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Keith's Macro Notebook 7/23: VOLUME UST 10YR ITALY

Retail Callouts (7/23): TGT, DKS, KSS, APP

Takeaway: Target Canada asking for vendor support...another sign that Canada isn't working. DKS parting ways with 400+ PGA pros.



Wednesday (7/23)

  • HBI - Earnings Call: 4:30pm
  • SKX - Earnings Call: 4:30pm


Thursday (7/24)

  • CRI - Earnings Call: 8:30am
  • UA - Earnings Call: 8:30pm
  • DECK - Earnings Call: 4:30pm
  • AMZN - Earnings Call: 5:00pm




TGT - Target Canada asks suppliers for cost break to share in its struggles



  • "Target Canada is pushing its suppliers to give it a 2-per-cent cost break to help the U.S. discounter turn around its struggling Canadian operations and win an increasingly tough retail battle."
  • "In a recent letter to its suppliers, obtained by The Globe and Mail, Target Corp. said it is setting up the Target Canada Business Development Fund (BDF) by collecting 'an incremental 2 per cent accrual against receipts at cost' from its vendors, starting in March of 2015."


Takeaway: Yet another sign that TGT Canada simply is not working.  While it's not unusual for a retailer to ask for vendor support, this sounds broad-based, which is notable. Some vendors will simply say 'No', because they can (Coke and P&G). Others will end up paying 5% instead of the requested 2%. While this is bad for TGT, it sounds like the right move. To make any more significant changes (i.e. closing stores) would be a severe mistake without a new CEO.  We still think that there's an inverse correlation between how low earnings will go over the near-term and intermediate-term and how high quality the new CEO is. A great CEO (which TGT can afford) will invest the billions of dollars needed to take this company back to its former glory when it was one of the most respected retailers in the country. Now, after seven years of strategic missteps, it sits in the middle of the worst possible competitive set -- WMT, dollar stores, department stores, grocery stores, and Amazon. 


A weak CEO will simply prolong the pain by not making the (costly) changes needed. 


In the end, we don't think you can win with TGT. Either a bad CEO sustains a path of mediocrity. Or a great CEO takes down earnings over a 2-3 year time period by a buck or more in hopes of a payout in years 4-5. 


DKS - Dick's Lays Off More Than 400 PGA Golf Instructors



  • "Dick's Sporting Goods Inc. is cutting hundreds of jobs in its golf division as fewer Americans hit the links."
  • "A spokeswoman for the PGA of America said more than 400 of its members who were employed as golf instructors at Dick's were notified Tuesday that they would be laid off. The organization, which counts more than 28,000 members overall, said it would offer career counseling and employment services to its affected members."


Takeaway:  Big move by DKS here. Yes, the golf business is underperforming, but this change in strategy eliminates what DKS has touted as a huge competitive advantage over its competition in a category that represents a little less than 20% of its consolidated revenue. Saving a penny or two in EPS can't possibly be worth the reputational spanking that it is no longer an authentic golf store. Truth be told, no real golfer shops at Dicks anyway. But the average Joe Golfer likes thinking (right or wrong) that it's a place Pro Golfers respect. 




KSS - Disney & Kohl’s to unveil ‘D-Signed’ fashion brand



  • "Disney Consumer Products and Kohl’s announced they’re bringing the newest iteration of the tween lifestyle brand 'D-Signed' exclusively to Kohl’s. Offering a 'mix & match' assortment of apparel that gives girls the opportunity to create their own styles, the 'D-Signed' brand continues to be inspired by the fun fashions featured on Disney Channel shows. The hit tween brand will launch with the popular 'Girl Meets World' collection and is available at Kohl’s stores nationwide and online at kohls.com this summer."


APP - Moves at American Apparel



  • "American Apparel Inc. is expected to name five new directors to its board in the next day or so, according to a source familiar with the situation. Once the company makes the appropriate regulatory filing, it will take 10 days for the board to be officially reconstituted and begin weighing the fate of former chief executive officer Dov Charney, which could be determined in mid-August."


