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Keith's Macro Notebook 8/25: Euro France UST 10YR

LEISURE LETTER (08/25/2014)

Tickers:  BYD, MAR, CCL, RCL


  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27: 
    • ISLE FQ1 2015, 11 am
    • BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes



BYD – announced the Boyd Bonus Tourney a slot dollar promotion running from Aug 24-31 at the following seven properties: The Orleans, Gold Coast, Suncoast, Sam’s Town, Main Street Station, California and Fremont. Awarded prizes will be in the form of Boyd Slot Dollars.

Takeaway:  Promotions continue in LV Locals


HDRAU – Hydra Industries Acquisition Corp. (a "blank check" company) filed for an initial public offering. The offering is 10 million units, which are valued at $100 million U.S. The company plans on listing on the Nasdaq as HDRAU. The price for each of the securities is $10 U.S. and it consists of one share and one warrant, which is usually what you see with securities offerings in the world of blank check companies and special purpose acquisition vehicles. Each warrant allows for the purchase of one half of a share at $5.75 U.S.  The management team is comprised of the chairman and chief executive officer, A. Lorne Weil, who built Scientific Games and has experience in the worldwide gaming and lottery markets.  The sole book-running manager for the IPO is UBS Investment Bank, and the co-manager is EarlyBirdCapital Inc.

Takeaway:  More gaming acquisitions coming?


1680:HK & 6889:HK (GGRAsia) Dynam Japan Holdings Co Ltd extended a further six months the deadline for concluding talks with Macau casino services firm Macau Legend Development Ltd about possible collaboration on gaming operations. The Japanese company first agreed a non-binding memorandum of understanding with Macau Legend – led by former Macau legislator David Chow Kam Fai and running several casino and hotel operations in the territory – on August 23, 2013. That was extended in February this year for six months, and has now been rolled on to a new deadline of February 23, 2015. Dynam Japan invested approximately US$85 million in Macau Legend, including an initial purchase of US$35-million worth of shares following the latter’s global public offering in Hong Kong in July last year. In August last year, Dynam Japan announced that it hoped to operate a pachinko hall at Macau Legend’s waterside venue Macau Fisherman’s Wharf currently undergoing redevelopment on Macau peninsula.

Takeaway:  Talks continue ahead of Japan debate in a couple of months


959:HK – Amax International Holdings Ltd said its chairman Ng Man Sun intended to sell 6.4 million of his shares in the firm to “not less than six” independent third parties. There will then be a top-up subscription of new shares under a general mandate, so that Mr Ng’s holding will be slightly diluted from 17.03% prior to this transaction to 16.57% afterwards. The transaction is expected to raise HKD7.56 million (US$975,500) net. Amax Holdings said the money raised would be used for “general working capital and potential investment.”


MAR – Opening in September, The Metropolitan at The 9 is affiliated with Marriott International's Autograph Collection.  The hotel has 156 boldly designed rooms and suites. Additionally, residents of The 9 have the opportunity to choose from 104 spacious Concierge Living apartments

Takeaway: Another Autograph Collection asset.


CCL/RCL:  Tropical Storm Cristobal Affects Cruise Itineraries 

The following ships have had to alter their itineraries to avoid Cristobal:

Carnival Splendor, Carnival Liberty, Carnival Glory, Carnival Pride, Carnival Sensation, Oasis of the Seas, Freedom of the Seas, and Disney Fantasy

Takeaway:  At least there has not been any cancellations. 




RCL – EVP Maritime Harri U. Kulovaara acquired 35,948 shares of RCL via the exercise of five tranches of stock options awards and promptly sold 35,948 shares in a transaction that occurred on Thursday, August 21st at an average price of $63.8516. The five tranches of stock options would have expired in February 2015, 2016, 2017, 2019 and 2021.  Following this transaction, Mr. Kulovaara now owns 32,905 shares in the company,


DRH – EVP & CFO Sean M. Mahoney sold 20,000 shares of stock via a 10b5-1 transaction on Tuesday, August 19th, at an average price of $13.25 and now owns 316,354 shares.


