to +8.2% YTD) beats a flat Dow. #InflationAccelerating.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


CANADA: rockstar yr for the Canadians (Olympic Hockey) vs Americans (Dow) w/ the TSE +6.7% YTD @KeithMcCullough


"Happiness is not something readymade. It comes from your own actions." - Dalai Lama XIV


UK sales of new cars in March rose at their fastest pace for a decade, according to the Society of Motor Manufacturers and Traders. There were 464,824 new car registrations, a rise of 17.7% on a year earlier. The month also saw the biggest-ever rise in sales of alternatively-fueled vehicles, with sales soaring 63.8% compared to last year. (BBC)

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Retail Callouts (4/4): KATE, HBC, NKE, WMT

Takeaway: First look at KATE's new Japan Flagship, HBC preparing for a REIT, NKE causes riot, Sam's partners to study small business

***6 interesting callouts, but no takeaways...Hedgeye Retail team on the road. Have a great weekend.




HBC - HBC sees REIT on horizon, but outlook turns cloudy



  • "Hudson’s Bay Co. gave the strongest signal yet that it will spin out its valuable properties into a real estate investment trust…'I find it highly likely that we will do a REIT at some point,' HBC’s chief executive officer Richard Baker said in an interview, but the company has yet to finalize a plan."
  • "Its flagship Saks Fifth Avenue store in New York, which takes up an entire block, could alone be worth $1-billion. The entire portfolio has been estimated to be worth more than $4-billion."


KATE - Kate Spade Builds on Success in Japan



  • "Kate Spade New York is opening the doors of a new international flagship in Ginza…The new flagship, which features 4,541-square-feet of selling space over three levels, is located on one of Ginza’s smaller side streets. It also happens to be right next door to Tory Burch’s flagship and just around the corner from Coach’s sizable space on the main road…"
  • "The store’s first two levels offer a mix of apparel, shoes and accessories, including items from the brand’s more exclusive Madison Avenue collection. The Ginza store is the only point of sale for this higher-end product range outside the U.S. Home goods and furnishings occupy the third floor…"


Retail Callouts (4/4): KATE, HBC, NKE, WMT - morning 4 4 2


NKE - Nike Sneaker Release Shut Down



  • "A campout at the Supreme boutique on Lafayette Street in Manhattan was shut down by the New York Police Department after fans awaiting the new Nike Foamposite release formed dense lines that extended several blocks. Some 800 people reportedly showed up for the launch."
  • "Supreme issued a statement via its Instagram page, citing public safety and the NYPD’s action as the reasons why the Foamposite shoes and apparel would not be sold in-store, but on its website. Once the stock went up on Supreme’s site this morning, the shoes sold out in under a minute."


WMT - Wal-Mart’s Sam’s Club partners with Gallup to study small-business customers



  • "To better understand the needs of its small business customers, Sam’s Club...said on Thursday it’s partnered with polling firm Gallup to study micro-businesses, or those with five or fewer employees."
  • "The new quarterly consumer tracking survey 'is relevant to Sam’s Club,'  the unit’s President and Chief Executive Rosalind Brewer said in response to a MarketWatch question on a media call, adding 70% of its small business customers are micro-businesses. 'We plan to use the surveys to see how we merchandise and price products. We want to connect with them.'”


ICON - Ecko Unltd. in Bankruptcy Proceedings



  • "Streetwear brand Ecko Unltd. and affiliated firms filed a voluntary Chapter 11 petition for bankruptcy court protection on Wednesday in a bankruptcy court in Trenton. Court documents said it had $30 million in assets and $62 million in liabilities. The filing was done under the name MEE Apparel LLC, the operating company that is a licensee of IP Holdings Unltd. IP Holdings is a subsidiary of Iconix Brand Group, which owns the intellectual property of the Ecko brand."
  • "In an affidavit by Jeffrey L. Gregg, the company’s chief restructuring officer, he said declining sales and reduced profitability since 2009 hurt the company. He also said the plan is to pursue an 'expedited sale process' of the company’s assets."


BKS - Liberty Media & Barnes & Noble Announce Change in Liberty Media’s Ownership of Preferred Shares



  • "Liberty Media Corporation & Barnes & Noble, Inc. today announced that Liberty Media Corporation has entered into agreements to reduce its stake in Barnes & Noble.  Liberty Media informed Barnes & Noble that while Liberty has sold the majority of its shares to qualified institutional will retain approximately 10 percent of its initial investment.  Liberty further informed Barnes & Noble that the sale is expected to settle on Tuesday, April 8."
  • "As a result of Liberty’s reduced ownership, they will no longer have the right to elect two preferred stock directors to Barnes & Noble’s Board. Additionally, Liberty’s consent rights and pre-emptive rights will cease to apply.  Due to the loss of the right to elect two preferred stock directors, Greg Maffei will cease to serve on the board as of the closing on April 8.  Mark Carleton has been re-elected to the Barnes & Noble Board effective upon the closing on April 8." 