FTC Reaches Settlement in Made in USA Labeling Case



  • "The Federal Trade Commission said Tuesday it has reached a settlement with Made in USA Brand LLC, which the commission charged deceived consumers by allowing brands to purchase a seal claiming their products were made in the U.S., without independently verifying the claim or disclosing that companies had certified themselves."
  • "The FTC said in a complaint that Made in USA Brand LLC charged brands and companies $250 to $2,000 for a one-year license to use the Made in USA certification mark, but 'had no procedures in place to determine whether marketers complied with the FTC’s Made in USA standard.'"


WAG - Walgreens rolls out Balance Rewards program



  • "Walgreens announced the new Balance Rewards for healthy choices initiatives, which is aimed at helping participants modify behavior risk factors associated with the nation's most pressing public health issues. The initiative marks the first community pharmacy program that includes training based on the methodology of psychologist Dr. B.J. Fogg."

LEISURE LETTER (07/23/2014)



  • July 23:  TRIP 2Q call (430pm)
  • July 24:  
    • WYN 2Q call (830am) ; pw: Wyndham
    • PNK 2Q call (9am) ; pw: 27759616
    • LHO 2Q call (930am)
    • RCL 2Q call (10am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am) ; pw: 61542222
    • AWAY 2Q call (4pm)
    • LA June revs released
  • July 25: PEB 2Q call (9am)
  • July 29: 
    • IGT 2Q release
    • GLPI 2Q call (10am)
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call (10 am) : , pw: 59383825


MPEL – it appears a delay in the opening for City of Dreams Manila could be in the offering.  MPEL's most recent commentary indicated COD Manila would open in conjunction with Golden Week this October. However, partner Belle's most recent commentary indicated an opening "toward the end of the year".

Takeaway: We're hearing the opening could be delayed to December.


BEL:PM – announced it sold its equity interest in a firm that jointly holds the casino licence for the City of Dreams Manila gaming resort for PHP10.85 billion (US$250.6 million) in cash. In a filing to the Philippine Stock Exchange, Belle noted the deed of sale had been executed covering the sale by Belle to Sinophil Corp of all its 100% equity interest in Premium Leisure and Amusement Corp.

Takeaway:  Executing on the previously announced strategy for Belle to focus primarily on real estate development and other allied businesses by separating the gaming assets into a new entity to facilitate public investors demand for gaming exposure.


DON:AU – In an Australia stock exchange filing, Donaco International Ltd announced it will spin off iSentric Sdn Bhd, its mobile technology unit, to focus on “operating and investing in leisure and entertainment businesses in the Asia Pacific.” Donaco International operates the newly-opened, Aristo International casino hotel in Vietnam which is a brand new 5 star hotel with 428 rooms, up to 50 gaming tables, 62 slots (max 150), and max 150 electronic table games.  As background, Donaco International was founded in 2001 by MD Joey Lim Keong Yew and his late grandfather, Tan Sri Lim Goh Tong (founder and chairman of the Genting Group)

Takeaway: Joey Lim Keong Yew and Benjamin Lim Keong Hoe appear to be emulating their uncle, Genting Chairman and CEO Tans Sri Lim Kok Thay, but thus far on a smaller scale.  A new Asian regional competitor for NagaCorp?


MGM – Springfield City Councilors approved the sale of the former Zanetti School and the Armory building to Blue Tarp ReDevelopment. The sale will close by July 31st, three months before Massachusetts voters head to the polls for the casino referendum. City Solicitor Ed Pikula said MGM will pay $3.2 million for the buildings, plus about $160,000 in lieu of property taxes. MGM’s plan calls for keeping the facade of the Armory and demolishing the school.