Smoking rules not to impact revenue classification: DICJ (GGR Asia)

The Macau gaming regulator says the new rules governing smoking inside the city’s casinos will have “no obvious impact” on the official breakdown of casino gross gaming revenue (GGR) into mass and VIP.  “Gaming gross revenue is always listed and published by game types. On the other hand, DICJ Instruction No. 1/2014 and other rules on smoking set the criteria for smoking areas. As such, no obvious impact is expected in our gaming gross revenue classification after the new rules are in force,” the spokesperson said.


“DICJ will consider a baccarat table as a VIP one when it is designated to [a] particular group of players, on which non-negotiable chips [are] used and the bet is comparatively high,” the spokesperson added. The person did not define what was meant by “comparatively high” or precisely what was meant by “bet”, i.e., table minimum bet, table maximum bet, or maximum payout per table.

Takeaway:  The regulator clarifies the reclassification rumors last week but there is still some vagueness distinguishing VIP from premium mass.


Dealer positions and wages (DSEC, GGR Asia)

The average monthly earnings for dealers at Macau casinos increased by 4.8% YoY to MOP17,530 (US$2,196) at the end of June this year, according to the latest Statistics and Census Service’s Survey on Manpower Needs and Wages of the Gaming Sector.  There were 25,727 dealers in the city’s casinos as of June 30, +7.1% YoY.  Dealers accounted for 45.4% of all employees in the gaming industry.


The growth in the average monthly dealer wage is however lagging monthly wage growth for the Macau gaming industry as a whole.  Average earnings of full-time casino employees in June, excluding bonuses and allowances, rose by 6.7% YoY to MOP20,160, with resident and non-resident employees earning an average of MOP20,140 and MOP20,500 respectively.  Full-time employees in the gaming industry totaled 56,700 at the end of 2Q 2014, an increase of 2,146 from a year earlier.

Takeaway:  Labor will continue to be a risk for Cotai 2015/2016.


Macau July visitation – (DSEC) Visitor arrivals increased by 7% YoY to 2,753,394.  Visitors from Mainland China increased by 13% YoY; Mainland visitors traveling under the Individual Visit Scheme rose by 19%, at 870,537. Visitors from Taiwan increased by 2% YoY, and those from the Republic of Korea and Indonesia soared by 24% and 55% respectively; however, visitors from Hong Kong decreased by 7%.  The average length of stay of visitors was 1.0 day.


LEISURE LETTER (08/25/2014) - 1


Takeaway:  A mild surprise given all the negative mass talk lately. 


Macau Gaming Concession (GGR Asia) On Saturday, Macau’s Chief Executive, Fernando Chui Sai On, pledged to carry out a public consultation on the casino concession renewal process ahead of making any decision on the matter. The Macau government has stated several times that between the years 2015 and 2016 it intends to start examining the renewal of the concessions. Macau’s six casino concessions expire between 2020 and 2022. Mr Chui’s political manifesto stated casino operators should “facilitate the provision” of accommodation and transportation to their migrant workers, know locally as ‘non-resident workers’ or ‘blue card holders’. He has yet to elaborate on what that could mean.

Takeaway:  Seemingly a less gaming operator friendly tone from the Chief Executive. 


SLS Las Vegas (Las Vegas Review Journal) opened at midnight Friday night/Saturday morning to a capacity crowd. The SLS Las Vegas features 1,600 hotel rooms and 800 slot machines and 74 table games.

Takeaway:  It will be interesting to see whether a low cost, non-gaming focused property can make it on the Strip. The success of the SLS boutique will hinge on marketing - can they achieve the cache of a hip and happening, boutique property. 