Saving Pennies

This note was originally published at 8am on March 21, 2014 for Hedgeye subscribers.

“A penny saved is a penny earned.”

-Benjamin Franklin


I co-chaired the Bipartisan Policy Center’s dinner/debate on America’s Personal Savings Rate in NYC on Wednesday and one of the most thoughtful portfolio managers I know outlined the following to Senator Kent Conrad (ND) and Jim Lockhart (W.L. Ross):


My wife and I were in the military… we raised our 3 kids teaching them discipline and hard work… my kids all have savings accounts, jobs, and allowances… and my son did pretty well this winter shoveling snow. So I took him to the bank last weekend to make his cash deposit – he looked at his statement and said “Dad, I made 2 cents – why do we do this?”


Very good question, son. With an un-elected Federal Reserve mandate of 0% Rate of Return on American Savings accounts, what is the incentive for the next generation to save?


Saving Pennies - pen1


Back to the Global Macro Grind


Other than the bond and stock market bubbles blowing up, what is your incentive to be in cash this morning? As I was drawing down the cash position in our asset allocation model yesterday, I reminded myself to say my prayers before bedtime last night.


While prayer is not a risk management process, neither is a country destroying both the credibility of her youth’s hard earned currency and savings rate. As you can see in the Chart of The Day, the relationship between the US Dollar’s value and the ratio of personal savings to after-tax income is as obvious as the sun rising in the East.


Now back to dropping my Cash position to 20% yesterday. Damn the long-standing American principle of Franklin Frugality, Ben Bernanke and Janet Yellen have to be proud of me. With return on savings pinned at 0% and #InflationAccelerating, I’m going to go chase myself some hard core nominal yield!


What does chasing yield mean?

  1. The “risk-free” rate of return = 0%
  2. #InflationAccelerating > 2% means your real-rate of return owning 0% is negative
  3. You have to buy stuff (literally anything) that “yields”> 2%, just to break-even

Otherwise known as a Policy To Inflate, this un-elected and un-constitutional tax policy in America pays the debtor and pulverizes not only the saver, but the poor (hint: inflation is an unlegislated tax). And what does the NY Fed have to say about this? Go eat a REIT.


Seriously, let’s go through what you were forced to do in 2011 one more time, because that’s precisely what I am suggesting you do right now (until one day I say, I’m out, and go to 100% under-my-mattress beast mode):

  1. FOREIGN CURRENCIES (22%) – with a Down Dollar policy, buy other country currencies vs the US Dollar (Pounds, Euros, etc.)
  2. COMMODITIES (20%) – since most commodities correlate inversely to USD, buy Gold, Silver, Food – love Coffee!
  3. FIXED INCOME (19%) – yep, if it’s got a yield greater than 1-2%, giddy-up Bernanke Bond Bubble
  4. INTL EQUITIES (10%) – we like #StrongCurrency countries. Period.
  5. US EQUITIES (9%) – slow-growth Utilities, REITS, etc. - love Yield Chasing

Oh, that’s not the asset allocation pie-chart that the Banker-of-bailed-out-America-thundering-turd-high-net-worth-yield-chaser, slash “advisor”, has you in right now? I’m shocked.


With pick-toggles, junk bonds, and MLPs trading near all-time historical multiple highs, I don’t know why the Mucker doesn’t just go whole hog on this asset allocation strategy and go 30% Gold, 70% Kinder Morgan (KMP)!


As long as you realize that investing under this Bernanke/Yellen regime has nothing to do with reasonable valuations for anything that looks like a bond, you’re all set.


Back to the MLP bubble Bernanke will have on his #history watch:

  1. The US Equity market cap of MLPs 10 years ago was around $50B
  2. The all-time-bubble-high market cap for MLPs in 2013 was more than 10x that (over $500B)
  3. The all-time-bubble high in something like Kinder’s KMP in 2013 was 40x earnings

This is why someone like Rich Kinder should be considered a genius – he front-ran both Fed policy and the predictable behavior of human beings being forced to chase yield versus ZIRP (Zero Percent Rate Policy); not to mention the 50% rake he pulls from his LPs.


So, back to the NYC Portfolio Manager – what should we tell his son?


I say we tell him to roll-up some capital intensive assets (snow plows?), play around with the non-GAAP numbers, and collect massive fees from yield-chasing retail investors. Forget long-term principles of frugality and foresight in America. Pay me now. Beats 2 cents.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1851-1886

VIX 13.18-15.36

USD 79.64-80.52

EUR/USD 1.37-1.39

Pound $1.64-1.66

Gold 1318-1385


Best of luck out there today – enjoy your weekend,




Keith R. McCullough
Chief Executive Officer


Saving Pennies - Chart of the Day


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