Takeaway: MGM becomes an owner of real estate in Springfield while waiting for groundbreaking until the Repeal Ballot Referendum in November


PENN & GLPI – The Missouri River Historical Development (MRHD), Argosy Sioux City's former non-profit partner, and the Sioux City Entertainment (SCE), the owner of the new Hard Rock Hotel and Casino, filed their counter motions with the Iowa Supreme Court Monday. MRHD wrote Argosy's situation is self inflicted and said Argosy's owner, Belle of Sioux City, abandoned MRHD as their non-profit partner in favor of a non-profit shell which led to them losing their license. SCE said in it's motion that allowing the Argosy to remain open would be delaying the inevitable as well as cause harm to not only SCE, but also the redevelopment of downtown Sioux City.

Takeaway: Stay tuned...we expect events to heat up as we approach the August 1st opening of Hard Rock Hotel and Casino.


Insider Transactions:

RHP – Chairman, CEO & President Colin Reed, in two 25,000 share transactions, exercised options at $28.13/share and then sold on July 18 at $49.81/share and July 21 at $49.4645/share. Reed now owns 790,017 shares as well as 14,032 options with a $28.13/share strike with a February 02, 2021 expiration, while other entities (trusts) own an additional 225,793 shares.

Takeaway: More insider selling...


Macau visitation (DSEC) –  Macau visitor arrivals increased by 5% YoY to 2,432,041 in June 2014.  Growth in visitor arrivals slowed after the increases during the Easter and Labor Day holidays.  Analyzed by place of residence, visitors from Mainland China totaled 1,597,289, +9% YoY, coming primarily from Guangdong Province (667,052), Fujian Province (72,061) and Hunan Province (57,960); Mainland visitors traveling under the Individual Visit Scheme rose by 11%, at 672,405.  Visitors from Taiwan (85,350), the Republic of Korea (41,786) and Japan (24,208) increased further by 12%, 24% and 25% respectively YoY, while those from Hong Kong (513,561) decreased by 8%.  The average length of stay of visitors was 1.0 day.

Takeaway: Slower growth in-line with our mass deceleration thesis, and an another HK decline.  Average length of stay continued to trend around the 1 day level. 


LEISURE LETTER (07/23/2014) - g


Singapore Changi Airport Traffic – handled 4.65 million passengers in June 2014, -0.3% YoY change. 

Takeaway: 1st dip since March


LEISURE LETTER (07/23/2014) - gg 


Macao Gaming Show – announced the show received support from two Macau government departments -- the Gaming Inspection and Coordination Bureau and the Macau Trade and Investment Promotion Institute. This year's Macao Gaming Show will take place at the Venetian Macao CotaiExpo from November 18-20.

Takeaway: Positive government support for an industry vital to the Macau economy.

Singapore Denque Fever Outbreak – The number of dengue cases reported this year reached 11,225 as of Monday, July 21, adding more than 1,000 cases to the 10,112 cases reported on July 10 and there are now 84 dengue clusters islandwide, with 22 of these considered "high risk" as there are 10 or more cases reported. Dengue fever is a painful, debilitating mosquito-borne disease caused by any one of four closely related dengue viruses. These viruses are related to the viruses that cause West Nile infection and yellow fever. There is no specific medicine to treat dengue infection.

Takeaway: A potentially challenging health issue which might may cause a change in consumer behaviors.


Hotel Financing: JW Marriott Chicago – a Wall Street investment bank provided a non-recourse, LIBOR-based floating rate $265,000,000 first mortgage financing for the 610-room JW Marriott Chicago, located in downtown Chicago, Illinois. The property is part of a 1.1 million square-foot mixed-use property, which occupies a full city block in the financial district of downtown Chicago.

Takeaway: Maybe the capital markets are opening to urban, upper-upscale and upscale hotel financing.  Will the Wall Street investment bank will place the mortgage into a CMBS transaction due to its size? 


Revel Atlantic City – despite Revel slated for an imminent auction, the property announced a room sale where by guests receive 15% off their rooms for Sunday – Thursday stays through August 28, 2014.  Reservations must be booked by Thursday July 24th to qualify and must use code: I-FBOOK

Takeaway: Come on down to AC, enjoy summer, and get your game on.