Potential Nevada Sports Book Tax Repeal – Nevada sports book operators pay 0.0025% in a federal handle tax on every sports wager placed in the Silver State. In 2013, based on the record $3.6 billion wagered on college and professional sports, the amount sent to the IRS was $9 million. Representative Dina Titus (D-Nev) introduced a bill last month to repeal the tax. CG Technology, which operates race and sports books at eight Las Vegas hotel-casinos, paid about 25% of the state’s total handle tax burden.

Takeaway: Not material to any public company.


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.

Retail Callouts (8/25): WSM, RL, M, Idea Summary

Takeaway: Macys close to deal in China? RL getting into the wearable tech game. WSM looks solid into the print - a requisite w stock at all-time high.



Retail Callouts (8/25): WSM, RL, M, Idea Summary - 8 25 chart1


This week's changes


RL: Took the TRADE duration from Red to Green in advance of a series of meetings the company is hosting at the US Open this week. With a $14 run in the stock since Aug 1, the market is arguably expecting good news out of this already. We'll return with our take later this week.


WSM: We moved the name from the bottom of our bench to #3 -- just below NKE and RL. We think that the quarter looks solid.  We're at $0.58 versus the Street at $0.53. The upside to our model is largely revenue-related, though there's occupancy and SG&A leverage inherent to what should be a 10% comp (4% stores and 17.5% e-com). In sum, we think that the near-term outlook is solid. The only thing preventing us from getting more bullish on this name is the fact that the stock is sitting at an all time high, a peak valuation, and we're eight months away from RH rolling out its Kitchen concept. It will take a while for RH to chip away at WSM. But it's a risk that matters -- particularly in the absence of any real controversy around WSM.




Tuesday (8/26)

BBY - Earnings Call: 8:00am

DSW - Earnings Call: 8:30am


Wednesday (8/27)

CHS - Earnings Call: 8:30am

TIF - Earnings Call: 8:30am

BWS - Earnings Call: 9:00am

GES - Earnings Call: 4:30pm

WSM - Earnings Call: 5:00pm


Thursday (8/28)

ANF - Earnings Call: 8:30am

DG - Earnings Call: 10:00am





Retail Callouts (8/25): WSM, RL, M, Idea Summary - rltech chart2

RL - Ralph Lauren Enters Wearable Tech



  • "Ralph is jumping into the wearable technology game."
  • "Today at the U.S. Open, Ralph Lauren will introduce Polo Tech, a compression shirt that reads biological and physiological information via sensors knitted into the product. It’s just the beginning for the company."


Takeaway: This article is filled with soundbites. Definitely worth a read for anyone interested in RL. Our favorite quote is the following "The company has still more to do in the area of wearable technology as well, taking on the likes of tech companies like Apple, Google, Intel and Amazon.”  We think RL has as much of a right as anyone to compete in this space, and it should. After all it has the apparel heritage, if not dominance, and the brand to match. But to make the case that a businessman will use the technology embedded in a necktie to monitor his heartbeat after a stressful meeting seems a bit of a stretch to us. Competition has been fierce in the wearable technology space, and that won't change. While this is likely an incremental positive for RL --let's just make sure we keep expectations for this product in check.  There are more important things to get excited about.



M - Macy's Said Near Deal in China



  • "Macy’s Inc. appears headed for an international breakthrough."
  • "Senior executives are said to have flown out to China last week, raising speculation that the $28 billion department store chain was close to signing a deal there."


Takeaway: To be clear, 'signing a deal' likely means opening up Macy's stores in China, and not Macy's buying a Chinese Department store chain like Parkson Retail Group. On one hand, it does not say much about the prospects for growth in the US if the company is looking to grow in China. On the other hand, if any company could execute on a deal like this, it's probably Macy's. We're just not so sure we want to see it. The time and complexity of such a deal would almost certainly take away from Macy's operations on this side of the globe.