Upstate New York Gaming – Several casino bidders who say their proposed projects would help revitalize upstate communities are also seeking tens of millions of dollars in local property tax breaks. Nevele, the company bidding to build a $640 million destination resort in the Ulster County village of Ellenville, is seeking $100 million in tax breaks over the next 15 years, including $87.5 million worth of property tax relief from the Ulster County Industrial Development Agency. Two competing projects in Sullivan County, on the site of the former Concord resort in the economically depressed town of Thompson—the Montreign, which is backed by Empire Resorts, and Mohegan Sun—are also seeking an unspecified amount of property tax relief.

Takeaway: Initially positioned to "create jobs" and "stimulate the upstate economy" none of the politicians thought about the potential requests for property tax relief.


Lodging Industry Transaction – Vantage Hospitality Group, a privately held company with headquarters in Coral Springs, agreed to acquire the brands owned by America’s Best Franchising. The acquisition, expected to be final by the end of the year, will add more than 225 hotels to Vantage Hospitality’s existing portfolio of more than 1,000 properties. All the hotels under both companies are individually owned and operated under franchise agreements, with the exception of one asset in Las Vegas that Vantage owns and operates.


Financial terms of the deal were not disclosed.  Vantage Hospitality brands include Americas Best Value Inn, Lexington by Vantage hotels, inns and suites and international Value Inn offshoots. None of the brands have locations in South Florida.

Takeaway: Could an IPO be in the future?


Singapore CPI – the consumer price index in Singapore increased 1.8% in June year-over-year, down from 2.7% in May according to the Department of Statistics.

Takeaway: We've proven statistically that higher CPI is one of the factors that leads to lower GGR.  While June CPI was a little better than May's, Q2 CPI growth averaged 2.3% vs Q1 CPI growth of 1.0%.

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.

the macro show

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Takeaway: Following the biggest 1-week drop in mortgage demand in 17 months, this week bounced all of 0.3%. Not the stuff recoveries are made of.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point. 




Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended July 17. 


In short, while the market cheered yesterday's Existing Home Sales report for June, the outlook for July offers little excitement. 3Q14TD is tracking down -3.6% QoQ and is down -15.2% YoY.


Why You Should Care:

As a reminder, it's our contention that HPI continues to decelerate through the end of 2014 and potentially well into 1H15. Historically, HPI trends and inflections have correlated strongly with the movement in housing-related equities. Consider the chart below, which shows the YoY rate of growth in HPI in green and the price of the ITB exchange traded fund for homebuilders. 



  • Purchase Apps:  Following last week's 7.6% WoW decline - the largest sequential drop since February 2013 - mortgage purchase applications rose +0.3% this week, taking the index reading to 168.3.  For context, average purchase demand over the last two weeks is just 6.5% off the February lows – and the February lows represented a 10Y low in housing demand.  We are currently tracking -15.2% on YoY basis and -3.6% QoQ.  Compares continue to ease from here for YoY purchase demand. 
  • Refi & Rates:  Refi activity rose 4.14% WoW as 30Y rates held flat at 4.33% for a third straight week. Rates have been down on a YoY basis for 5 consecutive weeks and remain just above TTM lows. 















About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake

Crushed Spirits

This note was originally published at 8am on July 09, 2014 for Hedgeye subscribers.

“A cheerful heart is good medicine, but a crushed spirit dries up the bones.”

-Proverbs 17:22


Four goals in 400 seconds for Germany, and all of Brazil was #crushed. Sometimes risk happens slowly, then all at once.




Back to the Global Macro Grind


Whether it was the Russell 2000 (-3% in 2 days) or Biotech (IBB) stocks (-5% in 2 days) … or whatever all-time-bubble-high mo mo stock that started blowing up in March that’s re-blowing-itself-up this week, you do not want to be the guy in this game who got crushed.


Been there, done that. If you’ve never been crushed, you will be. This is what people on the buy-side actually talk about. The not so subtle secret about this profession is that almost everyone I know on the buy-side talks about everyone else’s performance.