AMZN - Amazon Prepares Online Advertising Program



  • "Amazon.com Inc. is gearing up to more directly challenge Google Inc.'s dominance of the online advertising market, developing its own software for placing ads online that could leverage its knowledge of millions of Web shoppers."
  • "Initially, Amazon plans to replace those ads on its pages that Google chiefly supplies with a new in-house ad placement platform, said people familiar with the matter."


ANN - Activist Investor Presses Ann Taylor for a Sale



  • "Engine Capital LP, which along with a partner controls more than 1% of Ann Inc. stock, believes a strategic or private-equity buyer would be willing to pay between $50 and $55 a share for the women's retailer, 47% above Friday's closing price of $37.52 at the high end, according to people familiar with the matter."


TGT, EBAY - Homeland Security Warns of Expanded Data Breaches



  • "The Department of Homeland Security estimates that over 1,000 U.S. businesses have been infiltrated by malicious point-of-sale software, significantly broadening the scope of known cyber attacks that hit Target and Neiman Marcus stores in the past year and thrust the issue into the national spotlight, spawning several Congressional probes and hearings."
  • "In an advisory released Friday, the federal agency notified companies about the expanded scope of data security breaches and urged them to 'proactively check for possible point-of-sale malware infections.'"


JWN - Nordstrom completes acquisition of Trunk Club



  • "Nordstrom announced today the closing of its acquisition of Trunk Club, a leading personalized clothing service for men."
  • "The company previously announced its proposed acquisition of Trunk Club by press release on July 31."


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.

European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 


European Financial CDS - Swaps mostly tightened in Europe last week, dropping by an average of 6 bps on the week. Swaps are now tighter by 5 bps on a m/m basis. Even Sberbank, a proxy for the geopolitical turmoil of the Russia/Ukraine situation, tightened by 11 bps on the week, but remains over 300 bps at 316 bps.


European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week   - chart 1 Euro CDS


Sovereign CDS – Sovereign swaps tightened around the world last week, except in the US, where they widened by 1 bp to 18 bps. Portuguese sovereign swaps tightened by -10.9% (-20 bps to 161 bps).


European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week   - chart2 sovereign CDS


European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week   - chart3 sovereign CDS


European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week   - chart 4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 15 bps.


European Banking Monitor: Financials and Sovereign Swaps Tighter On The Week   - chart 5 euribor OIS Spread


Matthew Hedrick



Ben Ryan


Unwinding Growth

This note was originally published at 8am on August 11, 2014 for Hedgeye subscribers.

“The unwinding began at countless times, in countless ways.”

-George Packer


Yep. After a wonderful weekend with my family on the East Coast, I figured I’d get up early this morning and cheer you up with that quote. It comes from George Packer’s recent bestseller – The Unwinding: An Inner History of The New America.


Under both the Bush and Obama central-econ-planning regimes, what’s really been unwinding for the last decade is the bull case for sustainable and real (i.e. inflation adjusted) US GDP growth. But both you and the bond market probably already know that.


Who seems to miss this roughly all-of-the-time are America’s Old Wall “economists.” In a Wall Street Journal poll on Friday, 43 economists agreed to agree that US GDP growth will magically be 3% in the back half of 2014. In today’s USA, that looks almost impossible.


Unwinding Growth - unwinding


Back to the Global Macro Grind


In stark contrast to what I loved about the ole-school 1980s/1990s USA breakouts in both #StrongDollar and #RatesRising in 2013, today we have a Dollar that has done, well, absolutely nothing year-over-year, and interest rates crashing.


Crashing? Yep. The 10yr US Treasury Yield crashed (again) last week, falling -20.2% from where it started the year (at 3.03%). At 2.43% this morning, the 10yr couldn’t care less about the emotional roller coaster that is 80% of hedge funds trading the spoos.


Spoos (pronounced, spoo-z – or boo-hoo-zzz) are making grown men cry in 2014 as the net long or short position that the herd takes in these emotionally abused securities manifests into one of the best weekly contrarian market indicators in my notebook.


Check out this directional indicator for the last 3 weeks (SPX Index + Emini net LONG or SHORT position in CFTC non-commercial contract terms):


  1. AUG 11th (today) = net LONG +10,716 contracts
  2. AUG 4th = net SHORT -41,210 contracts
  3. JUL 28th = net LONG +614 contracts


Short low, cover high? The context of these weekly moves is critical. Don’t forget that the all-time-bubble-high for the SP500 was established on July 23-24 at 1987. As of Friday’s no-volume rally (Total US Equity Volume -18% vs. its 3-mth avg), there have only been 2 up days in the last 12 trading days.


While buying “dips” in anything early-cycle growth slowing has been painful in August, being long #GrowthSlowing via TLT (Long-Bond) +13.8% YTD vs Russell 2000 (US Equity Growth bogey) -2.8% YTD has been nothing short of fantastic. So let’s keep doing  more of that.


From a risk management (and relative performance) perspective, what you don’t do in this game is often more important than what you are doing. You don’t have to buy early-cycle stocks that are slowing just because they look “cheap.” You need to avoid that temptation before “cheap” gets cheaper.


If we’re right on #Q3Slowing, two major places to avoid on “valuation” are:


  1. US listed Industrials (which are really multi-nationals) = XLI
  2. European Equities = EZU, EWG, EWI, etc.


Last week in Europe was ugly:


  1. Greece led losers at -9.9% on the week (and is “bouncing” +2% this morning #hooray)
  2. Portugal was down another -6.7% to -17.5% YTD
  3. Germany was down another -2.2% to -5.7% YTD


No, Germany is not Greece. But my aunt’s sister is my Mom. And #interconnectedness matters.


Not only do my intermediate-term TREND signals continue to signal bearish for European Equities, but our proprietary GIP (Growth, Inflation, Policy) model is probability weighing the same for the next 1-3 quarters of European growth. #Q3Slowing


That’s probably why a lot of single stock setups are bearish TREND too (DEO, KO, GE, etc.). If your two main markets are USA and Europe, you want to be paying attention to this bullish-to-bearish TREND reversal @Hedgeye very closely. We haven’t had a coordinated unwinding of growth expectations since 2011.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.40-2.50%

SPX 1893-1950

RUT 1107-1143

DAX 8815-9295

VIX 13.89-18.43  

Gold 1299-1321


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Unwinding Growth - Chart of the Day


Client Talking Points


The Euro is getting smoked down to $1.31 this morning (vs USD) after Draghi says he “stands ready” to devalue Europe’s way back to economic stagflation? Net short position in the EUR/USD (CFTC futures + options) hits a big year-to-date high of -142,738 contracts.


The Prime Minister resigns on the economy, so that’s gotta be good for more money printing too. The CAC is up +1.1% this morning as European economic growth slows (German IFO for AUG at 4 month low), the @Hedgeye TREND line resistance for CAC is 4364.


The UST 10YR Yield drops back down to 2.39% this morning as the bond market figures this doesn’t end well from a U.S. growth perspective. Yield Spread (10yr minus 2yr) compressing to a new year-to-date low of +189bps as U.S. equity futures (SPX) test all time highs.

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. After almost a year of pushing for change at Bob Evans, activist investor Sandell Asset Management is claiming a big victory. Activist investor Sandell won at least five seats on the board of the restaurant operator and food processor, based on preliminary results from the company’s annual shareholder meeting last week. This is precisely the sort of bullish catalyst that was central to our high conviction on BOBE.


Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road


OIL: after falling -2.0% last wk, WTI is down another -0.1% this morn #bearish TREND



We cannot solve our problems with the same thinking we used when we created them.

- Albert Einstein


India (our favorite stock market in the East) is up +0.7%, +27.5% year-to-date.

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 80.46%
  • SHORT SIGNALS 78.35%