I had a fair amount of feedback by simply citing AQR’s contention that hedge fund correlation is high right now. To be fair, calling it high isn’t fair though. It’s at all-time highs!


In our Q3 Macro Themes presentation on Friday (11AM EST, ping sales@Hedgeye.com for access), we’ll show you a lot more than just hedge fund historical performance correlations – we’ll show you Volatility’s Asymmetry, across all of Global Macro including:


  1. Fixed Income Volatility at generational lows
  2. Foreign Currency Volatility at all-time lows
  3. Commodity Volatility at cycle-lows


Yep. Somewhere in between the generational low and the all-time low, I think we’ll all agree is pretty low. But not everyone will agree that it’s not different this time (that’s where we differ!).


Not surprisingly, as volatility dries up so does volume. You can ask you friends who work on the Old Wall what trading volumes are like in either FICC or Equities right now. I’m sure their day-to-day flow isn’t going to make you want to run out and build a broker dealer.


The Fed, of course, is who you can blame for this. The Policy to Inflate asset bubbles to all-time-highs (and never call them bubbles) is in and of itself a bubble. At the same time that they’re trying to ban economic gravity, they’ve all but eviscerated volatility (for now).


In an interview Cliff Asness (he runs AQR Capital Management and did the hedge fund beta piece) had with Morningstar a few weeks ago, he made a very simple summary point about all of this: “The average still can’t beat the average.”


So, don’t be average. Fade beta.


#FadingBeta is a very profitable risk management strategy, especially at the immediate-term momentum turns.


We’ve built our own models to signal when those phase transitions are most likely to take place. And I think, across big macro asset classes, we have done a better than bad job at calling lots of big macro turns since 2008.


What is the turn?


  1. When our immediate-term TRADE momentum signal exhausts itself to the upside…
  2. Then you get a sharp move off that high, on accelerating volume and rising volatility…
  3. Then the asset price makes a series of lower-highs, and snaps its intermediate-term TREND


Metaphorically, I call this the #waterfall. In my risk management model, when something does all 3 of the aforementioned things AND I have the research team support the why (as in why it can continue, with catalysts), we have ourselves what we call a short idea.


You can call it #FadingBeta, short selling momentum, or just not being the guy who bought Go-Pro (GPRO) at $48 last week. There are many ways to use this weaponry so that you don’t get crushed.


I’m not saying that being a levered long momentum investor doesn’t work. I’m just reminding you that A) it’s not a new strategy B) lots of funds are using it and C) when it unwinds from it’s all time high in AUM, it gets crushed (see March-May 2014 for details).


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now:


UST 10yr Yield 2.49-2.60% (bearish = bullish on bonds)

SPX 1949-1985 (bullish)

RUT 1167-1190 (bearish)

BSE Sensex 25260-26189 (bullish)

VIX 10.32-12.69 (neutral)

USD 79.73-80.37 (bearish)

Pound 1.70-1.72 (bullish)

WTIC Oil 102.63-104.99 (bullish)

Natural Gas 4.17-4.39 (bearish)

Gold 1312-1331 (bullish)

Copper 3.20-3.30 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crushed Spirits - Chart of the Day


Client Talking Points


We had a lot of questions on U.S. equity volume yesterday (there was none) – versus the 1 and 3 month average Total Equity Market Volume, it was down -16% and -19%, respectively – volume comes back on the down days, not the up ones #asymmetry.


2.46% puts the UST 10yr at fresh new lows for Q3 and that fits the complexion of our U.S. economic slowing call much more so than no-volume U.S. equity market squeezes; regional bank stocks (KRE) saw this in yield spread compression yesterday #weak.


We learn a lot more from bounces within bearish TRENDs than the selloffs; Italy’s MIB Index was the 1st major European Equity market to fail at 21,138 TREND resistance this morning and go red #watching.

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.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


2 downgrades on $MCD today... #Fascinating



If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time. 

-Chinese Proverb


49.3%, is the amount Lean Hogs are up year-to-date, up +2% yesterday.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.